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The five major integrated oil companies operating in the U.S. market have earned net incomes totaling $424 billion since 2004. In the previous four years, from 2000 to 2003, they earned net incomes of $171 billion. This 148% increase in profit has attracted public attention and raised the issue of whether "windfall" profits had accrued to the firms. At the same time that these oil companies were earning increased profits, U.S. gasoline consumers were facing prices that rose above $3.30 per gallon, raising concerns that the increased profits might be tied to price gouging by the oil companies. This report analyzes the uses of accrued profits by the five major integrated oil companies from 2004 through 2007. Although the oil industry is composed of thousands of firms involved in many different aspects of the business, these five firms represent the visible face of the oil industry to the American public. These companies also earned 90% of the total earnings of integrated oil companies, and 74% of the earnings of all the integrated oil companies, the independent oil and gas producers, and the independent refiners and marketers in 2007. Because of their size, the decisions they make with respect to utilizing profits will largely determine how the industry's use of profit is viewed by the public. How the industry uses its recent profits is important because the demand and supply balance, and hence petroleum product prices for the U.S. consumer, will be affected by the decisions made. For example, one of the commonly cited reasons for high gasoline prices in 2007 is that refinery capacity has been offline as a result of catching up on deferred maintenance and of accidents. If investments had been made in new refineries over the past 20 years, the balance between refinery capacity and product demand might not be as tight, thus reducing the pressure on gasoline prices. A primary source of the increased profits of the five oil companies has been the increased price of crude oil on the world market. The increased price of crude oil since 2004 has been attributed to the growth in demand from China, India, the United States, and other areas, as well as to hurricanes Katrina and Rita and a variety of other factors. Few if any of these factors could be influenced by the five companies. Crude oil prices began their rise toward the end of 2003, and although volatile, have remained at, or near, historically high levels since then. All five of the companies produce crude oil. Over the period 2004-2007, ExxonMobil produced an average of 2.6 million barrels per day (b/d), and was the leading producer among the five companies. Shell averaged 2.0 million b/d, BP averaged 2.5 million b/d, Chevron averaged 1.7 million b/d, and ConocoPhillips averaged 1.0 million b/d. Higher world prices for crude oil increased the revenue from this production in proportion to the increase in prices. In addition to the increasing price of crude oil, tightness in the refining industry contributed to the increase in petroleum product prices, notably gasoline. All five of the selected companies are active in the refining industry. In 2007, these five companies accounted for approximately 38% of total U.S. refining capacity. Although, historically, refining margins and profitability have tended to be volatile over time, profit margins have been at, or near, historic highs since 2004. During the fourth quarter of 2007 refining margins declined as the price of crude oil rose, and refiners were unable to quickly pass cost increases on to consumers because of the weakening demand growth of gasoline. For the five companies, operating in both the upstream (exploration and production) and downstream (refining, distribution, and marketing) segments of the oil market has led to growing profitability, as shown in Table 3 . Profits declined for the five companies from 2000 through 2002, then doubled in 2003. Profits rose by 39% in 2004, 34% in 2005, 8% in 2006, and declined by 1.3% in 2007. However, the two companies whose profits declined in 2007 each experienced singular losses, ConocoPhillips taking a writedown as a result of Venezuela nationalizing its Orinoco Basin investments, and BP experiencing pipeline problems in Alaska and refinery accidents in Texas. The magnitude of the profits earned, as well as the rapidity with which they accrued, has created a challenge for the oil companies: how to best utilize these resources and meet the varied demands of shareholders and the public. Private corporations, such as the five major integrated oil companies, operate for the purpose of maximizing shareholder value, that is, to enhance, as much as possible, the value of the shares held by investors and the returns earned by those shares. The goal of maximizing shareholder value can be achieved in various ways. The management may choose to reinvest profits in the business, deploying new technology and capital equipment or hiring more workers. The management might also acquire assets for the corporation through merger or acquisition. Another strategy might be to directly pay cash dividends to the shareholders, or to buy back the company's shares on the open market to enhance the price of outstanding shares. The management also might decide to alter the capital structure of the company by reducing the outstanding debt of the company. Finally, the management might decide to hold the profits as cash, or other short-term assets, to acquire the flexibility to implement resource allocation decisions in the future. Of course, the company may apply the profits to several or all of these uses. In principle, the expected rate of return on investments should be at least as great as the current rate of return earned by the company. If the management cannot identify investment opportunities that have expected rates of return in excess of the current rate of return, the profit is typically returned to the shareholders in the form of dividends or other payments. Many capital investment expenditures in the oil industry are allocated to projects that cost billions of dollars and will likely be online for decades. For example, an efficiently scaled refinery is likely to cost between $3 billion and $5 billion and operate for more than 30 years. When planning and investing in such facilities, the underlying variables that determine potential profits must not only be favorable now, but must also be forecast to be favorable for decades to come. Because of the magnitude of the funding required for such an investment, a mistake might cause damage to the company for years. These factors tend to create an investment philosophy in the oil industry that is characterized by a deliberate pace as well as a degree of conservatism in making capital expenditures. These characteristics have been observable in the oil industry during the recent period of high profits. Some might have expected the increased price of oil to lead to an immediate boom in exploration and refinery construction. A slower pace of capital investment is consistent with a view that the currently high price of oil might decline in the future, leading to an investment reference price below the currently observable price, or a forecast that demand growth might slow or even decline. Even if the decision had been quickly taken to invest in either upstream or downstream activities, there would likely be a lag between the decision to invest and substantial expenditures being made on the project. Many investment projects related to the oil industry require environmental permits from a number of federal, state, and local agencies, all of which might require studies to be undertaken and approvals to be granted. Several years in the permitting process might be expected. Capital expenditures included in Table 4 might not be for only new or expanded capacity. Environmental regulations affect both the petroleum product slate as well as refinery sites, and may require capital investment to maintain compliance. Table 4 shows that capital expenditures increased by less than ½% in 2004 compared to 2003, while net income rose by 39%. While capital expenditures rose by 17% from 2004 to 2005, profits rose by 34%. However, capital expenditures rose by 40% from 2005 to 2006, while profits rose by 8%. In 2007, capital expenditures rose by almost 8%, even though profits declined by 1.3%. The lag in capital expenditures might reflect a reassessment by the oil companies of future prices and profits, or it may reflect other factors that are less fundamental. While it is possible that oil firms might want to invest both upstream and downstream to take advantage of favorable business conditions, their actions run the risk of reducing the potential profit of the market. Economic theory suggests that industries adjust to tight markets through relatively small increases in supply. Because the efficient scale of the oil industry tends to be large, investments tend to have a large enough effect on production levels, or capacity, to materially affect the market. For example, if only two of the five major firms decided to build new refineries, this might result in more than 1 million barrels a day of refining capacity coming online, an almost 6% increment, which could be enough to change the relative market balance. Depending on the relative prices of known oil resources and exploration, and existing facilities and construction, it has, on occasion, in the past, been cheaper for a company that wishes to expand to acquire assets financially, rather than through exploration and/or construction. This, along with other reasons, like scaling the company to an appropriate size for international competition, has led to periods of merger and acquisition activity in the oil industry. Many of the major oil companies were involved in merger activity from 1998 to 2002. In 1999, Exxon and Mobil merged. BP followed its 1998 acquisition of Amoco with a takeover of Arco in 2000. Conoco and Phillips merged in 2002, and Chevron and Texaco combined in 2001. Recent years have seen few transactions on the scale of 1998-2002. Chevron acquired Unocal in 2005 in a deal that was reported to cost $18 billion. ConocoPhillips acquired Burlington Resources in 2006 for a reported $35.5 billion. If management has access to capital investment projects that are projected to earn more than the current rate of return for the company, carrying them out will increase the value of the company and can lead to capital appreciation for its outstanding shares. If such profitable projects cannot be identified, paying out dividends may be appropriate. Dividend payouts have positive and negative aspects. Shareholders may appreciate the immediate returns, but this payout is unlikely to lead to long-term capital appreciation of the shares. Taken in a positive light, the payout of dividends signals high earnings by the firm; taken in a negative light, they signal that management does not have wealth-increasing opportunities to use the funds to generate capital appreciation. Cash dividends paid reflect the product of dividends per share times the number of shares outstanding. For example, ExxonMobil's 42% increase in dividends paid out between 2003 and 2007 represents a 42% increase in dividends per share only if the number of shares outstanding is constant. If the number of shares increases due to new issues, then the actual return is less. If the number of shares falls, the actual return to shareholders from dividend payments is greater. Thus, it is important to review the total shares outstanding, as shown in Table 6 . Share repurchase programs reduce the number of shares outstanding in the market, as the company buys back its own shares and keeps them in the company treasury. For the company, share repurchase creates a potential source of quickly available capital. Treasury shares may be resold in the market without further Securities and Exchange Commission registration and approval. From the point of view of the investor, share repurchase programs should increase the capital value of the shares they hold, other things equal. This appreciation is due to the asset base of the company being divided among a smaller number of outstanding shares, in principle making each share worth more. Compared to dividends, there may also be tax advantages associated with this type of value appreciation. ExxonMobil reduced its shares outstanding by 18% between 2003 and 2007. BP reduced its shares by 18.6% from 2004 to 2006, and Shell shares outstanding declined by 3.2% from 2005 to 2006. Although Chevron and ConocoPhillips data are more associated with share increases, these increases are likely at least partly associated with the mergers the companies were involved with in 2005 and 2006, respectively. In 2007, shares outstanding at both Chevron and ConocoPhillips declined. Earnings-per-share is a popular indicator used by investors as a factor in determining the viability of a financial investment. During a period of share repurchasing, earnings-per-share reflects not only the earning power of the company, but the extent of repurchases. For example, earnings-per-share at ExxonMobil rose by 10% from 2006 to 2007, while earnings rose by 2.8% over the same period. As a result, the more than doubling of earnings-per-share experienced by ExxonMobil and BP, as well as the 4.5% and 26% increments at ConocoPhillips and Chevron, respectively, since the beginning of the current round of oil price increases that began in 2003, reflect not only market conditions but corporate strategy as well. Companies might use profits to alter their capital structure, defined as the balance of debt and equity financing. Corporate finance theory has long held that the choice of capital structure should have no effect on the value of a company in a perfect market. In the real world of finance, however, where bankruptcy is a potential reality, many analysts look upon debt reduction as an important way to strengthen the balance sheet of a company, improving its financial health. Although reducing debt might be a desirable corporate strategy, eliminating it entirely is not likely to be efficient. Debt financing, compared to equity financing, offers several attractive characteristics. Corporate interest payments are tax-deductible, while dividend payments are paid from after-tax income. This differential allows a greater net return from identical assets, one financed through debt, the other financed with equity. Additionally, issuing debt does not dilute the ownership base of the company for existing shareholders, nor does it dilute the capital value of an equity share. Offsetting these advantages are several disadvantages. Interest payments are a fixed liability of the firm, unlike dividends, which are paid at the discretion of management. If interest payments are not paid on time and in full, legal consequences might ensue. Debt holders stand ahead of equity holders for repayment if the firm is forced into liquidation. Increasing proportions of debt on the balance sheet also make bankruptcy more possible, making the firm riskier. Table 8 suggests that the major integrated oil companies seemingly have not followed the same strategy with respect to debt management. ExxonMobil has reduced its long-term debt from its peak in 2004, but long-term debt increased by 276% in 2007. BP, which had roughly steady levels of long-term debt in 2003 and 2004, saw increases in 2005 and 2006 and a 6.4% decline in 2007. Shell's limited available data show, again, a roughly steady approach until 2007, when long-term debt increased by 29%. Chevron reduced its long-term debt by 37% from 2005 to 2006, and by an additional 21% from 2006 to 2007, achieving its lowest long-term debt level in the data period. ConocoPhillips increased its long-term debt in 2006, again likely related to its purchase of Burlington Resources in March 2006, but long-term debt decreased by 12% in 2007. Short-term debt is defined as maturing in one year or less. While short-term debt constitutes an immediate obligation on yearly earnings, short-term interest rates are usually lower than long-term rates, making this mode of financing cheaper in many cases. As shown in Table 9 , the major integrated oil companies showed divergent policy with respect to short-term debt. ExxonMobil has reduced its debt every year since 2002 until 2007. BP saw expanding debt since 2003, but showed a 31% decline in short-term debt in 2007. Chevron showed low short-term debt levels from 2003 until 2005, but short-term debt turned upward in 2006, to decline by 46% in 2007. ConocoPhillips also accumulated short-term debt from 2004 to 2006. Long-term debt declined by 65% in 2007. When revenues and profits accrue quickly, and perhaps unexpectedly, there may be little alternative to holding those returns as cash balances until a strategy for using them can be developed and put in motion. As shown in Table 10 , although the total cash held by the companies has increased by more than $32 billion since 2003, 66% of those holdings were in the hands of one company, ExxonMobil. At the other companies, the results are more mixed, with both increases and decreases observable. While holding cash balances might be unavoidable in the short-run, a long-term strategy based on increasing cash holdings is likely to be questionable. While cash offers flexibility, it generally offers little or no return. The price for flexibility is the potential return lost by holding it. In the longer term, financial analysts generally agree that more productive uses should be identified for cash balances, or they should be returned to shareholders in the form of dividends if no feasible investment opportunities can be identified. It is likely that the increases in the price of oil that began in late 2003 and persist today were unexpected by the major integrated companies. The onset of the war in Iraq and the rapid growth of oil demand in China, India, and even the United States, were not generally forecast. Hurricanes Katrina and Rita were associated with even greater degrees of uncertainty than the war and demand growth. As a result, and especially in the context of 2002 being a relatively weak year for oil company financials, it is likely that no set plan existed for the use of the rapidly growing profits that began to accrue in 2004. In the several years that have passed since 2003, capital expenditures have begun to expand, investor returns have been enhanced, acquisitions have been made, and balance sheets have been strengthened, even though cash balance levels are still high and growing. In time, as corporate plans more reflect a crude oil market characterized by higher prices, long-term assets might be accumulated, supplies of both crude oil and petroleum products might be enhanced, and consumers might see a slacker market where prices may moderate from current levels. Until that time, investors in the oil industry may continue to see high rates of dividend payout, stock repurchase plans, and the accumulation of short-term assets. | The price of crude oil began to increase in the last quarter of 2003, and has led to the high prices observed from 2004 through 2007. The Iraq War, unexpectedly high demand growth in China, India, and the United States, and Hurricanes Katrina and Rita, along with a number of other factors, all contributed to the rising price. An important result of these largely unexpected events was that the oil industry, as represented by the five major integrated oil companies doing business in the United States, experienced rapidly expanding revenues and profits. Some observers characterized these profits as "windfall" gains, while others pointed to the increasing scarcity and rising costs observable in the oil industry. Some saw "price gouging" in high gasoline prices, while others saw the market working to avoid physical supply shortages. The larger profits experienced by the oil industry and the five major integrated oil companies can be used in a variety of ways. Profits might be used to expand exploration and development of crude oil resources to expand the supply of oil. Refineries might be constructed, and technology improved at existing refineries, to expand the supply of petroleum products, most notably, gasoline. Profits might also be used to provide increased returns to the owners of the oil companies, the shareholders. This end might be accomplished through dividend payments and share repurchase plans. Profits might also be used to improve the balance sheets of the companies through debt reduction, potentially improving their financial health should they face a downturn in the market in the future. Until the effects of corporate plans that reflect a market characterized by higher oil prices can be observed, profits might tend to build up as cash reserves, as experienced by some of the five firms since 2004. How the profits generated over the past four years are used will help to determine whether oil and petroleum product markets remain tight with high prices, or whether they loosen, develop extra capacity, and lead to moderating prices. This report will be updated. |
Global climate change is a widespread and growing concern that has led to extensive international discussions and negotiations. Responses to this concern have focused on reducing emissions of greenhouse gases, especially carbon dioxide, and on measuring carbon absorbed by and stored in forests, soils, and oceans. One option for slowing the rise of greenhouse gas concentrations in the atmosphere, and thus possible climate change, is to increase the amount of carbon removed by and stored in forests. As Congress debates climate change and options for addressing the issue, ideas for increasing carbon sequestration in forests are likely to be discussed. This report examines basic questions concerning carbon sequestration in forests. The first section provides a brief background on congressional interest in forest carbon sequestration. The second describes the basic carbon cycle in forests, with an overview of how carbon cycling and storage vary among different types of forests. The third section then addresses how forest carbon is considered in the global climate change debate. This third section begins with an overview of accounting for forest carbon, then discusses the carbon consequences of forest management practices, the effects of changes in land use, and "leakage." The section then concludes with a summary of existing federal programs that could affect forest carbon sequestration. The widespread and growing concern over global climate change has led to extensive international negotiations. In 1992, at the Earth Summit in Rio de Janeiro, the United Nations Framework Convention on Climate Change (which included voluntary pledges to reduce greenhouse gas emissions) was opened for signature. President George H. W. Bush signed this treaty, which was then ratified by the U.S. Senate. Subsequent negotiations led to the 1997 Kyoto Protocol, under which the developed nations agreed to specified reductions in their emissions of greenhouse gases. President Clinton signed the Kyoto Protocol, but did not submit it to the Senate for ratification. Early in 2001, the George W. Bush Administration decided to reject the Kyoto Protocol, and withdrew from active participation in negotiations on the issues that remain to be resolved. Although enough other parties have ratified the Protocol to bring it into force, the lack of U.S. involvement means that the United States will not participate in the emissions trading or other elements of the Kyoto Protocol activities that might relate to carbon sequestration. The most voluminous greenhouse gas produced by humans is carbon dioxide (CO 2 ). In calculating overall carbon emissions, the Protocol allows certain removals of carbon by a nation's forests and soils—"carbon sinks"—to be counted and deducted from emissions. Thus, one option for mitigating greenhouse gas emissions—and thus possible climate change—is to increase the amount of carbon stored in forests. Carbon sequestration, and the extent to which it can be counted as a reduction in a nation's carbon emissions, have been the focus of substantial controversy in international negotiations subsequent to the Kyoto Protocol. The United States, with its extensive forests, argued that the carbon absorbed by them should be allowed to offset emissions, with no quantitative limit to the amounts that can be counted in this way. The European Union argued strongly in negotiations prior to 2001 that there should be fairly strict limits on how much carbon absorbed by "sinks" such as forests could be counted against emissions. In final negotiations during 2001 on rules to implement the Kyoto Protocol, after the United States had withdrawn from the negotiations, a compromise was reached that allows significant credit for carbon sinks (removals and storage of carbon). The Members of Congress attending the negotiations prior to 2001 followed this debate with interest, and were aware of the potential impacts of the various possible results of the negotiations. In particular, if emissions trading were to begin under the Kyoto Protocol, forest owners and managers in countries that were parties to the treaty might be able to receive credits and participate in the trading regime. Administration and congressional interest in carbon sequestration continues, but U.S. participation in the Kyoto process is moot at this time. It is not clear whether a domestic forest carbon program might be established, although options have been discussed in legislative proposals. Protecting forests in developing countries, which might earn credits under the Kyoto Protocol, is already supported under the Tropical Forest Conservation Act ( P.L. 105-214 ; 22 U.S.C. §§2341, et seq.). Mitigating climate change by enhancing forest carbon sequestration may be a relatively low-cost option and would likely yield other environmental benefits. However, forest carbon sequestration faces challenges: measuring the additional carbon stored (over and above what would occur naturally); monitoring and verifying the results; and preventing leakage. Numerous issues regarding the carbon cycle in forests, monitoring the levels and changes in forest carbon, and the scientific uncertainties about the relationships among forests, carbon, and climate change are likely to be the subject of ongoing federal research efforts, with funding and oversight by the Congress. Photosynthesis is the chemical process by which plants use sunlight to convert nutrients into sugars and carbohydrates. Carbon dioxide (CO 2 ) is one of the nutrients essential to building the organic chemicals that comprise leaves, roots, and stems. All parts of a plant—the stem, limbs and leaves, and roots—contain carbon, but the proportion in each part varies enormously, depending on the plant species and the individual specimen's age and growth pattern. Nonetheless, as more photosynthesis occurs, more CO 2 is converted into biomass, reducing carbon in the atmosphere and sequestering (storing) it in plant tissue (vegetation) above and below ground. Plants also respire, using oxygen to maintain life and emitting CO 2 in the process. At times (e.g., at night and during winter seasons in non-tropical climates), living, growing forests are net emitters of CO 2 , although they are generally net carbon sinks over the life of the forest. When vegetation dies, carbon is released to the atmosphere. This can occur quickly, as in a fire, or slowly, as fallen trees, leaves, and other detritus decompose. For herbaceous plants, the above-ground biomass dies annually and begins to decompose right away, but for woody plants, some of the above-ground biomass continues to store carbon until the plant dies and decomposes. This is the essence of the carbon cycle in forests—net carbon accumulation (sequestration) with vegetative growth, and release of carbon when the vegetation dies. Thus, the amount of carbon sequestered in a forest is constantly changing with growth, death, and decomposition of vegetation. In addition to being sequestered in vegetation, carbon is also sequestered in forest soils. Carbon is the organic content of the soil, generally in the partially decomposed vegetation (humus) on the surface and in the upper soil layers, in the organisms that decompose vegetation (decomposers), and in the fine roots. The amount of carbon in soils varies widely, depending on the environment and the history of the site. Soil carbon accumulates as dead vegetation is added to the surface and decomposers respond. Carbon is also "injected" into the soil as roots grow (root biomass increases). Soil carbon is also slowly released to the atmosphere as the vegetation decomposes. Scientific understanding of the rates of soil carbon accumulation and decomposition is currently not sufficient for predicting changes in the amount of carbon sequestered in forest soils. Forests generally go through cycles of growth and death, sequestering and releasing carbon. Some forests begin on spacious sites, with little or no existing vegetation, that may have been cleared by a natural disaster (most commonly wildfire) or by human activities (e.g., for agriculture). Other forests are relatively continuous, with natural clearings typically limited to the area occupied by one or a few large trees killed by lightning, disease, and such. Regardless of the size or origin of a clearing, most forests begin from essentially bare land, with some carbon stored in the soil (how much depends on the environment and history of the site, especially the last clearing process). As trees and other woody plants become established, carbon stored on the site increases as woody biomass increases and as annual vegetation (e.g., tree leaves and herbaceous plants) typically grows faster than it decomposes. Productivity for commercially usable wood generally follows an S-shaped curve, with the volume growing at an increasing rate for many years, to a point known to foresters as the culmination of mean annual increment (generally taking 20 to 100 years or more, depending on the fertility of the site and the tree species), and then growing at a decreasing rate for many more years. In theory, forests can eventually become "over-mature," where the loss of commercial volume through tree mortality equals or exceeds the additional growth on the remaining trees. However, one study has shown that some old-growth ("over-mature") forests continue to accumulate carbon in their soils. The relationship between commercially usable wood produced and carbon sequestered varies substantially in three ways. First, the proportion of carbon in a tree's commercial wood (compared to the noncommercial biomass in bark, limbs, roots, and leaves or needles) varies among species; some (e.g., pines and other conifers) have a greater proportion of their total carbon in commercial wood. Second, the proportion of carbon in a tree's commercial wood undoubtedly changes over time; while a temporal graph of carbon storage is probably also S-shaped (as for commercial wood productivity), the changes in timing and rates of increase (that cause the characteristic S shape) almost certainly differ. Finally, a significant portion of the vegetative carbon sequestered in a forest is in other plants—noncommercial species of trees, shrubs, grasses, and other herbaceous plants. The amount of carbon stored in this other (noncommercial) growth varies widely among forests. Thus, although many research studies assume a fixed relationship between commercial wood inventories and the amount of carbon stored, the traditional measures of commercial wood production might not be very accurate for estimating carbon sequestration in forests. Eventually, trees die. They may be cut down, burned in a wildfire, blown over or snapped off in a wind or ice storm, or killed by insects or diseases. Death can happen to a single tree in a forest, creating a small opening, or to all or most trees in an area. How quickly the carbon is released to the atmosphere depends on the cause of tree death, on whether it is harvested for use, and on various environmental factors. As noted above, fires quickly break down biomass and release an enormous amount of CO 2 into the atmosphere. Natural death and decay may require several weeks to several decades to completely decompose the biomass (depending on site conditions), putting some carbon into the soil and some directly into the atmosphere. Timber harvesting can store some vegetative carbon for very long periods in solid wood products with long-term uses (e.g., construction lumber in houses), while tree tops and limbs and noncommercial species are left to decay or to be burned. These possibilities are discussed in more depth below, under " Forestry Events and Management Activities ." Carbon sequestration and release vary substantially by forest. Nonetheless, some generalizations are possible, because of the relative similarity of forests in specific "biomes" —tropical, temperate, and boreal forests. Table 1 shows average carbon levels sequestered in vegetation and soils for several major biomes, and the weighted average for all biomes. Tropical forests are generally defined by their location—between the Tropic of Cancer and the Tropic of Capricorn (23° north and south of the Equator, respectively). Some tropical forests are relatively dry, open woodlands, but many receive heavy rains and are called moist or humid tropical forests; these are the classic rainforests, or "jungles." Tropical forests contain an enormous diversity of "hardwood" tree species, and are difficult to categorize into "forest types," because of this breadth of species diversity. Moist tropical forests are important for carbon sequestration, because they typically have high carbon contents—averaging nearly 110 tons per acre. (See Table 1 .) About half of the carbon in moist tropical forests is contained in the vegetation, a higher percentage and a much higher quantity than in any other biome. The remaining carbon is in tropical forest soils. Tropical forest soils have only modest carbon levels (compared with other biomes), because the dead biomass rapidly decomposes in the warm, humid conditions and the minerals rapidly leach out of tropical forest soils. Temperate forests typically occur in the mid-latitudes—generally to about 50° north and south of the Equator (a little farther north in Europe, because of the continental warming from the Gulf Stream). There are a large variety of temperate forests, including hardwood types (e.g., oak-hickory and maple-beech-birch), softwood types (e.g., southern pine, Douglas-fir, and lodgepole pine), and a few mixed types (e.g., oak-pine). However, within each forest type, and overall, temperate forests have much lower tree species diversity than tropical forests. Temperate forests generally contain less carbon than tropical forests, averaging nearly 70 tons per acre. More than one-third of the carbon is stored in the vegetation, and nearly two-thirds in the soil. The higher proportion (but lower level) in the temperate forest soils (compared to tropical forest soils) is because of slower decomposition rates. Many of these forests are managed to produce commercial wood products, and the management practices used in temperate forests can thus have a significant impact on carbon sequestration. Boreal forests generally occur north of temperate forests, mostly in Alaska, Canada, Scandinavia, and Russia. (The only boreal forests in the Southern Hemisphere are on mountaintops in New Zealand and high in the Andes Mountains of South America.) Boreal forests are dominated by conifers—mostly spruce, fir, and larch, with scattered birch and aspen stands. Boreal forests generally contain more carbon than temperate or tropical forests, averaging more than 180 tons per acre. Less than one-sixth of boreal forest carbon is in vegetation. The rest, 84%, is in boreal forest soils—about three times the amount in temperate and tropical forests, and far higher than any other biome except wetlands. Carbon accumulates to high levels in boreal forest soils because of the very slow decomposition rates, owing to the short summers and high acidity of conifer forest soils, both of which inhibit decomposition. The high boreal forest soil carbon level is important for carbon cycling, because many believe that management activities that disturb boreal forest soils can increase their release of carbon. Aside from the questions of whether climate change is occurring and whether human activities are the cause, the role of forestry and land use in mitigating climate change has been quite controversial. The disputes are largely the result of the scientific uncertainties in measuring changing carbon levels in forests, changing land uses, and changing demand for products. This section summarizes forest carbon accounting concerns, possible consequences of changes in land use and of forest management events and practices, "leakage," and existing federal programs related to these concerns. Different countries have various views on how to count carbon sequestered or released from forests. In general, countries with extensive and expanding forests (e.g., Russia, Canada, Brazil, and the United States) prefer a full accounting, while countries with less forestland (e.g., many European countries) are concerned about the potential to overstate the carbon benefits of forestry management practices and land use changes that enhance carbon sequestration. Countries with net deforestation rates are also concerned about counting forest sequestration, because it could effectively increase their net emission rated under international agreements. Article 3.3 of the Kyoto Protocol allows counting the carbon effects (both sequestration and release) of afforestation, reforestation, deforestation, and other forestry and land use changes that have occurred since 1990, if the change in carbon stock is verified. Verification requires a system for estimating the carbon effects—because a census of carbon changes on every forested acre is infeasible—and for reporting the carbon effects. For countries with carbon commitments (rather than for projects), the surest, easiest system for verifying the change in carbon levels is to measure the change in the levels from the beginning to the end of the relevant time period—1990 (the baseline) and 2008-2012 (the Kyoto Protocol commitment period); however, this is a very slow and expensive approach. A variety of models can be used for estimating carbon level changes. The two basic approaches are: a "land-based" approach, which begins by identifying the acceptable activities for sequestering carbon and estimating the carbon consequences of those activities, and then monitors the lands to determine the extent to which those activities occur; and an "activity-based" approach, which also begins by identifying the acceptable activities for sequestering carbon and estimating the carbon consequences of those activities, and then monitors the activities to determine the extent to which those activities occur. The approach taken affects the intensity and spatial scale of the monitoring required, and different models impose different requirements for data, boundary conditions, carbon stocks, and more. However, the Intergovernmental Panel on Climate Change contends that, regardless of the approach and model: A well-designed carbon accounting system would provide transparent, consistent, comparable, complete, verifiable, and efficient recording and reporting of changes in carbon stocks and/or changes in greenhouse gas emissions by sources and removals by sinks from applicable land use, land-use change, and forestry activities and projects under relevant Articles of the Kyoto Protocol. There are significant difficulties in achieving such a "well-designed carbon accounting system." Some observers have noted that the "language, terminology, and accounting methods contained in the [Kyoto Protocol] are somewhat vague and can be interpreted in different ways." In addition, there are scientific uncertainties in measuring the 1990 baseline carbon stocks, the lands treated, the carbon impacts of various treatments, and the question of "leakage," as discussed in the following sections. Over time, forests can grow on lands that were in other uses (e.g., croplands), and vice versa. Deforestation is the conversion of forests to pasture, cropland, urban areas, or other landscapes that have few or no trees. Afforestation is planting trees on lands that have not grown trees in recent years, such as abandoned cropland. Not all land use changes have comparable carbon consequences. Tropical deforestation, if a pasture replaces the forest, could release carbon and substantially reduce carbon sequestration, since tropical savannahs store less than half as much carbon on average as tropical forests. In contrast, in temperate zones, forest conversion to native grasslands would likely release carbon but might actually increase carbon sequestration, since temperate grasslands store 50% more carbon on average than do temperate forests. If, however, the temperate deforestation is for crop production, carbon would be released and less carbon would be sequestered, since croplands store only half as much carbon on average as temperate forests. The actual impacts—both the quantity and the timing or duration of the change—probably depend on the actual practices employed on the various sites. Other changes may be less obvious. Converting a "working forest" (i.e., one that is managed to produce timber and other values) to a rural residential subdivision would likely reduce forest cover and perhaps undergrowth (thus releasing some vegetative carbon), but the remaining vegetation would likely continue to grow, and thus may continue to sequester carbon for longer in the subdivision than in a working forest (depending on the nature and duration of the wood products derived from the working forest). Thus, it may not be possible to draw simple conclusions about the carbon consequences of land use changes, especially in temperate zones. According to the 1997 National Resources Inventory , more than 25 million acres of private forestland in the United States were converted to other uses between 1982 and 1997. Of these, nearly 12 million acres were developed for other uses, while 4 million acres were converted to pasture and nearly 4 million acres were either inundated by water (deforested) or transferred to federal ownership (and probably remained forested). During the same period, nearly 26 million acres were converted to private forestland—a net increase of nearly a million acres of private forestland. Of these, more than half (nearly 14 million acres) were previously pastureland, and more than 5 million acres were cropland. The conversion of forestland to other uses is dominated by development. The rate of development reflects economic growth, interest rates, and development incentives—stronger growth, lower interest rates, greater incentives stimulate more development (and more conversion of forestland), while slower growth or recession, higher interest rates, or weaker incentives may retard development. While federal monetary, fiscal, and tax policies clearly affect development rates, their impact on forestland conversion is likely less of a consideration than the goal of trying to provide stable economic growth for the U.S. economy. The conversion of pasture and cropland to forests is also affected by the general economy, but is also likely to be directly affected by existing federal programs, such as the forestry assistance programs and other agricultural conservation programs (discussed below). As discussed above, forests cycle carbon, accumulating carbon from the atmosphere during some periods and releasing carbon to the atmosphere at other times. When forest practices alter the vegetation on a site, they alter this ebb and flow of carbon storage and release by changing biomass levels, vegetative growth patterns, and soil structure and composition. There have been debates in the literature, and at least one congressional hearing, about the carbon impacts of various forest management practices. This section examines the implications of various forestry practices and events for carbon sequestration. First, however, it examines generic considerations of what happens to the carbon in cut vegetation and in soils from forestry practices. A wide array of practices are used in managing forests. Most involve altering the vegetation, and thus the carbon cycle, on the site. Before discussing specific practices, it is important to examine what happens to vegetation that is cut but not removed from the forest and what happens to the soil carbon, as these factors apply to most, if not all, forest management practices. Most forest practices involve cutting some of the existing vegetation on a site—to harvest commercial wood, to focus growth on fewer trees, to reduce competition among plants, and more. What happens to the cut vegetation is critical for assessing carbon sequestration and release. When commercial harvests are involved, some of the biomass is removed from the site and turned into products. (The carbon consequences of removed vegetation are discussed below.) How much biomass (and carbon) is removed has not been broadly quantified; various studies report that 50% to 80% of tree carbon (excluding forest soil carbon) is removed in commercial timber harvest operations. Others have stated that "wood products formed only a modest fraction of the total" carbon stored by a forest. This is consistent with a newer report showing wood products (and landfills) accounting for a little more than 6% of forest-related carbon stocks. The proportion of carbon and biomass removed from any particular site varies widely, and depends on the species involved, the density of the stand (which affects both tree form and undergrowth vegetation), the diversity of tree species and tree sizes in the stand, and various environmental factors (e.g., the site's climate and soil fertility). Much biomass (and carbon) remains on the site; for some forest practices, such as precommercial thinning (described below), all the cut biomass remains on the site. The remaining biomass—coarse roots, limbs, leaves or needles, and other unusable woody material, often called "slash" in timber harvesting—begins to deteriorate, and to release carbon. How fast the carbon is released depends on whether and how the biomass is treated. Slash treatments include rolling, chopping, and crushing, all of which are designed to compact the biomass and accelerate its deterioration, which typically takes several weeks to several years, depending substantially on the climate. Burning is also common, and leads to deterioration (and release of some of the carbon to the atmosphere) in minutes or hours, rather than weeks, months, or years. Many research studies presume that the carbon from slash is released within a year of the harvest; others presume that it is quickly absorbed by new growth resulting from the treatment. Data on the extent of various slash treatments and on the carbon impacts of the various treatments are sparse. Relatively little literature on forests and carbon addresses the mechanisms by which carbon is accumulated in and released by forest soils. One source noted "the large uncertainty in estimates of change in soil carbon." Dead vegetation is broken down by decomposers—primarily invertebrate animals and fungi. Decomposition releases carbon to the atmosphere and incorporates carbon as organic matter (humus) in the soil. The dead carbon in the soil (i.e., not the decomposers or fine plant roots, which comprise the living carbon in the soil) slowly continues to decompose, changing from organic to inorganic forms; the inorganic forms eventually (1) dissolve in percolating rainwater and leach through the soil into groundwater and surface waters; (2) oxidize and get released directly to the atmosphere; or (3) are absorbed by new vegetation. The rates at which carbon from dead vegetation returns to the atmosphere likely depend on a variety of factors, such as the nature of the vegetation, the composition of the soil, and the humidity levels, all of which affect the type and quantity of decomposers on a site. Activities that disturb soils almost certainly decrease soil carbon levels. Some studies presume a loss of soil carbon following a soil-disturbing activity, such as timber harvesting. Others note the loss without quantifying it. In general, disturbing soils accelerates decomposition rates, by increasing exposure of soil carbon to air, thus accelerating oxidation. Activities that disturb soils also kill living soil carbon—invertebrate animals, fungi, and fine roots—which then begin to decompose. Thus, forestry activities that disturb soils, particularly activities to remove the cut vegetation (such as commercial timber harvesting), will also likely reduce soil carbon levels. Forestry activities that do not disturb soils, such as fertilization and prescribed burning, probably have much less effect on soil carbon, although they affect the forest carbon balance in other ways (as discussed below). Fires in forests and grasslands are common events that significantly affect the carbon cycle. As noted above, fire is a self-sustaining chemical process that quickly mineralizes organic matter; in minutes, fires convert organic matter into its components—minerals, water vapor, and CO 2 . Wildfires are a very significant source of atmospheric CO 2 , and the need to control wildfire to reduce CO 2 emissions, as well as for safety reasons, has been discussed. Furthermore, the likelihood, extent, and/or frequency of wildfires may be exacerbated by expected climate change. Wildfire is a natural phenomenon, although efforts are made to manage wildfires. One study estimated that in pre-industrial America (200-500 years ago), wildfires burned nearly 10 times as many acres and as much biomass as in recent years. Especially in temperate ecosystems, with dry biomass and lightning, wildfires are inevitable. Some have proposed wildfire protection by reducing biomass levels in forests. Several of the forestry practices discussed below are intended at least partly to reduce wildfire risks by reducing biomass levels—wildfire fuels. The presumption is that lower fuel loads will lead to fewer and less intense fires that are easier (and less costly) to control. Numerous on-the-ground anecdotes support this presumption. However, little empirical research documents this presumption. One study found that "scant information exists on fuel treatment efficacy for reducing wildfire severity." A summary of wildfire research reported that prescribed burning generally reduced fire severity, that mechanical fuel reduction did not consistently reduce fire severity, and that little research has examined the potential impacts of mechanical fuel reduction with prescribed burning or of commercial logging. The possibility of removing some noncommercial biomass from the forest and using it to produce energy is also being considered, and is discussed below. One study found that fires in boreal forests may actually cool the atmosphere, despite their large CO 2 releases. The researchers found that loss of dark-colored conifers increased snow cover and that subsequent regrowth was of light-colored birch and aspen. The result was significantly greater albedo (light reflectivity), which led to greater cooling than the CO 2 release led to warming. The extent to which this conclusion can be extended is unclear, and of course, boreal forest fires may have other undesirable effects. In general, forestry practices are used for four basic goals or purposes: to establish trees on a site; to reduce vegetative competition; to improve tree growth in other ways; and to harvest the commercially usable wood. In the climate change negotiations and legislation, credit for carbon sequestered by forests is intended to be allowed only for additional carbon sequestered because of changes in forestry practices; carbon sequestered by normal, business-as-usual practices is not additional, and usually cannot be included for carbon sequestration activities. One basic objective of forestry is getting trees to start growing. On sites that have recently had trees on them, but are now cleared (because of timber harvesting or natural disaster), the practice is called reforestation. Tree planting on sites that have not recently had trees on them, such as pastures, is called afforestation . In addition, interplanting (planting additional trees) is used on sites that have fewer trees than are considered desirable. Reforestation can use natural or artificial methods. Natural regeneration relies on tree seeds from surrounding forest stands. Artificial regeneration includes planting seeds, or more commonly seedlings from nurseries, on the site. Advantages of natural regeneration include lower cost and greater stand diversity (both of tree species and of the genetic diversity of the dominant tree species), which generally increases forest resilience and resistance to pests and pathogens. Advantages of artificial regeneration include greater dominance of commercially desirable tree species, greater control over the number of trees established, and more rapid establishment of trees, all of which increase growth of the desired trees. Artificial regeneration may be necessary for afforestation, since surrounding tree seed sources might be inadequate or nonexistent. Artificial regeneration likely provides more commercial wood growth faster, and may sequester more carbon faster, than natural regeneration. Establishing stands of trees will generally sequester more carbon than leaving the sites without forest cover. Savannas and other non-forest biomes store much less carbon in their vegetation, and may reach a plateau or stable carbon stock in their soils in only a few years. In contrast, forests continue to sequester additional carbon in vegetation and roots as it grows for many years—usually at least decades, and even centuries in some ecosystems. (Note, however, from Table 1 , that temperate grasslands have greater average carbon stocks than temperate forests, generally because perennial grasses increase soil carbon more than forests.) Thus, reforestation and especially afforestation, regardless of whether by natural or artificial regeneration, generally provide continuing additional carbon sequestration for an extended period. Another basic forestry practice is to encourage growth of the commercially desired trees by killing other vegetation that competes with the trees for space, light, and nutrients. This practice is called release when the competing vegetation is as tall as or taller than the desired trees, or when it is of a different species (e.g., palmetto growing under southern pine trees). Release can be done chemically (with herbicides) or mechanically (with machines or tools) to kill the unwanted vegetation. Thinning is the forestry practice of removing some of the desired tree species (as well as the undesired tree species) when the competition for space, light, and nutrients reduces the growth rate of the commercial timber volume. Precommercial thinning occurs when the trees are too small to have any commercial value (generally less than 5.5 inches in diameter), while commercial thinning is the practice of selling the trees to be removed. Thinning and release are often proposed as forest management practices to increase forest carbon sequestration. Some models estimate total carbon on a site as a fixed relationship to commercial wood volume on a site. Since thinning and release increase commercial timber growth, these models would similarly project thinning and release to increase carbon sequestration. Others, however, observe that the purpose of thinning and release is often to concentrate the same amount of growth on fewer stems. One study examined the potential of thinning and release to increase carbon storage. This study found that thinning only increased total carbon storage in dense, young stands where severe competition significantly reduced growth rates; in other cases, the practice was "redistributing stand growth to a smaller number of larger trees," with little overall change in carbon storage. The author also noted that thinning may increase the loss of soil carbon, by reducing canopy cover and disturbing the surface and thus accelerating decomposition rates. In contrast, release in a southern pine ecosystem was found to increase total carbon storage over the life of the stand, and to promote soil carbon storage. Thus, forestry practices that reduce vegetative competition apparently increase carbon sequestration in some circumstances, but not in others, limiting generalizations about their potential for increasing carbon sequestration. Other forestry practices are also intended to increase tree growth rates. Pruning removes the lowest branches of a commercial tree, which may stimulate some upward growth, but generally emphasizes wood value (growing clear wood, without knots) rather than growth. It is not used much, because it has been found to be unprofitable in most situations. Fertilizing forest stands is another practice to increase tree growth. Applying fertilizers to forests can significantly increase growth rates, if the nutrient being applied (nitrogen, potassium, phosphorus, etc.) is in short supply in the forest soil. Furthermore, fertilization is likely to stimulate all vegetative growth, not just tree growth. This is borne out in research on the impact of forestry practices on carbon sequestration. An important question, whose answer is not apparent from the research, is whether the accelerated growth rate from fertilization persists for a long time (i.e., whether the growth rate remains higher for an extended period), whether it produces a short-term increase for which the pre-fertilized rate is sustained for a long time (i.e., whether the pre-fertilization growth rate is maintained after the short-term increase); or whether other factors limit long-term growth rates (i.e., whether growth rates after the short-term increase are less than the pre-fertilization growth rates, because other nutrients are overdrawn by the fertilizer-stimulated growth). Some have suggested that greater atmospheric CO 2 levels could fertilize forests, stimulating tree growth. A number of studies artificially increased CO 2 levels in tree plantations, and found that growth rates did increase; others, however, question whether the increased growth rate can be sustained. At the broader scale, in at least some areas, other nutrients (especially nitrogen) are likely to limit the ability of forests to expand growth with more CO 2 available. Another forestry practice, which is becoming more widely used, is prescribed burning—intentionally setting fires in certain forest areas under specified weather and fuel conditions. Prescribed burning typically produces many forest benefits, including less competing vegetation (akin to release or thinning), lower fuel loads that may contribute to catastrophic wildfires, and a flush of nutrients (since fire reduces biomass to its mineral components). However, prescribed fires also present a risk, since they occasionally escape from the prescribed areas and can cause damage; they also generate substantial amounts of carbon dioxide (one of the mineral components of biomass) and other air pollution. In the short term, prescribed fires clearly increase atmospheric carbon levels. To the extent that prescribed burning reduces catastrophic wildfires, this practice may be shifting one source of carbon emissions (wildfire) to another (prescribed fire); however, to date, no quantitative relationship has been established between prescribed burning and the extent and severity of wildfires. In addition, at least for dead biomass on a site, prescribed burning merely concentrates into a few minutes or hours the carbon release that otherwise occurs over a few weeks to a few years in other forms of biomass decomposition. Thus, it is not clear how much of the carbon release from prescribed burning is in addition to the carbon release that might otherwise occur from forests. For wood that has been removed from the forest, the rate of carbon release depends on what is done with the wood. For sawtimber (logs of at least 11.5 inches in diameter), about half is converted into solid wood products (primarily lumber and plywood); another 10% is bark, and the remaining 40% is sawdust and wood scrap. Lumber and plywood have differing usable lives, depending on the use of the wood, and ranging from less than 10 years for shipping pallets to 100 years or more for residential construction. Clearly, some wood—broken pallets, furniture, concrete forms, etc.—is disposed in landfills (and probably sequesters carbon there) and some is burned, but the majority of carbon in solid wood products remains sequestered in those products for decades. Most (more than 95%) of the bark and sawdust are either used as pulp to make paper or burned to produce energy (thus substituting for timber used in papermaking or for fossil fuels); less than 5% of waste wood from sawmills ends up in landfills. For pulpwood (logs or bolts less than 11.5 inches in diameter and usually less than 8 feet in length) and waste from sawtimber processing, virtually all the wood fiber (the cellulose and hemi-cellulose) is used in paper products. The spent pulping liquors (the chemicals that dissolve the lignin, the "glue" which holds cellulose in a rigid structure) are generally used to produce energy. Any waste paper in the production facility is generally recycled into pulp. Other than in energy production (which substitutes for fossil fuels), there is little paper waste that returns carbon directly to the atmosphere. In contrast to solid wood products, which may sequester carbon for decades, most paper products have relatively brief duration, releasing their carbon to the atmosphere relatively quickly—in less than a year for many paper products, and in less than 10 years for most paper products. However, paper can also be recycled—dissolved, cleaned, and made into new paper products. Increasing the recycling of post-consumer waste paper (the paper thrown away by consumers and most likely to end up in landfills) can reduce the carbon released by paper production and use. The carbon impacts of commercial timber harvesting have been debated extensively, but with little resolution. Some have calculated that harvesting timber from an "over-mature" forest can sequester substantial additional carbon, because (a) the forest is currently sequestering little additional carbon (the amount stored is large, but annual addition from tree growth is small or even negative), (b) the timber can continue to store carbon for decades in long-term solid wood products, and (c) the newly established stand can sequester large amounts of carbon through its vigorous growth. Others have calculated that the carbon released by harvesting operations substantially exceeds the additional carbon sequestered by new forest stands. One source has stated that timber harvesting (in a heavy thinning or selection harvest) reduces carbon storage, "because the growth of residual trees is less rapid than the decomposition of the detritus and harvested wood products." Another study has shown that some old-growth forests continue to accumulate carbon in their soils. All of these conclusions may be valid in certain circumstances; the consequences probably depend on a variety of factors, such as which products are manufactured, how those products are used, how much carbon is left on the site, and what happens to it. There are, of course, other considerations associated with discussions of harvesting old-growth forests. Thus, the carbon consequences of timber harvesting, or delaying or preventing timber harvesting, are uncertain, being highly variable and highly site-specific. In addition, reduced impact logging (RIL) has been developed primarily to reduce the damage that timber harvesting can do to soils and to residual trees. It is becoming more widely discussed, especially for tropical forest harvests, but descriptions of RIL are generally either lacking in details or highly site-specific with limited general applicability. This is probably because the practices that will reduce logging damages depend on a variety of site conditions, such as soil type and water content, tree species diversity, etc. Nonetheless, as RIL becomes more widely practiced, it seems likely that logging damages (including carbon release) will decline. Using wood residues for energy production has occurred for many years at wood production facilities. The old "teepee" burners for disposing of wood waste are all defunct, and as noted above, the wood waste not used for paper production is already being used to produce energy to operate lumber and plywood mills. Even 30 years ago, less than 4% of the woody biomass removed from forests ended up as unused wood residues. Wood can be used to produce energy either by burning it directly, modifying it to produce more consistent burning characteristics (e.g., by pulverizing it and compressing it into pellets), or by digesting it to produce liquid fuel (methanol or ethanol). The biomass remaining from ethanol production is also burnable, and can be used to power the ethanol production instead of using fossil fuels. Many have noted that abnormally high biomass levels are exacerbating risks of forest fires, and have proposed removing much of that biomass to protect forests and communities located near forests. Such woody forest residues could be used to produce energy. Using wood for energy has some significant drawbacks. Although wood could replace some fossil fuels, it still produces CO 2 (and water vapor and some other by-products) when burned. Wood residues in the forest—from timber harvesting, thinning, or other forestry practices—are widely dispersed; haul distances (and thus costs) may limit the scale of wood energy production facilities. More important, perhaps, is that wood residues are highly variable in size, ranging from tree tops (4 inches or more in diameter) to twigs. Thus, collecting residues is a very labor-intensive activity. The cost to collect and transport forest residues to a wood energy facility can be a major hindrance to using woody forest residues for energy production. In addition, wood energy capacity to use wildfire fuels could exceed the long-term sustainable harvests from the forests, and become redundant or damage future forests. Finally, some wood residue is needed to sustain the productive capacity of forest soils. If too much woody biomass is removed from the forest, soil productivity and future forest growth could decline. Changes in land use practices to sequester carbon in the United States can also have more subtle impacts on carbon storage globally. Practices to store carbon by reducing or delaying timber harvested domestically can have an effect commonly called leakage —by shifting land uses geographically (e.g., more tropical forest harvests to offset less temperate forest harvests) or by shifting demand to other products that require more carbon to produce (e.g., steel or aluminum studs to replace wood studs in homebuilding). The primary concern, expressed in numerous articles, is that forest protection and logging restrictions in the United States will lead to more timber harvesting and associated environmental damage elsewhere—especially in tropical forests—to satisfy U.S. demand for wood products. This leakage is undesirable, it is argued, because U.S. forest management protects the environment more than comparable activities in other countries. These critics assert that U.S. federal and state environmental laws are stricter and more rigorously enforced than other nations' environmental laws for protecting air and water quality, maintaining animal habitats, and preserving rare plants and animals. Thus, they argue, more domestic forest harvesting leads to less forest destruction and greater soil protection, both of which would lead to less carbon release following timber harvesting. In addition, most states (and federal law for federal lands) require reforestation following timber harvests (except for planned conversions to other uses), so deforestation is less common in the United States. Other reasons are also given for why leakage is undesirable. One is that harvesting in tropical forests typically results in more waste. Tropical forest harvests typically focus on the most valuable species, leaving most of the trees, many of which are damaged; temperate forests have less diversity of plant species, which can lead to greater efficiency in biomass utilization, and thus less biomass waste to return carbon to the atmosphere. Also, temperate forests have less carbon per acre, on average, to release when timber is harvested than do tropical forests. In addition, others note, "[t]imber extraction is often the first step towards opening up the tropical forest and clearing the land for agricultural production. What is more, in many developing countries, property law establishes deforestation as a prerequisite of formal claim over the land for those settling in forested areas." Tropical timber harvests can thus lead to permanent deforestation. These rationales are supported by substantial anecdotal evidence, but others counter that such assertions have limited empirical foundation. Concerns generally focus on the potential impacts on tropical forests, but the preferred timber species for U.S. consumption are softwoods, not the hardwoods found in the tropics. It is not clear how much tropical timber would substitute for domestic softwood timber. Imports from tree plantations in Chile and New Zealand and from virgin forests in eastern Russia seem more likely, but the environmental effects probably differ substantially from the presumed impacts of leakage to tropical forests. One economist also has pointed out the difficulties in making international comparisons of environmental choices, because of the monumental biological and social differences between the United States and other countries, especially those with tropical forests. Another concern often noted is that domestic forest protection to sequester carbon could shift demand to substitute products whose production requires more energy, and thus releases more carbon. Most lumber and plywood are used in construction—new residences, home remodeling, and non-residential buildings. Substitute products include steel and aluminum for studs, joists, and sheathing, and concrete and masonry for walls and flooring. The recent reports expressing concerns about product demand leakage usually cite studies from the 1970s and early 1980s comparing the energy used to produce wood products and their substitutes—notably, studies by the Committee on Renewable Resources for Industrial Materials (CORRIM) of the National Academy of Sciences and by the Office of Technology Assessment of the U.S. Congress. While energy use is not a perfect predictor of carbon release and production technologies have undoubtedly changed substantially in the intervening decades, these studies indicate that wood production requires only about a quarter of the energy needed for concrete and masonry production, and less than 5% of the energy needed for steel or aluminum produced for residential construction. A newer report, depicting average CO2 emissions, showed somewhat different results, with wood framing, covering, and windows releasing about 30% as much CO 2 as steel and aluminum and about 10% as much CO 2 as concrete and masonry. Other economists point out that supply substitution is not the only feasible response to changing domestic timber supplies—that demand could be influenced through price changes (although timber is highly price-inelastic), through development of less energy-intensive/carbon-producing non-wood substitutes, and through government policy (e.g., by altering locally-established building codes). Various federal programs could be used to encourage forestry practices to increase carbon sequestration. One approach is to implement more carbon-sequestering forestry practices on federal lands. Another is to provide technical and financial assistance for forest management practices to private landowners. A third is "tax expenditures" (tax incentives) to encourage carbon-sequestering forestry practices by private landowners. The federal government owns about 650 million acres of land in the United States—about 29% of the total U.S. land area. Although this includes hundreds of buildings around the country, the vast majority (more than 99%) is considered rural—national parks and monuments, national wildlife refuges, national forests, public lands, military bases, etc. The majority of the federal lands are in Alaska (39%) and the 11 coterminous western states (another 54%). The Forest Service estimates that the federal government administers 246.4 million acres of forest land—defined as lands available for timber harvesting and capable of growing at least 20 cubic feet of industrial wood per acre annually. Additional federal lands undoubtedly meet the growth standard, but are not included because timber harvesting is precluded by statute (e.g., national parks and wilderness areas) or by administrative decision (e.g., national monuments and inventoried roadless areas). Other federal lands have trees and accumulate wood fiber, but not rapidly enough to meet the growth standard (e.g., Bureau of Land Management lands in central Alaska). Clearly, forestry practices can and do occur on federal forest lands, affecting both the sequestering and the releasing of carbon, as discussed above. In addition, forestry practices to sequester additional carbon (e.g., planting trees) can occur on sites that would not generally be considered "working" forests (e.g., national parks and military bases). Finally, much of the debate over the carbon consequences of timber harvesting—whether replacing old-growth forests with new, vigorous stands yields new release or net storage of carbon—has focused on federal forests, because most of the remaining old-growth forests occur on federal lands. The federal government has numerous programs that provide technical and financial assistance for forest management of nonfederal (mostly state and private) forest lands, though none explicitly includes carbon sequestration as a purpose. Many programs provide assistance for forestry practices, especially planting trees and improving tree growth. Some provide technical assistance, others provide financial assistance (usually a share of the activity's cost), and a few provide both. Some of the programs are foresty-specific (and administered by the Forest Service), while others are agricultural conservation programs that include forestry activities as acceptable treatments. Most are at least coordinated with, if not funded and operated through, state forestry agencies. It should be recognized, however, that many of these programs are restricted to moderately or highly productive private forest lands. The federal government also has programs to assist in protecting non-federal forests. One focuses on identifying and controlling insect and disease infestations, run by the Forest Service, in cooperation with the states. Another emphasizes preventing and controlling catastrophic wildfires, through assistance (money, equipment, and technical help) to states and to rural volunteer fire departments. Forest protection programs, such as the Forest Legacy, provide federal funding for the federal government or for states to purchase title or easements on forestlands that might be converted to other uses (e.g., agriculture or housing). Finally, the Forest Service is also authorized to provide technical forestry assistance to other countries. This international forestry program includes information about carbon sequestration as well as about forestry practices that yield other economic and social benefits. "Tax expenditures" are specific tax incentives established to encourage or allow certain activities. Three federal tax expenditures apply to forestry practices. One is special treatment of reforestation expenses: a tax credit and accelerated amortization of annual reforestation expenses. Private landowners are allowed to take a tax credit for 10% of their annual reforestation costs, up to $1,000 credit per year, and to amortize their reforestation costs, up to $10,000 per year, over an 84-month period. With reforestation costs averaging about $250 per acre (generally higher in the West and lower in the South), this provision would apply to about 40 acres of reforestation annually—not significant to major corporate forestland owners (who may own more than a million acres of forestland), but substantial for many of the non-industrial private landowners who own nearly half of the forestland in the United States. The second special provision allows the expensing of multi-period timber growing costs; that is, annual management expenses can be deducted from other current income, rather than capitalized and deducted from timber income from the managed stands. As with the accelerated amortization for reforestation, this reduces the current income tax liability for the private landowners—a significant benefit for all private forestland owners. It also simplifies their bookkeeping for tax purposes—a significant benefit for the non-industrial landowners with modest forestland holdings and only occasional timber income. Finally, timber income is allowed to be treated as a capital gain, if the private landowner has owned the trees for more than a year and does not retain an economic interest in the trees after the sale. (This latter provision essentially precludes certain timber sale practices commonly used by the federal government.) Currently, this provision benefits private forestland owners, because capital gains tax rates are significantly lower than regular income tax rates. These three tax expenditures affect carbon-sequestering forestry practices in several ways. The reforestation tax credit and accelerated depreciation and the expensing of multi-period timber growing costs effectively reduce the landowners' costs of these forestry practices, which can induce additional forestry practices and thus may add to carbon sequestration. Capital gains treatment of timber income likely encourages timber harvesting, but as discussed above, the carbon consequences of timber harvesting are disputed. Many federal programs, in addition to the programs discussed above, can affect the rate of deforestation and afforestation in the United States. Development on forest land, often called "urban sprawl," is affected by a wide variety of federal programs, such as transportation and other infrastructure assistance programs and various tax expenditures. The U.S. General Accounting Office (now the Government Accountability Office) examined these programs, finding that federal impacts are pervasive, but that changing federal policies might not have major impacts. The federal programs directly targeted on reducing the development of forest land are the Forest Legacy and the Community Forest and Open Conservation Program, both of which fund government or nonprofit acquisition of title or easements for forestland threatened with development (i.e., conversion to non-forest uses). Numerous agricultural conservation programs affect the conversion of forests to and from pasture and cropland. Most notable is the USDA's Conservation Reserve Program (CRP). The CRP pays farmers who own environmentally sensitive and highly erodible cropland, under multi-year contracts, to protect those lands; planting trees is a common method for protecting these croplands, and the CRP is the largest federal tree planting program that has ever existed, even though its primary purpose is to protect soils. Other USDA programs that might include funding for afforestation include the Environmental Quality Enhancement Program (EQIP), the Farmland Protection Program, and the Wildlife Habitat Incentives Program. Section 1605(b) of the Energy Policy Act of 1992 ( P.L. 102-486 ) established a purely voluntary system to collect information from entities that emit greenhouse gases, including information on how they are reducing emissions or sequestering carbon by "any measures, including fuel switching, forest management practices, tree planting," and more. The Energy Information Agency established guidelines for data reporting and self-certification. While most of the emissions reductions reported in the §1605(b) program are related to energy efficiency or conservation, some are forestry projects—in other countries (known as "joint implementation") as well as within the United States. Relatively few domestic forestry projects have been reported under the §1605(b) program. A reason to report under the program has been the expectation (or hope) of receiving retroactive credit if a carbon credit system were ever established. Whether such credit would be given and whether reported data are deemed sufficiently reliable remain open, and possibly contentious, questions. Forests store substantial amounts of carbon. The amount stored, however, changes over time as forests grow and die. Land use changes and forestry practices alter the level and rates of carbon storage, while "leakage" (shifting production) may offset some of the increases in forest carbon sequestration. Whether and how to account for this carbon sequestration in policies and programs to mitigate climate change has been controversial. Under the 1997 Kyoto Protocol of the 1992 United Nations Framework Convention on Climate Change (UNFCCC), many developed nations agreed to specified reductions in their emissions of greenhouse gases, especially carbon dioxide. The Protocol allows some carbon sequestration as a way of meeting the specified reductions. The Bush Administration rejected the Protocol and withdrew from the continuing activities under the Protocol. Nonetheless, accounting for the carbon absorbed by forests and soils (and how much credit is due) continues to be discussed internationally; and the U.S. Congress has held hearings on forest carbon sequestration. The role of forestry and land use in mitigating climate change has been controversial. Forests are enormously variable, with a broad array of plant species (both trees and understory vegetation) and substantial differences in the diversity of plant (and animal) species they contain. The myriad permutations of forest plants and soils present formidable obstacles for estimating existing carbon stocks and the carbon sequestration and release that result from forestry activities. The carbon consequences of timber harvesting have been particularly controversial. Because of the scientific uncertainties, as well as differences in the types and extent of forests among nations, reaching agreement on ways to account for carbon sequestration in forests has been difficult. Some argue for a broadly inclusive accounting, others for a more conservative approach. "Land-based" or "activity-based" models are generally proposed for estimating changes in carbon storage. However, the ambiguous language and terminology used by proponents contribute to the inherent difficulties of measuring baseline carbon stocks, land uses, the carbon impacts of various activities, and "leakage" (shifting land or product uses). Furthermore, the enormous diversity of forest types and widespread disputes over the carbon consequences of various practices (which result at least partly from the diversity of forests) make it difficult to generalize about the opportunities to mitigate global climate change through forest carbon sequestration. It is likely that research to reduce some of these ambiguities and uncertainties will be an ongoing element in the efforts of nations to deal with carbon sequestration—and with concerns about climate change. | Widespread concern about global climate change has led to interest in reducing emissions of carbon dioxide (CO2) and, under certain circumstances, in counting additional carbon absorbed in soils and vegetation as part of the emissions reductions. Congress may consider options to increase the carbon stored (sequestered) in forests as it debates this and related issues. Forests are a significant part of the global carbon cycle. Plants use sunlight to convert CO2, water, and nutrients into sugars and carbohydrates, which accumulate in leaves, twigs, stems, and roots. Plants also respire, releasing CO2. Plants eventually die, releasing their stored carbon to the atmosphere quickly or to the soil where it decomposes slowly and increases soil carbon levels. However, little information exists on the processes and diverse rates of soil carbon change. How to account for changes in forest carbon has been contentious. Land use changes—especially afforestation and deforestation—can have major impacts on carbon storage. Foresters often cut some vegetation to enhance growth of desired trees. Enhanced growth stores more carbon, but the cut vegetation releases CO2; the net effect depends on many factors, such as prior and subsequent growth rates and the quantity and disposal of cut vegetation. Rising atmospheric CO2 may stimulate tree growth, but limited availability of other nutrients may constrain that growth. In this context, timber harvesting is an especially controversial forestry practice. Some argue that the carbon released by cutting exceeds the carbon stored in wood products and in tree growth by new forests. Others counter that old-growth forests store little or no additional carbon, and that new forest growth and efficient wood use can increase net carbon storage. The impacts vary widely, and depend on many factors, including soil impacts, treatment of residual forest biomass, proportion of carbon removed from the site, and duration and disposal of the products. To date, the quantitative relationships between these factors and net carbon storage have not been established. Some observers are concerned that "leakage" will undermine any U.S. efforts to sequester carbon by protecting domestic forests. By leakage, they mean that wood supply might shift to other sites, including other countries, exacerbating global climate change and causing other environmental problems, or that wood products might be replaced by other products that use more energy to manufacture (thus releasing more CO2). Others counter that the "leakage" arguments ignore the enormous disparity in ecological systems and product preferences, and discount possible technological solutions. Several federal government programs affect forestry practices and thus carbon sequestration. Activities in federal forests affect carbon storage and release; timber harvesting is the most controversial such activity. Federal programs also provide technical and financial help for managing and protecting private forests, and tax provisions affect private forest management. Various federal programs can also affect the extent of forested area, by supporting development (which may cause deforestation) or encouraging tree planting in open areas, such as pastures. |
The federal government holds a large and diverse real property portfolio that includes more than 2.8 billion square feet of building space, 496,000 structures, and 42 million acres of land. These assets have been acquired over a period of decades to help agencies fulfill their diverse missions. Agencies own and lease buildings, for example, that provide space for offices, health clinics, warehouses, and laboratories. As agencies' missions change over time, so, too, do their real property needs, thereby rendering some assets less useful or unneeded altogether. Health care provided by the Department of Veterans Affairs (VA), for example, has shifted in recent decades from predominately hospital-based inpatient care to a greater reliance on clinics and outpatient care, with a resulting change in space needs. Similarly, the Department of Defense (DOD) reduced its force since the Cold War ended and has engaged in several rounds of base realignments and installation closures. As a consequence of shifting space needs, federal agencies hold thousands of properties—particularly buildings—that they no longer need. In FY2016, federal agencies owned 3,120 buildings that were vacant (unutilized), and another 7,859 that were partially empty (underutilized). Agencies are required to dispose of unneeded space and have a range of options for disposal, including transfer to another federal agency, demolition, sale, and conveyance to a state or local government or qualified nonprofit. Federal agencies have indicated, however, that their disposal efforts are often hampered by legal and budgetary disincentives, and competing stakeholder interests. The inability of agencies to dispose of unneeded space in a timely manner is one of the primary reasons the Government Accountability Office (GAO) has included real property management on its high-risk list since 2003. As noted, the government holds thousands of unutilized or underutilized properties in its inventory. These properties not only incur costs to the government to operate and maintain, but could, in some instances, be utilized by nonfederal entities—state and local governments, nonprofits, private sector businesses—to accomplish a range of public purposes, such as providing services to the homeless or facilitating economic development. GAO reports have consistently noted that efforts to dispose of unneeded and underutilized properties are hindered by statutory disposal requirements, the cost of preparing properties for disposal, conflicts with stakeholders, and a lack of accurate real property data. Agencies are required to continuously survey property under their control to identify any property that they no longer need to carry out their missions—excess property—and to "promptly" report that property as excess to the General Services Administration (GSA). Agencies are then required to follow the regulations prescribed by GSA when disposing of unneeded property or to follow independent or delegated statutory authority. GSA's regulations, in turn, implement statutory disposal requirements, which are discussed below. The steps in the real property disposal process are established by statute. Agencies must first offer to transfer properties they do not need (excess properties) to other federal agencies, who generally pay market value for excess properties they wish to acquire. Unneeded properties that are not acquired by federal agencies (surplus properties) must then be offered to state and local governments, and qualified nonprofits, for use in accomplishing public purposes specified in statute, such as creating public parks or providing services to the homeless. Agencies may convey surplus properties to state and local governments, and qualified nonprofits, for public benefit at less than fair market value—even at no cost. Surplus properties not conveyed for public benefit are then available for sale at fair market value or are demolished (or, in some cases abandoned) if the property could not be sold due to the condition or location of the property. Agencies have argued that these statutory requirements slow down the disposition process, compelling agencies to incur operating costs while the properties are being screened. For example, real property officials have said the McKinney-Vento Act ( P.L. 100-77 )—which mandates that all surplus property be screened for homeless use—can extend the time it takes to dispose of certain properties by months or years. Because public benefit conveyance requirements are set in law, agencies do not have the authority to skip screening, even for surplus properties that could not be conveyed anyway. Real property experts with the Army, for example, told auditors they had properties they believed could be disposed of only by demolition, due to their condition or location, but that still had to be screened, thereby adding as much as six months to the disposal process and forcing the Army to pay maintenance costs that could have been avoided. Statutes pertaining to environmental remediation or historic preservation also add time to the process. It may take agencies years of study to assess the potential environmental consequences of a proposed disposal and to develop and implement an abatement plan, as required by law. Similarly, the National Historic Preservation Act requires agencies to plan their disposal actions so as to minimize the harm they cause to historic properties, which may include additional procedures, such as consulting with historic preservation groups at the state, local, and federal levels. Unneeded buildings are often among the older properties in an agency's portfolio. As a consequence, agencies sometimes find expensive repairs and renovations may be needed before the properties are fully functional, meet health and safety standards, and comply with historic preservation requirements. The poor condition of these properties may deter potential buyers or lessees, particularly if they must cover the cost of required improvements as a condition of acquiring the properties. Similarly, agencies that wish to demolish vacant buildings face deconstruction and cleanup costs that, at times, exceed the cost of maintaining the property—at least in the short run—which may encourage real property managers to retain a property rather than dispose of it. Federal agencies frequently cite the cost of complying with environmental regulations as a major disincentive to disposal. Some agencies have found their disposal efforts are complicated by the involvement of stakeholders with competing agendas. The Department of the Interior (DOI) has said that the competing concerns of local and state governments, historic preservation offices, and political factors can stymie the disposal of some of its unneeded real property. Similarly, the VA has found that communities sometimes oppose disposals that would result in new development, and veterans groups have opposed disposing of building space if that space would be used for purposes unrelated to the needs of veterans. These conflicts can result in delay, or even cancellation of proposed disposals, which, in turn, prevent agencies from reducing their inventories of unneeded properties. In addition to the obstacles mentioned above, data about agency real property portfolios—which might be useful for congressional oversight—appear to be potentially inaccurate, and some government-wide data are accessible only to GSA. Moreover, agencies sometimes enter into leases rather than seek funding for new construction when acquiring space, even when the leased space might be more expensive over time. The Federal Real Property Profile (FRPP) is the government's most comprehensive source of information about real property under the control of executive branch agencies. GSA manages the FRPP and collects real property data from 24 of the largest landholding agencies each year. Other agencies are encouraged, but not required, to report data to GSA. The data elements that participating agencies collect and report are determined by the Federal Real Property Council (FRPC), an interagency taskforce that is funded and chaired by the Office of Management and Budget (OMB). The other members of the FRPC are agency senior real property officers (SRPOs) and GSA. The FRPP contains data that could enhance congressional oversight of federal real property activities, such as the number of excess and surplus properties held by major landholding agencies and the annual costs of maintaining those properties. Historically, GSA has not permitted direct access to the FRPP by Congress on the grounds that the data are proprietary. GSA does respond to some requests for real property data from congressional offices, but GSA staff query the database and provide the results to the requestor. Some FRPP data are made public through an annual summary report posted on GSA's website, but the summary reports may be of limited use for congressional oversight. Most of the data are highly aggregated and limited information is provided on an agency-by-agency basis. Certain data, such as building utilization rates at each agency, or the number of excess and surplus properties each agency holds, are not available to Congress or the public. This can limit the ability of Congress to compare the performance of agencies, which in turn can limit its ability to identify the policies and practices used by the most successful agencies and hold poorly performing agencies accountable. The quality of the FRPP data has also been questioned. GAO audits have found, for example, that real property data were unreliable in key areas, such as annual operating costs, and often were not reported correctly by agencies. Another GAO report reexamined weaknesses in FRPP data collection practices, noting that key data elements—such as buildings' maintenance needs and utilization rates—are not consistently and accurately captured in the database. The GAO report concluded that problems with FRPP data collection result in agencies "making real property decisions using unreliable data." Data quality problems may result from changing definitions. The FRPC stopped reporting data on underutilized and not utilized buildings in its FY2011 real property report. It began reporting the data again in FY2013, but with different definitions than those used in FY2010. The old definitions were based on the amount of space occupied in a building, while the new definitions are based on the frequency with which space was in use. Under the new definitions, the FRPC reported 5,532 underutilized and not utilized buildings in FY2013, down from 77,700 in FY2010—a 93% decrease in three years. By FY2014, the number of underutilized and not utilized buildings reported decreased to 4,971, a 94% decline from FY2010. Inconsistencies like this have led GAO to conclude that the FRPC's data on underutilized and not utilized federal real property are not reliable. The annual summary reports also omit data that might enhance congressional oversight. The FRPP contains, for example, the number of excess and surplus properties held by each agency and the annual operating costs of those properties—issues about which Congress has expressed ongoing interest. The summary report, however, only provides the number and annual operating costs of disposed assets, thereby providing the "good news" of future costs avoided through disposition while omitting the "bad news" of the ongoing operating costs associated with excess and surplus properties the government maintains. The government's ongoing "overreliance on costly leased space" is one of the primary reasons federal real property continues to be designated as a "high risk" issue by GAO. The percentage of square feet leased by GSA—which leases property for itself and on behalf of many agencies—is nearly equal to the percentage of square feet it owns. According to GAO, leasing space is typically more expensive than owning space over the same time period. GAO cited, for example, a long-term operating lease that cost an estimated $40.3 million more than if the agency had purchased the same building. The decision to lease rather than purchase space may be driven by operational requirements—such as the United States Postal Service (USPS) leasing space in areas that it believes will optimize the efficiency of mail delivery. Agencies often choose to lease rather than purchase space because of budget scoring rules, even if the decision to lease is not the most cost-effective long-term option. Under the Budget Enforcement Act of 1990, an agency must have budget authority up-front for the government's total legal commitment before acquiring space. Thus, if an agency were to construct or purchase a building, it would need up-front funding for the entire cost of the construction or acquisition, but leased space only requires the annual lease payment plus the cost of terminating the lease agreement. In addition to the budget scoring issue, some agencies have been granted independent leasing authority, which means they do not have to work with GSA to acquire leased space. Some agencies with independent leasing authority, such as the USPS and VA, have established in-house real property expertise, while other agencies with independent authority have not. The Securities and Exchange Commission (SEC), for example, entered into a $557 million, 10-year lease for 900,000 square feet, which the SEC's inspector general (IG) called "another in a long history of missteps and misguided leasing decisions made by the SEC since it was granted independent leasing authority." The IG found that "inexperienced senior management" at the SEC made poor decisions that led to acquiring three times the amount of space needed—the original estimate provided to Congress was for 300,000 square feet—and bypassing other locations that were closer and less expensive. Real property disposition historically has been a relatively decentralized process. Numerous federal agencies have the authority to dispose of some or all of the properties they hold. Some agencies have very broad authority to dispose of properties by any method, while others only have the authority to dispose of certain types of properties, or to only use certain disposal methods. Under this decentralized structure, agencies have identified unneeded assets and disposed of them in piecemeal fashion, often limited by the budgetary resources available for disposition activities. The Federal Assets Sale and Transfer Act of 2016 (FASTA, P.L. 114-287 ), by contrast, requires a more centralized process, whereby disposal decisions will be based on the recommendations of a newly created board rather than individual agencies. Moreover, the board may recommend the disposal of hundreds or even thousands of properties at one time. FASTA applies to all federal executive branch agencies and wholly owned government corporations, but properties on military installations are excluded, as are most Coast Guard properties and properties located outside the United States that are operated or maintained by the Department of State or the Agency for International Development. Properties controlled by Indian and Native Alaskan tribes, the USPS, and the Tennessee Valley Authority are also excluded, as well as properties used for certain federal programs or power projects. The OMB Director may also exclude properties for reasons of national security. The first step in disposing of unneeded properties under FASTA is for federal landholding agencies to develop their own recommendations for reducing unused space and operating and maintenance costs. Agencies are required to submit these recommendations to GSA and OMB not later than 120 days after the start of each fiscal year, along with specific data on each of the properties they own and lease. The data include, for each property, its age and condition, operating costs, history of capital expenditures, sustainability metrics, square footage, and the number of federal employees that work there. Agency recommendations must categorize properties according to whether they should be sold, transferred, exchanged, consolidated, relocated, redeveloped, reconfigured, or outleased—a range of options which are referred to collectively as "realignment." Agencies may also recommend properties be declared excess or surplus if they have not already been so designated. FASTA then requires the GSA Administrator and the OMB Director to develop criteria they will use to determine which properties should be realigned and what type of realignment should be recommended. FASTA specifies nine principles that must be taken into account when establishing the criteria: 1. the extent to which a property could be sold, redeveloped, or outleased in a manner that would produce the best value; 2. the extent to which the operating and maintenance costs would be reduced through the consolidation, colocation, and reconfiguration of space; 3. the extent to which a property aligns with the current mission of the agency; 4. the extent to which the utilization rate is being maximized and is consistent with nongovernment standards; 5. the potential costs and savings over time; 6. the extent to which leasing long-term space would be reduced; 7. the extent to which there are opportunities to consolidate similar operations across or within agencies; 8. the economic impact on existing communities in the vicinity of the property; and 9. the extent to which energy consumption specifically would be reduced. The criteria must include utilization rate standards that apply to each category of space, such as office space and warehouse space. Once the criteria are established, OMB and GSA must apply them to the list of agency recommendations and revise that list as deemed appropriate. The OMB Director must then submit the revised recommendations, along with the criteria, to a newly established Public Buildings Reform Board. The board is to be composed of a chairperson appointed by the President with the advice and consent of the Senate, and six other members, also appointed by the President. In making appointments to the board, the President is required to consult with the Speaker of the House of Representatives regarding two members, the majority leader of the Senate regarding two members, the House minority leader regarding one member, and the Senate minority leader regarding one member. FASTA directs the President to ensure that the board includes members with expertise in commercial real estate, space optimization and utilization, and community development. Board members are each appointed to a six-year term, and the board itself terminates six years from the date FASTA was enacted. The board is required to review the recommendations submitted by OMB, but it is not bound by them. The board is required to perform an independent review of agency inventories, and it may reject, accept, or modify OMB's recommendations, and add recommendations of its own. As part of the review process, the board is required to develop an accounting system to help in evaluating the costs and returns of various recommendations. The board shall have access to the same data that agencies provided to OMB and GSA, and agencies are required to provide any additional information the board requests. In addition, the board may receive and review proposals submitted by state and local officials and the private sector, which the board is required to consider. The board shall hold public hearings when developing its recommendations. As part of its recommendations, the board must identify at least five "high-value" federal properties to sell. These properties may not be listed as excess or surplus, and must have a total estimated fair market value of at least $500 million and not more than $750 million. Each of these properties may be disposed of only through sale. The high-value list is subject to the same review and approval process as the much longer list of recommendations. Once the board finalizes its recommendations, it is required to submit them in a report to the OMB Director and post them on a website established by the board for that purpose. The report may only include recommendations supported by at least a majority of commission members. GAO is required to publish a report on the recommendations, including a review of the methodology used to select properties for realignment. The OMB Director has 30 days to review the board's recommendations and submit a report to Congress that discusses the decision to approve or disapprove them. If the Director approves all of the board's recommendations, then he must submit a copy of the recommendations to Congress along with a certification of his approval. If the Director disapproves some or all of the board's recommendations, he must submit a report to Congress and to the board identifying the reasons for disapproval, and the board would have 30 days to submit a revised list of recommendations to the Director. If the Director approves all of the revised recommendations, he must submit a copy of the revised recommendations along with a certification of approval to Congress. If the Director does not submit a report within 30 days of the receipt of the commission's original or revised recommendations, then the process terminates. If the OMB Director approves a set of board recommendations, federal agencies must begin implementation of all recommendations within two years from the date Congress received them, and complete implementation within six years. Agencies must work in consultation with GSA, and within their existing authorities to implement board recommendations, although they may contract with real estate companies for assistance. The OMB Director has the authority to exclude a property from the board's recommendations if the Director determines the property is suitable for use as a public park or recreation area by a state or local government. In addition, several sections of the U.S. Code that pertain to real and personal property conveyances, particularly those for public benefit, would not apply to recommended disposals. The McKinney-Vento Homeless Assistance Act still applies to properties that are included in the approved set of recommendations but which the HUD Secretary determines are suitable for use providing services to the homeless. However, FASTA amends McKinney-Vento by shortening the screening and application process for these properties. FASTA requires the Comptroller General to annually monitor and review the implementation activities of federal agencies and report to Congress his findings and recommendations. In addition, the act precludes actions taken pursuant to recommendations from judicial review. If the board recommends the disposal of a property on which hazardous material was stored for more than one year, known to have been released, or disposed of, federal agencies may agree to transfer the deed of such property only under certain conditions. First, the deed must comply with the Comprehensive Environmental Response, Compensations, and Liability Act of 1980 (42 U.S.C. 9601 §§ et seq.). Second, the head of the disposing agency must certify either (1) the cost of all environmental restoration, waste management, and other environmental compliance activities that would otherwise be paid for by the disposing agency are equal to or greater than the fair market value of the property; or (2) if such costs are lower than fair market value the recipient of the property agrees to pay the difference between fair market value and such costs. Once a property has been certified, the agency may pay the recipient of the property the lesser of the amount by which the costs incurred by the recipient for environmental compliance exceed fair market value, or the amount by which the costs that would have been incurred by the disposing agency exceed fair market value. The disposing agency must provide to the property recipient all of the information it possesses on environmental restoration, waste management, and compliance activities. FASTA established both a salaries and expenses account to fund the board's administrative and personnel costs, and an asset proceeds and space management fund (APSMF) that will be used to implement recommended actions. Both accounts may receive funds from appropriations but the APSMF is also authorized to receive the proceeds generated by the sale of real property pursuant to the board's recommendations. All of the funds deposited in the APSMF account may only be used to cover the costs associated with implementing the board's recommendations. The President is required to include in his budget submission an estimate of the proceeds that are the result of the board's recommendations and the funding needed to implement them. After the board terminates, federal agencies are authorized to retain the net proceeds from the disposal of real property they control. Net proceeds may only be used for further disposal activities and only as authorized in annual appropriations acts. Any net proceeds not expended for disposal activities are required to be used for deficit reduction. FASTA requires the GSA Administrator to establish and maintain a "single, comprehensive, and descriptive" database of all real property under the control of federal agencies. The database must include, for each property, its size in square feet and acreage; geographic location, including a physical address and description; relevance to the agency's mission, presently and in the future; level of utilization, including whether it is excess, surplus, underutilized, or unutilized, and the number of days it has been so designated; annual operating costs; and replacement value. The database must permit users to search and sort properties, and download data. Once operational, the database must be made available, at no cost, to federal agencies and the public. Numerous provisions of FASTA have the potential to mitigate weaknesses in the real property disposal process and enhance oversight. There are also potential drawbacks to certain provisions, and some real property weaknesses are only tangentially addressed. One potential advantage of the FASTA process is that it incorporates a variety of perspectives. Agencies initiate the process, using detailed knowledge of their portfolios to propose disposal actions that they believe make the most sense in terms of their mission. A government-wide perspective is added in the next step, when GSA and OMB jointly review and revise agency recommendations. By looking at the federal portfolio as a whole, OMB and GSA may see opportunities for dispositions across agencies that individual agencies do not, such as consolidation or colocation of agency personnel. In addition, OMB and GSA may see opportunities to apply new ideas to multiple agencies. If an agency recommended reducing costs related to warehouse maintenance through a particular method, for example, OMB and GSA might recommend other agencies with warehouse space use that method as well. A third perspective is added by the Public Buildings Reform Board, an independent body whose members may have expertise different than that of executive branch employees involved in developing the list of recommendations. That diversity of expertise—which may include private sector work in real estate development or community development—may enable the board to identify opportunities for the government to sell properties that agencies may not have thought were marketable, or consider the effects of disposing of multiple properties from different agencies in a single city or region. A diversity of perspectives may also hinder consensus on recommendations, particularly if it results in disagreement between OMB and the board. If the OMB Director's philosophy emphasizes certain methods of disposition over others, for example, and a majority of the board favors a different approach, then that disagreement could potentially result in the OMB Director rejecting some of the board's recommendations and terminating the FASTA disposal process for a given year. Congress has an indirect role in developing FASTA recommendations through its advisory role on board appointees. A potential benefit of this limited presence is that it may reduce the pressure exerted by local stakeholders on disposal decisions. By keeping Congress at a distance from the recommendation process, FASTA encourages stakeholders to work with the board, which has a nationwide perspective and is not subject to public elections. Conversely, FASTA may be perceived to put Congress at an institutional disadvantage relative to the executive branch. The OMB Director works with GSA to develop an initial list of recommendations to the board and has the authority to approve or disapprove of the board's recommendations. This process may be seen as giving OMB two opportunities to directly influence the final recommendations, whereas Congress has only an indirect presence through the board. At no time is Congress able to vote on any recommendations under FASTA. As noted, prior to FASTA, all federal properties were required to be screened for use by state and local governments and nonprofits, a process which added weeks to months to the disposal process. While some properties would eventually be conveyed to these entities, the majority would not, meaning agencies incurred operating and maintenance costs on many properties unnecessarily while the screening process took place. By exempting the board's recommendations from many conveyance screening requirements, FASTA may enable agencies to dispose of unneeded properties in a less costly and more efficient manner. These exemptions may not necessarily result in fewer properties being conveyed to state and local governments and nonprofits. The board may still recommend conveyances, and nearly all board recommendations are eligible for review by HUD to determine whether any properties might be suitable for use providing assistance to the homeless. In addition, the OMB Director has the authority to exclude any property from the board's recommendations if he determines that it might be suitable for use by a state or local government as a public park or recreation area. It could be argued that centralizing conveyance decisions might, under some circumstances, reduce the number of properties available to state and local governments and nonprofits. FASTA does not instruct the board to give precedence to any particular disposal method, and some properties that might be used for public benefit if conveyed might also be valued by the private sector. The board and the OMB Director may approve recommendations to sell some of those properties rather than convey them, whereas before FASTA state and local governments and nonprofits would have been given the first opportunity to acquire all unneeded properties. Federal agencies have argued that they are unable to dispose of many of their unneeded properties because they lack sufficient funding. FASTA may help address that concern by providing funding for recommended disposals through appropriations and from the sale of civilian properties. Notably, FASTA requires that the board recommend the sale of at least five properties with an estimated fair market value of $500 million to $750 million. However, these properties are not to be listed as excess or surplus—meaning agencies have not declared them to be unneeded. It is not clear how these properties will be identified. It is also not clear how much revenue might be generated by the sale of civilian properties, since the FRPP does not provide sales proceeds data on an agency-by-agency basis. FASTA requires GSA to establish a publicly accessible real property database that may enhance oversight and policymaking. The new database must provide information that may help Congress monitor agency portfolios, such as the utilization rate and annual operating costs of each property. The database is not required to include other data that Congress might find useful. Agencies estimate a dollar amount for the repair needs of their buildings and structures as part of their FRPP reporting, but these estimates are then folded into a formula for calculating a "condition index" for each building, which is not reported. Given that repair needs are an obstacle to disposing of some properties, Congress may find it useful to have agency repair estimates reported for each building to help inform funding decisions. FASTA primarily addresses the disposal of unneeded properties, but its objectives include reducing the government's reliance on leased space. Information comparing the cost of leasing to the cost of building or buying space might enhance oversight of long-term operating leases. As discussed earlier in this report, one of the primary reasons GAO has listed federal real property management as a high-risk area since 2003 is that the government increasingly acquires space through leases rather than by constructing or purchasing buildings. The prospectus approval process provides Congress with an opportunity to exercise oversight of GSA's lease decisions. Prior to seeking appropriations, GSA is required to obtain congressional authorization for constructing, purchasing, leasing, or renovating real property when the estimated cost of the project exceeds a given threshold. To that end, GSA submits a prospectus to two committees—the Senate Committee on Environment and Public Works and the House Committee on Transportation and Infrastructure—for each proposal that exceeds the threshold. The prospectus provides detailed information about the project, including its location and estimated cost. By law, a project that exceeds the threshold may not receive appropriations unless both committees pass resolutions approving of the prospectus. Given the size of its portfolio, and its role as the procurer of space for numerous other agencies, congressional oversight of GSA's prospectus-level lease proposals has broad implications. The usefulness of the prospectus approval process as an oversight tool, however, may be limited by the fact that GSA is not required to present data that directly compare the cost of leasing with the cost of owning space. This means that Congress may be unable to determine whether it is being asked to approve the most cost-effective option for meeting an agency's real property needs. One option for potentially improving oversight of GSA leases would be to mandate that GSA include comparative cost data in its prospectuses. This would not be a completely new step for GSA to take: in the 1980s and throughout the early part of the 1990s, GSA's lease prospectuses included a comparison of the costs of leasing space to constructing or buying it. GSA discontinued reporting comparative cost data in the mid-1990s, it said, because funding for construction and purchase alternatives was so limited that they were not considered realistic alternatives. | Real property disposal is the process by which federal agencies identify and then transfer, donate, or sell real property they no longer need. Disposition is an important asset management function because the costs of maintaining unneeded properties can be substantial. Moreover, properties the government no longer needs may be used by state or local governments, nonprofits, or businesses to provide benefits to the public. Finally, the government loses potential revenue when it holds onto certain unneeded properties that might be sold for a profit. Despite these drawbacks, federal agencies hold thousands of unneeded and underutilized properties. Agencies have argued that they are unable to dispose of these properties for several reasons. First, there are statutorily prescribed steps in the disposal process that can take months to complete. Second, properties may not be appealing to potential buyers or lessees if they require major repairs or environmental remediation—steps for which agencies lack funding to complete before bringing a property to market. Third, key stakeholders in the disposal process—including local governments, nonprofit organizations, and businesses—are often at odds over how to dispose of properties. In addition, Congress may be limited in its capacity to conduct oversight of the disposal process because it currently lacks access to reliable, comprehensive real property data. The General Services Administration (GSA) maintains a database with information on most federal buildings, but those data are provided to Congress on a limited basis. Moreover, the quality of the information in the database has been questioned, in part because of inconsistent reporting of key data elements, such as how much space within a given building is unneeded. The lack of data may also hinder congressional oversight on the extent to which agencies enter into leases rather than purchase space. Leasing space is typically more expensive than owning, and the government's "overreliance on costly leased space" is one of the primary reasons federal real property is designated as a "high risk" issue by the Government Accountability Office (GAO). The Federal Assets Sale and Transfer Act of 2016 (P.L. 114-287) established a new, centralized process for disposing of unneeded space. Under FASTA, agencies are required to develop a list of disposal recommendations, which could include the sale, transfer, conveyance, consolidation, or outlease of any unneeded space, among other options. These recommendations are then to be submitted to the GSA Administrator and the Director of the Office of Management and Budget (OMB) for review and revision. The revised list of recommendations is then vetted by a newly established Public Buildings Reform Board, and returned to the OMB Director for final approval or disapproval. FASTA may address some of the obstacles agencies face when disposing of unneeded space. Properties on the recommendation list are exempt from certain statutory requirements, such as screening for public benefit, and FASTA provides funding for agencies to implement the board's recommendations. The use of a board to make disposal decisions may also reduce the impact of stakeholder conflict. In addition, FASTA requires GSA to create a public database with information that may enhance congressional oversight. There may be drawbacks to FASTA. The law does not provide Congress with an opportunity to vote for or against the list of recommendations, nor is Congress directly involved in the creation of the list. It is possible that philosophical differences between the board and the OMB Director could lead to an impasse that would effectively shut down the FASTA disposal process. The required database may not include some information that could be useful to Congress, such as the repair needs and condition of each building. |
The Department of Veterans Affairs (VA) provides an array of benefits to veterans and to certain members of their families. These benefits include disability compensation and pensions, education benefits, survivor benefits, medical treatment, life insurance, vocational rehabilitation, and burial and memorial benefits. In order to apply for these benefits, in most circumstances, the claimant will send an application to his or her local VA Regional Office or apply online. The VA has a "duty to assist" the claimant throughout the claim process. This duty includes obligations to ensure that a claimant's file is complete, to seek evidence and records substantiating the claim, and to provide medical examinations under certain circumstances. Furthermore, the VA, when adjudicating any claim for benefits, is obligated to give the claimant the "benefit of the doubt" when there is "an approximate balance of positive and negative evidence regarding" any claim, and must also consider legal theories that a claimant fails to raise if it would help substantiate a claim for benefits. This duty to assist and the benefit of the doubt standard are unique among the federal government's benefits programs. For example, the United States Department of Agriculture is under no similar obligation to assist applicants in obtaining evidence of eligibility for Supplemental Nutrition Assistance Program (SNAP) benefits; the Social Security Administration does not give "the benefit of the doubt" to applicants for Social Security benefits. These requirements have the effect of making the VA claims adjudication system "strongly and uniquely pro-claimant." This report will analyze the VA's duty to assist claimants and the pro-claimant standard of proof used during the adjudicatory process for veterans' benefits. A veteran must submit an application either through the VA's online application system or by submitting a paper application to the local VA Regional Office. Even at this early stage of the process, the VA is required to provide assistance to claimants for benefits. The VA must provide to any person expressing an intent to apply for benefits all "instructions and forms necessary to apply for that benefit." The VA must provide those forms and instructions to such person free of charge. When a claimant submits an initial application for benefits, the VA is obligated to inform the claimant if his or her application is incomplete and must inform the claimant of the precise information that is needed in order to complete the claim. However, if the claimant (or the claimant's representative) fails to furnish the necessary information within one year after the VA has provided notice, then "no benefit may be paid or furnished by reason of the claimant's application." After that deadline has passed, the claimant would have to open a new claim. Notably, the requirement that the VA provide notice to a claimant of any "information necessary to complete [an] application" does not impose a duty to inform the claimant of the evidence necessary to substantiate the claim. The Court of Appeals for Veterans Claims (CAVC) has noted that, at least for the VA's obligations, "information" includes things such as an applicant's Social Security number, address, name, medical conditions upon which the claim is based, and sufficient service information for the VA to verify that the claimant actually served in the United States Armed Forces. Such information is necessary in order to complete an application, as distinguished from evidence necessary to substantiate a claim. The CAVC noted that a different section of the United States Code does require the VA to inform claimants of evidence necessary to substantiate a claim; however, that obligation arises only after the VA has received a "complete or substantially complete" application. After the VA receives a complete or a substantially complete application for benefits, the VA is required to assist in the development of the claim. The Veterans Claims Assistance Act of 2000 (VCAA) requires the VA to notify the claimant of any information or medical or lay evidence that is needed to substantiate the claim. The VA is also obligated to inform the claimant about which information the VA will try to obtain on the claimant's behalf and which information or evidence the claimant will be required to obtain for himself. One court noted that the duty to notify "was designed by Congress with one purpose in mind—to facilitate and maximize the collaborative process that is the cornerstone of the VA claims process." However, if the claimant does not respond to the VA's notice within one year, then "no benefit may be paid or furnished by reason of the claimant's application." The United States Court of Appeals for the Federal Circuit (Federal Circuit) has noted that the VA is required to "provide affirmative notification to the claimant prior to the initial decision in the case as to the evidence that is needed and who shall be responsible for providing it." The Federal Circuit, therefore, firmly established that the notice must be provided prior to the initial decision—explanations for why the VA rejected the claimant's application, such as a Statement of the Case provided after an appeal has been filed, do not satisfy the notice requirements under Section 5103. Courts also require more than a general statement of what is required by law to substantiate the claim of benefits; instead, the notice must be, to some extent, tailored to the particular type of claim at issue. To this point, the CAVC, in Locklear v. Nichol son , stated the following: It is of the utmost importance to realize that the duty to notify is geared entirely toward "information and evidence" as opposed to legal requirements or some other formulaic abstraction. Thus, a letter in which VA merely sets forth the legal requirements for obtaining an award of service connection would be insufficient to satisfy the clear terms of section 5103(a). In Locklear , the claimant challenged the notice that the VA provided as insufficient. The claimant argued that the duty to notify required the VA to evaluate all the evidence already in the agency's possession and to determine whether the claim fell short before reaching a decision on the merits. If the VA believed the evidence was insufficient, the claimant argued that the VA was required to explain to the claimant what further evidence, if provided, would entitle him to the benefits sought. In that case, the VA provided notice to the claimant that stated (1) what the legal requirements were for qualifying for the particular benefit; (2) examples of types of evidence and information that can be used to substantiate that type of claim; (3) what evidence was already in the VA's possession; (4) which evidence the VA would try to obtain; and (5) which evidence the claimant should obtain. The CAVC determined that this was sufficient notice provided to the claimant. The court noted that although a simple restatement of the legal requirements likely would not be sufficient, the VA is not required to "pre-adjudicate" the claim based on current evidence and determine whether new evidence would be required to substantiate the claim. The CAVC stated the following: [T]he duty to notify deals with evidence gathering, not the analysis of already gathered evidence.... [I]t would be senseless to construe the statute as imposing upon the Secretary a legal obligation to rule on the probative value of information and evidence presented in connection with a claim prior to rendering a decision on the merits of the claim itself. The notice requirements apply only at the outset of a claim, and the VA's obligation to provide notice on the evidence necessary to substantiate a claim does not continue after the initial adjudication of an application. Thus, if the Board of Veterans' Appeals (BVA) remands a claim on appeal to the VA Regional Office for further development of a claim, the VA does not need to provide additional notice to the claimant on the evidence necessary to substantiate the claim. The VA is required to "make reasonable efforts to assist a claimant in obtaining evidence necessary to substantiate the claimant's claim for a benefit under a law administered by the Secretary [of Veterans Affairs]." This requirement is arguably the most substantial form of assistance that the VA is required to provide to claimants. This section of the report will discuss the various obligations that the VA has to obtain evidence on behalf of claimants. The VA must assist all claimants in gathering evidence to help substantiate their claims unless the claim is clearly frivolous. Pursuant to VA regulations, the VA will refrain from gathering evidence only "if the evidence obtained indicates that there is no reasonable possibility that further assistance would substantiate a claim." The VA has stated that it will not gather evidence for claimants in certain situations, including, but not limited to (1) when the claimant is ineligible for benefits because of lack of qualifying service, lack of veteran status, or other lack of legal eligibility; (2) claims that are inherently incredible or lack merit; and (3) an application requesting a benefit to which the claimant is not entitled as a matter of law. The Federal Circuit has also noted that the VA is required only to assist a claimant in obtaining relevant medical records. In one case, a claimant sought compensation for PTSD and argued that the VA failed to satisfy its duty to obtain medical records from the Social Security Administration (SSA) on behalf of the claimant. However, those medical records concerned a back injury the claimant had sustained and did not discuss the mental health of the claimant. The Federal Circuit noted that the VA did not fail to satisfy the duty to assist by failing to obtain these records, stating the following: There can be no doubt that Congress intended VA to assist veterans in obtaining records for compensation claims, but it is equally clear that Congress only obligated the VA to obtain "relevant" records.... The language of the statute is explicit: not all medical records or all SSA disability records must be sought—only those that are relevant to the veteran's claim. Finally, the VA "may defer providing assistance" in obtaining records "pending the submission by the claimant of essential information missing from the claimant's application." Therefore, a claimant's application must be substantially complete before the obligation to assist in obtaining records is triggered. The VA is required to make "reasonable efforts to assist a claimant in obtaining evidence necessary to substantiate the claimant's claim for a benefit under a law administered by the Secretary." The VA is required to attempt to obtain records from private parties and from other federal agencies. Federal regulations outline the procedures for obtaining records not in the custody of a federal department or agency and for obtaining records that are in the custody of a federal department or agency. For non-federal records, the VA's regulations state that the agency will seek "records from State or local governments, private medical care providers, current or former employers, and other non-federal governmental sources." The claimant is required to cooperate with the VA by providing sufficient information that will permit the VA to locate the records, and the claimant must sign a release, if necessary, to allow the VA to obtain such records. The VA generally will make an initial request for the relevant records and "at least one follow-up request." However, the VA is not required to make a follow-up request "if a response to the initial request indicates that the records sought do not exist or that a follow-up request for the records would be futile." For records in the custody of another federal agency, the requirement to obtain the record is slightly different. Instead of simply providing one follow-up request, the VA's "efforts to obtain those records shall continue until the records are obtained unless it is reasonably certain that such records do not exist or that further efforts to obtain those records would be futile." In 1973, a fire at the National Personnel Records Center destroyed approximately 16-18 million Official Military Personnel Files. The CAVC has ruled that when a claimant's federal records have been lost or destroyed, the VA has a heightened duty to assist the claimant. In Washington v. Nicholson , the CAVC held that the VA, when the claimant's service medical records were unavailable, had not complied with the heightened duty to assist because it failed to seek other records that may have been available to corroborate the claimant's injury. Furthermore, the court noted that the VA failed to advise the claimant "adequately as to the alternative forms of information and evidence that he could use to establish his claim," such as using "buddy statements" to help prove the existence of an injury. If, after making reasonable efforts, the VA is unable to locate any records sought, the VA will notify the claimant that it is unable to obtain the records. The notification must identify the records being sought, explain the efforts made to obtain the records, and describe any further action to be taken by the VA regarding the claim. The claimant has an obligation to cooperate with the VA during the development of the claim. The CAVC has noted that "[c]orresponding to VA's duty to assist the veteran in obtaining information is a duty on the part of the veteran to cooperate with VA in developing a claim. VA's duty must be understood as a duty to assist the veteran in developing a claim, rather than a duty on the part of VA to develop the entire claim with the veteran performing a passive role." Claimants are responsible for showing up to medical examinations provided by the VA and should respond to VA requests for information that may help the VA determine where locatable records and evidence may be obtained. If the case involves a claim for disability compensation, the VA is required to provide the claimant with a medical examination or obtain a medical opinion when such an examination or opinion is necessary to make a decision on the claim. The VA is required to provide an examination or opinion if the evidence on the record (1) contains competent evidence that the claimant has a current disability or persistent or recurrent symptoms of disability and (2) indicates that the disability or symptoms may be associated with the claimant's active military, naval, or air service. However, if the record already contains sufficient medical evidence for the VA to make a decision on the claim, then the agency is not required to provide a medical examination or opinion. Courts have determined that the threshold requirements for having the right to a medical examination are easy to meet. In order to deny a claimant a medical examination, the VA must conclude on the basis of the record before it that "no reasonable possibility exist[s] that an examination would aid in substantiating ... a claim." The CAVC described the requirements as follows: [The VA must provide an examination or medical opinion when] there is (1) competent evidence of a current disability or persistent or recurrent symptoms of a disability, and (2) evidence establishing that an event, injury, or disease occurred in service ... and (3) an indication that the disability or persistent or recurrent symptoms of a disability may be associated with the veteran's service or with another service-connected disability, but (4) insufficient competent medical evidence on file for the Secretary to make a decision on the claim. The first requirement is met when there is competent evidence that the claimant is currently suffering from a disability or recurrent symptoms of a disability. A claimant may provide statements from doctors or family members to show that he is currently suffering some form of disability. Second, the claimant must show that he suffered an in-service injury, event, or disease. Service records may be able to show that the event occurred, or the claimant may rely on "buddy statements" to show that an injury or event occurred while in-service. Third, there must merely be an "indication" that the disability " may be associated with the claimant's service ." Importantly, it does not have to be conclusive that the symptoms or injury were caused by the claimant's service—as the CAVC noted, "In contrast to the second element, which requires evidence to establish an in-service injury, this element requires only that the evidence 'indicates' that there 'may' be a nexus between the two. This is a low threshold." Showing that an injury may have been related to a claimant's service does not necessarily require a medical opinion—the CAVC has held that a claimant is capable of providing lay testimony sufficient to "indicate" that his own disability could be associated with his service. Importantly, just because a medical opinion does not provide a sufficient nexus to a claimant's service to substantiate a claim for benefits does not mean that the medical opinion did not meet the requirements for the VA to provide a medical examination to the claimant. This test is to determine whether the VA is to provide a medical opinion, not whether the claimant has established a successful claim for benefits. The fourth part of the test to determine if the VA must provide a claimant with a medical examination or opinion is whether there is already sufficient medical evidence in the claimant's file to make a final determination on the claim. Importantly, courts have held that the VA must show that "no reasonable possibility exist[s] that an examination would aid in substantiating" a claim. Therefore, the medical evidence on file must clearly establish that there is no nexus between the injury claimed and the claimant's service. The CAVC has noted that just because a medical opinion already in the record does not substantiate a claim, it does not mean that it affirmatively proves the claim to be invalid: "the absence of actual evidence is not substantive 'negative evidence.'" In other words, there must be clear evidence that the claim is invalid to deny a claimant a VA medical examination or medical opinion, not merely insufficient evidence to support a claim fully. Also, the BVA is not permitted to "rely on its own unsubstantiated medical conclusions to reject medical evidence in the record; rather, the [BVA] may reject a claimant's medical evidence only on the basis of other independent medical evidence." In short, if there is an indication that an in-service event may have caused a current disability, the VA must provide a medical examination or opinion to the claimant to establish whether a nexus exists between the disability and the claimant's service, unless the medical records on file show that there is no reasonable possibility that an examination will help substantiate a claim. The VA is required to assist veterans by considering all possible legal theories that would support a claim, even if the veteran does not raise the particular issue in his application for benefits. VA regulations require the VA to assist the claimant "in developing the facts pertinent to the claim and to render a decision that grants every benefit that can be supported in law while protecting the interests of the government." This requirement, again, is a unique feature of the VA benefits system and illustrates the non-adversarial nature of benefits proceedings. However, although courts have enforced the regulation to require the VA to take into consideration legal theories not raised by a claimant that could be used to substantiate a claim, the courts do not require the VA to consider every possible argument that a claimant presumably could make. Instead, the VA is obligated only to consider legal theories that the claimant failed to argue if the record of evidence "fairly raise[s]" those issues. The VA must consider those arguments even if the claimant is unaware of the potential claim. The CAVC has stated the following: [W]e conclude that the Board is not required sua sponte to raise and reject all possible theories of entitlement in order to render a valid opinion. The Board commits error only in failing to discuss a theory of entitlement that was raised either by the appellant or by the evidence of record. This standard is generous to veterans but respects the reality that the Secretary does not have the resources to investigate sua sponte every conceivable unsupported theory of entitlement. Another unique aspect of the VA benefits system is that the standard of proof is pro-claimant. The claimant need not show by a preponderance of the evidence that he is entitled to benefits—instead, the law provides that "[w]hen there is an approximate balance of positive and negative evidence regarding any issue material to the determination, the VA shall give the benefit of the doubt to the claimant." Regulations provide that when reasonable doubt arises, such doubt will be resolved in favor of the claimant. Therefore, if a claimant provides medical evidence that shows that it is as likely as not that there is a connection between an in-service injury and the claimant's current disability, the VA shall award the claimant the benefits sought. Thus, the VA can deny the claim only if the preponderance of the evidence is against the claimant. The CAVC described the standard of proof in Donnellan v. Shinseki : The standard of proof refers to the evidentiary threshold a litigant must satisfy in order to prevail on his claim. [T]his court [has] recognized that a unique standard of proof – the "benefit of the doubt"– applies in decisions involving claims for veteran's benefits. The "benefit of the doubt" standard, which is at the farthest end of the spectrum of the various standards of proof in American legal jurisprudence, was enacted by Congress in keeping with the high esteem in which our nation holds those who have served in the Armed Serves. The "benefit of the doubt" standard applies when the positive and negative evidence regarding the merits of a veteran's claim for benefits are in approximate balance. When such equipoise exists, the veteran must prevail on the merits of his claim. Therefore, a veteran need only demonstrate that there is an approximate balance of evidence in order to prevail on his claim. A claim for veterans benefits may only be denied when the preponderance of evidence is against a claim. | The Department of Veterans Affairs (VA) provides an array of benefits to veterans and to certain members of their families. These benefits include disability compensation and pensions, education benefits, survivor benefits, medical treatment, life insurance, vocational rehabilitation, and burial and memorial benefits. In order to apply for these benefits, in most circumstances, the claimant will send an application to his or her local VA Regional Office or apply online. Once a veteran has filed an application for benefits with the VA, the agency has a unique obligation to the claimant when adjudicating the claim—the VA has a "duty to assist" the claimant throughout the claim process. This duty to assist imposes numerous requirements on the VA during the claim process. The VA must assist claimants in obtaining the forms and information necessary to apply for a benefit; inform claimants of any information missing from an application; explain what evidence must be obtained in order to substantiate a claim for benefits; assist the claimant in obtaining records and evidence from both private and federal entities; and provide certain claimants with a medical examination or opinion when certain conditions are met. In addition to assistance the VA must provide during the development of a claim, the VA also is required to implement other pro-claimant standards when adjudicating a claim. For example, the VA must consider legal theories that a claimant may not have argued in his application for benefits and must grant those benefits if they are supported by law. Furthermore, the VA must adjudicate a claim for benefits under a pro-claimant standard of proof—the VA may deny a claim only if the preponderance of the evidence weighs against the claimant. This report analyzes court decisions that have examined the VA's obligation to assist veterans during the claims process. |
California is experiencing serious water shortages due to widespread and exceptional drought. Even though much of the state is served by two large water infrastructure projects that store water for future use—the federal Central Valley Project (CVP) and the State Water Project (SWP)—both projects have had to reduce water deliveries to the farmers and communities they serve. Many water users have received no water from the CVP and SWP this year and are supplementing surface water supplies with groundwater. Some water basins are experiencing overdraft of local aquifers (i.e., extraction of more groundwater than is being replenished). The dry hydrological conditions, in combination with regulatory restrictions on water being pumped from the Sacramento and San Joaquin Rivers Delta confluence with the San Francisco Bay (Bay-Delta) to protect water quality and fish and wildlife, have resulted in water supply cutbacks for CVP and SWP water users throughout their respective service areas, and in historic cutbacks to senior water rights in some areas. The effects are widespread and are being felt by many economic sectors. The extent and severity of the drought is also taking its toll on fish and wildlife resources and has increased concern for wildfires. California's complex water supply systems also experienced severe water supply shortages during a recent three-year drought, which lasted from 2008 to 2010, during a six-year drought from 1987 to 1992, and during a two-year drought from 1976 to 1977. CVP and SWP water operations and water supply reductions have been at the heart of legislation in the 113 th Congress aimed at addressing management of the systems in response to the current drought in California. Faced with the prospect of another dry winter and water shortages in 2015, the short-term issue for Congress is how to respond to demands for increased water deliveries, while avoiding harm to the environment (including several fish species and water quality) and economies that depend directly on environmental resources (e.g., recreation, commercial and sport fishing). Other issues include how to address water supply in general and how to finance any improvement or increase in water supply storage given current fiscal constraints and earmark moratoria. A longer-term issue for Congress is how to improve federal water delivery reliability and stabilize the aquatic ecosystems upon which water and power users, and diverse economies, depend, while also maintaining federally listed species and water quality. Several bills have been introduced in the 113 th Congress to address California water supply and drought, and management of the CVP and SWP in particular. This report provides a description and analysis of H.R. 5781 , the California Emergency Drought Relief Act of 2014, which was introduced on December 2, 2014, and includes brief comparisons with H.R. 3964 , which passed the House on February 5, 2014, and S. 2198 , which passed the Senate on May 22, 2014. Some of this analysis draws from a CRS report comparing the two earlier bills: CRS Report R43649, Federal Response to Drought in California: An Analysis of S. 2198 and H.R. 3964 , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. Although nearly 60% of California is experiencing exceptional drought—the most severe category classified by the U.S. Drought Monitor —some water users also point to regulatory and court-imposed restrictions on water pumping to protect fish under the federal Endangered Species Act (ESA) as contributing to reduced CVP and SWP water deliveries. Thus, some refer to the drought as a "Congress-made" or "man-made drought." Similar claims were made in 2009 after three years of drought conditions led to water supply shortages in California. Frustration for CVP and SWP water contractors also occurred when California experienced a very wet year in 2011, and water deliveries were still reduced. Conversely, fishermen and others questioned to what degree increased Delta pumping in 2004 contributed to fish declines. Although reservoirs were mostly near or above average entering the 2012 water year, low precipitation during the 2011/2012 winter and biological opinion requirements for managing Delta pumps resulted in reduced CVP water deliveries for 2012 and again in 2013, a below-normal water year. A variety of factors affect CVP and SWP water deliveries. These include operational constraints pursuant to the federal ESA, as noted above, but also state water quality regulations and court orders implementing state and federal water quality and other laws, CVP allocations policies, and the state's long established water rights system. These latter factors can exacerbate the impacts of drought on water deliveries to some contractors. For example, the system of state water rights has a profound effect on who gets how much water and when, particularly in times of drought or other changes in the hydrologic cycle. Water shortages due to hydrologic variability and regulatory export restrictions have resulted in unequal impacts on CVP and SWP water contractors because of differences in priority of water rights underlying different water contracts and federal and state allocation policies. Although combined Delta exports have increased on average since the 1980s and early 1990s (see Figure 1 , above), even with implementation of several regulatory restrictions, CVP water allocations for some contractors have been significantly reduced, even in non-drought years (see Figure 2 for 2014 water-year allocations). Legislation addressing the management of the CVP and SWP is particularly controversial because the coordinated operation and management of the CVP and SWP involves a complex web of federal and state law, including the state water rights priorities mentioned above; water delivery contracts; federal, state, and local agency policies; multi-agency agreements; and other factors. Achieving consensus on such legislation is often difficult because a change in any of these factors can affect other parties and interests, including potentially altering the timing or amount of water made available to such parties or the underlying ecosystem. For example, if water pumped from the Delta is directed to be increased beyond the status quo, some question where that water will come from and what effect it might have on other water users or species, or in-Delta water quality. Similarly, by prohibiting involuntary reductions to those who receive water from the CVP and SWP, could that result in reduced water supplies or a change in the timing of water available to other water users not specified? How will such directions be squared with the declaration that the CVP must be operated in conformity with state water law and that there shall be "no redirected water supply or fiscal impacts"? For example, will it be possible to pump at the levels specified in the bill without having "redirected" impacts on other water users? How can such impacts be avoided, and if they cannot, who might bear responsibility or pay for unavoidable costs? These are some of the questions raised by H.R. 5781 , as well as H.R. 3964 and S. 2198 . H.R. 5781 attempts to address these issues. Some proponents in favor of the bill state that it aims to provide additional water supplies for users without altering environmental laws and regulations, and while preserving water rights and priorities. Further, they note that the bill would provide federal agencies with the flexibility to maximize water flows through the CVP and SWP in a short-term framework (i.e., the bill would expire in 2016 or when the California state drought emergency declaration is suspended). Some opponents of the bill state that it would increase flows of water out of the Bay-Delta for municipal, agricultural, and industrial uses as well as for species and habitat to the detriment of water quality in the Bay-Delta. Further, they note that the bill would alter biological opinions (BiOps) for listed species under ESA by increasing pumping rates for water out of the Delta, ultimately reducing the protections for these species and their habitat. The Obama Administration on December 5, 2014, issued a Statement of Administration Policy opposing passage of H.R. 5781 on the grounds that it "fails to equitably address critical elements of California's complex water challenges." The statement concludes with a notification of potential veto of H.R. 5781 after stating that "the bill appears to include a number of potentially conflicting mandates which can create confusion and undermine environmental laws, making it ripe for future litigation." Governor Brown's administration also stated that it opposed H.R. 5781 by implying that the bill would reignite water wars within the state of California. This analysis focuses on the most recently House-passed bill, H.R. 5781 . It includes a brief summary of key provisions of H.R. 5781 , and compares it to two other bills aiming to address different aspects of water supply and management in California, H.R. 3964 and S. 2198 . Some of this analysis draws from a CRS report comparing the two earlier bills, CRS Report R43649, Federal Response to Drought in California: An Analysis of S. 2198 and H.R. 3964 , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. A side-by-side comparison of comparable text in these bills is provided at the end of this report. Portions of H.R. 5781 address policy questions stemming from limited CVP and SWP water supplies in a similar way to H.R. 3964 and S. 2198 , with some exceptions. There are several slightly different and new provisions and subsections, including four new definitions in the bill. While Title I of H.R. 5781 —in similar fashion to S. 2198 —aims to maximize water supplies within existing law and regulations, Title II aims to protect third parties from "redirected" impacts and involuntary water supply reductions to the state and specified contractors (similar to language included in H.R. 3964 as passed by the House). There have been no hearings on the House- or Senate-passed bills, or on H.R. 5781 , and only limited debate on the bills themselves. The issues the bills address, however, have been debated within Congress for several years, including during hearings on similar bills. Also, there are no estimates of how much more water might be gained if the bills were passed, nor is there information on how much might be made unavailable to varied interests compared with the status quo. Thus, CRS analysis of the potential impacts of the bill and its effects on interests is limited. Further, the full impact of the legislation will likely not be known until it is understood how the Administration would implement the bill, and how implementation might differ from current management practices. H.R. 5781 was introduced on December 2, 2014, and passed the House on December 9, 2014. It includes three titles, which are discussed below: Title I. California Emergency Drought Relief. This title proposes several temporary measures intended to address water supply constraints during the ongoing drought in California, including authorizing the Secretary of the Interior to "maximize" water deliveries from the CVP and SWP through various emergency projects. It would also allow for flows that would achieve a base level of pumping by the CVP and SWP during a "temporary period of operational flexibility" of 28 days each water year. These temporary levels may exceed those required under certain biological opinions prepared under the Endangered Species Act. Title II. Protection of Third Party Water Rights. Title II aims to protect California water rights priorities under state law by directing the Secretary of the Interior to "adhere to California's water rights laws governing water rights priorities and to honor water rights senior to those held by the United States for operation of the Central Valley Project, regardless of the source of priority." It goes on to list several specific California water code sections, including two that were not previously listed in H.R. 3964 . It also addresses the rights related to specific diversions for senior water right holders in the Sacramento Valley and sets out a new water allocation schedule for broadly defined Sacramento River watershed agricultural water service contractors. Title III. Miscellaneous Provisions. This title states that there shall be no effect on the Bureau of Reclamation's obligation to operate the CVP in conformance with state law and provides a sunset provision for the act (September 30, 2016, or the end of the California drought emergency declaration, whichever is later). Each title of the bill is discussed in more detail below. Additionally, the table at the end of this document compares the text of H.R. 5781 to the relevant provisions of earlier drought bills in the 113 th Congress. Section 101 of H.R. 5781 contains definitions for the bill. Several terms are defined, including the Central Valley Project (CVP), Delta, State, and State Water Project (SWP). The "salmonid biological opinion" is defined as the opinion issued under the federal Endangered Species Act (ESA) by the National Marine Fisheries Service (NMFS) on June 4, 2009. The term "smelt biological opinion" is also defined as the biological opinion on the Long-Term Operational Criteria and Plan for coordination of the CVP and SWP issued by the Fish and Wildlife Service (FWS) on December 15, 2008. Both definitions for biological opinions (BiOps) appear to lock in the specified BiOp (based on its original date) for the bill. Since the bill could remain in effect for a period of time during which the BiOps could be amended or replaced, it raises the question of what would happen when an updated BiOp, perhaps based on new conditions or new information, conflicts with the earlier BiOps whose precedence appears to be mandated under the bill. Further, it raises the question of how a new BiOp might be treated under the bill. H.R. 5781 also contains a definition for the term "negative impact on the long-term survival": The term 'negative impact on the long-term survival' means to reduce appreciably the likelihood of both the survival and recovery of a listed species in the wild by reducing the reproduction, numbers, or distribution of that species. Th e term is used several times in subsections of Section 102(b) regarding how impacts on species are measured. C ertain actions would be required unless they would reduce appreciably the likelihood of both the survival and recovery of a listed species in the wild by reducing the reproduction, numbers, or distribution of that species. For example, Section 102(b)(2)(B) states that OMR flows shall be managed at -5,000 "unless current scientific data indicate a less negative [OMR] flow is necessary to avoid a negative impact on the long-term survival of the listed species." Th e definition in Section 101(3) and its use in H.R. 5781 raise questions about how it might be implemented. For example, the definition does not refer to listed species' critical habitat, which is considered under the ESA as es sential to the long-term health of the species. Some might question whether the term "distribution" as used in this definition would protect critical habitat or provide for recovery . At least one group has asserted that the bill establishes a "new standard" for implementation of the ESA, which could negatively affect healthy commercial and recreational fish stocks, as well as those listed as threatened or endangered under the federal ESA. Others contend that the bill still requires compliance with the ESA. For example, proponents argue that under the bill (e.g., Section 102(a)), actions are to be consistent with existing laws and regulations, and therefore existing ESA provisions and regulations would remain in effect. Section 102(a) of H.R. 5781 would direct the Secretary of Commerce and the Secretary of the Interior (together defined as "the Secretaries" under Section 101(5)) to direct the operations of the CVP and allow the SWP to provide the "maximum quantity of water supplies possible" to CVP agricultural, municipal and industrial (M&I), and refuge service and repayment contractors. The provision also allows the SWP to "provide the maximum quantity of water supplies possible," by approving, consistent with applicable laws and regulations, the following types of projects and operations: any project or operation to provide additional water supplies if there is any possible way to do so, unless the project or operations provide water supplies in a "highly inefficient" way, and any project or operation "as quickly as possible based on available information" to address emergency conditions. H.R. 5781 conditions this directive by making it subject to the existing priority of individuals and entities for diversion of water over the rights of the United States for operation of the CVP and the state for the SWP. This appears to clarify that water supplies generated under the authority of this section are to adhere to existing water rights that are senior to those of the CVP and SWP. H.R. 5781 reflects the approach of S. 2198 by directing the Secretaries to approve projects and operations to provide the maximum quantity of water supplies for users. Both bills would provide broad authority to the Secretaries to approve "any" project or operational change to address emergency provisions; however, limitations on this authority are contained in each bill. Further, this provision might be interpreted to convey less discretion to agencies when operating the CVP and provide them with specific authority to maximize water supplies. Agency actions would be pushed to maximize water supplies under this bill. To meet this directive, H.R. 5781 and S. 2198 state that projects and operations must be consistent with applicable laws and regulations. Both H.R. 5781 and S. 2198 would authorize the implementation of projects and operations as quickly as possible, which appears to reflect the urgency of addressing CVP and SWP water supply management during drought conditions. There are some key differences between the bills, however: H.R. 5781 implies that the additional water supplies generated by projects and operations would be realized by maximizing the operations of the CVP and SWP. This could limit the range of projects and operations that could be considered to those that would result in increased water supplies for the CVP and SWP (e.g., through increased conservation measures, water transfers or banking, or use of innovative technologies for improved water management, such as desalination or water reuse). S. 2198 did not specify that additional water supplies would be generated solely through CVP and SWP. H.R. 5781 further directs the Secretaries to "allow" the SWP to maximize its water supplies. Some might question how the word allow would be interpreted in implementing this section. H.R. 5781 would not allow for "highly inefficient" projects or operations. S. 2198 as passed by the Senate does not contain this provision. S. 2198 would provide the Secretary with new authority to approve projects that would otherwise require congressional authorization. This provision appears to address or reduce the possibility of authorizing large water infrastructure projects such as the Bay Delta Conservation Plan (BDCP), which might normally require congressional authorization for implementation. H.R. 5781 does not contain this provision and instead directs the Secretaries to approve "any" project unless "highly inefficient." There are several questions and issues that might arise from this section in H.R. 5781 and that also apply to S. 2198 . Some of these are as follows: Section 102(a) of H.R. 5781 raises the question of how agencies would provide the "maximum quantity of water supplies possible" to CVP and other contractors and, relatedly, how they would make such a determination consistent with laws and regulations. Implementation of the provision could be difficult and possibly contentious. For example, it might be difficult to measure the effects of providing maximum water supplies on species survival and viability and water quality until several years into the future. Alternatively, agencies and water users may not agree that particular actions are providing maximum water quantities. Notably, under the status quo, some observers already believe the agencies are maximizing water supplies to the detriment of species, while others believe the agencies are not doing enough to maximize water supplies within the parameters of existing laws and regulations. Further, some advocates fear that the maximization language may result in reduced reservoir levels, thereby creating larger water supply shortages in future years and jeopardizing urban water supplies. On the other hand, if the legislation were to result in the SWP's ability to pump and store more water south of the Delta, or if the legislation had other benefits for SWP contractors, its M&I contractors would presumably benefit—to the extent that such increases did not result in less water available for delivery in future years. Some may respond that if the bill is enacted, agency actions specified under this section would be directed to maximize water supplies for contractors as a priority over other considerations (e.g., water quality or habitat conservation). In response to this concern, others might contend that other factors such as water quality and species needs are addressed in laws and regulations that would prevent harm. H.R. 5781 uses the phrase "consistent with applicable laws" to condition the extent of projects and operations that can be used to maximize water supplies. This raises the question of how "consistent with the law" might be interpreted as opposed to "pursuant to" or "in compliance with" applicable laws. Some might question if the phrase "consistent with law" would allow for more agency discretion or flexibility than other phrases. Similar language was included in S. 2198 . Section 102(b) contains eight subsections that would direct the Secretaries to implement several specific project-related and operational actions largely in California for carrying out Section 102(a). As with Section 102(a), the actions in this section would be accomplished consistent with applicable laws and regulations. A summary of the subsections follows: Section 102(b)(1) would direct the applicable Secretary to ensure that the Delta Cross Channel Gates (Delta Gates) will remain open to the maximum extent practicable, timed to maximize peak tide flood periods and to provide water supply and water quality benefits. According to the section, this operation is to be consistent with the State Water Resources Control Board (SWRCB) order for a temporary urgency change (TUC) in terms, in response to drought, effective January 31, 2014, or a successor order. Further, findings on the diurnal behavior of juvenile salmonids would be used to manage the Delta Gates. This sub-section is similar in intent to Section 4(C)(1) in S. 2198 , with the exception of using the findings of diurnal behavior. S. 2198 would also direct the Secretaries to collect data on how the operations of the Delta Gates affect listed species under ESA, and effects on water quality and water supply. Further, S. 2198 would direct an assessment of the data collected, and require the Director of the National Marine Fisheries Service (NMFS) to make recommendations for changing the operations of the CVP and SWP. Section 102(b)(2)(A) would direct the Secretaries to implement turbidity control strategies that would allow for increased water deliveries while avoiding a negative impact on the long-term survival of delta smelt at the SWP and CVP pumps. Section 102(b)(2)(B) would require the Secretary to operate pumps within the ranges provided for in the salmonid and smelt BiOps as defined in the act and manage the reverse flow of the Old and Middle River at negative 5,000 cubic feet/second (cfs), unless data indicate a lower negative flow is needed to avoid a negative impact on the long-term survival of the listed species. If a lower negative flow is determined to be necessary, the finding must be in writing, with an explanation of the data examined and how the data are connected to the choice to reduce the flows. It is unclear how data can be collected and examined to justify a decision on turbidity control within the time frame to make changes to water flows. This provision would also lower the discretionary ability of managers to change flows, since they would have to collect data and justify their intent in writing before taking action. Section 102(b)(3) would direct the Secretaries to adopt a 1:1 inflow-to-export ratio for increased San Joaquin River flows resulting from "the voluntary sale, transfers, or exchanges of water from agencies with rights to divert water from the San Joaquin River or its tributaries." The flow would be measured at Vernalis on a three-day rolling average from April 1 through May 31 each year. The transactions described above could only proceed if the Secretary determines that the environmental effects of the transactions are consistent with applicable law and that conditions in the Delta are suitable for transferring water through the Delta according to permitted water rights. Some are concerned that adopting a 1:1 ratio could have an environmental effect on fish and habitat in the Delta if insufficient water supplies remain in the Delta. H.R. 5781 aims to address this issue by requiring a secretarial determination that the transfers would be permissible under applicable law, including the ESA. Although language directing the Secretaries to adopt a 1:1 inflow-to-export ratio is similar to that in S. 2198 , there is no provision similar to Section 102(b)(3) in H.R. 3964. Section 102(b)(4) would direct the Secretaries to issue "all necessary permit decisions" under their authority for temporary barriers or operable gates in Delta channels to improve water quantity and quality for SWP and CVP water contractors and other water users within 30 days of receiving a permit application from the state. According to this section, barriers or gates "should" provide species benefits and protection of in-Delta water quality, and "shall" be designed so that formal Section 7 consultation under ESA would not be necessary. This provision is similar to Section 4(c)(5) in S. 2198 , except that S. 2198 only includes South-of-Delta water contractors for this action. Section 102(b)(5)(A) would direct the Secretaries to complete all necessary National Environmental Policy Act (NEPA) and ESA requirements, within 30 days of receiving a request for a permit, for final permit decisions on water transfers associated with voluntary fallowing of nonpermanent crops in the state of California. Section 102(b)(5)(B) would allow for "any water transfer request associated with fallowing" to maximize water supplies for non-habitat uses, as long as the action would comply with federal law and regulations. This section is similar to Section 4(c)(6) of S. 2198 . H.R. 3964 also contains language that would facilitate water transfers and associated permit decisions in accordance with ESA and NEPA. It appears that the proposed legislation would shorten the current time period for completing NEPA and ESA requirements, which would allow for expedited water transfers, especially when a listed species is involved. It is not clear how much water ultimately might be made available for export from the Delta under the expedited review process. Section 102(b)(6) would allow any North-of-Delta agricultural water service contractor with unused CVP water to receive this unused water through April 15 of the following year if certain conditions are met, including that (1) a request for an extension is submitted, and (2) the requesting contractor certifies that if the water is not received, the contractor will have insufficient water supplies to meet contract obligations. S. 2198 and H.R. 3964 would direct rescheduled water supplies in the San Luis Reservoir to be held for use in the following year by water users. Section 102(b)(7)(A) would direct the Secretaries to "the maximum extent possible ... based on the availability and quality of groundwater and without causing land subsidence," to meet Level 2 and Level 4 water supply needs of certain refuges through the improvement and installation of wells for groundwater resources and the purchase of water from willing sellers. Currently, multiple state and federally owned wildlife refuges in the Central Valley are served by surface water contract deliveries and other means (including wells and water purchases) required under the Central Valley Project Improvement Act (CVPIA). H.R. 5781 would also redirect to CVP contractors a quantity of water equal to that obtained for refuges or "managed wetlands" from measures in subparagraph (A). This provision is similar in intent to Section 4(c)(9) of S. 2198 ; however, the water supplies for refuges would appear to be maximized from groundwater sources under H.R. 5781 . It is uncertain how much of the refuge water supply needs could come from groundwater and whether it might cause a reduction in water supplies for other users, or if groundwater quality would be suitable for refuge management. Section 102(b)(8) would direct the Secretaries to implement "offsite upstream projects" in the Delta and upstream Sacramento River and San Joaquin River basins in coordination with the California Department of Water Resources and Department of Fish and Wildlife. Projects are to offset the effects of actions taken under this act on ESA listed species. This is the same provision as Section 4(c)(12) in S. 2198 . It appears that this language could apply to a broad range of projects, including habitat restoration projects. Projects might include habitat restoration, water quality improvements, storage, or potentially flow adjustments as long as they offset the effects of other projects that might be implemented under this bill. It is unclear, however, where the funding would come from for implementing these projects. Section 102(c) states that the provisions of Section 102 shall apply to all federal agencies that have a role in approving projects in Sections 102(a) and 102(b) of this bill. Section 102(d) would direct federal agencies, upon request of the state of California, to use "expedited procedures under this subsection" to make final decisions related to federal projects or operations that would provide additional water or address emergency drought conditions under Sections 102(a) and 102(b). After receiving a request from the state, the head of an agency referred to in Section 102(a), or the head of another federal agency responsible for reviewing a project, the Secretary of the Interior would be required to convene a "final project decision meeting" with the heads of all relevant federal agencies "to decide whether to approve a project to provide emergency water supplies." After receiving a request for resolution, the Secretary of the Interior would be required to notify the heads of all relevant agencies of the request for resolution, the project to be reviewed, and the date of the meeting. The meeting would need to be convened within 7 days of the request for resolution. Not later than 10 days after that meeting is requested, the head of the relevant federal agency is to issue a final decision in writing on the project. Under Section 102(d)(5), the Secretary of the Interior would be authorized to convene a final project decision meeting at any time, regardless of whether a request for resolution is requested. This is the same languge as S. 2198 . Section 103 would authorize a new "temporary operational flexibility" that was not provided for in H.R. 3964 or S. 2198 . The temporary period would be authorized for a "cumulative" period of 28 days after October 1 of each water year. These operations are to be triggered during certain high flow conditions on the Sacramento River. During these conditions, additional "negative flows" on the Old and Middle Rivers (also known as "OMR flows," which typically result from increased pumping by the CVP and SWP) than would otherwise be allowed under certain biological opinions could occur. Currently, ESA biological opinions for salmon and Delta smelt prohibit OMR flows more negative than -5,000 cubic feet per second (cfs), which are considered unsafe for imperiled fish species. The legislation appears to direct flows that lead to a daily average of -7,500 cfs over a 28-day period. This would likely result in temporarily increased pumping and additional water supplies for some CVP and SWP contractors compared to what would otherwise be available. This section of the legislation also includes certain provisions to study and mitigate potential impacts associated with this new authority, including a period of "minimum duration" at the beginning of each water year during which the magnitude of negative OMR flow could be lessened (i.e., pumping decreased) to prevent smelt entrainment. It includes other assurances, such as providing that the section "shall not affect" the aforementioned salmon BiOp from April 1 to May 31, unless the Secretary of Commerce finds that some or all of the BiOp requirements may be adjusted without additional adverse effects beyond those allowed under the projects' species take permits and other allowances pursuant to the federal ESA. Finally, Section 103 also provides that in implementing the temporary operational period, the Secretaries are required to meet the requirements laid out in the section, but shall not have to make additional efforts to justify their exercise of these authorities. Some of the most prominent provisions of Section 103 are summarized below: Section 103(a) would authorize CVP and SWP operations at levels that result in a daily average of Old and Middle River (OMR) flows of -7,500 cfs during "28 cumulative days after October 1" of each water year. These operations are authorized "consistent with avoiding a negative impact on the long-term survival in the short-term upon listed fish species under ESA." Section 103(b) states that these temporary operations are authorized only when specific daily average flow conditions (17,000 cfs) are met or exceeded at a specific point on the Sacramento River. Section 103(c) states that the Secretaries of the Interior and Commerce "may" continue imposing requirements under the smelt and salmon biological opinions "as they determine are reasonably necessary," during the temporary period. However, it does not mandate that these provisions be imposed. Section 103(d)(1) would require that the bill be consistent with requirements under state law, such as the California State Water Resource Control Boards Decisions 1641 (also known as "D-1641"). It is not clear how these requirements might affect the proposed flexibility. Section 103(d)(2) would allow for "less negative" OMR flows (i.e., less pumping and more flows to benefit species) during the initial sediment flush each water year "for a minimum duration." This would be undertaken to avoid movement of smelt that would potentially increase entrainment at CVP and SWP pumps during this time. Section 103(d)(3) would require that the legislation not affect implementation of the salmon biological opinion from April 1 to May 31, except under certain emergency circumstances. Thus, that biological opinion would be effective during a two-month period, unless the Secretary of Commerce determined that such actions would not be in violation of the federal ESA. Section 103(d)(4) would authorize a monitoring program that generally attempts to identify any negative impacts associated with the temporary flexibility being authorized under the section, including exceedance of incidental take levels under the ESA. It also would authorize actions to mitigate any negative impacts of other parts of this section. Section 103(e) would provide that CVP and SWP operations resulting in flows "less negative" than -7,500 cfs (i.e., less pumping) before the 28 cumulative days of operational flexibility authorized shall not be counted toward the 28-day cumulative period in the legislation. Therefore, only days with a daily average flow of -7,500 cfs would be counted for the 28-day cumulative total. Section 103(f) would direct the commissioner to use emergency ESA consultation procedures if necessary to adjust BiOp criteria for the temporary period of operational flexibility. Section 103(g) would stipulate that in making determinations under this section, the Secretaries of the Interior and Commerce would not be required to provide supporting detail at a greater level than would be provided under this section. Since comparable text to these provisions was not included in H.R. 3964 or S. 2198 , there has been limited debate and analysis of the proposed temporary operational flexibility under Section 103. However, this section raises multiple questions, including: How much additional water would be made available to CVP and SWP water contractors with the flexibility proposed under this section? How would the proposed operational flexibility be balanced with requirements under the Endangered Species Act? What would be the effect of the new pumping levels on species? How would the requirement for adherence to California state laws affect implementation of this section? Section 104 would require that the Secretary of the Interior provide a progress report on the implementation of Sections 101, 102, and 103 of the legislation 90 days after enactment, and every 90 days thereafter. No additional detail on the contents of this reporting is provided under the legislation. Section 105 would require that one year after enactment, the Secretary of the Interior shall provide an update on the status of feasibility studies undertaken pursuant to Section 103(d)(1), including timelines for completion and environmental documents. The reference to Section 103(d)(1) refers to feasibility studies for four water storage projects authorized under P.L. 102-575 , CALFED legislation: Shasta dam raise, Sites Reservoir, Los Vaqueros dam raise, and Upper San Joaquin River storage (often referred to as Temperance Flats). Title II includes provisions that aim to protect California water rights priorities under state law. It would do so by directing the Secretary of the Interior to "adhere to California's water rights laws governing water rights priorities and to honor water rights senior to those held by the United States for operation of the Central Valley Project, regardless of the source of priority." The title goes on to list several specific California water code sections, including two that were not previously listed in H.R. 3964 . It also addresses water rights related to specific diversions for senior water right holders in the Sacramento Valley. Some of this language is more detailed than similar provisions in H.R. 3964 . In contrast, S. 2198 simply states: "Nothing in this Act preempts any State law in effect on the date of enactment of this Act, including area of origin and other water rights protections" (Section 7 of S. 2198 ). The specificity in H.R. 5781 may raise questions as to what is not included in the water rights protection language. For example, H.R. 5781 includes language specifically protecting Friant water users from unintended impacts from Section 204, and the American River Division from Section 204(a)—two provisions not previously included in H.R. 3964 . Following is a discussion of key Title II sections and subsections. Section 201 addresses "consistency determinations" for the SWP made or to be made by the California Department of Fish and Wildlife (DF&W) and provides that if more water is made available to the CVP than the SWP due to such determinations, then the CVP shall offset such reductions. These determinations are to be made to comply with the California Endangered Species Act (CESA). In recent years the state has generally relied on federal NMFS and FWS BiOps for the coordinated operations of the SWP and the CVP, pursuant to the federal ESA, to suffice for compliance with CESA. Further details of the provision are as follows: Section 201(a) directs the Secretary of the Interior to confer with DF&W on potential impacts to any ESA/CESA consistency determination for SWP operation "in connection with" implementation of this act. Section 201(b) states that if DF&W revokes consistency determinations for the SWP, amends or issues new consistency determinations resulting in reduced water supply to the SWP compared with water available under the 2008 Delta smelt BiOp and the 2009 salmonid BiOp, or requires take limits under CESA for the SWP that directly or indirectly result in reduced water supply to the SWP as compared with the BiOps as defined in the act, and result in less water for the SWP than the CVP, then additional "yield" must be made available to the SWP to offset losses resulting from the "Department's" action. Thus, it appears that if the state imposes stricter requirements on the operation of the projects under CESA, resulting in the CVP exporting more water than the SWP, then the SWP losses would need to be offset. It is not clear how this language relates to or might conflict with the Coordinated Operations Act (COA, P.L. 99-546 ), which in general directs the Secretary of the Interior to operate the CVP in conformity with state water quality standards for the Bay-Delta and in conjunction with the SWP, pursuant to a Coordinated Operations Agreement. Section 201(c) directs the Secretary of the Interior to immediately notify DF&W in writing if the Secretary determines that implementation of the BiOps "consistent with this Act" reduces environmental protections for any species covered by the opinions. However, it does not prescribe any action. In sum, the section allows the state to revoke consistency, but if such action reduces water available to the SWP compared to the CVP, then the difference must be offset, presumably by the CVP or other federal means. Section 202 addresses state water rights, generally directing the Secretary of the Interior in operation of the CVP to adhere to California water rights laws. It lists specific sections of the water code, many of which were also listed in H.R. 3964 ; however, two additional sections of the California Water Code Part 2 of Division 2, Article 1.7 (Sections 11461 and 11462), are listed. Section 202 also has more detail than S. 2198 regarding specific diversions protected with respect to implementation of the act and Section 7 of the federal ESA (although, in parentheses, the entire ESA is referenced). The specific references are as follows: Section 202(a) would direct the Secretary of the Interior in operation of the CVP to adhere to California water rights laws governing water rights priorities and to honor senior rights held by the United States for operation of the CVP, regardless of the source of priority, including pre-1914 appropriative rights and other specific rights "perfected or to be perfected pursuant to California water code Part 2 of Div. 2. Article 1.7 (commencing with section 1215 of chapter 1 of part 2 of division 2, sections 10505, 10505.5, 11128, 11460, 11461, 11462, and 11463, and sections 12200 to 12220)." Section 202(b) would direct that any action taken by the Secretaries pursuant "to both this Act and section 7 of the Endangered Species Act of 1973 (16 U.S.C. 1531, et seq.) requiring diversions from the Sacramento River or the San Joaquin River watersheds upstream of the Delta be bypassed[,] shall not be undertaken in a manner that alters the water rights priorities established by California law." This diversion language is slightly different than that found in Section 401 of H.R. 3964 ; however, the difference may have significant meaning. First, H.R. 5781 refers to any action in both this act and Section 7 of ESA (federal agency responsibilities under ESA, including, among other things, consultation), whereas H.R. 3964 refers to all actions under ESA (listing, conservation, enhancement, recovery, or other protection of any listed species). Both versions appear to address protection of senior water rights holders and to require that state water rights be given higher priority than impacts from implementation of ESA (Section 7 only, for H.R. 5781 , although the reference in parentheses includes the full ESA citation). Section 202(c) would direct that the title shall not alter existing authorities "provided to and obligations placed upon" the federal government under the ESA. Section 202(d) notes that with respect to individuals and entities with water rights on the Sacramento River, the mandates of this section may be met, in whole or in part, through a contract with the Secretary (presumably the Secretary of the Interior) executed pursuant to Section 14 of P.L. 76-260 (43 U.S.C. 389; the Reclamation Project Act of 1939), which authorizes the Secretary of the Interior to enter into contracts for exchange or replacement of water, water rights, or adjustment of water rights, among other authorities (e.g., purchasing or condemning lands and interests in connection with construction or operation of a project), provided that such is in conformance with recently renewed Sacramento River settlement contracts. The status of these contracts is currently being litigated. Section 203(a) would direct the Secretary of the Interior to ensure that except as provided in water service or repayment contracts, actions taken to comply with obligations imposed pursuant to or as a result of this act, including consultation under Section 7 of the ESA and other state and federal laws, shall not directly or indirectly result in involuntary water supply reductions or fiscal impacts to those who receive water from the SWP or CVP due to the act. Nor shall they "cause redirected adverse water supply or fiscal impacts to those within the Sacramento River watershed, the San Joaquin River watershed or the State Water Project service area." It appears that the language is aimed at avoiding additional reductions to water users due to the act, ESA, or other federal laws, as well as any resultant fiscal impacts. Section 404 of H.R. 3964 includes similar language; however, it is more broadly written and does not include the qualification referring to water service and repayment contracts, which includes a savings clause for reductions in case of drought, other physical causes, and actions to meet legal obligations. Section 203(b) would protect public, local, and state agencies or subdivisions of the state and entities from incurring any costs "solely pursuant to or as a result of this Act" that would not otherwise have been incurred, unless incurred on a voluntary basis. It does not address who or what entities should bear such costs if they occur. Nor does it address what type of costs would be involved. H.R. 3964 includes a similar provision; however, it directs that no involuntary cost shall be imposed on any CVP contractor, "or any other person or entity." Section 203(c) would direct that nothing in the act shall modify or amend rights and obligations of the parties to any contract, including CVP water allocations to senior water rights contractors or SWP contractors and SWP settlement contractors. Section 204 would provide new allocation criteria for existing CVP agricultural water service contractors within the Sacramento River Watershed (see Table 1 for the allocations), subject to existing water rights priority for existing Sacramento River water rights holders, San Joaquin exchange contractors, and refuge or "managed wetlands" water supplies pursuant to Section 3406(d) of P.L. 102-575 (the Central Valley Project Improvement Act). Existing Sacramento River Watershed agricultural water service contractors are defined in the act to include Shasta, Trinity, and Sacramento Division agricultural water service contractors. The language is silent on whether such allocations might affect SWP and in-Delta or South-of-Delta contractors; however, arguably, if Sacramento River agricultural water service contractors receive more water in dry years it would seem that water might be diverted and used again downstream by others and possibly be available for diversion from the Delta. On the other hand, if water in storage is reduced, it could have impacts for fish and wildlife and for supplies available in future years. It is not clear how or if the proposed allocation schedule would affect Trinity River flows. While the Trinity River is not hydrologically connected to, or part of, the Sacramento River watershed, water is diverted from the Trinity River to the Sacramento River via a tunnel, which is part of the CVP diversion infrastructure. Trinity River flows are not included in the list of limitations to which Section 204 allocations are subject; however, to the extent that Section 202(a) is inclusive of all state water rights priorities, such rights associated with Trinity flows, or other basin water supplies, may be protected. That said, Section 204 includes the following limitations: Section 204(b) would direct that the new allocation schedule contained in Section 204(a) shall not modify any provision of a water service contract that addresses municipal and industrial (M&I) water shortage policy or affect the authority of the Secretary of the Interior to adopt or modify such shortage policies. (Section 204(b)(2) regarding the Secretary's authority is repeated verbatim in Section 204(b)(3).) Section 204(b) also states that the subsection shall not affect the operation of American River Division operations or deliveries from any American River Division, "its units or its facilities." Section 204(c) also states that the section shall not affect allocations to Friant Division contracts or cause involuntary reductions and would direct the Secretary of the Interior to develop a rescheduling program for CVP Sacramento water service contractors. Section 301 addresses preemption of Reclamation law and expiration of the act. Section 301 of H.R. 5781 states that nothing in the act shall preempt or modify existing Reclamation obligations under Reclamation law to operate the CVP in conformity with state law, including water rights priorities. H.R. 3964 includes a section that would have preempted state law in regard to implementation of the San Joaquin River Restoration Settlement Act. In contrast, Section 7 of S. 2198 includes a general declaration stating that "[n]othing in this Act preempts any State law in effect on the date of enactment of this Act, including area of origin and other water rights protections." Section 302 states that the act will expire on September 30, 2016, or when the California state drought emergency declaration is suspended, whichever is later. This provision puts the state of California in the driver's seat as to how long the legislation will remain in place. During the last drought, the state's drought declaration remained in place longer than other indicators, such as the U.S. Drought Monitor and hydrologic data, might have otherwise indicated. There is no comparable provision in H.R. 3964 . S. 2198 includes a similar provision, but provides that only certain sections of the bill would expire. The following three tables show a comparison of H.R. 5781 with selected similar sections of H.R. 3964 and S. 2198 . The comparative analysis among the bills is summarized in the discussion above. The tables below show only a comparison of text from the bills themselves. H.R. 5781 is used as the base for comparison. Selected provisions that compare to provisions under H.R. 5781 are inserted into the table. If the provisions in H.R. 3964 and S. 2198 are exactly the same as H.R. 5781 , or if no comparable provision to H.R. 5781 is found, it is noted in the tables. | California is experiencing serious water shortages due to widespread drought. Both of the state's large water infrastructure projects, the federal Central Valley Project (CVP) and the State Water Project (SWP), have had to reduce water deliveries in 2014 to the farmers and communities they serve. Dry hydrological conditions, in combination with regulatory restrictions on water being pumped from the Sacramento and San Joaquin Rivers Delta confluence with the San Francisco Bay (Bay-Delta) to protect water quality and fish and wildlife, have resulted in water supply cutbacks for CVP and SWP water users throughout their respective service areas and historic cutbacks to senior water rights in some areas. The effects are widespread and are being felt by many economic sectors, including agriculture, urban areas, and fish and wildlife resources. Several bills have been introduced in the 113th Congress to address California water supply and drought in particular. The most recent of these was H.R. 5781, the California Emergency Drought Relief Act of 2014, introduced on December 2, 2014. It contains three titles that aim to increase water supplies for users through approving modifications in water conveyance operations and certain water projects. Under the bill, these actions are to be consistent with existing laws and regulations. It also would aim to protect water rights and existing water allocations for users under certain circumstances, and would aim to prohibit any "redirected adverse water supply or fiscal impacts." The proposed legislation would expire on either September 30, 2016, or on the date that the governor of California suspends the state of drought emergency declaration, whichever is later. This report provides a description and analysis of H.R. 5781, the California Emergency Drought Relief Act of 2014, which passed the House December 9, 2014. It includes a summary of key provisions of the bill, and compares it with two other bills from the 113th Congress aiming to address different aspects of drought and water management in California: H.R. 3964, which passed the House on February 5, 2014; and S. 2198, which passed the Senate on May 22, 2014. Some of this analysis draws from a CRS report comparing the two earlier bills: CRS Report R43649, Federal Response to Drought in California: An Analysis of S. 2198 and H.R. 3964, by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. |
D isaster Unemployment Assistance (DUA) benefits are available only to those individuals who have become unemployed as a direct result of a declared major disaster and who are not eligible for regular Unemployment Compensation (UC). First created in 1970 through P.L. 91-606, DUA benefits are authorized by the Robert T. Stafford Disaster Relief and Emergency Relief Act (the Stafford Act), which authorizes the President to issue a major disaster declaration after state and local government resources have been overwhelmed by a natural catastrophe or, "regardless of cause, any fire, flood, or explosion in any part of the United States" (42 U.S.C. 5122(2)). Based upon the request of the affected state's governor, the President may declare a major disaster. The declaration identifies the areas in the state eligible for assistance. The declaration of a major disaster provides the full range of disaster assistance available under the Stafford Act, including, but not limited to, the repair, replacement, or reconstruction of public and nonprofit facilities, cash grants for the personal needs of victims, housing, and unemployment assistance related to job loss from the disaster. The UC program generally does not provide UC benefits to the self-employed, to those who are unable to work, or to those who do not have a recent earnings history. However, when the President declares a major disaster, individuals who would typically be ineligible for UC (or who have exhausted UC benefits) may be eligible for DUA. In some cases, UC beneficiaries who had an entitlement to UC benefits of fewer than 26 weeks and who had become unemployed as a direct result of a disaster and exhaust their weeks of UC entitlement may be entitled to some DUA benefits. No more than a total of 26 weeks of total benefits (UC plus DUA) are allowable in this situation. DUA benefits are funded through the Disaster Relief Fund (DRF) administered by the Federal Emergency Management Agency (FEMA). The DRF is funded annually through discretionary appropriations on a no-yea r basis, meaning that any unobligated funds from a previous fiscal year may be used in future fiscal years. In general, when the balance of the DRF has become low, additional funding has previously been provided through annual and/or supplemental appropriations to replenish the account. DOL administers the DUA program and coordinates with FEMA to provide the funds to the state UC agencies for payment of DUA benefits and payment of state administrative costs under agreements with DOL. The individual eligibility requirements for DUA differ from the UC program requirements. First, an individual generally must have no entitlement to UC benefits. (UC beneficiaries who had an entitlement to UC benefits of fewer than 26 weeks and who had become unemployed as a direct result of a disaster and exhaust their weeks of UC entitlement may be entitled to DUA benefits. No more than a total of 26 weeks of benefits [UC plus DUA] are allowable in this situation.) For example, eligibility for DUA benefits does not necessarily require that the individual have a substantial work history and in some cases does not require that the worker be available for work (unlike the UC program requirements). In particular, the DUA regulation defines eligible unemployed workers to include the self-employed; workers who experience a "week of unemployment" following the date the major disaster began when such unemployment is a direct result of the major disaster; workers unable to reach the place of employment as a direct result of the major disaster; workers who were to begin employment and do not have a job or are unable to reach the job as a direct result of the major disaster; individuals who have become the breadwinner or major support for a household because the head of the household has died as a direct result of the major disaster; and workers who cannot work because of injuries caused as a direct result of the major disaster. As with state UC programs, workers who do not have permission to work legally in the United States are not eligible for DUA benefits. Noncitizens must have a Social Security number and an alien registration card number in order to apply for DUA benefits. Generally, applications must be filed within 30 days after the date the state announces availability of DUA benefits. When applicants have good cause, they may file claims after the 30-day deadline. This deadline may be extended. However, initial applications filed after the 26 th week following the declaration date will not be considered. On November 13, 2001, DOL issued a new interpretive rule clarifying the definition of the phrase "unemployment as a direct result of the major disaster." DOL issued this clarifying rule because the September 11, 2001, disasters presented a number of exigencies not anticipated by the existing regulations. The action by DOL amended 20 C.F.R. §625.5 by adding a new paragraph (c) to read as follows: §625.5 Unemployment caused by a major disaster. (c) Unemployment is a direct result of the major disaster. For the purposes of paragraphs (a)(1) and (b)(1) of this section, a worker's or self-employed individual's unemployment is a direct result of the major disaster where the unemployment is an immediate result of the major disaster itself, and not the result of a longer chain of events precipitated or exacerbated by the disaster. Such an individual's unemployment is a direct result of the major disaster if the unemployment resulted from: (1) physical damage or destruction of the place of employment; (2) physical inaccessibility of the place of employment due to its closure by the federal government, in immediate response to the disaster; or (3) lack of work, or loss of revenues, provided that, prior to the disaster, the employer, or the business in the case of a self-employed individual, received at least a majority of its revenue or income from an entity that was either damaged or destroyed in the disaster, or an entity closed by the federal government in immediate response to the disaster. Prior to the construction of this new rule, the phrase "unemployed as a direct result of a major disaster" had never been defined in the regulations. Although DOL issued the new clarifying rule in the wake of the September 11, 2001, disasters, the rule applies to any subsequently declared major disasters. The rule is intended to make clear a distinction between those individuals unemployed as an immediate result of the disaster itself, and those whose unemployment may have been caused by a long chain of events initiated by the disaster. The rule is also intended to exclude from DUA those individuals whose unemployment is the result of general economic decline that has been an indirect effect of a major disaster. DUA benefits are generally calculated by state UC agencies under the provisions of the state law for UC in the state where the disaster occurred. The maximum weekly benefit amount is determined under the provisions of the state law. The minimum weekly DUA benefit a worker may receive is half of the average weekly UC benefit for the state where the disaster occurred. In all cases, workers will receive a DUA benefit that is at least half of the average UC benefit for that state and cannot receive more than the maximum UC benefit available in that state. DUA beneficiaries (because they are not entitled to regular UC or have exhausted their entitlement to UC) are not eligible to receive Extended Benefits (EB). When a reasonable comparative earnings history can be constructed, DUA benefits are determined in a similar manner to regular state UC benefit rules. Self-employed persons are expected to bring in their tax records to prove a level of earnings for the previous two years. These records would take the place of the employer-reported wage data in UC benefit determination. Likewise, workers who would otherwise be eligible for UC benefits except for the injuries caused as a direct result of the disaster that make them unavailable for work would receive DUA benefits of an amount equivalent to what they would have received under the UC system if they were not injured and were available to work. Workers who do not have a sufficient employment history to qualify for UC benefits (either as a new worker or as a recent hire) receive a DUA benefit equivalent to half of the average UC benefit for that state. Unemployed workers could also be eligible for reemployment services, which may include counseling and referrals to suitable work opportunities. DUA assistance is available to eligible individuals as long as the major disaster continues, but no longer than 26 weeks after the disaster declaration. The duration of DUA has been temporarily extended for certain disasters three times: after the September 11th terrorist attacks, after the 2005 Hurricanes Katrina and Rita, and after the 2017 Hurricanes Irma and Maria. In the 107th Congress, P.L. 107-154 was signed into law on March 25, 2002, temporarily extending the duration of DUA benefits from 26 to 39 weeks for victims of the September 11, 2001, terrorist attacks in the declared major disaster areas in New York and Virginia. This was the first time the duration of DUA benefits was statutorily extended. This extension did not apply to any subsequent major disasters. In the 109th Congress, P.L. 109-176 was signed into law on March 6, 2006, extending the duration of DUA benefits from 26 to 39 weeks for victims of the Hurricanes Katrina and Rita disasters. This extension ended on June 3, 2006, for those qualifying for benefits on account of Hurricane Katrina and on June 24, 2006, for those affected by Hurricane Rita. This extension did not apply to any subsequent major disasters. In the 115th Congress, P.L. 115-254 , the FAA Reauthorization Act of 2018, was signed into law on October 5, 2018. Among its many provisions, it retroactively extended DUA for an additional 26 weeks for persons who were unemployed in Puerto Rico and the U.S. Virgin Islands as a direct result of the 2017 Hurricane Irma or Hurricane Maria disasters. (This created a total potential entitlement to DUA of up to 52 weeks for some individuals.) Because the disasters had both been declared more than 52 weeks before the enactment of P.L. 115-254 , the remaining DUA weeks will be paid retroactively. Individuals who worked in these areas and who have exhausted entitlement to UC or EB may also be eligible for DUA benefits for the remaining otherwise uncompensated weeks in the disaster assistance period that were not covered by UC and EB. DUA benefits may be reduced by other income received by the DUA beneficiary. These reductions are made in a manner similar to how such additional income reduces UC benefits (e.g., all states disregard some earnings as an incentive to take short-term work while unemployed workers search for a permanent job), but do not mirror them exactly. The reductions are made for additional income that includes benefits or insurance for loss of wages due to illness or disability; supplemental unemployment benefits paid pursuant to a collective bargaining agreement; private income protection insurance; worker's compensation or survivor's benefits if the DUA beneficiary becomes household head due to the head of the household's death because of the disaster; retirement, pension, or annuity income; earnings from employment or self-employment; and subsidy or price support payments, crops insurance, and farm disaster relief payments. When the President declares a major disaster in a state and indicates DUA benefits may be available, the state's UC agency requests DUA funds from DOL, which in turn receives funds from the Disaster Relief Fund admi nistered by FEMA. The DOL obligates a portion of that request to the state. The state may request more funding as a supplement if needed. Table 1 shows DUA benefit payments from FY2002 through April 2018. Figure 1 plots the number of individuals who applied for DUA benefits (Initial Claims) and the number of individuals who received DUA benefits for at least one week (First Payments) from January 2001 through April 2018. As with the UC program, many more individuals apply for DUA benefits than receive them. There is a seasonal element to claims and payments that centers on the hurricane season (running from June 1 to November 30). The one exception to the patterns of initial claims and first payments centering on the hurricane season is the September 11, 2001, terrorist attacks. Workers continued to apply for and receive benefits stemming from the terrorist attacks in substantial numbers through March 2002. This was attributable to the extension of benefits for an additional 13 weeks provided by P.L. 107-154 . The Hurricanes Katrina and Rita disasters overwhelm all other disasters in the amount of benefits that were paid. The extension of DUA benefits for an additional 13 weeks allowed workers who would have originally been receiving UC benefits and had exhausted them to file for DUA benefits. This created a second wave of first filings and initial claims in March 2006. To determine whether DUA is available in a state, disaster victims must ascertain whether the President has declared the event a major disaster; for which counties (if any) DUA has been made available; and how to contact the state UC agency. FEMA maintains a list of disasters by calendar year, located at http://www.fema.gov/disasters . Each disaster is given a contract number , which provides a link to relevant information pertaining to each disaster, including a list of counties designated to receive assistance. To determine if individual disaster assistance is available for a particular address (and the potential availability of DUA), individuals should access http://disasterassistance.gov and follow the instructions. If counties in a state have been included in a major disaster declaration and have been designated to receive DUA, it is necessary to contact the state's unemployment agency to obtain the details of how to apply for and receive DUA benefits. The DOL maintains a website with links to each state's unemployment agency at https://www.careeronestop.org/localhelp/unemploymentbenefits/unemployment-benefits.aspx . | Disaster Unemployment Assistance (DUA) benefits are available only to those individuals who have become unemployed as a direct result of a declared major disaster and are not eligible for regular Unemployment Compensation (UC). First created in 1970 through P.L. 91-606, DUA benefits are authorized by the Robert T. Stafford Disaster Relief and Emergency Relief Act (the Stafford Act), which authorizes the President to issue a major disaster declaration after state and local government resources have been overwhelmed by a natural catastrophe or, "regardless of cause, any fire, flood, or explosion in any part of the United States" (42 U.S.C. §5122(2)). The DUA program provides income support to individuals who become unemployed as a direct result of a major disaster and who have no remaining entitlement for regular UC benefits. DUA is funded through the Federal Emergency Management Agency (FEMA) and is administered by the Department of Labor (DOL) through each state's UC agency. DUA beneficiaries (because they are not entitled to regular UC) are not eligible to receive Extended Benefits (EB). On October 5, 2018, P.L. 115-254, the FAA Reauthorization Act of 2018, was signed into law. Among its many provisions, it temporarily extends the duration of DUA for an additional 26 weeks (up to 52 weeks total) for persons who were unemployed in Puerto Rico or the U.S. Virgin Islands as a direct result of the 2017 Hurricane Irma and Hurricane Maria disasters. This report contains information on how to ascertain if an individual is eligible for DUA benefits. For information on how unemployment and employment programs respond to disasters, see CRS Report R45182, Unemployment and Employment Programs Available to Workers Affected by Disasters. |
Cellulosic biofuels are produced from cellulose derived from renewable biomass feedstocks such as corn stover (plant matter generally left in the field after harvest), switchgrass, wood chips, and other plant or waste matter. Current production consists of a few small-scale pilot projects—and significant hurdles must be overcome before industrial-scale production can occur. Ethanol produced from corn starch and biodiesel produced from vegetable oil (primarily soybean oil) are currently the primary U.S. biofuels. High oil and gasoline prices, environmental concerns, rural development, and national energy security have driven interest in domestic biofuels for many years. However, the volume of fuel that can be produced using traditional row crops such as corn and soybeans without causing major market disruptions is limited; to fulfill stated goals, biofuels must also come from other sources that do not compete for the same land used by major food crops. Proponents see cellulosic biofuels as a potential solution to these challenges and support government incentives and private investment to hasten efforts toward commercial production. Some federal incentives—grants, loans, tax credits, and direct government research—attempt to push cellulosic biofuels technology to the marketplace. Demand-pull mechanisms such as the renewable fuel standard (RFS) mandate the use of biofuels, creating an incentive for the development of a new technology to enter the marketplace. In contrast, petroleum industry critics of biofuel incentives argue that technological advances such as seismography, drilling, and extraction continue to expand the fossil-fuel resource base, which has traditionally been cheaper and more accessible than biofuel supplies. Other critics argue that current biofuel production strategies can only be economically competitive with existing fossil fuels in the absence of subsidies if significant improvements are made to existing technologies or new technologies are developed. Until such technological breakthroughs are achieved, critics contend that the subsidies distort energy markets and divert research funds from the development of other renewable energy sources not dependent on internal combustion technology, such as wind, solar, or geothermal, which offer potentially cleaner, more bountiful alternatives. Still others debate the rationale behind policies that promote biofuels for energy security, questioning whether the United States could ever produce and manage sufficient feedstocks of starches, sugars, vegetable oils, or even cellulose to permit biofuel production to meaningfully offset petroleum imports. Finally, there are those who argue that the focus on development of alternative energy sources undermines efforts to score energy savings through lower consumption. Principal among the cellulosic biofuels goals to be met is a biofuels usage mandate—the renewable fuel standard (RFS) as expanded by the Energy Independence and Security Act of 2007 (EISA, P.L. 110 - 140 , Section 202)—that includes a specific carve-out for cellulosic biofuels. The RFS is a demand-pull mechanism that requires a minimum usage of biofuels in the nation's fuel supply. This mandate can be met using a wide array of technologies and fuels. Although most of the RFS is expected to be met using corn ethanol initially, over time the share of advanced (non-corn-starch derived) biofuels in meeting the mandate increases. The RFS specifies three non-corn-starch carve-outs: cellulosic biofuels, biomass-based diesel fuel, and other (or unspecified), which could potentially be met by imports of sugarcane-based ethanol. The RFS mandate for cellulosic biofuels in the EISA begins at 100 million gallons per year in 2010 and rises to 16 billion gallons per year in 2022 ( Figure 1 ). This mandate represents a prodigious challenge to the biofuels industry in light of the fact that no large-scale commercial production of cellulosic biofuels yet exists in the United States. Indeed, in March 2010, the U.S. Environmental Protection Agency (EPA) issued a final rule for implementation of the RFS that sets a new, lower cellulosic biofuel mandate of 6.5 million gallons for 2010. In December 2010, EPA issued a final rule to lower the 2011 cellulosic biofuel mandate of 250 million gallons to 6.6 million gallons (actual volume). The RFS also mandates maximum lifecycle greenhouse gas emissions for each type of biofuel. Lifecycle greenhouse gas emissions encompass emissions at all levels of production, from the field to retail sale, including emissions resulting from land use changes (e.g., the clearing of forests for cropland due to increased energy crop production elsewhere). Under the law, GHG emissions for cellulosic biofuels qualifying for the RFS are limited to 60% of the GHG emissions from extracting, refining, distributing, and consuming gasoline. Cellulosic biofuels have potential, but there are significant hurdles to overcome before competitiveness is reached. In his 2007 State of the Union Address, President Bush announced the "Twenty in Ten" initiative, calling for the rapid expansion of renewable biofuels production as a major part of an effort to reduce U.S. gasoline use by 20% through biofuels and conservation. This goal was given substance in December 2007, when Congress passed EISA, mandating the RFS for the use of specific volumes of renewable biofuels through 2022 and setting a goal of commercial-scale cellulosic biofuels production by 2012. This report provides background on the current effort to develop industrial-scale, competitive technology to produce biofuels from cellulosic feedstocks. It outlines the three major challenges faced in the context of the RFS: (1) feedstock supply, (2) extraction of fuel from cellulose, and (3) biofuel distribution and marketing issues. It then examines the current role of government (in cooperation with private industry) in developing that technology. Finally, the report reviews the role of Congress with respect to the emerging cellulosic biofuels industry, reviews recent congressional actions affecting the industry, and discusses key questions facing Congress. Feedstocks used for cellulosic biofuels are potentially abundant and diverse. Initially it was thought that a major advantage of cellulosic biofuels over corn-starch ethanol was that they could be derived from potentially inexpensive feedstocks that could be produced on marginal land. Corn, on the other hand, is a resource-intensive crop that requires significant use of chemicals, fertilizers, and water, and is generally grown on prime farmland. However, field research now suggests that establishment costs, as well as collection, storage, and transportation costs, associated with the production of bulky biomass crops are likely to be more challenging than originally thought. Cellulose, combined with hemicellulose and lignin, provides structural rigidity to plants and is also present in plant-derived products such as paper and cardboard. Feedstocks high in cellulose come from agricultural, forest, and even urban sources (see Table 1 ). Agricultural sources include crop residues and biomass crops such as switchgrass; forest sources include tree plantations, natural forests, and cuttings from forest management operations. Municipal solid waste, usually from landfills, is the primary urban source of renewable biomass. Cellulosic feedstocks may have some environmental drawbacks. Some crops suggested for biomass are invasive species when planted in non-native environments. Municipal solid wastes may likely require extensive sorting to segregate usable material and may also contain hazardous material that is expensive to remove. In general, calculation of the estimated cost of biofuels production does not reflect environmental or related impacts, but such impacts are relevant to overall consideration of biofuels issues. Biomass feedstocks are bulky and difficult to handle, presenting the industry with a major challenge. Whether feedstocks are obtained from agriculture or forests, specialized machinery would need to be developed to harvest and handle large volumes of bulky biomass. For instance, harvesting corn for both grain and stover would be more efficient with a one-pass machine capable of simultaneously segregating and processing both—a combination forage and grain harvester. Currently, machines such as these are being developed to handle biomass crops, but few are commercially available. Storage facilities capable of keeping immense volumes of cellulosic material in optimal conditions may need to be developed, if an industry is to grow. Crop residues are by-products of production processes (such as producing grain), and so their production costs are minimal. Corn stover and rice and wheat straw are abundant agricultural residues with biomass potential. Among residues, corn stover has attracted the most attention for biofuels production. However, an important indirect cost associated with using crop residue as a biomass feedstock is a potential loss of soil fertility. When harvesting stover, sufficient crop residue must be left in place to prevent erosion and maintain soil fertility. Research suggests that, under the right soil conditions, up to 60% of some residuals can be removed without detrimental soil nutrition or erosion effects. Results from early trials suggest the potential ethanol yield from corn stover (not including the grain harvested, which could be used for feed or fuel) is approximately 180 gallons of ethanol per acre. This compares with roughly 425 gallons of corn-starch ethanol (from grain) and 662 gallons per acre of sugar cane (in Brazil), when grown as dedicated energy crops. Perennial prairie grasses include native species, which were common before the spread of agriculture, and non-indigenous species, some of which are now quite common. Switchgrass is a native perennial grass that once covered American prairies and is a potential source of biomass. Its high density and native immunity to diseases and pests have caused many to focus on its use as a cellulosic feedstock. According to research at the University of Tennessee, the 10-foot tall grass, if harvested after frost, will produce for 10 to 20 years. However, like other perennials, switchgrass takes some time to establish—according to field trials, in the first year of production, yields are estimated at 30% (two tons per acre) of the full yield potential. In the second year, yield is about 70% (five tons per acre), and in the third year yields reach full potential at seven tons per acre, the equivalent of 500 to 1,000 gallons of ethanol. Miscanthus is another fast-growing perennial grass. Originally from Asia, it is now common in the United States. Miscanthus produces green leaves early in the planting season and retains them through early fall, maximizing the production of biomass. Like switchgrass, it grows on marginal lands with minimal inputs. Research in Illinois shows miscanthus can produce 2½ times the volume of ethanol (about 1,100 gallons) per acre as corn—under proper conditions. At South Dakota State University, field trials with mixtures of native grasses produced biomass yields slightly lower than switchgrass monocultures, but suggest that such mixtures result in better soil health, improved water quality, and better wildlife habitat. Similar research at the University of Minnesota with mixtures of 18 native prairie species resulted in biomass yields three times greater than switchgrass. Forest resources for biomass include naturally occurring trees, residues from logging and other removals, and residue from fire prevention treatments. Extracting and processing forest biomass can be expensive because of poor accessibility, transportation, and labor availability. More efficient and specialized equipment than currently exists is needed for forest residual recovery to become cost effective. Commercial tree plantations (perennial woody crops) are another source of woody biomass. Compared to prairie grasses, perennial woody crops such as hybrid poplar, willow, and eucalyptus trees, are relatively slow to mature and require harvesting at long intervals (2-4 year intervals for willow or 8-15 years for poplar). Using specialized equipment, harvesting usually occurs in the winter, when trees are converted to chips on site and then transported to the refinery for processing. Some trees, such as willow, re-sprout after cutting and can be harvested again after a few years. An acre of woody biomass (i.e., hybrid poplar) yields an estimated 700 gallons of biofuel on an annual basis. Secondary and tertiary feedstocks are derived from manufacturing (secondary) or consumer (tertiary) sources. In many cases their use as feedstocks recovers value from low- or negative-value materials. Food and feed processing residues such as citrus skins are major agricultural residues often suitable as renewable biomass. Residues from wood processing industries such as paper mills or from feed processing are major secondary sources. Tertiary sources include urban wood residues such as construction debris, urban tree trimmings, packaging waste, and municipal solid waste. One ton of dry woody biomass produces approximately 70 gallons of biofuels. Ethanol plants are intended to operate 24/7, that is, year-round with only a brief temporary stoppage for maintenance. As a result, accumulating and storing enough feedstock to supply a commercial-scale refinery producing 10-20 million gallons per year (mgpy) would require as much as 700 tons of feedstock a day—nearly the volume of 900 large round bales of grass or hay—or about 240,000 tons annually. In contrast, a (much larger) 100 mgpy corn ethanol plant requires about 2,500 tons of corn per day, but corn is much denser and easier to handle than most renewable biomass sources. The U.S. Department of Energy (DOE) is currently focusing research efforts on harvest and collection, preprocessing, storage and queuing, handling, and transportation of feedstocks. These are major challenges facing an emerging biofuels industry due to the sheer bulk of the biomass and divergent growth cycles of different biomass crops. Pelletizing and other methods for compressing feedstocks reduce transportation costs but increase processing costs. According to a Purdue University study, the total per ton costs for transporting biomass 30 miles range from $39 to $46 for corn stover and $57 to $63 for switchgrass—compared with roughly $10 for corn. The USDA-DOE goal is to reduce the total feedstock cost at the plant (production, harvest, transport, and storage) from $60 per ton (the 2007 level) to $46 per ton in 2012. A 2005 USDA-DOE study undertaken by the Oak Ridge National Laboratory estimates that just over 1.3 billion tons of biomass ( Figure 2 ) could be available annually in the United States for all forms of bioenergy production (including electricity and power from biomass, and fuels from cellulose) and bioproducts. If processed into biofuel, this 1.3 billion tons of biomass could replace 30% of U.S. transportation fuel consumption at 2004 levels, according to USDA. However, this estimate has been heavily criticized for several reasons, including the claim that it ignores the costs and difficulties likely to be associated with harvesting or collecting woody biomass and urban waste, as well as that it uses optimistic yield growth assumptions to achieve its biomass tonnages. The USDA estimate also predates the definition of renewable biomass eligible for the RFS. Current provisions restrict the use of woody biomass to trees grown in plantations or pre-commercial thinnings from non-federal lands, while USDA's study included woody biomass from federal and private forests as well as commercial forests. As a result, the potential volume of biomass available for conversion may be substantially less than the USDA-DOE estimate of 1.3 billion tons. Compared with corn, cellulosic feedstocks are thought to have smaller impacts on food supplies. By refining corn into ethanol, food markets are indirectly affected via cattle and dairy feed markets. In contrast, cellulosic feedstocks are non-food commodities and thus do not reduce food output unless they displace food crops on cropland. However, many cellulosic feedstocks do not need prime farmland. Waste streams such as municipal solid waste, most crop residues, wood pulp residues, and forest residues are potential sources of biomass that have no impact on food crop acreage. Corn stover, removed in appropriate quantities, could also be refined into ethanol without affecting food supplies. Feedstocks such as switchgrass and fast-growing trees appear to do well in marginal conditions and would likely have a minimal impact on food supplies, particularly in the case of woody biomass feedstocks from forested areas not suitable for crops. In the United States, crops are traditionally grown on an annual basis. Thus, contracts, loans, and other arrangements are generally established for a single growing year. Arrangements for producing perennial crops would necessarily reflect their multi-year cycles. Producers, whether they own or rent land, can expect reduced returns while the crop becomes established. Producers renting land would need long-term agreements suitable for multi-year crops. Some suggest a legal framework would have to be developed for multi-year harvests. For example, the University of Tennessee has entered into three-year contracts with producers to ensure switchgrass availability for a pilot refinery scheduled to have started ethanol production in 2009. Breaking down cellulose and converting it into fuel requires complex chemical processing—technology that is now rudimentary and expensive (see Table 2 ). Starches (such as corn) and sugars (such as cane sugars) are easily fermented into alcohol, but cellulose must first be separated from hemicellulose and lignin and then broken down into sugars or starches through enzymatic processes. Alternatively, biomass can be thermochemically converted into synthesis gas (syngas), which can then be used to produce a variety of fuels. Regardless of the pathway, as discussed below, at the present time processing cellulose into fuels is expensive relative to other conventional and alternative fuel options. Three basic methods can be used to convert cellulose into ethanol: (1) acid hydrolysis (dilute or concentrated), (2) enzymatic hydrolysis, and (3) thermochemical gasification and pyrolysis. There are many different variations on these, depending on the enzymes and processes used. Currently all these methods are limited to pilot or demonstration plants, and all comprise the "pre-treatment" phase of ethanol production. Dilute and concentrated acid hydrolysis pre-treatments use sulphuric acid to separate cellulose from lignin and hemicellulose. Dilute acid hydrolysis breaks down cellulose using acid at high temperature and pressure. Only about 50% of the sugar is recovered because harsh conditions and further reactions degrade a portion of the sugar. In addition, the combination of acid, high temperature, and pressure increase the need for more expensive equipment. On the other hand, concentrated acid hydrolysis occurs at low temperature and pressure and requires less expensive equipment. Although sugar recovery of over 90% is possible, the process is not economical, due to extended processing times and the need to recover large volumes of acid. DOE suggests that enzymatic hydrolysis, a biochemical process that converts cellulose into sugar using cellulase enzymes, offers both processing advantages as well as the greatest potential for cost reductions. However, the cost of cellulase enzymes remains a significant barrier to the conversion of lignocellulosic biomass to fuels and chemicals. Enzyme cost primarily depends on the direct cost of enzyme preparation ($/kg enzyme protein) and the enzyme loading required to achieve the target level of cellulose hydrolysis (gram enzyme protein/gram cellulose). According to DOE, the near-term goal is to reduce the cost of cellulase enzymes from $0.50 to $0.60 per gallon of ethanol to approximately $0.10 per gallon. The National Renewable Energy Laboratory (NREL) of DOE is conducting research to lower enzyme costs by allowing cellulase yeasts and fermenting yeasts to work simultaneously—with significant savings. The total conversion cost (excluding feedstock cost) for biochemical conversion of corn stover to ethanol is estimated to be about $1.59 per gallon —compared with the USDA-DOE goal of $0.82 per gallon in 2012. Thermochemical processes such as gasification and pyrolysis convert lignocellulosic biomass into a gas or liquid intermediate (syngas) suitable for further refining to a wide range of products including ethanol, diesel, methane, or butanol. Recovery rates of up to 50% of the potentially available ethanol have been obtained using synthesis gas-to-ethanol processes. Two-stage processes producing methanol as an intermediate product have reached efficiencies of 80%. However, developing a cost-effective thermochemical process has been difficult. The Fischer-Tropsch (FT) process uses gasification to produce syngas that is then converted into biofuels such as diesel, methane, or butanol. It is possible to produce diesel and other fuels using syngas from coal or natural gas, but biomass-derived syngas is technically challenging because of impurities that must be removed during processing. The cost of gasification conversion (excluding the cost of feedstock) in 2005 was estimated at $1.21 per gallon (2007 dollars). The USDA-DOE goal for 2012 is $0.82 cents per gallon. Distribution and absorption constraints may hinder the use of cellulosic biofuels even if they are ultimately produced on an industrial scale. In the coming years, greater volumes of advanced biofuels (i.e., cellulosic or non-corn-starch ethanol, biodiesel, or imported sugar ethanol) would need to be blended into motor fuel to fulfill the rising advanced biofuel mandate. Distribution issues may hinder the efficient delivery of ethanol to retail outlets. Ethanol, mostly produced in the Midwest, would need to be transported to more populated areas for sale. It cannot currently be shipped in pipelines designed for gasoline because it tends to attract water in gasoline pipelines. In addition, ethanol must be stored in unique storage tanks and blended prior to delivery to the retail outlet, because it tends to separate if allowed to sit for an extended period after blending. This would require further infrastructure investments. The current ethanol distribution system is dependent on rail cars, tanker trucks, and barges. Because of competition, options (especially rail cars) are often limited. As non-corn biofuels play a larger role, some infrastructure concerns may be alleviated as production is more widely dispersed across the nation. If biomass-based diesel substitutes are produced in much larger quantities, some of these infrastructure issues may be mitigated. The blend wall refers to the volume of ethanol required if all gasoline used in the United States contained 10% ethanol (E-10) —or roughly 14 billion gallons. However, because of infrastructure issues associated with transporting and storing midwestern ethanol in coastal markets, the effective blend wall is probably about 12 billion to 13 billion gallons per year. U.S. ethanol production is rapidly approaching this level. Once the blend wall is reached, the market will likely have difficulty absorbing further production increases, even if they are mandated by the RFS. Although greater use of E-85 could absorb additional volume, it is limited by the lack of E-85 infrastructure (including the considerable expense of installing or upgrading tanks and pumps) and the size of the flex-fuel fleet. These concerns could be sidestepped if additional non-ethanol biofuels are introduced into the market, especially "drop-in" fuels that are chemically similar to petroleum fuels and could be blended directly with those fuels. EPA considered proposals to raise the ethanol blend level for conventional vehicles from E-10 to E-15 or E-20 after a petition was submitted by Growth Energy in 2009. In October 2010, EPA issued a waiver for fuel to contain up to 15% ethanol (E15) for model year 2007 and newer light-duty vehicles. A decision on the use of E15 in model year 2001-2006 vehicles will be made after EPA receives the results of additional DOE testing. However, no waiver is being granted for E15 use in model year 2000 and older cars and light trucks—or in any motorcycles, heavy-duty vehicles, or non-road engines—because currently there is not sufficient testing data to support such a waiver. In addition to the EPA waiver announcement, numerous other changes have to occur before gas stations will begin selling E15, including many approvals by states and significant infrastructure changes (pumps, storage tanks, etc.). As a result, the vehicle limitation to newer models, coupled with infrastructure issues, is likely to limit rapid expansion of blending rates. Along with the waiver, EPA issued a notice of proposed rulemaking (NPRM) to promote the successful introduction of E15 into commerce by ensuring that E15 is used in approved motor vehicles and reducing the potential for the misfueling of E15 into vehicles and engines for which it is not approved. Cellulosic biofuels are generally thought to have favorable economic efficiency potential over corn-starch ethanol primarily because of the low costs of production for feedstocks. However, current NREL estimates of the total cost of producing cellulosic ethanol, including feedstock production, marketing, and conversion, are $2.40 per gallon, more than twice the cost of producing corn ethanol. A major impediment to the development of a cellulose-based ethanol industry is the state of cellulosic conversion technology (i.e., the process of gasifying cellulose-based feedstocks or converting them into fermentable sugars). DOE's goal of competitiveness in 2012 assumes $1.30 (2007 dollars) per gallon costs for corn stover ethanol based on a feedstock price of $13 per ton. This compares with USDA's estimated cost of producing corn-based ethanol in 2002 of $0.958 per gallon (about $1.07 per gallon in 2007 dollars). In addition, the cost of harvesting, transporting, and storing bulky cellulosic biomass is not well understood and consequently is often undervalued. As a result, even though cellulosic biofuels benefit from a production tax credit of up to $1.01 (discussed below), which is $0.56 per gallon higher than the blender's tax credit of $0.45 per gallon for corn ethanol, it remains at a substantial cost disadvantage compared with corn-starch ethanol. The net energy balance (NEB) is a comparison of the ratio of the per-unit energy produced versus the fossil energy used in a biofuel's production process. The use of cellulosic biomass in the production of biofuels yields an improvement in NEB compared with corn ethanol. Corn ethanol's NEB was estimated at 67% by USDA in 2004—67% more energy was available in the ethanol than was contained in the fossil fuel used to produce it. This is at the upper range of estimates for corn ethanol's energy balance. By contrast, estimates of the NEB for cellulosic biomass range from 300% to 900%. As with corn-based ethanol, the NEB varies based on the production process used to grow, harvest, and process feedstocks. Another factor that favors cellulosic ethanol's energy balance over corn-based ethanol relates to byproducts. Corn-based ethanol's co-products are valued as animal feeds, whereas cellulosic ethanol's co-products, especially lignin, are expected to serve directly as a processing fuel at the plant, substantially increasing energy efficiencies. Additionally, switchgrass uses less fertilizer than corn, by a factor of two or three, and its perennial growth cycle reduces field passes for planting. Some suggest that ethanol from switchgrass has at least 700% more energy output per gallon than fossil energy input. The same is largely true of woody biomass that, even in plantations, requires minimal fertilizer and infrequent planting operations. Ethanol and biodiesel produced from cellulosic feedstocks, such as prairie grasses and fast-growing trees, have the potential to improve the energy and environmental effects of U.S. biofuels. As previously stated, a key potential benefit of cellulosic feedstocks is that they can be grown without the need for chemicals. Reducing or eliminating the need for chemical fertilizers could address one of the largest energy inputs for corn-based ethanol production. Fast-growing trees and woody crops could offer additional environmental benefits of improved soil and water quality, reduced CO 2 emissions, and enhanced biodiversity. Despite potential environmental benefits, additional concerns about cellulosic feedstocks exist, including concerns that required increases in per-acre yields to obtain economic feasibility could require the use of fertilizers or water resources, and that availability of sufficient feedstock supply is limited and expansion could generate additional land use pressures for expanded production (see " Greenhouse Gas Emissions " discussion, below). In addition to these concerns, some groups say that other potential environmental drawbacks associated with cellulosic fuels should be addressed, such as the potential for soil erosion, increased runoff, the spread of invasive species, and disruption of wildlife habitat. Greenhouse gas emissions differ among types of ethanol because of a number of factors, including the feedstock crop converted into ethanol, the fuel used to power the refinery (fossil or renewable), and the original state of the land on which the feedstock was produced. For instance, if virgin forest land were cleared and planted with switchgrass, higher greenhouse gas emissions would result than if switchgrass were grown on previously cleared cropland, mainly because GHG emissions associated with clearing and plowing the virgin soil would have to be included as part of the production process. Likewise, a cellulosic refinery powered by coal or natural gas would have higher greenhouse gas emissions than one powered by recovered feedstock co-products. Multi-year harvesting of perennial crops decreases greenhouse gas emissions by minimizing field passes. Prairie grasses and woody crops require reduced inputs compared with corn—and have lower greenhouse gas emissions. Also, because cellulosic feedstocks require less fertilizer for their production, the energy balance benefit of cellulosic ethanol could be significant. A study by the Argonne National Laboratory concluded that with advances in technology, the use of herbaceous -feedstock cellulose-based E-10 could reduce fossil energy consumption per mile by 8%, while herbaceous-feedstock cellulose-based E-85 could reduce fossil energy consumption by roughly 70%. According to the EPA's Office of Transportation and Air Quality, for every unit of energy measured in British thermal units (BTU) of gasoline replaced by cellulosic ethanol, the total lifecycle greenhouse gas emissions (including carbon dioxide, methane, and nitrous oxide) would be reduced by an average of about 90%. In comparison, the reduction from corn ethanol averages 22%. Private investment is viewed by many to be critical to the development of the cellulosic biofuels industry. However, the aggregate value of required private investment is difficult to determine. Anecdotal evidence suggests the main sources of capital are venture capitalists and petroleum companies—commercial banks have a minor role. Venture capitalists generally have an extended (10-year) perspective, which fits well with nascent technologies and is insulated from shorter-term financial volatility. Petroleum companies, faced with mandatory blending of biofuels with gasoline, have been eager to invest in the cellulosic industry. Numerous partnerships have been formed: British Petroleum (BP) and Verenium announced a partnership in August 2008 to accelerate the commercialization of cellulosic ethanol, with BP investing $90 million in the deal. In another collaboration, Royal Dutch Shell has teamed up with Imogen Corporation to develop cellulosic ethanol processes. Mascoma, a major ethanol producer, raised $30 million to support its investment in cellulosic feedstock conversion with technical support from General Motors and Marathon Oil. A collaboration between Monsanto and Mendel Biotechnology Inc. will focus on the breeding and development of crops for production of cellulosic biofuels. USDA and DOE are currently engaged in a variety of activities to encourage development and demonstration of cellulosic biofuels technologies. The Energy Independence and Security Act of 2007 (EISA, P.L. 110 - 140 ), the Food, Conservation, and Energy Act of 2008 (the 2008 farm bill, P.L. 110 - 246 ), and other legislation support research and development of a broad range of cellulosic technologies through USDA and DOE programs. Many of these programs extend the goals of the Energy Policy Act of 2005 (EPAct, P.L. 109 - 58 ) and President Bush's 20 in 10 initiative. The Biomass Research and Development Initiative (BRDI) coordinates federal interagency technology - push efforts, such as R&D, loans, and grants, under the guidance of the Biomass Research and Development Board. The board was authorized in the Biomass Research and Development Act of 2000 and is co-chaired by USDA and DOE. BRDI plays a major role in R&D for the cellulosic biofuels industry. In October 2008, then-USDA Secretary Ed Schafer and DOE Secretary Samuel W. Bodman released the National Biofuels Action Plan (NBAP), which provided an outline of the major challenges facing the cellulosic biofuels industry: feedstock production and logistics; conversion science and technology; distribution infrastructure and blending. The plan reflects current federal and industry efforts to develop the cellulosic biofuels industry. Recognizing that cellulosic biofuels can contribute to improving national energy security, reducing greenhouse gas emissions, and boosting rural economic development, discretionary DOE spending on bioenergy R&D (including a major cellulosic component) under the Biomass and Biorefinery Systems Program (Energy Efficiency and Renewable Energy Programs) was $196 million in FY2007. DOE appropriations for this purpose totaled $198 million in FY2008, of which 33% was spent on conversion R&D, 7% on feedstock infrastructure, and 52% on biorefinery development. DOE appropriations for 2009 amounted to $217 million, of which $215 million was directed toward cellulosic biofuels, plus an FY2009 stimulus of $786 million. DOE appropriations for FY2010 were $220 million and the FY2011 request was $220 million. Approximately $3 million in congressionally directed spending for FY2010 was directed toward cellulosic biofuel initiatives. USDA discretionary outlays for cellulosic biofuels were approximately $100 million in FY2009, with commercialization of thermochemical conversion technologies accounting for an estimated $80 million. These totals are modest in comparison to the $5 to $8 billion in annual federal support for corn ethanol. Over time, as the corn ethanol industry matures, the focus of USDA efforts is likely to increasingly shift to cellulosic biofuels. Private sector investment received a substantial federal policy boost on February 28, 2007, when the DOE announced the awarding of up to $385 million in mandatory cost-share funding for the construction of six cellulosic ethanol plant projects over a four-year period under Section 932 of the EPAct of 2005 as expanded by EISA of 2007. When fully operational, the six plants combined were expected to produce up to 100 mgpy of cellulosic ethanol. These demonstration-scale biorefinery projects focus on near-term commercial processes. The combined cost-share plus federal funding for the projects represents total planned investment of more than $1.2 billion. The uncertainties of moving an industry from laboratory to commercial reality were highlighted when two recipients with total grant funding of $113 million dropped out of the program, one because of a substantially higher offer from the Canadian government, and the other after determining that the risks involved outweighed any anticipated benefits. Renewable energy policy in the 2008 farm bill (Food, Conservation, and Energy Act of 2008, P.L. 110 - 246 ) builds on earlier programs originally authorized in the 2002 farm bill ( P.L. 107 - 171 ) and the EPAct of 2005 ( P.L. 109 - 58 ) but provides greater emphasis on cellulosic biofuels. Title IX, the energy title, authorizes new programs and reauthorizes grants, loans, and loan guarantees to foster research on agriculture-based renewable energy, to share development risk, and to promote the adoption of renewable energy systems. Implementation of the farm bill provisions continues, while congressional focus will likely be directed to reauthorization in 2012 (when most farm bill provisions expire). Funding for the cellulosic component of renewable energy programs is difficult to determine because most provide support to a wide range of biofuels. Title VII, the research title, contains provisions supporting R&D in cellulosic biofuels, and Title XV, the tax and trade title, contains tax incentives and tariffs. The following programs provide support to cellulosic biofuels research, demonstration, and production. For information on additional related provisions in the 2008 farm bill, see CRS Report RL34130, Renewable Energy Programs in the 2008 Farm Bill , by [author name scrubbed]. Tax and trade provisions in the 2008 farm bill benefit cellulosic biofuels. One significant incentive is a cellulosic biofuels production tax credit of $1.01 per gallon, more than twice the blenders' tax credit of 45 cents per gallon that applies to corn ethanol. In the case of cellulosic ethanol, the $1.01 credit amount is reduced by (1) the volumetric ethanol excise tax credit and (2) the small ethanol producer credit, making the total value of tax incentives for cellulosic ethanol equal to $0.46. This tax credit is set to expire on December 31, 2012. In addition to tax credits, an ethanol tariff benefits the U.S. industry by reducing the competitiveness of imported ethanol sold in this country. Domestic ethanol benefits from a 54-cent-per-gallon duty (and a smaller ad valorem tariff) on imported ethanol (except for limited imports under the Caribbean Basin Initiative). The original intent of the tariff was to prevent imported ethanol from benefitting from the U.S. blender's tax credit. This tariff was extended through 2011. This new program awards competitive matching (up to 50%) grants for projects supporting on-farm biomass crop research and the dissemination of results to enhance the production of biomass energy crops and their integration with the production of bioenergy. It consists of elements of earlier initiatives that were moved to the research title (Title VII) in the 2008 farm bill. Discretionary funding of $50 million annually is authorized for FY2008 through FY2012, subject to appropriations. Funding has not been appropriated for this program in FY2008, FY2009, or FY2010. This initiative provides loan guarantees for the development, construction, and retrofitting of commercial-scale biorefineries and provides grants to help pay for the development and construction costs of demonstration-scale biorefineries. Loan guarantees are limited to $250 million per project, subject to the availability of funds. The program received mandatory funding of $320 million ($75 million for FY2009 and $245 million for FY2010) for commercial-scale biorefinery loan guarantees, and discretionary funding, subject to appropriations, of $150 million annually for FY2009 through FY2012 for both demonstration and commercial-scale biorefineries. No discretionary funding has been appropriated; therefore, USDA continues to implement only the loan guarantee program under a notice of funds availability (NOFA). The Repowering Assistance program encourages existing biorefineries to replace fossil fuels used to produce heat or power at their facilities by making payments for installing new systems that use renewable biomass, or to produce new energy from renewable biomass. The 2008 farm bill provided mandatory funding of $35 million in FY2009 to remain available until expended. The program is also authorized to receive $15 million in discretionary funding for each of FY2009 through FY2012, pending appropriations. There has been no appropriation of discretionary funding. USDA continues to implement the program using mandatory funding through a NOFA. The Bioenergy Program is the lead program under Title IX providing support for the development of conversion technologies for cellulosic biofuels. It was originally established by Executive Order in 1999 and provided Commodity Credit Corporation (CCC) incentive payments to ethanol and biodiesel producers on the basis of yearly increases in production. Eligibility is now limited to producers of advanced biofuels. Eligible producers entering into a contract with USDA are paid based on quantity and duration of advanced biofuel production and on net renewable energy content of the advanced biofuel. Under the 2002 farm bill ( P.L. 107 - 171 ), the Bioenergy Program received total funding of $426 million during FY2003 to FY2006 but no appropriations for FY2007 or FY2008. The 2008 farm bill provides a total of $300 million in mandatory funding for FY2009 to FY2012 ($55 million annually in FY2009 and FY2010, $85 million in FY2011, and $105 million in 2012), and also authorizes $25 million annually, subject to appropriations, from FY2009 to FY2012. No discretionary funding has been appropriated; therefore, USDA implements the program using mandatory funding through a notice of contract proposal (NOCP). This program was originally authorized in the 2002 farm bill ( P.L. 107-171 ) and is administered jointly by USDA and DOE. It supports research on and development and demonstration of biofuels and biobased products, and the methods, practices, and technologies for their production. The 2008 farm bill provides mandatory funding of $118 million for FY2009 to FY2012 ($20 million for FY2009, $28 million for FY2010, $30 million for FY2011, and $40 million for FY2012). The farm bill also authorizes the appropriation of $35 million for each of FY2009 through FY2012. The program received funding between FY2002 and FY2006, totaling $160 million and funding 68 projects. In FY2009, USDA and DOE announced a funding opportunity of $25 million ($20 million of mandatory funding from the 2008 farm bill and $5 million from DOE). This is a new program intended to (1) help farmers establish and produce crops for conversion to bioenergy and (2) assist with the collection, harvest, storage, and transportation of eligible material for use in a biomass conversion facility that produces heat, power, biobased products, or advanced biofuels. BCAP is intended to assist with the bioenergy industry's hurdle of continuous biomass availability. The program is implemented by the Farm Service Agency with support from other federal and local agencies and has mandatory CCC funding of such sums as necessary. The program was originally authorized to receive mandatory funding at a "such sums as necessary" level until FY2012. Recent appropriations bills have reduced this level in FY2010 and FY2011. USDA implemented one portion of BCAP—the Collection, Harvest, Storage, and Transportation (CHST) matching payment program—on June 11, 2009, through a Notice of Funds Availability. The partial implementation created a possible unintended consequence of market competition for wood shavings, wood chips, sawdust, and other wood "scraps" between traditional purchasers—namely landscapers and particleboard manufactures—and facilities that convert biomass to energy. USDA issued a proposed rule on February 8, 2010, suspending the CHST program enrollment and proposing rules for the remainder of the BCAP program. The final rule on October 27, 2010, implements both program components. Under this new program, USDA's Forest Service is authorized to conduct a comprehensive research and development program to use forest biomass for energy. Other federal agencies, state and local governments, Indian tribes, land-grant colleges and universities, and private entities are eligible to compete for program funds. No mandatory funding is available, but discretionary appropriations of $15 million annually for FY2009 to FY2012 are authorized. This program has not yet been implemented or appropriated funding. The Emergency Economic Stabilization Act of 2008 ( P.L. 110 - 343 ), which incorporates the Energy Improvement and Extension Act of 2008, contains tax and trade incentives for renewable energy production. Enacted on October 3, 2008, it expands federal benefits for renewable energy to fuels and processes that previously did not qualify and limits trade practices that benefit foreign producers but do not enhance U.S. energy independence. Previous federal tax law limited the eligibility for first-year bonus depreciation of cellulosic biofuels to facilities producing ethanol; those producing non-ethanol fuels from cellulosic feedstocks did not qualify for the allowance. P.L. 110 - 343 does not limit the allowance to any particular type of cellulosic fuel or production process. Taxpayers can immediately write off 50% of the cost of facilities that produce cellulosic biofuels if such facilities are placed in service before January 1, 2013. Congress has shown a strong interest in the development of biofuels in general and cellulosic biofuels in particular. Debate may continue on the appropriate level of incentives needed to jump start the industry. Perhaps the most critical emerging issue is the federal mandate for cellulosic biofuels under the RFS—and the industry's potential to meet that mandate. In the long term, Congress might also consider the ongoing level of government support that is appropriate for the cellulosic biofuels industry—considered by some to be essential, especially if the RFS is to be met. Others contend such support could distort market signals. The general level of support in the form of grants and loans has been determined in the 2008 farm bill but will likely be revisited as appropriations are considered. The cellulosic biofuels tax credit applies to fuel produced from 2009 through 2012 and extension of this credit could be the subject of debate during the 112 th Congress. In addition, Congress has considered the definition of biofuels and biofuel feedstocks that qualify for federal incentives. Citing the RFS and corn ethanol production as contributing to rising food prices and high input costs for livestock and poultry producers, some are calling for a reduction of the RFS. During the 110 th Congress, S. 3031 was introduced in May 2008, to limit the corn-starch component of the RFS to 9 billion gallons compared with 15 billion under the current law. Opponents of the reduction claim it would set back efforts to reduce the nation's dependence on foreign oil and achieve environmental goals. Reducing the corn-starch component of the RFS would increase the importance of advanced fuels, primarily cellulosic biofuels, in meeting the mandate. Legislation to alter RFS volume requirements was not introduced in the 111 th Congress. The definition of forest-based renewable biomass under the RFS is considered by some to be too restrictive because it limits eligible woody biomass to privately planted trees and tree residue from actively managed tree plantations, and slash and pre-commercial thinnings from non-federal forests. The definition of renewable biomass specifically excludes biomass from federal forests. Some suggest that this exclusion eliminates much potential biomass and creates regional disparities. One-third of the 755 million acres of forest in the United States is owned by the federal government—and this acreage is concentrated in the western states. Likewise, the exclusion of private, naturally regenerated forests affects the northern and southeastern parts of the country where other feedstocks eligible under the RFS may not be as readily available. According to some, biomass extraction could become a powerful tool for improving federal land management. Markets for small-diameter trees would enable a wider range of options for management of wildlife habitat, forest hydrology, hazardous fuels reduction, and pest infestations. These markets are not likely to appear if federal forests remain excluded from the RFS. The House Committee on Agriculture Subcommittee on Conservation, Credit, Energy, and Research held hearings during July 2008 on producer eligibility under the RFS. The subcommittee heard from government officials, researchers, and producers who provided an update on the implementation of the RFS and shared concerns on barriers to eligibility for many agricultural producers. Subsequently, a Senate Energy and Natural Resources Committee field hearing on forest waste for biofuels was held in South Dakota on August 18, 2008. During the 111 th Congress, H.R. 2454 , if enacted, would have allowed for modification of the non-federal lands portion of the definition of "renewable biomass." Low-value materials are frequently removed during fire or disease reduction efforts or ecosystem health supporting activities. Waste materials such as wood waste and wood residues from private forests are also included. During the 110 th Congress, the House passed the Comprehensive American Energy Security and Consumer Protection Act ( H.R. 6899 ). It contained a sense of Congress provision recommending a broad definition of renewable biomass to "encourage cellulosic biofuels ... produced from a highly diverse array of feedstocks, allowing every region of the country to be a potential producer of this fuel." No Senate action was taken. No similar action was taken in the 111 th Congress. Estimates for commercial production of cellulosic biofuels vary widely. Some small-scale plants came online in 2010. However, the pace of plant construction falls short of DOE's stated goal to make cellulosic ethanol competitive as a mature technology by 2012. Some analysts have predicted a growth trend for the cellulosic ethanol industry similar to that for corn-starch ethanol. However, there is a major difference between the two: the basic process for making corn-starch ethanol (fermentation) is thousands of years old, whereas that for cellulosic is very new. The USDA Office of Energy and New Uses projects that cellulosic biofuels are not expected to be commercially viable on a large scale until at least 2015. However, the cellulosic biofuel portion of the RFS mandate is set at 3 billion gallons by 2015, a substantial amount. In its January 2009 baseline, the Food and Agricultural Policy Research Institute (FAPRI) of the University of Missouri assumes cellulosic biofuel production will fall behind the RFS and, as a consequence, the mandate will be waived by EPA. In an August 2009 baseline update, FAPRI projects cellulosic ethanol production in 2013 at 245 mgpy, about one-third of the 1 billion gallons in the RFS for that year. | Cellulosic biofuels are produced from cellulose (fibrous material) derived from renewable biomass. They are thought by many to hold the key to increased benefits from renewable biofuels because they are made from potentially low-cost, diverse, non-food feedstocks. Cellulosic biofuels could also potentially decrease the fossil energy required to produce ethanol, resulting in lower greenhouse gas emissions. Cellulosic biofuels are produced on a very small scale at this time—significant hurdles must be overcome before commercial-scale production can occur. The renewable fuels standard (RFS), a major federal incentive, mandates a dramatic increase in the use of renewable fuels in transportation, including the use of cellulosic biofuels—100 million and 250 million gallons per year (mgpy) for 2010 and 2011, respectively. After 2015, most of the increase in the RFS is intended to come from cellulosic biofuels, and by 2022, the mandate for cellulosic biofuels will be 16 billion gallons. Whether these targets can be met is uncertain. In March 2010, the Environmental Protection Agency issued a final rule that lowered the 2010 cellulosic biofuel mandate to 6.5 million gallons. In December 2010, EPA lowered the 2011 mandate to 6.6 million gallons. Research is ongoing, and the cellulosic biofuels industry may be on the verge of rapid expansion and technical breakthroughs. There are no large-scale commercial cellulosic biofuel plants in operation in the United States. A few small-scale plants came online in 2010. The federal government, recognizing the risk inherent in commercializing this new technology, has provided loan guarantees, grants, and tax credits in an effort to make the industry competitive by 2012. In particular, the Food, Conservation, and Energy Act of 2008 (the 2008 farm bill, P.L. 110-246) supports the nascent cellulosic industry through authorized research programs, grants, and loans exceeding $1 billion. The enacted farm bill also contains a production tax credit of up to $1.01 per gallon for fuels produced from cellulosic feedstocks. Private investment, in many cases by oil companies, also plays a major role in cellulosic biofuels research and development. Three challenges must be overcome if the RFS is to be met. First, cellulosic feedstocks must be available in large volumes when needed by refineries. Second, the cost of converting cellulose to ethanol or other biofuels must be reduced to a level to make it competitive with gasoline and corn-starch ethanol. Third, the marketing, distribution, and vehicle infrastructure must absorb the increasing volumes of renewable fuel, including cellulosic fuel mandated by the RFS. Congress will likely continue to face questions about the appropriate level of intervention in the cellulosic industry as it debates both the risks in trying to pick the winning technology and the benefits of providing start-up incentives. The current tax credit for cellulosic biofuels is set to expire in 2012, but its extension may be considered during the 112th Congress. Congress may continue to debate the role of biofuels in food price inflation and whether cellulosic biofuels can alleviate its impacts. Recent congressional action on cellulosic biofuels has focused on the definition of renewable biomass eligible for the RFS, which is considered by some to be overly restrictive. To this end, legislation was introduced in the 111th Congress to expand the definition of renewable biomass eligible under the RFS. |
Surface transportation "devolution" refers to shifting most current federal responsibility for building and maintaining highways and public transportation facilities from the federal government to the states. Devolution would involve reducing the federal taxes on motor fuels that currently provide most of the federal funding distributed to states and local transit authorities. States would then have the option of making up for the reduction in federal funding by raising state motor fuel taxes or providing funds from other sources, as they see fit. The federal government would maintain a much smaller program to meet limited purposes such as building and maintaining roads on federal lands and Indian reservations and providing funds for repairs after disasters. This program could be paid for either by appropriations from the general fund or by retaining federal motor fuel taxes at lower rates. Devolution would reduce the scope of many of the requirements that are attached to the use of federal funds. Federal regulation and oversight of project construction, prevailing wage requirements, federal construction standards, and federal environmental regulation would no longer apply to surface transportation projects funded exclusively with state and local resources. Advocates of devolution contend that elimination of these requirements would reduce the cost of constructing transportation projects and speed their completion. Arguments for devolution of surface transportation programs have emerged periodically since the administration of President Ronald Reagan. In 1987, devolution was recommended in a detailed report by the Advisory Commission on Intergovernmental Relations. However, Congress has given the states greater authority over the expenditure of federal highway funds in recent years, addressing one of the factors leading to calls for devolution. In addition, financial and policy concerns have deterred serious consideration of devolution proposals. Highway construction has involved a federal-state partnership since passage of the Federal Aid Road Act of 1916 (39 Stat. 355). The highway program has had three basic attributes: a required state match of federal funds, a designated network of roads eligible for federal funding, and formula apportionment of funds to the states. The Federal Aid Highway and Highway Revenue Acts of 1956 (70 Stat. 374, 387), which authorized the construction of the Interstate System, increased federal involvement in highway planning and construction. The act raised federal highway taxes and channeled the receipts into a new Highway Trust Fund (HTF), removing highway funding from the normal appropriations process. Congress subsequently created many separate programs to require that states spend shares of their HTF apportionments for specific purposes. This proliferation of programs was reversed in 2012 by the Moving Ahead for Progress in the 21 st Century Act (MAP-21; P.L. 112-141 ), which consolidated 92% of the act's funding into five large formula-driven programs. State departments of transportation (state DOTs) largely determine which projects are funded, let the contracts, and oversee project development and construction. The federal government has provided funding for public transportation through the HTF since 1982. Unlike the federal-state relationship in the federal-aid highway program, the federal mass transit program generally involves a relationship between the federal government and a transit authority. All spending on the federal-aid highway program and about 80% of spending on public transportation are funded from the HTF, which has two accounts: the highway account and the mass transit account. The primary revenue sources for the HTF are an 18.3-cent-per-gallon federal tax on gasoline and a 24.3-cent-per-gallon federal tax on diesel fuel. Although the HTF has other sources of revenue, such as truck registration fees and a truck tire tax, and is also credited with interest paid on the fund balances held by the U.S. Treasury, fuel taxes have in recent years provided roughly 85% of the amounts paid into the fund by highway users. The mass transit account receives 2.86 cents per gallon of fuel taxes, with the remainder of the tax revenue credited to the highway account. Every year since 2008, there has been a gap between the dedicated tax revenues flowing into the HTF and the cost of surface transportation spending Congress has authorized. Congress has filled these shortfalls with a series of transfers, largely from the Treasury's general fund. These transfers have shifted a total of $143.6 billion to the HTF. The last $70 billion of these transfers were authorized in the Fixing America's Surface Transportation Act (FAST Act; P.L. 114-94 ), which was signed by President Barack Obama on December 4, 2015. The FAST Act funds federal surface transportation programs from FY2016 through FY2020. When the act expires, the de facto policy of relying on general fund transfers to sustain the HTF will be 12 years old. Opposition to raising the federal fuels tax rates has left the rates unchanged since 1993. The taxes have lost roughly 40% of their purchasing power since then. Figure 1 shows the trust fund's financial outlook. The gap between tax revenues coming into the HTF and outlays from the fund is projected to widen. The general fund transfers authorized under the FAST Act will fill this gap through FY2020. Thereafter, Congress will need either to reduce federal spending for surface transportation or find additional resources to fund highway and public transportation programs. The difficult situation of the Highway Trust Fund poses an obstacle to devolution. The federal taxes that flow into the HTF are insufficient to fund the surface transportation program that Congress has authorized. If most of the program were to be devolved to the states and the related federal taxes were to be replaced by state taxes, total revenue would still be insufficient to support the current magnitude of highway and public transportation spending. Advocates of devolution have generally made the following case since the 1980s: The federal government is overinvolved in the planning and construction of highways and public transportation. The states have a much better understanding of their own highway needs, and federal involvement should be limited to highways that have a clear national purpose. Public transportation is inherently local and should be a local or state responsibility with no federal involvement. Some states receive more federal surface transportation funding, relative to the highway taxes paid by their motorists, than other states. Devolution would eliminate this discrepancy by giving each state control of its motorists' tax payments. The maintenance and reconstruction of the Interstate System highways, federal lands highways, and perhaps, existing federal programs supporting transportation research and highway safety are valid federal responsibilities and should remain with the federal government. Eliminating federal funding for most surface transportation projects would reduce regulatory burdens on states and localities, leading to efficiencies and cost reductions. Critics of devolution have typically made the following claims: National interests are too great to be addressed without a strong federal role. All states benefit from a broad, properly functioning national highway network. This network could be in jeopardy with less federal support, as state capital project funding may prove less reliable than federal funding. Devolution would make it more difficult for states or groups of states to concentrate funds for large projects of regional or national significance because local interests will more likely trump national needs. Some parts of the nation are less well off than others and would have trouble paying for the roads and bridges they need to support economic development and national connectivity. Regulations tied to federal funding of highways and public transportation help ensure implementation of national goals such as highway and transit safety, clean air and water, and civil rights, and may save money by leveling the playing field among contractors and encouraging national competition for bids. Devolution would require major funding transfers to pay for the transition. Changes during the last two surface transportation reauthorization acts have given states greater control over highway expenditures, and Congress has adhered to an earmark ban since 2011. These changes have addressed some of the complaints that originally led to calls for devolution. Surface transportation devolution proposals generally have certain characteristics in common: they would reduce or eliminate existing federal programs, reduce the federal taxes on motor fuels, and leave the states to provide replacement funding for highway purposes if they wish to do so. Most devolution proposals would retain existing federal programs to maintain roads on federal lands, fund transportation research, and provide relief to rebuilt roads and bridges damaged in natural disasters. Nearly all transportation devolution proposals would eliminate the federal public transportation program. At the same time, devolution proposals have taken differing approaches to a number of important matters. Some would retain a federal role in maintaining the Interstate Highway System and important bridges, while others would not. Some have retained the major highway formula grant programs, albeit on a far smaller scale, while others have proposed to eliminate those programs. The treatment of two federal safety agencies, the National Highway Traffic Safety Administration and the Federal Motor Carrier Safety Administration, has also been a point of contention; no proposal to date would have devolved those agencies' responsibilities to the states, but elimination of the Highway Trust Fund would leave Congress the choice of letting the programs expire or funding them from the Treasury's general fund. Devolving the current federal highway and transit programs to the states would involve substantial upfront costs. Under the current programs, surface transportation funding is usually authorized in multiyear authorization bills. Each year of funding is available for obligation for the current year and the three subsequent years. The Federal Highway Administration (FHWA) uses its contract authority to legally obligate the federal government to pay its share of a project's cost prior to construction. The state lets the contracts, oversees construction, pays the contractor, and submits vouchers to FHWA for reimbursement. As projects frequently take several years to complete, in any given year FHWA is making payments to the states based on commitments made several years earlier. These payments are made mostly from the current year's HTF receipts. Public transportation funding works in a similar manner, with the sponsoring transit agency signing contracts for approved expenditures and the Federal Transit Administration providing reimbursement as portions of the work are completed. At any time there is a build-up of outstanding obligations for which the federal government is legally responsible. At the end of FY2016, outstanding obligations totaled $65.5 billion for the highway account and $18.6 billion for the mass transit account. These figures represent the amount of previously approved activities for which the federal government must pay when vouchers are submitted for repayment by the states or transit authorities. Thus, devolution may require a period of higher overall motor fuel taxation. Even if the federal government hands responsibility for funding new highway and public transportation projects to the states, it would need to retain motor fuels taxes or some other revenue source to assure repayment of outstanding obligations. This taxation would have to continue alongside whatever new taxes states impose until outstanding HTF obligations are completely paid for, a period that likely would last three or four years. Although devolution would reduce federal spending on transportation, the net savings to the federal government would be less than the amount of the spending reduction because many states extensively use tax-exempt bonds as part of their financing mechanisms. If states were to make up for the elimination of federal surface transportation funding by issuing more tax-exempt bonds, the U.S. Treasury would lose revenue. Virtually all surface transportation devolution proposals would reduce or phase out most of the federal motor fuels taxes (and in most cases also eliminate the other taxes on highway users) over several years. The presumption is that state governments would use this period to adjust their own taxes accordingly. The simplest way to do this would be for the states to increase their own taxes on gasoline and highway diesel fuel by the same amount as the reduction in the federal taxes. However, there are reasons to believe that replacing federal motor fuels taxes with state fuels taxes on a cent-for-cent basis would not provide sufficient revenue to fund the current level of spending on highways and public transportation. One reason is that a large share of federal spending on surface transportation now comes from the general fund, not from taxes dedicated to the Highway Trust Fund. On average, the states would need to raise their taxes on motor fuels by 5 or 6 cents per gallon more than the amount of motor fuels taxes relinquished by the federal government to make up for the loss of the general fund transfers that Congress has been providing. Adding this to the relinquished taxes would mean state legislatures would face, on average, passing increases of about 20 to 21 cents per gallon in their state taxes on gasoline and diesel fuel. In addition, states that currently receive relatively large amounts of federal highway funding, relative to the amount their motorists pay in federal fuel taxes, would have to increase their state fuel taxes even more to maintain current spending. Among these are states with small populations, including several geographically large, sparsely populated western states. Alaska, for example, would likely have to increase its fuels taxes by over $1 per gallon to make up for the lost federal funds under devolution. Several other states, including Vermont, Rhode Island, and Montana, would likely have to enact replacement fuel taxes of roughly 30 to 40 cents per gallon more than the reduction in federal taxes to maintain current spending. Assuming a 15-cent-per-gallon reduction in federal taxes, these states would be facing total increases in state fuel taxes in the range of 45 to 55 cents per gallon to maintain the current level of spending. On the other hand a few states, notably Texas, might be able to reduce the total fuels tax paid by their motorists. These states currently receive less in federal highway funding than the national average, relative to their motorists' payments of federal fuel taxes, and would therefore benefit more than other states from devolution. Devolution would not require that replacement fuel taxes be enacted. State legislatures could decide to dedicate other taxes to surface transportation or rely on their general revenues to fund highways and public transportation. States could also pass the cost downward by requiring local governments to pick up some of the costs of the devolved programs. States might consider expanded use of tolling in lieu of higher taxes. Some might choose not to make up for the reduction in federal grants and instead spend less on transportation. Devolution would lead to changes at the U.S. Department of Transportation, principally at the Federal Highway Administration and the Federal Transit Administration. About two-thirds of FHWA's roughly 2,750 employees work at its field offices. There is at least one division office in each state. The level of staffing at these offices might be greatly reduced depending on the degree to which project oversight responsibilities are reduced or eliminated. However, FHWA would continue to have responsibility for some programs and projects, as well as certain inspection and safety activities. The agency would need to determine whether district offices would be necessary to conduct these activities. The need for the Federal Transit Administration's roughly 550 full-time-equivalent positions would depend on the extent to which Congress retains a federal role in public transportation. Congress and the Administration would also face a determination of what, if any, role the federal government would have in transportation planning. Current federal law sets planning requirements that must be met at the state and regional levels to receive federal funds for transportation and certain other activities. For example, each state must maintain a state transportation improvement plan, and federal funds may be used only for projects listed in the plan. Federal law requires the participation of many stakeholders in the planning process, public notification of certain actions, identification of state and regional goals, and development of short- and long-range state and metropolitan plans. Metropolitan planning organizations (MPOs) exist primarily because of federal planning requirements. Devolution legislation might need to address whether federal mandates for state and metropolitan planning would continue and, if so, how they might be changed in view of the diminished federal role in surface transportation. The states would have to determine how they would respond to devolution of responsibility for public transportation. In most states, the bulk of public transportation activities are conducted by local governments or by special-purpose authorities established by the legislature, rather than directly by the state government. States might need to create new mechanisms for overseeing and funding public transportation if the federal government were to retreat from those roles. Federal incentives and sanctions are used to encourage state actions for highway safety purposes. For example, states receive additional federal highway funds or forfeit funds to which they otherwise would be entitled if they fail to enforce a minimum drinking age of 21 years; if they do not set a blood alcohol level of 0.08 beyond which a driver is considered impaired; if they lack laws prohibiting open containers of alcoholic beverages in vehicles; or if they do not require use of safety belts. It is unclear how these incentives would be provided if states were no longer to receive federal highway funding. Devolution could reduce the federal safety role and leave states with greater discretion over safety policies. In the past, this has led to relaxation of safety regulations. For example, in the early 1970s Congress enacted funding penalties for states that did not require motorcyclists to wear helmets. By 1975, 49 states had such laws. In 1976 Congress repealed the law; many of the states then repealed their helmet laws. Congress has attached numerous requirements to the use of federal surface transportation funds. Advocates of devolution have argued that federal requirements, especially when taken as a whole, negatively impact the cost efficiency of the federal-aid programs. An important consideration in devolving highway programs to the states is the extent to which these requirements would continue to apply. Eliminating federal funding for highways and transit projects would not eliminate all requirements on state departments of transportation in regard to development and construction of those projects. A number of federal requirements would remain in effect. The Davis-Bacon Act (40 U.S.C. §§3141-3144, 3146-3147) requires that companies with public works construction contracts with the federal government or the District of Columbia valued in excess of $2,000 pay locally prevailing wages and fringe benefits. Prevailing wage rates are determined by the U.S. Secretary of Labor in consultation with the state highway departments and are often based on union wage scales. If devolution were to result in states building highway projects without federal funding, federal prevailing wage requirements would no longer apply. However, 30 states have prevailing wage requirements of their own. These states would continue to require highway contractors to pay prevailing wages, as determined under state law. Whether this would result in lower highway construction costs is unclear; recent studies find little connection between payment of prevailing wages and the cost of constructing highway projects because of the higher skill sets of workers attracted by higher pay and the increased use of machinery on high-wage job sites, which lead to more productive use of a smaller workforce. The Brooks Act (40 U.S.C. §§1101-1104) requires the selection of contractors for engineering and design-related services to be based on the bidder's demonstrated competence and qualifications for the type of professional services required and the negotiation of fair and reasonable compensation. Highway projects would not be subject to these requirements if no federal funding were involved. Currently, projects on the National Highway System (which includes the Interstate System and most state highways and totals 223,000 miles of the 1,223,000 of highway mileage eligible for federal aid) must meet engineering standards developed under the auspices of the American Association of State Highway and Transportation Officials (AASHTO). Other roads must meet state standards. All bridge projects using federal funds must meet the standards set forth in the AASHTO Bridge Design Specifications . States are free to use whatever design standards they wish for projects that do not involve federal funds, and this would presumably apply to a much larger number of projects if the highway program were to be devolved to the states. The change would be most significant for small county or township bridges that currently are eligible for federal "off-system" bridge funding. Rebuilding projects using such funds must meet federal bridge standards. Some local officials see compliance with these standards as excessively costly for bridges that handle relatively low volumes of traffic. Under 23 U.S.C. §112, states must allow firms based anywhere in the United States to bid on highway construction contracts, and contracts must be awarded to the submitter of the lowest bid that meets the criteria in the request for bids. States are generally not allowed to limit bidding on federally funded projects to in-state companies or to companies based in a particular locality. Devolution would greatly increase the number of road and bridge projects funded entirely with state and local funds. Depending on state law, the responsible agencies could be free to reserve such contracts to in-state or local companies, which might result in fewer bids and higher average bid costs. Title VII of the Civil Rights Act of 1964 prohibits discrimination in employment on the basis of race, color, religion, national origin, or sex. The equal employment opportunity protections of Title VII apply to employers and contractors whether or not they receive federal funds. Title VII would be unaffected by devolution. Title VI of the Civil Rights Act prohibits discrimination in federally funded programs or activities on the basis of race, color, or national origin. Other statutes expand this protection to cover sex, age, and disability. FHWA division offices and FTA regional offices are responsible for ensuring that all funding recipients (state DOTs or transit agencies) have approved Title VI nondiscrimination plans and have effective programs to monitor their subrecipients' (e.g., local agencies') efforts to implement the nondiscrimination requirements. Title VI applies to all of a recipient's programs and activities, whether specific activities are federally funded or not. Because state DOTs are likely to continue to receive some federal funds after devolution, even if not for highway or transit construction, all of their contracts, including those for construction and professional services, would remain subject to Title VI. This is likely true as well for public transportation agencies, virtually all of which are creations of a city or state. The Disadvantaged Business Enterprise program is designed to give businesses owned by people from socially and economically disadvantaged groups equal opportunity to compete for and obtain federally funded contracts and business development opportunities. Each state DOT is required to establish an approved Disadvantaged Business Enterprise program that sets participation goals and monitors program activities. Although these requirements are based on federal project spending, the state programs would have to be maintained with respect to any projects for which states receive federal highway funds. However, the number of contracts affected by Disadvantaged Business Enterprise requirements might be much smaller after devolution. U.S. DOT also has affirmative action requirements in the contractor compliance program. These requirements apply only to federally funded contracts. A nondiscrimination provision is included in every federal-aid contract. Under devolution, the hiring requirement under the contractor compliance program would apply to fewer contracts for highway work. The Americans with Disabilities Act (ADA) and Section 504 of the Rehabilitation Act of 1973, as amended, require civil rights protections for individuals with disabilities. Public agencies, including state DOTs and transit agencies, must ensure that their facilities are accessible to and usable by persons with disabilities, regardless of whether federal funding is involved. For example, ADA requires the availability of paratransit for individuals with disabilities who are unable to use fixed-route transportation systems. Devolution would not affect ADA's application. Buy America requirements apply to federally funded projects carried out by state and local governments, and thus have considerable impact on highway and public transit projects. Devolution proposals would greatly reduce the number of projects that would be subject to Buy America. However, MAP-21 specified that FHWA Buy America requirements apply to all contracts eligible for assistance within the scope of a project's National Environmental Policy Act of 1969 (NEPA) document, if at least one contract for the project is federally funded. Thus, even if states no longer receive formula grants for highway and bridge construction grants, Buy America would apply to a state-funded project if any other federal highway funds are to be used for any portion of the project. DOT approval of a project to receive federal-aid highway funds is conditioned on the project sponsor meeting applicable federal environmental requirements. "Environmental" requirements include a broad array of requirements that could apply to a project based on its potential to have adverse impacts on community, natural, and cultural resources. Many of these requirements are specified in the National Environmental Policy Act and related regulations, executive orders, and policies. Under devolution, NEPA and a number of other environmental requirements may no longer apply. With respect to federal-aid highway projects, many of those requirements apply only to "federal" actions (e.g., a project funded in part by or entirely using federal program funds). In some cases, environmental requirements apply explicitly to federal-aid highway projects. If devolution were to mean that a state's decision to approve a transportation project would no longer be considered a federal action and would no longer be subject to requirements applicable to federal-aid highways, the following federal requirements would no longer apply: Requirements applicable only to " federal " actions . In addition to NEPA, these include, but are not limited to, requirements established under the National Historic Preservation Act, the Farmland Protection Policy Act of 1981, the Native American Grave Protection and Repatriation Act, and executive orders intended to address adverse impacts on minority and low-income populations and to control impacts to wetlands and floodplains. Requirement s applicable explicitly to f ederal- a id h ighway p rojects . These include standards, procedures, and conditions established under Title 23 of the U.S. Code and implemented largely in accordance with DOT regulations applicable to "Right-of-Way and Environment," such as requirements concerning highway beautification, noise abatement, the mitigation of impacts on wetlands and natural habitats, and the identification of environmental impacts (under NEPA and additional requirements in Title 23). They also include procedures related to the "Section 4(f)" prohibition on the use of federal-aid highway funds for projects that adversely affect parks and recreation areas, wildlife and waterfowl refuges, and historic sites. It is difficult to determine the number of states that currently have or may choose to adopt similar requirements, absent a directive to do so in federal law. Devolution would not eliminate all environmental requirements that affect highway projects. Some environmental standards established by the federal government could apply to any construction project, even if no federal funding is involved, based on its potential to affect certain resources protected under federal law. For example, devolution of the federal highway program likely would not eliminate requirements established under the Endangered Species Act, the Migratory Bird Treaty Act, the Clean Air Act, the Clean Water Act, or the Rivers and Harbors Act. | Surface transportation "devolution" refers to shifting most current federal responsibility for building and maintaining highways and public transportation systems from the federal government to the states. Devolution legislation has been introduced in each Congress since the mid-1990s, supported by Members who regard the federal government as being overinvolved in highways and public transportation. Under such proposals, the federal taxes that now support surface transportation programs, mostly fuels taxes, would be reduced in line with the shift of responsibility to the states. The states could then raise their own taxes to pay for highway and transit projects as they see fit. A small program, funded by much-reduced motor fuel taxes, would remain in place at the federal level to maintain roads on federal lands, fund highway safety efforts, and support other programs Congress decides not to devolve. Beyond the basic small government argument, advocates of devolution generally assert that it will lower costs and accelerate construction of highway and transit projects by freeing them from a wide variety of federal regulations. They also contend that devolution will be fairer than the present systems for distributing highway and public transportation funding, which give some states more money, relative to their residents' motor fuel tax payments, than other states. Opponents of devolution question whether it will save money and worry that it could interfere with national goals established by Congress, such as maintaining important interstate freight corridors and adhering to uniform national construction standards. They point out that the last two surface transportation reauthorization acts have greatly reduced the number of programs and given states greater control over highway expenditures while excluding earmarks, addressing some of the complaints that originally led to calls for devolution. There are several significant issues Congress would face if it were to consider devolution. Among them are the following: Devolution would involve substantial upfront costs, possibly as much as $84 billion over a period of several years, to pay for outstanding highway and transit obligations. Even if the federal government hands responsibility for funding new highway and public transportation projects to the states, it would need to retain federal motor fuels taxes or some other revenue source until it has repaid the states for projects in progress as of the date devolution takes effect. Replacing the reduced federal taxes on a cent-for-cent basis would not provide enough revenue to fund the current level of spending on surface transportation. Nearly all states would have to increase their taxes by an amount larger than the reduction in federal taxes, unless they choose to reduce spending. Devolution would likely increase the use of tax-exempt bonds by the states, reducing federal revenue beyond the amount of forgone highway taxes. |
The Energy Savings and Industrial Competitiveness Act, S. 385 / H.R. 1443 , would introduce energy-efficiency policy reforms that according to the sponsors would "strengthen the economy and reduce pollution." The bill addresses energy-efficiency policies for buildings, industry, and federal agencies, among other provisions. According to the U.S. Energy Information Administration, the building and industrial sectors collectively consume 72% of all U.S. primary energy. The residential and commercial buildings sector accounts for 40% of all U.S. primary energy consumption, and the industrial sector accounts for 32%. Increased adoption of energy-efficiency technologies by these sectors could potentially realize significant energy savings and reduce emissions to the environment. The U.S. Department of Energy (DOE) estimates that building energy use could be reduced by more than 20% through implementation of technologies that are known to be cost-effective. Implementation of existing, cost-effective efficiency technologies in the industrial sector could reduce energy consumption by 14%-22% according to the National Academies. Challenges to energy efficiency include market forces that do not incentivize investment in energy efficiency, a lack of information or awareness of energy saving opportunities and investment returns, and policy approaches that reward selling energy and discourage investment in energy efficiency. The bill proposes a national strategy to increase energy efficiency in the residential, commercial, federal, and industrial sectors; to reduce barriers to private-sector investment; to increase adoption of existing technologies; to increase energy independence; to improve economic competitiveness; and to reduce environmental impacts. This report describes the development of the Energy Savings and Industrial Competitiveness Act, S. 385 / H.R. 1443 ; reviews select provisions in the bill; summarizes studies on the costs and benefits of the bill; and discusses potential issues for the 115 th Congress. It also identifies differences that may be of interest to policymakers between S. 385 / H.R. 1443 and relevant energy-efficiency sections of Title I of S. 1460 , Energy and Natural Resources Act of 2017, which was introduced on June 28, 2017. Senator Portman introduced S. 385 on February 15, 2017, and Representative McKinley introduced an identical bill, H.R. 1443 , on March 9, 2017. Both bills build upon congressional action from the 112 th , 113 th , and 114 th Congresses. The first version of the bill, introduced as S. 1000 in the 112 th Congress, was reported by the Senate Committee on Energy and Natural Resources but received no further action. In the 113 th Congress, the bill was reintroduced in multiple forms including S. 2262 , which contained additional provisions. The provisions in S. 2262 were split into two Senate bills in the 114 th Congress, S. 535 / H.R. 1802 and S. 720 , which was related but not identical to H.R. 2177 . S. 535 became law ( P.L. 114-11 ) and addressed the following five subjects: Energy efficiency in federal and commercial leased buildings, Separate spaces (leased or otherwise occupied spaces within a building) with high-performance energy-efficiency measures, Tenant Star Program, Grid-enabled water heaters, and Energy information for commercial buildings (e.g., benchmarking and disclosure requirements for federal agencies and the creation and maintenance of a database of public energy-related information for commercial and multifamily buildings). In the 114 th Congress, the remaining provisions of S. 2262 , including model building codes, information coordination for energy-efficient school buildings, and federal-building energy-efficiency requirements, were incorporated into S. 720 and later into a broader energy and natural resources bill, S. 2012 . A conference committee was unable to reach an agreement on S. 2012 . The evolution of the provisions is shown in Appendix A . The provisions in S. 385 and H.R. 1443 align closely with those in S. 720 (114 th Congress). A voluntary verification provision for air conditioning, furnace, boiler, heat pump, and water heater products present in S. 720 (114 th Congress) is not included in S. 385 / H.R. 1443 . S. 385 (and the identical H.R. 1443 ) is divided into five titles. Title I addresses building energy efficiency and workforce training. Title II has provisions on industrial efficiency and competitiveness. Title III focuses on federal agencies and energy efficiency. Title IV has regulatory provisions for the Energy Star program and federal buildings. Title V addresses budgetary effects and would require advance appropriations. Table 1 summarizes the major provisions of the bill. A discussion of selected provisions follows. Title I includes subsections on building energy codes, workforce training, and school buildings. For building energy codes, DOE currently submits proposals to a third-party, consensus-based codes or standards development organization to make changes to the existing model code, conducts analysis of the potential energy-efficiency improvements of model energy codes, and determines whether the revised code would improve energy efficiency (see text box for additional information). Section 101, on greater energy efficiency in building codes, would direct DOE to support the model-code development process and to establish targets for aggregate energy savings. These targets would be established and revised by DOE through a rulemaking process. The bill would also direct DOE to encourage and support states, Indian tribes, and local governments to implement and adopt the model building energy codes; for the current status of state building energy codes, see Appendix B . Subtitle C would direct DOE to act as the lead federal agency to coordinate and disseminate information on existing federal programs that could assist energy efficiency, renewable energy, and energy retrofit projects for schools. Title II has four subsections: manufacturing energy efficiency, a new "Supply Star" program to incentivize more efficient supply chains, a rebate program for energy-efficient product systems with an electric motor and electronic control, and a rebate program for energy-efficient transformers. Several of the subsections address barriers to industrial energy efficiency identified by DOE in a 2015 report to Congress. Provisions for Supply Star and for the rebate programs address the economic and financial barriers to energy-efficiency adoption identified by DOE, and the subsection related to manufacturing energy efficiency helps to address identified informational barriers to energy-efficiency technology adoption by providing technical expertise and assistance to manufacturers. Title III addresses energy efficiency for federal agencies and has sections targeting efficiency improvements for information technologies and data centers. It also directs the Secretary of Housing and Urban Development (HUD) to establish a demonstration program at multifamily residential units for budget-neutral, performance-based agreements for energy and water conservation improvements. Title IV also has provisions related to federal agencies and energy efficiency. Specifically, this title contains subtitles related to the Energy Star program, federal green buildings, and energy performance of federal buildings. The current version of this title differs from proposals in prior Congresses. One change in the current version from previous versions is the addition of language supporting sustainably sourced materials. In Title IV, Subtitle B—Federal Green Buildings, Section 411(3)(E), the bill adds the following language to the basis for certifying high performance buildings: [A] finding that, for all credits addressing the sourcing of grown, harvested, or mined materials, the system rewards the use of products that have obtained certifications of responsible sourcing, such as certifications provided by the Sustainable Forestry Initiative, the Forest Stewardship Council, the American Tree Farm System, or the Programme for the Endorsement of Forest Certification. In contrast to rewarding responsibly sourced products, S. 720 (114 th Congress) stated that the "high-performance green federal buildings" certification system should "not discriminate against" the use of such responsibly sourced domestic products. This change from not discriminating against selection to rewarding certain characteristics is also reflected in Section 422 of S. 385 / H.R. 1443 , which states that the criteria should be based on relevant technical data, including an evaluation of the health, safety, and environmental risks and impacts across the product lifecycle. Criteria used to support the selection of building products or materials should also give preference to performance standards versus prescriptive measures, and reward continual improvements in lifecycle management. In S. 720 , this provision would have specified which selection criteria should not be included—namely those that are prohibitive, discriminatory, or disfavoring based on technically inadequate information on risk. Both current and previous versions of this section would give preference to criteria that are performance-based versus prescriptive measures. S. 385 —The Energy Savings and Industrial Competitiveness Act—was introduced on February 15, 2017. On March 30, 2017, the Senate Energy and Natural Resources Committee approved the bill without amendment as part of an advancement of 65 bills en bloc and by voice vote. The committee reported it on May 10, 2017, accompanied by S.Rept. 115-60 . Senator Collins introduced a related bill, S. 383 , Streamlining Energy Efficiency for Schools Act, on February 15, 2017. It is identical to Title I, Subtitle C, of S. 385 . The House passed a bill, H.R. 627 , with the same title as and provisions similar to S. 383 , on June 12, 2017. (See description below under House action.) On June 28, 2017, Senators Murkowski and Cantwell (chair and ranking member, respectively, of the Senate Energy and Natural Resources Committee) introduced S. 1460 , the Energy and Natural Resources Act of 2017. The next day, the bill was read a second time and placed on the Senate calendar. The bill has two divisions, Division A—Energy, and Division B—Natural Resources. Division A, Title I, focuses on energy efficiency. Most topics addressed by S. 385 / H.R. 1443 described in Table 1 are found within Title I of S. 1460 , although the provisions are not identical. S. 1460 would not establish a voluntary Supply Star program for industrial efficiency. There are several potentially important differences within the comparable provisions of S. 385 / H.R. 1443 and S. 1460 . These issues are discussed further in " Possible Issues for Congress ." H.R. 1443 —The Energy Savings and Industrial Competitiveness Act—was introduced on March 9, 2017, and referred to the following committees: House Energy and Commerce; House Budget; House Financial Services; House Science, Space, and Technology; House Transportation and Infrastructure; and House Oversight and Government Reform. On March 10, 2017, the House Energy and Commerce Committee referred it to the Subcommittee on Energy, and the House Transportation and Infrastructure Committee referred it to the Subcommittee on Economic Development, Public Buildings and Emergency Management. On April 25, 2017, the House Science, Space, and Technology Committee referred it to the Subcommittee on Energy. On January 24, 2017, H.R. 627 —the Streamlining Energy Efficiency for Schools Act of 2017 —was introduced in the House and referred to the House Energy and Commerce Committee. Similar to S. 383 , this bill would amend the Energy Policy and Conservation Act (EPCA) for energy retrofitting assistance for schools (42 U.S.C. Chapter 77, Subchapter III, Part E). The language in the two bills differs; H.R. 627 would direct the establishment of a clearinghouse of information, while S. 383 , in addition to an informational website, would require technical assistance, a recognition process for schools, and a report to Congress regarding implementation. H.R. 627 was reported by the House Committee on Energy and Commerce without amendment on June 12, 2017, and the House suspended the rules and passed the bill on the same day. On May 4, 2017, H.R. 2361 —Energy Savings and Building Efficiency Act of 2017—was introduced in the House and was referred to the House Committee on Energy and Commerce. The following day, it was referred to the Subcommittee on Energy. Similar to H.R. 1443 , the bill also would promote energy savings in residential and commercial buildings and industry, but it has several key differences in language. Specifically, H.R. 2361 would limit the time period for estimating energy savings to a 10-year time frame for simple payback, not require certification for states or tribes that do not update a model building energy code, and create voluntary aggregate energy savings targets instead of mandatory targets for the baseline model building energy codes. The potential issues related to these differences are discussed further in " Possible Issues for Congress ." The Congressional Budget Office (CBO) estimated costs for S. 385 . Cost estimates from CBO are limited to federal outlays and revenues that would change if the legislation were enacted and fully implemented, and do not extend to the microeconomic costs and benefits that would be incurred by industry or consumers. According to CBO, S. 385 would increase direct spending by $17 million for 2017-2027 and cost $198 million over five years to implement, assuming that appropriations would be consistent with the authorizing legislation. Increases in direct spending would arise from provisions that direct federal agencies that guarantee mortgages to take into account energy-efficiency improvements when evaluating a borrower's ability to repay a mortgage. CBO expects that the requirement, if enacted, would increase the total volume of mortgages insured by federal entities by less than 0.1%. As the requirements for the proposed federal energy-efficiency goals are largely consistent with existing statute and administrative policy, CBO does not anticipate them to significantly add to federal spending. Additionally, federal agency spending on renewable energy certificates (RECs) would decrease, as current requirements to reduce the consumption of energy generated from fossil fuels would be modified. These findings are consistent with the analysis done by CBO for S. 720 (114 th Congress). S. 385 would impose an intergovernmental mandate by requiring states and tribal governments to certify to the DOE whether or not they have updated residential and commercial building codes to meet the latest building energy-efficiency standards. CBO estimated the cost of this intergovernmental mandate, as defined in the Unfunded Mandates Reform Act of 1995 (UMRA). CBO determined that the cost of the mandate would be well below the threshold established in UMRA for 2017. Additionally, S. 385 would authorize funding and technical assistance to state, local, and tribal governments to implement the certification requirement. In 2013, the American Council for an Energy-Efficient Economy (ACEEE) evaluated similar energy-efficiency legislation benefits (113 th Congress, S. 1392 ). ACEEE's analysis determined that the bill and selected amendments would create jobs, save consumers money, reduce energy use, and avoid greenhouse gas emissions. ACEEE found that the majority of potential energy savings in the bill could be realized through implementation of building energy codes. The provisions in S. 1392 responsible for the largest energy savings, according to ACEEE, are identical (with a minor conforming change for authorization of appropriations) with the provisions in S. 385 / H.R. 1443 . However, comparing the results for energy or cost savings estimates by ACEEE from S. 1392 would overestimate the benefits of the current bills within a 2020 or 2030 time frame, as the ACEEE analysis quantified potential energy savings beginning in the year 2015. Further, the analysis included benefits of provisions previously enacted in P.L. 114-11 . Support and opposition to S. 385 / H.R. 1443 are likely to parallel those for S. 720 (114 th Congress) and its predecessor, S. 2262 (113 th Congress). Several companies and organizations have stated their support for S. 385 / H.R. 1443 . These organizations generally support the promotion of energy-efficient technologies; efforts to promote job creation in the energy-efficiency sector; measures to save energy in buildings, industry, and the government; and financing assistance for home energy-efficiency improvements. The ACEEE states that the bill "would help consumers, workers, businesses, states, the economy, and the environment." The American Chemistry Council (ACC) also supports the bill, particularly the section on enhanced energy-efficiency underwriting (§423). According to ACC, the energy underwriting provisions would recognize the benefits of energy-efficient technologies and reduce annual mortgage expenses and utility bills for consumers. The bills may face opposition from groups focused on market-based policy. For example, the Heritage Foundation and its affiliated advocacy group, Heritage Action, opposed S. 2262 in the 113 th Congress. They stated that the bill "would burden taxpayers and consumers alike," and that "removing mandates and subsidies removes impediments to market efficiency." Instead of creating efficiency standards or providing incentives as included in Title I, these groups support providing information through voluntary programs. The Heritage Foundation has previously stated support for improving federal energy efficiency through energy savings performance contracts so long as there is sufficient oversight, transparency, and cost-savings verification. While S. 385 / H.R. 1443 has provisions addressing these issues, it is yet unknown if the provisions will draw support for the legislation. Other groups have raised concerns about specific provisions in the bill. While the American Institute of Architects (AIA) supports the consensus-based model building energy codes in Title I, AIA opposes language in Title III of the current bill that would repeal the part of the Energy Independence and Security Act 2007 ( P.L. 110-140 ) that requires new and renovated federal buildings to phase out fossil fuel power by 2030. Title I, Subtitle A—Building Energy Codes—has several provisions that have previously raised opposition. It directs DOE to establish energy savings targets in the code development process and to consider the lifecycle cost-effectiveness of model building energy codes for those targets. Opponents to targets state that greater transparency in DOE's technical support of code development is needed to avoid concerns of an "inappropriate advocacy role." Furthermore, they state that DOE's role should be to serve as "technical advisor" and not push for specific goals, products, or technologies. DOE has a role in certification of energy-efficiency codes. Under 42 U.S.C. 6833, states are required to certify to DOE that they have compared a new building energy code standard to their current code. For residential building energy codes, the certification includes a determination as to whether it is appropriate to revise the state's current code to meet or exceed the revised code. For commercial building energy codes, the certification confirms that the state's building code has been updated appropriately. Regarding cost-effectiveness, some prefer the simple payback approach limited to 10 years, as is proposed within H.R. 2361 . Proponents consider such an approach effective in communicating the payback for consumers in easily understood terms and meeting consumers' expectations for short-term returns on investment. Supporters of H.R. 2361 contend that the current model code process requires costly products and materials, which could be corrected by requiring a shorter payback period. Opponents of a simple payback limited to 10 years state that the approach neglects benefits that occur after the period, ignores the benefits beyond the initial investor, does not account for mortgage financing, and thus does not accurately measure the full benefits and overall profitability. The lifetimes of major building components generally exceed a 10-year time frame and often exceed the time span of 15-year and 30-year mortgages. The average residential building lifetime in the United States is 61 years, and typical building component (e.g., insulation, windows, roof) lifetimes exceed 10 years. For example, the warranty period for windows is often 20 to 25 years depending upon the type and can last throughout the building lifetime with maintenance. Products with shorter lifetimes such as water heaters or refrigeration equipment are not typically included when determining building energy code cost-effectiveness, as they have separate energy-efficiency standards. Congress might consider whether to prioritize affordability for the first building owner relative to realizing larger building energy savings that may benefit multiple owners or occupants throughout the lifetime of a building. S. 1460 is a comprehensive energy and natural resources bill. Title I of the bill addresses energy efficiency, and many of the sections within Title I align with the contents of S. 385 / H.R. 1443 (see table in Appendix A for similar provisions). It contains several differences that may be of interest to Congress. Many of the differences between S. 385 / H.R. 1443 and S. 1460 address building energy codes, and Congress might consider how these differences may affect the energy-efficiency goals of the legislation. While S. 385 / H.R. 1443 use the term "model building energy code," S. 1460 uses the term "voluntary building energy code," which is currently in Section 303 of the Energy Conservation and Protection Act (ECPA) (42 U.S.C. 6832). S. 1460 would further emphasize the voluntary aspect of the building energy codes by adding the following to Section 304 of ECPA (42 U.S.C. 6833): (a) VOLUNTARY BUILDING ENERGY CODE.—Nothing in this section or section 307 makes a voluntary building energy code established under this section or an updated voluntary building energy code under section 307 binding on a State, local government, or Indian tribe as a matter of Federal law. S. 1460 also emphasizes that the energy-savings targets that DOE would establish are "consensus-based," which is consistent with the definition of "model building energy code" used in S. 385 / H.R. 1443 . S. 385 / H.R. 1443 and S. 1460 expand the current certification requirements for states and Indian tribes regarding reviewing and updating building energy codes. Under current law, states are required to certify that they have compared new model building energy codes with their existing building energy codes within two years of a determination by DOE that the updated version of a model building energy code is appropriate. While the model building energy codes are different for residential and commercial buildings, both bills set consistent certification requirements for residential and commercial building energy code reviews and updates. Both bills also require states and Indian tribes to certify whether they have achieved compliance with the applicable building energy code standard. However, S. 1460 does not include language requiring repeat certifications for those who have certified progress toward achieving compliance but not full compliance. For those states that do not achieve compliance, federal support is available per both bills. However, S. 385 / H.R. 1443 authorize support for "code adoption and compliance activities" while S. 1460 authorizes support for "technical assistance." Federal incentive funding is available in both bills; however, there is a change in word choice in S. 1460 to deemphasize "enforcement." In S. 385 / H.R. 1443 , incentive funding could be used to improve and verify compliance and to train "state, tribal, and local building code officials to implement and enforce the codes." S. 385 / H.R. 1443 would also permit states to "share grants under this subsection with local governments that implement and enforce the codes." In S. 1460 , the enforcement language is replaced such that incentive funding could be used to improve and verify compliance and train "state, local, and tribal building code officials, or other entities identified by the Secretary." Language permitting grant sharing in S. 1460 is simplified to "states may share grants under the subsection with local governments." S. 1460 does not contain the following energy-efficiency provisions present in S. 385 / H.R. 1443 : A requirement for DOE to establish stretch codes and advanced standards, which refer to building energy codes or standards that are adopted by state, tribal, or local governments that exceed the expected energy-efficiency performance of a building energy code target ahead of schedule by three to six years; Studies on code procedures that consider the lifetime of energy-efficiency measures in trade-offs and performance calculations; S. 1460 instead would call for studies on code procedures that adopt energy-efficiency measures that are "technologically feasible and economically justified"; Energy-efficient targets that are "technologically feasible and life-cycle cost effective"; S. 1460 instead would direct DOE to establish targets that are "technologically feasible and economically justified"; and A paragraph that calls for economic considerations for achieving proposed building energy-efficiency targets that would include potential costs and savings for consumers and building owners and include a return on investment analysis. S. 1460 uses the term "economically justified." At the end of the proposed language for Section 307 of ECPA (42 U.S.C. 6836), this term is expanded to explain that DOE shall "determine whether the benefits of the building energy code exceed its burdens," considering the impact on manufacturers and building owners, estimated savings in operating costs, total projected amount of energy or water savings, any reduction or increase of the utility or the performance of the buildings, the need for national energy and water conservation, and other relevant facts. S. 385 / H.R. 1443 , H.R. 2361 , and S. 1460 present three approaches to the consideration of the costs and benefits of energy-efficiency improvements to building energy codes. S. 385 / H.R. 1443 would direct DOE to support building energy codes that consider building energy savings over the lifetime of a building. H.R. 2361 would direct DOE to support building energy codes that consider the initial affordability for the building owner. Congress might consider whether the use of the term "economically justified" in the energy-efficiency provisions of S. 1460 presents a middle path that would direct DOE to consider building energy codes that balance both the lifetime energy savings and the initial affordability of a building. Appendix A. Evolution of Provisions The sections in S. 385 / H.R. 1443 can be traced back to congressional action on a sequence of bills that were considered in the 113 th and 114 th Congresses. Table A-1 shows the evolution of those provisions. The relevant sections within S. 1460 that pertain to efficiency are also included in the table for comparison. Appendix B. Status of State Building Energy Codes Building energy codes are adopted by states, Indian tribes, and local governments in the United States. DOE tracks the adoption of building energy codes; the status of commercial and residential energy code adoption at the state level is presented in Figure B-1 and Figure B-2 . | Energy efficiency—providing the same or an improved level of service with less energy—has been of interest to some Members of Congress. Proponents of increased energy efficiency see an untapped "resource" that can mitigate the demand for additional energy supplies. Perceived benefits of energy efficiency include lowered energy bills, reduced demand for energy, improved energy security and independence, and reduced air pollution and greenhouse gas emissions. Challenges to energy efficiency include market barriers that do not incentivize builders or developers to invest in energy efficiency, customers' lack of information or awareness of energy saving opportunities and investment returns, and policy barriers that focus on energy supply rather than investment in energy efficiency. S. 385—the Energy Savings and Industrial Competitiveness Act—and its House companion bill, H.R. 1443, address energy efficiency in buildings, industry, and federal agencies, and various regulatory measures. Energy savings through increased efficiency can be significant. Estimates by the Department of Energy (DOE) and the National Academies of achievable energy savings using available cost-effective technologies are about 20% for the buildings sector and range from 14% to 22% for the industrial sector. Combined, these sectors consume 72% of all U.S. primary energy. Further savings can be realized through efforts to improve energy efficiency across the federal government, which is the single largest energy consumer in the United States. The Congressional Budget Office (CBO) estimated that S. 385 would increase direct federal spending by $17 million between 2017 and 2027. Enacting the bill would not affect revenues. CBO estimated that implementing the legislation would cost the government $198 million over the next five years, assuming appropriations actions that fulfill all provisions of the legislation. Supporters of S. 385/H.R. 1443 state that the bills can improve competitiveness, save consumers money, and increase energy security while reducing air pollution and greenhouse gas emissions. Provisions identified as potentially controversial include directing DOE to establish aggregate energy saving targets for commercial and residential buildings, determining cost-effectiveness of conservation measures over the lifetime of the building, and removing the requirement to eliminate fossil fuel use by federal buildings. S. 385 was reported without amendment by the Senate Committee on Energy and Natural Resources (SENR) on May 10, 2017. H.R. 1443 was referred in the House on March 9, 2017, to the following committees: Energy and Commerce; Budget; Financial Services; Science, Space, and Technology; Transportation and Infrastructure; and Oversight and Government Reform. On June 28, 2017, S. 1460, the Energy and Natural Resources Act of 2017, was introduced. Title I of the bill addresses energy efficiency and includes many provisions related to S. 385/H.R. 1443. A comparison of the provisions identified several differences between S. 1460 and S. 385/H.R. 1443 that may be of interest to Congress. |
The November 2002 outbreak in China of a new form of atypical pneumonia, Severe AcuteRespiratory Syndrome (SARS) had widespread economic, political, and social effects on the PRCand presented a serious test for new PRC party leadership, named at the November 2002 PartyCongress, and for new central government officials named at the March 2003 meeting of theNational People's Congress. (1) Having firstminimized and tried to cover up the extent of the disease,PRC officials eventually were forced by circumstances to acknowledge the problem, apologize forfailure to be more forthcoming, and respond openly and aggressively to the outbreak. Thegovernment's handling of new SARS cases emerging in January 2004 differs markedly from itsearlier experience. As a result, some U.S. foreign policy observers have suggested that the initialcrisis of 2003 was a transformative experience for the new leadership that will have lastingimplications for the PRC's future and for its role in the world. One set of questions is economic. These include the direct costs of fighting the virus, the indirect costs to and implications for the country's economy because of lost business, and thenational budget implications of continuing to address the weaknesses that SARS revealed about thePRC's health care system. Social and political questions center around what the health crisisrevealed about the limits of central government power in an age when public pressure can forcechanges in Beijing's policies. Finally, the health crisis raised questions about the PRC's globalimage and role, including its responsibilities to international organizations such as the World HealthOrganization (WHO), the impact that Beijing's decision to obfuscate about the crisis may have hadon its credibility with its neighbors, and the potential implications of the crisis for PRC relations withHong Kong and Taiwan. This report will address the political, social, and economic questions confronting China as it continues to cope with the after-effects of the health crisis and emerging new health crises. Thisreport also will assess the implications of these questions for China's future and for U.S. policy. Thereport will be updated as events warrant. In November and December 2002, authorities in China's Guangdong Province began seeingcases involving a mysterious and contagious flu-like virus that PRC medical officials first describedas an "atypical pneumonia." As later press reports eventually reconstructed it, cases first appearedin the provincial cities of Foshan, Heyuan, and Zhongshan, spreading then to Guangzhou, theprovince's capital city. Although Beijing sent a delegation of medical experts to Guangdong onJanuary 20, 2003, to help provincial officials investigate the illness, government authorities madeno official mention of the mysterious cases, nor did official PRC media sources. When provincialgovernment officials finally acknowledged the mysterious pneumonia outbreak publicly in earlyFebruary 2003, they continued to be secretive and duplicitous about the extent of the illness, onlyperiodically making reluctant further disclosures about the outbreak. The Guangdong Provincial Health Bureau made the first official PRC announcement about the mysterious illness on February 11, 2003, after the outbreak had "become obvious" in the city,according to a senior Guangdong health official. (2) Taking the then unusual step of holding a pressconference, provincial health authorities reported that 5 in Guangdong had died and more than 300had become sick -- numbers that proved much understated by later calculations. Having revealedthe problem, the following day, on February 12, 2003, the official Xinhua News Agency announcedthat the mysterious pneumonia had been "brought under control"and no new cases had been reported. This remained the official story from the PRC government through mid-March 2003, even as theWorld Health Organization (WHO) issued a global alert on March 12, 2003, following newoutbreaks of a similarly described "atypical pneumonia" in Vietnam and Hong Kong. PRC officials remained reluctant to issue information throughout March 2003. Even so, onMarch 15, 2003, the WHO issued an unprecedented "emergency travel advisory," for the first timereferring to the illness as SARS and saying that its further spread to Canada, Singapore, and Europenow made it a "global health threat." According to WHO officials, it was only at this point that theChinese government began providing them with information about the February "atypicalpneumonia" outbreak in Guangdong which Beijing still maintained had been successfully dealt with. Even so, WHO reported that the PRC at this point still declined to provide biological samples, testresults, or even details about the courses of treatment used during the February outbreak. Severaldays later, on March 18, 2003, PRC officials admitted that the SARS outbreak was continuing inGuangdong, but maintained that it had not spread to other locations in China. On March 27, 2003,PRC authorities admitted that actually more than 800 people in Guangdong had become sick and 34had died, including 3 in Beijing -- the government's first admission that the illness had spreadbeyond Guangdong Province. It was not until April 2 that PRC officials allowed WHO investigatorsto visit the Guangdong SARS areas. (3) On April 4, 2003, the head of the PRC's Center for Disease Control issued an unprecedented public apology for the government's "poor coordination" of information about the health crisis. (4) OnApril 9, a prominent Beijing surgeon publicly disclosed that the government was continuingseriously to under-report cases of SARS in Beijing, and that the number actually was far more thanthe statistics of 22 existing cases in the city that the government had released that same day. By mid-April 2003,persistent rumors, international inquiries, and foreign press reports were bringingenormous pressure to bear on government officials, who were still reporting that SARS had beencontained in Guangdong and that only 15 more cases had been reported in Beijing, for a total of 37. WHO investigators publicly announced on April 16, 2003 that the international community did nottrust the Beijing city government's figures, and that the numbers Beijing was reporting did notinclude patients in military hospitals or those with suspected but unconfirmed cases. The New YorkTimes quoted one WHO infectious disease expert as saying that the real number of cases in Beijingmore likely was "in the 100-to-200 range now." (5) On April 18, 2003, China's new Premier, WenJiabao, threatened dire consequences for any government official who did not make full and timelydisclosure about SARS cases. On April 19, 2003, the Washington Post reported that PRC doctorswere disclosing that the previous week, on orders from the Beijing city government, authorities hadphysically moved more than 70 SARS patients out of hospitals to prevent visiting WHO medicalteams from finding them on their inspections. The real official turnaround in the crisis came on April 20, 2003, when PRC leaders made an evident decision to be more forthcoming about the SARS crisis. In a series of steps that manyobservers described as unprecedented in the history of the Chinese Communist government, PRCofficials that day held a nationally televised press conference in which they admitted that SARScases in Beijing actually were more than ten times the 37 cases officially reported up to that point,and that there were 339 confirmed cases and 402 suspected cases. Officials offered a public apologyfor their "leadership failure" in addressing the SARS crisis. Later that day, both the Minister ofHealth, Zhang Wenkang, and the Mayor of Beijing, Meng Xuenong, were removed from theirpositions, presumably for misleading the public about the extent of the health crisis. By April 27, 2003 -- only ten weeks after the initial announcement that a mysterious pneumonia outbreak affecting a few hundred people in Guangdong had been brought under control-- SARS outbreaks had been reported in 26 of the PRC's 31 provinces, the number of confirmedcases in Beijing alone had passed 1,100, and the central government had placed more than 15,000people in the city under quarantine. Further, the government cancelled the week-long celebrationsfor the May 1st holiday of 2003 to discourage widespread travel in China, and ordered the emergencyclosure of movie theaters, discos, churches, and other public places in Beijing. (6) Outside the capital,villages and towns with no recorded SARS cases began to put up roadblocks to isolate themselvesfrom potentially infected travelers. Although new daily PRC announcements showed that confirmedSARS cases were now increasing on a daily basis, WHO officials on April 29, 2003 again criticizedthe government for failure to provide more detailed information. Many citizens of Beijing refusedto venture outside their homes, often wearing protective face masks when they did so. Accordingto press reports, streets and public squares in the city were virtually deserted, and those businessesand stores that remained open had virtually no customers. By July 2003, the global transmission of SARS had virtually disappeared. On July 15, 2003, the U.S. CDC discontinued the distribution of its Health Alert Notices and lifted the last of its traveladvisories, reflecting that no new cases of SARS had appeared in more than 30 days. (7) Nevertheless, the international medical community warned that SARS may duplicate the pattern ofother respiratory diseases and recur seasonally, like the flu. Many pointed out that the SARSoutbreak of late 2002-early 2003 highlighted a number of serious weaknesses in the PRC's politicaland economic systems that PRC leaders were forced to address, particularly given the potential forother national health crises. Some felt that the act of addressing these weaknesses could have alasting impact on governance in the PRC. Since 1978, the pressures and demands of modernization have forced the authoritarian Chinesecommunist political system to change in important ways. These changes have been incremental andselective, so that the political arena in the PRC today has an oddly chimerical quality about it. Forexample, while much in PRC society is increasingly open, the process by which government andparty decisions are made is still a murky matter. A small number of senior leaders continues to makemost major policy decisions in closed sessions. They give little rationale to the public about whythey make a given decision, and no information about whether some leaders have dissenting views. Open and direct criticism, even when justifiable or well-intentioned, is often treated harshly as athreat to some greater good, such as social stability or public safety. (8) What one observer has referredto as "the culture of secrecy" surrounding the process at the top in the PRC extends also into thebroader socio-political arena. (9) On the other hand, while the party still reserves ultimate power to itself, the levers for exercising that power have weakened. Combined with the forces of globalization, the party'sinstitution of economic market mechanisms since 1978 has required more political flexibility andthe acceptance of greater local autonomy. More decision-making authority has devolved to variousgovernment bureaucracies and to provincial and local authorities, but this shift in power has not beenaccompanied by the creation of a supporting institutional infrastructure sufficient to regulatecommerce, control corruption, and coordinate laws and responsibilities at all levels of governance. Consequently, the universe of what effectively can be controlled by the core central elite today isseen to be shrinking, while the capacity of non-central actors to manage, influence, and interfere inday-to-day activities is seen to be expanding. The struggle of dealing with SARS highlighted thesestrains and contradictions in the PRC political system. One of the most evident consequences of the 2003 SARS crisis for PRC leaders was the harsh light it threw on the lack of transparency and accountability in government. SARS demonstrated thatmuch of the PRC government's standard operating procedure is ill-equipped to respond to awidespread public health crisis. Under PRC law, for example, the government has extensive powerto determine what information is a "state secret." and can impose severe punishments against thosewho reveal "state secrets." The definition of what are "state secrets" and who is entitled to knowthem is vague and arbitrary, as evidenced by the general description contained in Article 2 of thestate secrets law: "State secrets shall be matters that have a vital bearing on state security andnational interests and, as specified by legal procedure, are entrusted to a limited number of peoplefor a given period of time." (10) Further, accordingto some reports, a 1996 law, the text of which doesnot appear to be available, specifically states that serious infectious diseases shall be considered statesecrets unless and until the government makes an official public announcement about the disease. (11) Adherence to laws and regulations designed to keep unfavorable information secret, ostensibly for the purpose of protecting public safety, proved a damaging and counterproductive strategy in thecase of the SARS health crisis. It was, in fact, the government's failure to provide informationabout the initial outbreak that ultimately endangered public safety. In addition, as the disease beganto spread and more information about it became available, government efforts to "spin" the SARSstory began to appear clumsy and incompetent. The Party made many early mis-steps in 2003 that damaged its credibility. One early PRC state-run media account reported that the initial reports of a pneumonia outbreak were false, spreadby a pharmaceutical company trying to create a market for one of its anti-flu drugs. (12) Officialspublicly insisted that a mild pneumonia-like epidemic had occurred but had been "brought undercontrol." Authorities arrested and charged some people for "spreading rumors" that a mysteriouspneumonia had broken out in southern China. But confronted daily with demonstrable evidence ofthe disease's spread, the government's official line ultimately became untenable. Governmentleaders were confronted with the fact that more PRC citizens believed foreign pronouncements aboutthe spread of SARS in China than they did their own government's. In part to resuscitate the party'sand the government's ailing credibility, PRC officials opted for fuller disclosure. According tosome news reports, in addition to the Minister of Health and the Mayor of Beijing, dozens of otherofficials were fired, suspended, demoted, or otherwise disciplined for non-performance for what oneaccount referred to as "their slack reactions" against SARS. (13) Public pressure played a crucial role in finally forcing the government's hand. The very nature of the crisis helped serve this public pressure, since a threat posed by a disease is less responsive topolitical interpretation by the government than are other problems; one is either sick with amysterious pneumonia-like illness or one is not. Still, it took pervasive pressure from multiplesources to change the way the government responded to SARS, and at each step, observers notedongoing contradictions in the PRC political system. International Community. As a contagious disease, SARS was not a problem that could be confined to a limited physical area so that the PRCgovernment could shield it from public view. In the age of global travel, SARS transcendedgeographic borders, making it harder to hide from the international community. For example, inFebruary and March 2003, while PRC officials continued publicly to deny that China was havinga health crisis, travelers to Singapore, Canada, Hong Kong, and other countries were getting sickwith the mysterious illness. Epidemiologists from the WHO and from affected nations were ableto trace these cases back to contact with a particular location in or individual from the PRC. As theweeks went by, even though PRC officials publicly continued to insist that China was SARS-free,foreign organizations, governments, and business representatives began to act independently toprotect their people from exposure to SARS in China. Medical Community. In addition to international organizations and governments, pressure arose from what might be called an international"community of experts" -- meaning in this case medical personnel in the PRC who were inconsultation with each other and with their professional counterparts around the world. In theirefforts to diagnose and treat cases of the mysterious new disease, doctors from the PRC and otheraffected countries exchanged information with WHO investigative teams, various national Centersfor Disease Control, and others, reporting on what they were seeing in their own hospital wards. These avenues of non-governmental communication allowed medical investigators to make furtherindependent assessments about the veracity of pronouncements from PRC government officials. The most influential example of this reporting by medical experts involved the case of Dr. Jiang Yanyong, a prominent surgeon in Beijing, who disclosed on April 9, 2003, that based on what he andhis colleagues were seeing, the government was seriously under-reporting cases of SARS inBeijing. (14) It was this and other information thatallowed WHO and other international medicalexperts to question the Beijing government's official reporting on SARS. Medical expertise becamemore believable than the "correct" political line being circulated by the government. Technology and Communications. Domesticpressure on officials in Beijing was significantly enhanced by the rapid spread in recent years ofcommunications technology in the PRC. According to industry sources, 54.5 million PRC citizenshad access to the Internet by late 2002, while one-fifth of the PRC population of 1.28 billion -- orapproximately 250 million people -- had access to cellular phone service by early 2003. (15) Duringthe months of the 2002-2003 SARS outbreak, then, more PRC citizens than ever before hadindependent access to sources of information outside government control. According to newsaccounts, much of the information about the SARS outbreak was passed on almost instantaneouslythrough cellular phone text messages -- at times 40 million a day, according to one press report --a volume that was well beyond the government's ability to monitor or control. (16) Such messagesserved as primary sources of information as the crisis progressed for a public that was placingincreasingly less faith in the reliability of government pronouncements. The SARS case also demonstrated that despite the authoritarian nature of the PRC government and the extensive "reach" it had in its early years, power and authority, both within the CommunistParty and within the government bureaucracy, face new limits today. Having been forced intogreater transparency by acknowledging the extent of the 2002-2003 SARS crisis, Beijing seemedunable to respond with the pervasive power and control that once had been possible. Governmentofficials appeared unable to prevent mass migrations from SARS-affected areas, unable toreconstruct the route the virus was taking across provincial borders, and unable to control effectivelythe way the medical community in China was treating SARS patients. When it became apparent thatsome hospitals were turning away potential SARS victims who were too poor to afford treatment,the Beijing health department reportedly promised to pay all treatment costs for those unable topay. (17) Subsequent newspaper interviews withsome citizens suggested that this promise was greetedwith skepticism, (18) and news accounts continuedto carry stories of patients turned out of health carefacilities. The self-inflicted damage Beijing did to its own credibility did nothing to improve itscrisis management effectiveness. Some observers suggested that the degree of vulnerability the government felt in 2003 was demonstrated by Beijing's threat to execute people who violated quarantines or who spread theSARS virus. (19) Villages and townships tookindependent action not authorized or coordinated byBeijing, putting up barricades to keep travelers out in an attempt to isolate themselves from thespread of SARS. There were reports of riots in at least one location where a crowd suspected thatlocal school officials were turning an abandoned school into a SARS holding area. Even within the ranks of the government and party, Beijing appeared to have a hard time getting people to follow its program. At an emergency Politburo meeting on April 18, 2003, President andParty Secretary Hu Jintao reportedly "warned against the covering up of SARS cases and demandedthe accurate, timely and honest reporting of the SARS situation." (20) In late April 2003, the CentralDiscipline Inspection Committee was forced to warn party members, especially doctors and nurses,that they would be ousted if they left their posts. When threats proved insufficient to retain somehealth care workers, government officials announced that those dealing with SARS would get extradaily pay as an incentive. Role of the Media. While the PRC media enjoys greater freedom and vitality today than it has in the past, the SARS crisis demonstrated that the Partyand government still were capable of re-asserting control when the occasion demanded. Before mid-April 2003,the media in Guangdong and elsewhere in the PRC were forbidden to report on thecrisis, leaving the unofficial means of communication cited above the primary sources of publicinformation. According to one Hong Kong press report, the media in Guangdong were notifiedrepeatedly that they were not to report on cases of atypical pneumonia without specific officialauthorization. (21) At one point, the ban on reportingappeared to be lifted, resulting in a flood ofreporting in the official media, only to be reinstated later. The SARS crisis demonstrated the degree to which the media still does not perform the function of a disinterested observer to keep government honest. The style of investigative journalism commonin the West, while not unknown in the PRC, is in its infant stages. But the SARS crisis also high-lighted the factthat this may be changing. The PRC media increasingly are confronted withcontradictory priorities. They must compete against more widely available global media sourcesgoverned by different requirements of journalism than they themselves can freely follow. They faceincreasing competition, both domestically and abroad, for news coverage, readership, and funds --an increasing percentage of which are from advertising revenue rather than from the government. As a new member of the World Trade Organization (WTO), the PRC also has committed to openingits press and publication market to foreign companies. Consequently, PRC officials are undertakingpress reforms that are expected to privatize much of the national media and result in the demise ofmany non-competitive media organizations. (22) While problems in China's overall health care system and finances are addressed elsewhere in this paper, the 2003 SARS crisis demonstrated that PRC infrastructure and training mechanismswere ill-equipped to deal with a wide-spread public health emergency. The near non-existence ofthe epidemiological profession seriously hampered the PRC's ability to trace the progression of thedisease and isolate those who came into contact with infected patients. No effective system was inplace for emergency communication either within the medical community or to government healthofficials who needed to know about the emerging disease outbreak. When the first SARS caseappeared, the PRC's own Centers for Disease Control and Prevention (CDC) had been in operationfor less than a year, since January 2002. (23) According to one observer, the PRC Ministry of Healthhad allocated only 80,000 renminbi (equivalent to about $9,700) to the new Chinese CDC for thepurpose of monitoring epidemics. (24) Hospitalsrun by the People's Liberation Army (PLA), wheremany of the disease victims were treated, were described by WHO and other medical officials asnon-responsive to requests for cooperation and information. The rapid spread of the SARS virus raised concern among Chinese officials over the potentialnegative effects it could have on China's economic development. Maintaining healthy economicgrowth is viewed by the government as critical to maintaining social stability, especially as itattempts to restructure and reform inefficient sectors of the economy. The SARS epidemicthreatened to interrupt the high level of economic growth China has enjoyed over the past severalyears. The SARS crisis also generated new concerns (both domestically and internationally) overthe lack of health care services for a large share of the Chinese population living in rural areas andthe ability of China's public health care system to respond effectively to major nationwideepidemics. Chinese officials acknowledge that China's poor health care infrastructure poses a majorrisk to its future economic development. The Chinese government pledged to boost spending inorder to stimulate domestic demand, help economic sectors most affected by SARS, pay for the careof SARS patients who could not afford it, and to expand health care coverage throughout ruralcommunities. The economic effects of the spread of the SARS epidemic appear to have begun in March 2003 and intensified after the World Health Organization (WHO) issued warnings on April 7, 2003 againstnonessential travel to Guangdong Province and on April 16, 2003 against nonessential travel toBeijing and Shanxi Province. (25) Another blowcame after the Chinese government's April 20, 2003admission that the spread of the SARS virus was far more extensive than it had previously admitted. The immediate effect of these events was a sharp drop in air travel to and from China followed bywidespread cancellations by foreigners of tours and hotel reservations. (26) Many foreign businessrepresentatives postponed trips to China. A number of international meetings, exhibitions,conferences and sporting events were cancelled Fears over the disease began affecting consumerspending in many cities, as individuals sought to avoid crowded areas, such as shops and restaurants. In Beijing, recreational facilities, such as movie houses and health clubs in several cities wereordered shut down by the government in order to contain the virus. The Service Sector. Tourism appears to have been one of the hardest hit economic sectors in China. (27) The SARS virus led to a sharp drop inforeign travel to China in April-May, while domestic travel during the May Day holidays wassignificantly curtailed. This in turn impacted service industries catering to foreign tourists, foreignbusiness travelers, and domestic travelers, such as hotels, restaurants, caterers, tour companies, andlocal vendors. Chinese statistics indicate that the number of stay-over tourists fell by 42% in April2003 over April 2002 levels. In Beijing, the number of tourists dropped by nearly 94% in May 2003over May 2002 levels; (28) hotel occupancy ratesof 5-star hotels reportedly fell to 20% and some wereat zero. A group of scholars from the Peking University predicted that the 2002-2003 SARSepidemic ultimately would cost China's tourism industry about $16.9 billion. (29) China SouthernAirlines reported that its passenger traffic in May fell 83% year on year. (30) According to the OfficialAirline Guide (OAG), a leading source of information on international flight schedules, the numberof planned flights to and from China in June 2003, fell by 45% compared with June 2002, and thenumber of planned flights within China fell by 15%. (31) The Chinese government reported thatnational retail sales in May rose by 4.3% year on year, the lowest growth in 5 years; in Beijing retailsales for the month fell by 9.6%. (32) Gross Domestic Product (GDP). China has been successful over the past several years in maintaining rapid economic growth. Between 1979 and2002, real GDP growth averaged 9.3%; it grew by 8.0% in 2002. During the first quarter of 2003,real GDP grew was up 9.9% over the first quarter 2002, the fastest quarterly growth rate since 1997. The impact of SARS was largely felt in the second quarter when year-to-year real GDP growthslowed to 6.7%. However, by the third quarter, year-to-year real GDP surged by 9.1%. TheEconomist Intelligence Unit estimates that China's real GDP grew by 8.5% for the entire year --higher than 2002 growth. (33) This appears toindicate that overall, SARS had a relatively a minor andshort-lived impact on the Chinese economy as a whole in 2003. Foreign Trade and Investment. Many analysts feared that SARS would have a major impact on China's trade and investment flows. For example,one of China's largest bi-annual trade fairs in the city of Guangzhou (in Guangdong Province) wasclosed down after four days (in April 2003) due to SARS. The dollar level of purchase contractssigned ($3.3 billion) during that period was reportedly equal to less than one-fifth the total ($18.5billion) the fair generated in 2002. (34) Credit SuisseFirst Boston estimated that SARS would reduceorders for Chinese exporters by 10-15%. (35) Because it generally takes three to six months lag timebetween export orders and their production and delivery, the negative effects of SARS on China'sexports is not likely to be known until third and fourth quarter 2003 trade data are taken intoaccount. (36) In 2002, China's exports and imports grew by 22.3% and 21.2%, respectively. (37) During thefirst 11 months of 2003, Chinese officials reported that exports and imports rose by 32.9% and39.1%, respectively. (38) In 2002, China attracted$52.7 billion in foreign direct investment (FDI), up13% over the previous year. (39) China's FDI wasprojected to have hit about $53.5 billion in 2003(up by 1.5%), an indicator that SARS may have temporarily slowed the growth of FDI in China. However, contracted FDI for 2003 was up by 39% over the same period in 2002, an indicator thatactual FDI will likely pick up in the near term. (40) The Economist Intelligence Unit projects FDI inChina will rise to $57 billion in 2004. Production and Employment. Little information has surfaced as to the employment and effects of the 2002-2003 SARS outbreak. Press reportsindicated that only a few foreign firms in China experienced production disruptions due to SARS. (41) Analysts had warned that precautions taken to avoid spread of the virus and delays in visits to Chinaby foreign business representatives would impact work and deliveries over the longer term. Inaddition, several foreign companies reportedly delayed the launching of new products, opening newplants, or starting new joint ventures. (42) ExportDevelopment Canada contended in May 2003 thatthe SARS outbreak was having a significant impact on millions of small-and medium-sizedenterprises and threatened to sharply increase unemployment in urban areas within a few months. (43) One major group that has been acknowledged by Chinese officials to have likely been significantlyaffected by the SARS outbreak is China's large migrant worker population, estimated to numberover 80 million people. According to Chinese government estimates, 5.5 million migrant workersfled urban areas early in 2003 because of SARS. (44) The exodus led to labor shortages in some cities,but the main impact was expected to be on rural incomes (as many migrant workers transmit part oftheir incomes back home). China's Xinhua News Agency cited Chinese analysts who estimated that migrant workers would lose $4.8 billion by the end of the year. (45) Another analyst predicted that theearly 2003 SARS outbreak would reduce rural incomes by 1.5 to 2.0 percentage points and wouldcause the urban-rural income gap to widen. (46) Public Finance. The 2003-2003 SARS outbreak likely had a significant effect on the PRC's public finance system. First, tax revenues suffered fromthe effects that SARS had on economic activities. A Chinese government tax official estimated thatthe 2002-2003 outbreak would cost the government $2.4 to $3.6 billion in lost revenues. (47) Second,the Chinese government pledged to provide extensive tax incentives, tax cuts and fee reductions(estimated at costing the government $1.2 to $2.4 billion) for sectors most affected by the 2002-2003outbreak. Third, the government pledged to spend $725 million to fight SARS (including providingfree medical services to needy farmers and urban workers) and an additional $423 million to improvenationwide health care coverage. (48) Finally, Chinacontinued to boost government spending, suchas on infrastructure development, in order to offset the negative affects of SARS. These factorslikely put new strains on central and provincial budgets. (49) According to the World Bank, China'sgrowing public debt, which, as a share of GDP has risen from 11.4% in 1997 to 25.3% in 2002, ishampering the ability of the government to devote resources to social sectors. (50) The SARS contagion focused new attention on China's public health system for a variety of reasons. First was the concern that the lack of a comprehensive health care system would allow SARS and other diseases to spread throughout the country unchecked. This was especially ofconcern when millions of migrant workers returned home due to the SARS outbreak who might havespread the virus throughout China, resulting in a social and economic disaster. Â Second, the spreadof the disease raised new concern over the growing disparity in health care insurance and servicesavailable to urban and rural workers. The lack of health care and possibility of rapidly spreadingdisease also raised concerns that foreign investors would find the PRC a less attractive destinationfor FDI. Relatedly, a number of Chinese and foreign analysts contend that the poor state of China'shealth care system poses a long-term threat to China's future economic development. (51) When the Chinese Communist Party took control of China in 1949, it sought to establish a comprehensive health care system for the entire nation. During this period, most sectors of theeconomy were taken over by the government. Workers were provided basic health insurance by theiremployer -- the government. In urban areas, medical bills were paid for by their work units, whilein farming communities, collectives helped pay for medical expenses. Government control over thecountry's medical system through subsides and price controls kept medical costs low for mostworkers. One major initiative by the government was to send an army of "barefoot doctors,"individuals with basic medical training, to rural areas in order to provide health care to peasants. As a result of these policies, nearly 90% of the population (nearly all urban residents and 85% of therural population) received basic health care. (52) According to the World Bank, prior to 1949, China'spopulation was among the least healthy in the world, but after significant investment in heath carehad been made, the PRC experienced dramatic improvements in health conditions, such as increasedlife expectancy (which rose from 40 years in 1950 to 69 years in 1982). (53) The stage was set for the decline of the health care system in 1979, when the PRC launchedseveral economic reforms. The central government gradually dissolved the collective farmingsystem and initiated price and ownership incentives for farmers. Additional reforms followed instages that sought to decentralize economic policymaking in several economic sectors. Economiccontrol of various enterprises was given to provincial and local governments, which were generallyallowed to operate and compete on free market principles, rather than under the direction andguidance of state planning. State-owned enterprises were restructured and reformed, laying offmillions of workers. (54) Since 1979, a major objective of PRC leaders has been to reduce the financial burden posed by China's "iron rice bowel" system of cradle-to-grave benefits, including health care. As part of thisobjective, the government has substantially reduced its involvement in the health care system andhas essentially sought to privatize health care (or make it the responsibility of local governments torun programs on their own). Workers are now encouraged to obtain health care insurance on theirown, and many hospitals, clinics, and health care workers operate on a for profit basis. This policyhas led to a severe decline in the availability of affordable health care for a large portion of China'spopulation, particularly those living in rural areas. It is estimated that in 1978, about 20% of thenational health budget was spent on rural areas, but this figure had been slashed to 4% by the mid1990s. (55) Today, it is estimated that less thanone-tenth of China's 900 million rural population haveany form of health insurance. It is often said in rural China that the fastest way to fall into povertyis to see a doctor. Many individuals needing health care either avoid it because they can't afford itor end up having to liquidate their entire family's assets to pay their medical bills. (56) An investigationsponsored by the Chinese Ministry of Health found that in 1993, 59% of patients in rural areasrefused to be hospitalized for proper treatment because their families could not afford to pay for theservice; by 1998 that rate climbed to 65%. (57) Thecentral government has sought to control risingmedical costs by putting mandatory price controls on certain procedures. However, in order to makeup for financial losses resulting from these controls (and to earn a profit), hospitals and clinics oftenorder expensive medical tests and drugs for their patients. These conditions became particularly troublesome to PRC policymakers in their efforts to contain the spread of SARS: they feared that individuals infected with SARS would avoid seekingmedical care because of concerns over costs and therefore would quickly spread the disease acrossthe country. As a result, the government pledged to provide free medical care to all those infectedwith SARS who could not afford it. The SARS epidemic ultimately may give an added boost toplans that reportedly have been underway by the PRC government since October 2002 to establishbasic health care insurance for the rural population and to develop new schemes for attractingfunding and trained personnel for medical care facilities in rural areas. (58) Some policy observers suggest that a number of PRC actions and decisions in the past yearillustrate that the government has made significant policy changes since the 2003 SARS outbreak. The PRC government was seen to be trying to address the more egregious weaknesses the crisisrevealed about the nation's health care system. In early May 2003, the Chinese Center for DiseaseControl and Prevention (CCDCP) announced it would establish a National SARS Reporting System,using high-performance computer servers donated by Sun Microsystems, a U.S. company, to greatlyimprove Beijing's ability to monitor and analyze cases of SARS and presumably other diseases. (59) The new reporting system went into operation on November 5, 2003, initially connecting 13,000provincial and county hospitals to a single SARS medical information center. According to astatement issued then by Li Liming, the CCDPC Director, up to 20,000 users will eventually haveaccess. (60) Some maintain that PRC decisions and actions early in 2004 also suggest that a new if limited appreciation for transparency and accountability in government has begun to influence Beijing'sdecisions. In January 2004, the PRC Ministry of Public Security announced that, in order "topromote transparency of police affairs," local and provincial police departments must begin to holdregular press conferences and must file immediate media reports as events of public interest occur. (61) The PRC government duly announced the emergence and confirmation of new SARS cases inJanuary 2004 -- the first in China since spring of 2003. In Guangdong, where the first new caseappeared, provincial officials immediately ordered the extermination of the province's 10,000captive civet cats -- a dinner table delicacy in southern China and suspected animal source of theSARS virus. The PRC government also approved and solicited volunteers for human trials of a newexperimental SARS vaccine developed by PRC doctors. (62) But other observers have been more critical of the PRC government and maintain that thelessons learned after SARS are not pervasive. They see significance in the fact that PRC officialsquickly lifted a brief ban on the sale for food of exotic animals -- thought to be transmitters ofSARS to humans -- once again sending the animals into the food chain. (63) They point out that lessthan a week after the Ministry of Public Security mandated police departments to hold pressconferences and issue media reports on matters of public interest, police detained and held forquestioning employees of a PRC newspaper that was the first to report on the new SARS cases. (64) But critics see special cause for concern in the PRC's classically secretive response to a new anddeadly outbreak of avian flu in Asia in January 2004. Avian Flu. In 1997, an avian flu virus in Hong Kong's domesticated poultry population for the first time jumped directly from its traditional animalspecies to humans, infecting eighteen people in the territory and killing six. The Hong Konggovernment responded aggressively, in three days exterminating its entire poultry population of 1.5million birds. Isolated outbreaks of human infection from avian flu have recurred annually sincethen. By January 2004, it became evident that another avian flu outbreak was occurring throughout Asia, but on a much wider scale. Appearing nearly simultaneously in multiple Asian countries, theoutbreak of the deadly "H5N1" avian flu virus already had led to 11 human fatalities by January 29,2004, raising fears that the virus could become a global disaster if it adapted sufficiently to spreadthrough human contact. On January 27, 2004, a WHO official stated that a "staggering" numberof birds, both migratory and domestic, were infected with the virus in at least 10 Asian countries. (65) By late January 2004, Thailand alone hadexterminated more than 10 million chickens. (66) OnJanuary 27, 2004, the PRC became the tenth country to acknowledge ongoing outbreaks of avian fluwithin its borders. PRC officials confirmed three outbreaks: flocks of ducks in Guangxi Province;ducks in Hunan Province; and chickens in Hubei Province. Some critics have seen the PRC's initial actions in the avian flu outbreak as a return to the secretive methods used in the early 2003 SARS outbreak in China. As in the 2003 SARS outbreak,they say, PRC officials denied any avian flu outbreak for months despite anecdotal reports to thecontrary. On January 29, 2004, an official from a global organization monitoring animal diseaseoutbreaks said that it had been pressing Asian governments since November 2003 for informationon reports of avian flu, and that it had received no reports from the PRC. (67) Much international speculation has occurred since the 2002-2003 SARS outbreak about thelonger-term implications that this crisis, the avian flu outbreak, and others like it may have for thePRC and the Chinese Communist Party. One view is that the initial SARS crisis was a decisiveevent in the PRC that is likely to have lasting longer-term consequences for the government and theparty. Less certain is what those projected consequences will be, and what lessons PRC leaders havelearned. Some observers believe that the Party will be able to reinterpret the SARS or avian fluoutbreaks so that any leadership failings will be edited out of the collective memory. Observers ofthe PRC scene will be following closely a number of key areas where the official government'sreaction to emerging health crises could offer clues to future governance and policy in the PRC. For the PRC. In previous years there have been other known crises involving leadership cover-ups and government failings, the blame for which hasbeen largely contained at the local or regional level. These cases have included mass food-poisonings(both accidental and deliberate), contaminated milk for school children, fireworks factory explosions,mining disasters, and other instances involving official malfeasance, incompetence, or poorjudgement. Given the nature and extent of the SARS crisis, however, Communist Party and centralgovernment officials were forced publicly to make fuller disclosure, and in doing so to embraceseveral radical concepts they had not addressed before: the right of the public to know aboutinformation that directly concerns their daily lives, and the need for government to hold officialsaccountable for their mistakes and failings. Neither concept has been an endemic feature of PRCgovernance. Some observers have speculated that because of this, SARS has sewn the seeds for longer-lasting changes in the way PRC officials operate. They point out, for example, that prior to theSARS outbreak, public officials and Party members lost their jobs generally for reasons of politicalrivalry or if they were involved in widely-known corruption scandals. In contrast, during the SARSoutbreak two relatively senior officials were sacked for what amounted to poor job performance --for covering up SARS cases or mishandling the consequences of the outbreak in some way -- andsome reports suggested that hundreds of other low-level officials were fired. (68) The implication isthat public expectations for competence and accountability in government may have been raised toa new level by the SARS crisis, and that the government will be forced by those expectations to bemore forthcoming in the future. They see an example of this greater accountability in the publicannouncement by Beijing in May 2003 that 70 sailors had died in an accident aboard a PRCsubmarine the previous month, at the height of the SARS outbreak. In the words of one PRC scholarcommenting on the government's response to the submarine accident, "This whole [submarine]affair has been a breakthrough for openness." (69) The incident was the worst publicly acknowledgedmilitary accident in PRC history. According to this viewpoint, there also is evidence that SARS may put pressure on PRC officials in the future to re-think the current restrictive definition of "state secret" that criminalizesthe sharing of information about serious health epidemics. Already, some point out, the governmentappears to have realized that the system now in place provides key dis-incentives for sharingunpleasant information. To address this, in the wake of SARS, PRC judicial organs re-interpretedexisting laws to make more explicit the requirement that public health officials should immediatelydisclose the existence of health threats. (70) According to reports, the central government also has beenworking on a "freedom of information act," expected to be enacted later in 2004, that willdramatically reduce government secrecy while empowering the public to obtain more informationand requiring governments to disclose what information the government has. (71) But other observers are less optimistic that the sacking of high-level officials during the SARS outbreak suggests a change in the perception of official accountability, pointing out that seniorofficials have been sacked before in the PRC for political reasons. (72) Some dismiss the publicitysurrounding the submarine accident as a matter of official self-defense, judging that PRC leadersmay have felt they could not afford to be "scooped" a second time by the international media. Further, some observers maintain that while the SARS experience might prompt some PRC leadersto argue for more political transparency, it may reinforce for others the utility of more heavy-handedtactics such as quarantines and arrests for "rumor-mongering." They say that officials appear lesslikely to have opted for openness in addressing the current avian flu outbreak in 2004, perhapsbecause the outbreaks are still isolated enough as to lead officials to expect they can controlinformation flow. Critics also are especially troubled that in the immediate aftermath of the 2002-2003 SARS outbreak, official PRC media revealed that there were 107 cases in which Public Security Organsinvestigated and punished people for "spreading rumors" about SARS through the Internet andmobile phone text messages. (73) In addition, criticssay that another judicial re-interpretation in May2003 contains one of the more draconian measures to come out of the SARS crisis -- a provisionthat anyone intentionally spreading a dangerous disease could be subject to life imprisonment or tothe death penalty in the future. (74) These observerssee this as evidence that the official response tocrises was not changed all that much by SARS, and they fear that such punitive responses will alsoprevail in the avian flu case and in other potentially dire public health threats. Finally, the SARS epidemic appears to have focused new attention on a domestic political debate in the PRC over the wisdom of a long-standing basic policy (begun by Deng Xiaoping andclosely associated with the Jiang Zemin faction) that economic growth is the highest national priorityand must be pursued at any cost. The weaknesses that SARS revealed about the poor health caresystem in the PRC appeared to reinforce those who argue that the country can no longer postponethe development of important public infrastructures, such as public health care, hygiene, andeducation, for the sake of pursuing continued rapid economic development. Such a debate is likelyto grow in the presence of avian flu, which involves massive potential economic costs to the PRC'spoultry industry. For Hong Kong. One potentially far-reaching implication of the 2003 SARS crisis involves Hong Kong, the former British colony now under PRCsovereignty. Hong Kong struggled with its own deadly SARS outbreak in the first half of 2003, andit has considerable experience with the avian flu virus. (75) Under Sino-British agreements reached inthe 1980s, Hong Kong was granted autonomy to run its own affairs without PRC interference. (76) While the initial political transition has gone smoothly, Hong Kong's relationship with its newsovereign remains uneasy. Cynics about the PRC's promises of autonomy claim that Beijing issubtly interfering in Hong Kong's affairs, mainly by assuring that political pluralism is artificiallyrestricted. Such views, combined with Hong Kong's unique political situation, place special strainson Hong Kong and PRC government officials. The addition of SARS to Hong Kong's political andeconomy troubles in 2003, for instance, worsened the already low approval rating of C. H. Tung,Hong Kong's Beijing-approved Chief Executive, which then reflected poorly on Beijing. Some saythese Hong Kong sentiments were a key factor prompting massive numbers of Hong Kong citizensto become more politically active in mid-2003 and into 2004. (77) Many felt that the SARS crisisemphasized the different approaches of the two governments -- the PRC's secretiveness and HongKong's openness -- and claimed that this emphasized the importance of Hong Kong autonomy. Other Hong Kong observers attributed the early lack of information on SARS directly to Hong Kong's special political circumstances, saying that "contact has been deliberately kept to a minimum,mostly to protect Hong Kong's political independence." (78) These restrictions made it easier for PRCofficials to not communicate with Hong Kong on the extent of the SARS outbreak. The remedy,they claimed, would be to facilitate communications and lower barriers to bring Beijing and HongKong, closer together. For Taiwan. With its own cases of SARS in 2003 and avian flu in 2004, Taiwan sees emerging health crises in Asia as having broader politicalramifications for its international position and for its relations with Beijing. The PRC continues toblock Taiwan's bid to join the WHO. Without separate membership in WHO, Taiwan has no officialaccess to international disease eradication efforts or sources of information. (79) Even as the SARScrisis was underway, for example, PRC leaders continued to block any international effort to giveTaiwan unofficial "observer" status in the WHO, claiming that Taiwan is a part of China and thusdoes not legally qualify for any separate or independent status in the WHO. (80) PRC authorities didconsent to a WHO team visit to Taiwan to investigate SARS early in May 2003, and the PRC raisedno objections when Taiwan scientists were invited to attend a two-day WHO SARS conference inKuala Lumpur on June 17-18, 2003. But generally, the PRC continues to insist that any Taiwanhealth official wishing to take advantage of WHO's medical expertise should do so only as part ofa PRC delegation. Some feel that the PRC's objection to WHO help for Taiwan allowed Taiwan's President, Chen Shui-bian, to gain political mileage for his ongoing reelection campaign by claiming that the PRCdidn't care about the health of the 23 million people on Taiwan. (81) In addition, Beijing's own cover-up of SARS and its initial reluctance to ask for WHO assistance appeared toweaken the long-standing argument of Chinese leaders that the PRC can responsibly represent Taiwan's healthinterests in the WHO. Finally, the fatality rates associated with the 2003 SARS outbreak, therecurrence of the disease in 2004, and the implications of the 2004 avian flu outbreak appear likelyto reinforce the already strong support of U.S. Members of Congress for Taiwan's WHOmembership. U.S. foreign policy specialists are confronting the lingering political and economic consequences that global health crises in the PRC could have for U.S. policy and for U.S.-Chinarelations. The 2003 SARS outbreak and the emerging 2004 avian flu outbreak demonstrate thatincreasing pressures are working on the authoritarian PRC system, pressures involving greater publicdemand for information; increasing government vulnerability to domestic and international opinion;the PRC's growing "buy-in" into the international system; and the continually closer link betweenall these things and the PRC's predominant goal of rapid economic growth. Some American observers believe that new public demands in the PRC are likely to emphasize funding for domestic social services -- public health, the quality of medical care, education, andother programs -- and could lead to a lesser emphasis on military spending. Some in this group alsosee the crisis as having reinforced for PRC leaders the importance of communication, cooperation,and transparency in confronting issues that transcend national borders, and they view thesereinforcements to be in U.S. interests. They suggest that new opportunities have arisen forgovernmental and private-sector Sino-U.S. cooperation -- in areas such as medical research, publichealth services, technological database creation -- and that the U.S. government should encourageand facilitate these exchanges as a matter of policy. For these observers, the glass is half full. For another group of observers, the glass is half empty. This group points out that the initial inclination of PRC leaders, both in the SARS crisis and the emerging avian flu outbreak, was to besecretive and heavy-handed, and that only by a combination of extraordinary circumstances andpressures did the PRC opt for greater openness. They focus on the harsh aspects of the PRC'sresponse -- the arrests for disseminating information, the imprisonments for "rumor-mongering,"the central government's swift crackdown on the media. They also find concern in the more fragileaspects of the PRC's response -- the inability to inspire public confidence or limit the disease'sspread by more effective control of population movements. They find fault with the PRCgovernment's instinct for self-protection and non-disclosure, which they say increased the risk toother countries and proved that the PRC is not a "good neighbor." The United States, they say,should remain wary of PRC motivations and cautious in dealing with PRC leaders. 01/20/03 -- A team of health experts from Beijing arrived in Guangzhou to investigate reports ofa mysterious flu-like illness. 02/09/03 -- A second team of health experts from Beijing was sent to Guangzhou. Meanwhile,reports of a mystery killer flu-like disease began circulating on unofficial Chinese internet sites andthrough cell-phone text messages. 02/11/03 -- The first official public mention of a respiratory illness outbreak. TheGuangdongProvincial Health Bureau held an unprecedented press conference to say that an "atypicalpneumonia" had swept the province in late 2002 and early 2003, killing 5 and sickening 305. Guangdong media began extensive reporting on the illness. 02/12/03 -- The official Xinhua News Agency announced that the flu outbreak inGuangdong hadbeen "brought under control." This remained the official PRC story through mid-March 2003. Butunofficial reports continued to circulate that people were getting ill. 02/18/03 -- The PRC's Center for Disease Control and Prevention announced that it hadidentifiedchlamydia as the cause of the mysterious illness. 02/23/03 -- The Guangdong party secretary again banned the media from reporting on thepneumonia outbreak. 03/10/03 -- The Chinese government first asked WHO for help in identifying the cause oftheGuangdong atypical pneumonia outbreak. 03/12/03 -- WHO issued a global health alert following new outbreaks of an "atypicalpneumonia"in Vietnam and Hong Kong. 03/15/03 -- WHO issued a rare emergency travel advisory for the illness it now referred toasSARS. While issuing no travel restrictions, WHO said that the spread of SARS to Canada,Singapore, and Europe made it a "global health threat." The PRC government began providingWHO with the first sketchy information about the earlier outbreak in Guangdong. 03/23/03 -- A team of WHO experts arrived in Beijing hoping to investigate the SARSoutbreakin Guangdong that the Chinese government said had died out by itself after sickening 305 and killing5. 03/24/03 -- Scientists at the Atlanta Centers for Disease Control (CDC) announced theysuspectedthat the SARS virus was a brand new coronavirus, previously unknown in either humans or animals. 03/27/03 -- WHO issued new SARS-related guidelines for travelers, recommendingscreening ofair passengers departing from affected areas. 03/27/03 -- PRC officials admitted that more people in Guangdong had contracted SARSthan hadbeen previously revealed. The new figures were more than 800 had become infected and 34 haddied, including 3 in Beijing -- the first official admission that the disease had spread beyondGuangdong. 04/01/03 -- Chinese officials began to issue daily -- rather than monthly -- reports to WHOon theSARS outbreak. 04/02/03 -- The PRC government first allowed WHO investigators to go to Guangdong toinvestigate the earlier SARS outbreak, and state-run media began to report on instances of SARS. WHO began recommending that people postpone non-essential travel to Guangdong Province andto Hong Kong. 04/03/03 -- In his first news conference since the SARS outbreak, PRC Health MinisterZhangWenkang disputed the WHO travel advisory to China and denied the PRC government had delayedreleasing information to the public about SARS. 04/04/03 -- U.S. Health and Human Services Secretary Tommy Thompson reported that PRCHealth Minister Zhang Wenkang had pledged increased cooperation with the United States tocombat SARS. 04/04/03 -- The U.S. Government suspended U.S. Navy ship visits to Hong Kong andSingaporebecause of concern about SARS transmission. 04/04/03 -- Speaking at a news conference, Li Liming, director of the PRC's Center forDiseaseControl issued an unprecedented public apology for failing to inform that public about the emergingSARS crisis. 04/09/03 -- A letter written by Dr. Jiang Yanyong, a prominent semi-retired Beijing surgeon,disclosed that the PRC government was seriously under-reporting cases of SARS in Beijing. 04/11/03 -- Party Secretary Hu Jintao went to Guangdong to visit SARS infected areas. 04/13/03 -- Premier Wen Jiabao, presiding over a special PRC State Council meetingdevoted tothe SARS crisis, acknowledged for the first time that the illness was a "grave" crisis for China andwas continuing to spread. 04/14/03 -- The U.S. Centers for Disease Control announced they had independentlydecipheredthe SARS virus genetic blueprint, and it was virtually identical to the SARS genetic blueprintrevealed the previous day by Canadian researchers. 04/17/03 -- WHO officials told PRC officials they did not trust the Beijing city government'sreported SARS figure of 37 cases, noting that this figure excluded SARS patients in military-runhospitals or unconfirmed cases. The New York Times quoted one WHO expert as saying that the realnumber in Beijing more likely was "in the 100-to-200 range now." 04/17/03 -- PRC leaders held a special Politburo meeting on the SARS crisis at whichdecisionsreportedly were made to stop covering up the extent of the disease in China. 04/18/03 -- PRC daily newspapers reported that President Hu Jintao had ordered all Partyandgovernment entities to launch a campaign against SARS. Premier Wen Jiabao publicly threateneddire consequences for any government official that did not quickly disclose SARS cases. 04/19/03 -- The Washington Post reported Chinese doctors were disclosing thatthe previous week,on orders by the Beijing city government, authorities had physically moved more than 70 SARSpatients out of hospitals to prevent WHO medical teams from finding them. The annual CantonTrade Fair in southern Guangdong Province was cut short having produced only $3.31 billion insigned contracts, less than 20% of the previous year's total. 04/20/03 -- PRC officials held a nationally televised press conference to offer a publicapology,admitting that SARS cases in Beijing had been under-reported and that there were 339 confirmedcases and another 402 suspected cases in Beijing, not 37 confirmed cases as previously stated. PRCleaders also fired two senior officials for covering up the extent of the crisis -- the first in a seriesof such firings -- and announced that a national week-long May holiday would be reduced to oneday to deter travel. 04/20/03 -- PRC state news media announced that Health Minister Zhang Wenkang andBeijingMayor Meng Xuenong had been stripped of their Party posts. 04/21/03 -- Liu Qi, Beijing's Communist Party Secretary and a Politburo member, publiclyapologized for his "leadership failure" in handling the SARS crisis. Chinese newspapers, up to nowmuzzled by PRC leaders, suddenly began extensive reporting on SARS. 04/22/03 -- The Beijing school board announced that all schools in the city would be closedfor twoweeks beginning April 24. 04/23/03 -- WHO expanded its April 2 travel advisory to include non-essential travel toBeijing,Shaanxi Province, and Toronto, Canada. 04/24/03 -- According to The Washington Post , the State Council announcedit was budgeting $2.5billion to help the poor pay for SARS treatment. 04/26/03 -- According to news reports, President George Bush initiated a call to PresidentHuJintao to offer U.S. support and assistance in fighting the SARS outbreak. 04/27/03 -- Taiwan banned entry to citizens from the PRC, Hong Kong, Canada, andSingapore,and announced that Taiwan citizens returning home from those countries must be quarantined forten days. 04/27/03 -- Residents of Chagugang, near Tianjin, vandalized a school being turned into anobservation ward for people exposed to SARS patients. The government cancelled the projectbecause of the strenuous opposition. 04/28/03 -- The Asian Wall St. Journal reported that Wu Yi had been namedthe PRC's newMinister of Health. WHO declared that the SARS outbreak had been contained in Vietnam and hadpeaked in Toronto, Singapore, and Hong Kong. 04/29/03 -- WHO officials criticized the PRC government for continuing to beunforthcoming withfurther details about the Beijing SARS cases, including locations of patients and how they wereinfected. Beijing authorities reported over 1,100 confirmed SARS cases in the city, and that SARSoutbreaks had now extended to 26 of the PRC's 31 provinces. The Beijing city government orderedthe emergency closure of movie theaters, discos, churches, and other public places in the city. 04/29/03 -- At the invitation of the Thai government, Premier Wen Jiabao was invited tojoinleaders from the ten-member Association of Southeast Asian Nations (ASEAN) in an emergencysummit meeting in Bangkok on the SARS crisis, agreeing to establish a regional information-sharingnetwork. The PRC is not an ASEAN member. 04/30/03 -- The Asian Wall St. Journal reported that more than 100 PRCscholars had signed anInternet petition urging the government to honor its pledge to pay for SARS treatment for thoseunable to afford it. Liu Qi, a member of the Politburo, inspected Xiaotangshan, a new emergencyfacility Beijing was hastily building specifically to treat SARS patients. 05/01/03 -- The PRC halted trading at the Shanghai and Shenzhen stock exchanges becauseofSARS. 05/03/03 -- Under heavy international pressure, the PRC broke precedent and agreed to allowaWHO mission to Taiwan -- not a WHO member -- to help authorities there combat the SARSoutbreak. 05/03/03 -- The world soccer association announced that because of SARS, it was movingtheWomen's World Cup tournament, scheduled to be hosted by China from September 23-October 11,2003, to the United States. As compensation, China was promised the 2007 quadrennial event. 05/05/03 -- The Hong Kong Government announced it would establish a special regionalmedicalsurveillance center to monitor future disease outbreaks, and that it would ask for cooperation fromGuangdong Province. 05/06/03 -- U.S. Secretary of Health and Human Services Tommy Thompson spoke byphone withPRC Health Minister Wu Yi on further U.S.-China cooperation on SARS. 05/08/03 -- WHO further expanded its April 2 and April 23 travel advisories, now recommendingthat people also postpone non-essential travel to Taiwan and to Tianjin and Inner Mongolia in China. Also, the U.S. Centers for Disease Control (CDC) issued a travel advisory for mainland China. 05/08/03 -- U.S. Ambassador to China Clark Randt announced a donation of $500,000 totheChinese Red Cross to help purchase medical supplies to help combat SARS. 05/14/03 -- According to the Washington Post , state-run PRC newspaperspublished a governmentdecree threatening criminal punishments for government and health officials who delayed or falsifiedreporting on SARS statistics. 05/16/03 -- The Associated Press reported that China's Supreme People's Courthad said that those"deliberately spreading" SARS "might be executed." 05/17/03 -- WHO announced a travel advisory for Hebei Province in China. 05/21/03 -- The CDC issued a travel advisory for Taiwan. 05/23/03 -- WHO lifted travel advisories for Hong Kong and Guangdong Province, China,saying"the outbreaks in Guangdong and in Hong Kong are being contained." WHO advisories for otherareas in China remained in place. 06/01/03 -- A Chinese language Hong Kong Journal ( Hong Kong Chien Shao )carried a translationof what it said was a "top secret" PLA military circular, "Central Military Commission and PLAGeneral Political Department Issue Urgent Circular on Fighting Atypical Pneumonia (Top Secret)." According to the journal, the circular equated the fight against SARS with "the high plane of life anddeath of our party...." 06/04/03 -- The CDC downgraded its previous travel advisory to Hong Kong to a travel alert--grounds for health concerns, but not a caution against travel. 11/05/03 -- The PRC began a National Reporting System on SARS with the goal of linkingthenation's medical facilities to a single SARS information center. 12/01/03 -- Premier Wen Jiabao was shown on PRC television comforting AIDS patientsandpromising government support. This was the first AIDS related public appearance of a senior PRCleader and suggested that the government's near-total reluctance to acknowledge AIDS may beending. The Premier also promised that the government would provide AIDS drugs free of chargeto anyone who needed them. Experts estimate that 1 million people in the PRC are infected withAIDS. ( New York Times , p. 11) 12/23/03 -- While conducting drilling operations in the municipality of Chongqing insouthwestChina, employees of the China National Petroleum Corporation (CNPC) triggered a gas wellblowout, sending toxic vapors over a ten-square mile area and killing more than 230 people. Lessthan 2 weeks later, PRC investigators from the State Administration of Work Safety accused CNPCof safety violations and threatened to take legal action. 01/02/04 -- In a move "to promote transparency of police affairs," the PRC Ministry ofPublicSecurity announced that national, provincial, and local-level police departments must begin to holdregular news conferences and file "immediate media reports" on events of public interest. Accordingto the new policy, all police departments around the country must hold their first news conferenceprior to January 22, 2004, and regularly thereafter. 01/05/04 -- The PRC's foremost SARS expert, Director of the Guangzhou Institute ofRespiratoryDiseases Zhong Nanshan, confirmed that a Guangdong man suspected of having contracted SARSseveral weeks ago did have the disease. In response, Guangdong officials ordered the exterminationof the province's 10,000 captive civet cats, which some feel is the animal source of the disease. 01/07/04 -- According to the New York Times , police had detained and heldfor questioning theeditor and several employees of Southern Metropolis Daily , a PRC newspaper that first reported onthe new SARS cases. 01/12/04 -- The New York Times reported that PRC authorities wereinvestigating a new possiblecase of SARS in Guangdong. 01/19/04 -- The PRC government announced approval for doctors to begin human trials fora newSARS vaccine. The same day, the Communist Party announced an immediate initiative to improveworkplace safety throughout the PRC. 01/27/04 -- After months of official denials in the face of unsubstantiated reports that avianflu hadhit China, the PRC became the tenth Asian country to acknowledge presence of the virus. Officialsconfirmed 3 outbreaks: flocks of ducks in Guangxi province; ducks in Hunan Province; andchickens in Hubei Province. 01/29/04 -- Chinese Vice-Agricultural Minister Qi Jingfa said suspicions that China was theoriginof the avian flu outbreak were "a groundless guess." 01/30/04 -- China's official news agency reported avian flu outbreaks in 3 additionallocations: Anhui Province, the city of Shanghai, and Guangdong Province. To date, China has reported nohuman cases of avian flu. According to the Los Angeles Times, in addition to the PRC's Ministryof Health, which benefitted from the experience of dealing with SARS in 2002-2003, the PRC'sFarm Bureau, inexperienced in battling a health crisis, was also playing a role in dealing with avianflu. 02/04/04 -- A report in the Asian Wall St. Journal warned that the effects ofavian flu on China'sdomestic poultry business could result in substantial cuts in Chinese soy product imports. Accordingto the report, 40% of the PRC's soy imports come from the United States. 02/03/04 -- The United Nations Food and Agricultural Organization and the WorldOrganizationfor Animal Health held an emergency meeting in Rome to discuss the avian flu outbreak in Asia. 02/08/04 -- China announced newly confirmed cases of avian flu in poultry in six provinces:Hubei,Shaanxi, Gansu, Hunan, Guangdong, and Zhejiang. 02/09/04 -- China and other Asian countries banned poultry imports from the United Statesfollowing an avian flu outbreak in poultry in Delaware. U.S. officials said the Delaware flu strain(H7) is milder than the Asian strain. | In November 2002, SARS, a new and deadly human illness suspected of having an animal origin, made its first appearance in China. Chinese leaders at first minimized the effects of the newvirus and covered up the extent of its spread. But the disease moved rapidly to other countries,prompting the World Health Organization in 2003 to label the virus a "global health threat." Underintense public scrutiny, Chinese leaders in April 2003 eventually acknowledged that people weresickening and dying, apologized for their leadership failures in addressing the problem, and launcheda series of initiatives to try to contain the disease, limit its economic damage, and protect publichealth. By July 2003, the initial SARS outbreak had ended. But global disease specialists expressedconcern that the virus could recur, like influenza, or that other similarly mutating viruses could leapfrom the animal to the human world. On January 5, 2004, China confirmed the first new case ofSARS in Guangdong Province, where the 2003 outbreak had occurred. On January 27, 2004, PRCofficials acknowledged that several flocks of birds in China were infected with the same deadlystrain of avian flu that in recent weeks had ravaged bird populations and killed humans in otherAsian countries. The emergence of SARS and other new viruses has posed a steep learning curve for a new generation of Chinese officials who had assumed office in November 2002, only weeks before theoriginal SARS outbreak. In suppressing information early in the crisis, the government lostcredibility and public confidence. More reliable information was available from foreign mediasources, the Internet, and cell-phone text messages -- as many as 40 million a day during the 2003SARS crisis, according to one report. In the 2003 crisis, Chinese leaders were forced to adjust theirstrategy by publicly embracing two radical concepts: the public has a right to know aboutinformation directly concerning their daily lives, and government officials need to be accountableto the public for their performance. Officials began issuing regular briefings in 2003 about SARScases, and several top officials were fired for covering up the crisis. Since then, the government hasrevamped emergency procedures, issued rules requiring greater government transparency, andworked to reduce the deficiencies and prohibitive costs of public health care. Some observerssuggested that "lessons learned" from the 2003 SARS outbreak could permanently influence PRCgovernance. Some change can be seen in the more open and aggressive way officials have handled SARS cases in 2004. Officials have publicly announced both confirmed and suspected cases, ordered theextermination of many civet cats -- a culinary delicacy in China but a suspected source of animal-to-human transferof the disease -- and begun human trials of a new SARS vaccine developed inChina. Still, PRC officials in early January 2004 detained and questioned journalists from a Chinesenewspaper that first reported on the new SARS cases, suggesting that the government still seeks tocontrol information flow. And global health officials have criticized official secretiveness inaddressing the new avian flu outbreak. |
Housing and residential mortgage markets in the United States are continuing to recover from several years of turmoil that began with the bursting of a housing "bubble" that peaked in the mid-2000s and burst in 2007-2008. The bubble featured rapidly rising home prices in many areas of the country as well as looser credit standards for obtaining mortgages. The years of housing market turmoil that followed featured sharp declines in house prices, increased mortgage foreclosures, tighter mortgage credit standards, and lower levels of home sales and homebuilding. Since about 2012, many national housing market indicators have been improving from their performance during the years of housing market turmoil. For example, house prices have been rising and negative equity and foreclosure rates have been falling. However, foreclosure rates and negative equity continue to be higher than is generally considered to be normal, and home sales and mortgage originations have been relatively low. In addition, housing affordability continues to be an issue for many households in general, and for low-income renter households in particular. Rising home prices impact the affordability of housing for prospective homebuyers, while increasing numbers of renter households and the corresponding effects on vacancy rates and rents have implications for the affordability and availability of rental housing. The 114 th Congress considered a number of housing-related issues against this backdrop. Some of these issues reflected larger questions about policies that could accelerate recovery in the housing and mortgage markets or factors that could be hampering recovery. For example, Congress considered legislation to modify certain mortgage-related laws and regulations that were put in place during the aftermath of the housing downturn, in response to concern that these new rules may be impeding access to mortgage credit. However, some feel that changes to the rules could weaken consumer protections. Congress also considered certain changes related to two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, as well as other housing finance-related issues. In addition, the 114 th Congress considered a number of issues related to affordable rental housing and assisted housing programs administered by the Department of Housing and Urban Development (HUD). These issues included appropriations for housing programs in a limited funding environment, certain reforms to some HUD-assisted housing programs, the reauthorization of the main program of housing assistance for Native American tribes, and debate about GSE contributions to two affordable housing funds that were created in 2008 but received GSE funding for the first time beginning in 2016. Additional issues of active interest to Congress included oversight of HUD on the occasion of the department's 50 th anniversary, issues related to enforcement of the Fair Housing Act, and the status of certain housing-related tax provisions. This report begins with an overview of housing and mortgage market conditions to provide context for the housing issues that the 114 th Congress considered, and then discusses major housing issues that were active during the Congress. This report is meant to provide a broad overview of the issues and is not intended to provide detailed information or analysis. However, it includes references to other, more in-depth CRS reports on the issues where possible. On a national basis, many owner-occupied housing market indicators have been improving in recent years, with mortgage foreclosure rates falling and household equity increasing. However, these and other indicators, such as home sales and housing starts, have not returned to the levels that were seen prior to the housing bubble. In the case of some indicators, such as house price growth or home sales, it may be unrealistic or undesirable to expect conditions to fully return to those levels. Housing market conditions vary greatly across local housing markets. While some areas of the country have fully recovered from the housing market turmoil, other areas continue to struggle. In particular, many low-income and minority neighborhoods appear to be recovering less quickly than most other areas, if at all. The housing market turmoil that began around 2007 was characterized by, among other things, falling house prices that left many households with little or no equity in their homes. As shown in Figure 1 , on a year-over-year basis house prices increased from 2000 to mid-2007 then declined for several years through the end of 2011. House prices began to rise again nationally in 2012. They continued to rise throughout 2015 and 2016, with the rate of increase remaining relatively consistent since the beginning of 2015. While rising house prices are beneficial for current homeowners, and especially for households whose home values fell to levels below the amount they owed on their mortgages, they can also make it less affordable for prospective homebuyers to purchase homes. During the housing market turmoil, falling house prices left many households in a negative equity position, meaning that they owed more on their mortgages than their homes were currently worth. Negative equity can contribute to foreclosures because it prevents households from selling their homes for enough to pay off their mortgages if they are having difficulty staying current on mortgage payments. Furthermore, negative equity can affect the housing market by making households less likely to put their homes up for sale, as many homeowners may be reluctant to sell their homes if the sales prices will not be enough to pay off their mortgage balances. With home prices increasing on a national basis, the number of households estimated to have negative equity has been falling. As shown in Figure 2 , in the third quarter of 2016 just over 6% of all mortgaged properties were estimated to have negative equity. In comparison, in the second quarter of 2011 the negative equity share was estimated at about 25%. Although rising home prices have helped many households regain equity, it is estimated that over 3 million homes with a mortgage remain in negative equity across the country. Furthermore, although the overall rate of negative equity is improving, negative equity is not evenly distributed across the country. In particular, negative equity remains persistently high in many low-income and minority neighborhoods. Lower-priced homes also continue to experience negative equity at higher rates than higher-priced homes. This suggests that many areas are not experiencing housing market recovery at the same pace as other areas. Partly because of rising house prices and decreasing negative equity, mortgage foreclosure rates have also been consistently declining. As shown in Figure 3 , the share of mortgages in the foreclosure process decreased to about 1.5% in the fourth quarter of 2016. This is notably lower than the peak of over 4.5% in 2010 and the lowest rate of mortgages in the foreclosure process since the second quarter of 2007. In comparison, in the early 2000s foreclosure rates generally ranged between 1% and 1.5%. Home sales include both sales of existing homes and sales of newly built homes. Existing home sales generally number in the millions each year, while new home sales are usually in the hundreds of thousands. During the housing market turmoil, both existing home sales and new home sales fell. Both have been increasing somewhat in recent years, though new home sales in particular remain relatively low. Figure 4 shows the annual number of existing home sales for each year from 1995 through 2016. Existing home sales during that period peaked in 2005 at over 7 million before falling to a low of about 4.1 million in 2008. In 2016, there were nearly 5.5 million existing homes sold, the highest number of existing home sales since 2006 and similar to the numbers seen in the late 1990s and early 2000s. Figure 5 shows the annual number of new home sales for each year from 1995 through 2016. Though the number of new home sales has begun to increase somewhat, reaching over 560,000 in 2016, new home sales remain well below the levels seen in the late 1990s and early 2000s, when they tended to be between 800,000 and 1 million per year. Housing starts are the number of new homes on which construction is started in a given period. The number of housing starts is consistently higher than the number of new home sales. This is primarily because housing starts include homes that are not intended to be put on the for-sale market, such as homes built by the owner of the land or homes built for rental. Housing starts for single-family homes also fell during the housing market turmoil, reflecting decreased home purchase demand. Nevertheless, as housing markets have started to stabilize, there have been signs that housing starts are also beginning to increase. As shown in Figure 6 , which shows the seasonally adjusted annual rate of housing starts for each month from January 1995 through December 2016, the seasonally adjusted annual rate of housing starts in one-unit residential buildings was generally between 1.2 million and 1.8 million each month from 2000 through 2007. Since that time, however, the seasonally adjusted annual rate of housing starts fell to a rate of between 400,000 and 600,000 for each month until about 2013. More recently, housing starts have been trending upward, and were close to or exceeded a seasonally adjusted annual rate of over 700,000 for much of 2015 and 2016. However, they remained well below the levels seen throughout the 1990s and early 2000s. Most homeowners take out a mortgage to purchase a home. Therefore, owner-occupied housing markets are closely linked to the mortgage market (though they are not the same). The ability of prospective homebuyers to obtain mortgages impacts the demand for homes. As shown in Figure 7 , in the years following 2007 the number of mortgages originated for home purchases (as opposed to mortgages to refinance a home) was relatively low, though it has been increasing somewhat in recent years. While close to 5 million home purchase mortgages were originated in 2004, that number fell to 2.5 million in 2008 and 2.1 million in 2011. In 2015, there were about 3.2 million home purchase mortgage originations, up from about 2.8 million in 2014 and 2.7 million in 2013. There are several possible reasons why home purchase mortgage originations, and home sales in general, may not be increasing more quickly. Economic pressures could be affecting both the supply of homes on the market and demand for those homes. For example, some current homeowners may be unwilling to sell their homes due to negative equity or other reasons, leading to lower numbers of homes for sale in many markets. Stagnant or declining incomes and factors such as rising student loan debt may be depressing the demand for home purchases, particularly among younger households who would traditionally be first-time homebuyers. Demographic trends may also be playing a role. As the baby boomer generation ages, fewer households may be seeking to move since older households tend to move less frequently than younger households. At the same time, younger households, who traditionally make up a large share of first-time homebuyers, appear to be waiting longer to purchase homes. While this could be partly due to economic pressures, younger households are also more likely to delay major life events, such as marriage, compared to previous generations. This could also contribute to some households waiting longer to purchase a home. Additionally, many observers argue that mortgage credit is unusually tight—that is, it is too difficult for many households that would like to buy homes to get a mortgage to finance the purchase. This is discussed further in the next subsection. Some prospective homebuyers may find themselves unable to obtain mortgages due to their credit histories, the cost of obtaining a mortgage (such as down payments and closing costs), or other factors. In general, it is beneficial to the housing market when creditworthy homebuyers are able to obtain mortgages to purchase homes. However, access to mortgages must be balanced against the risk of offering mortgages to people who will not be willing or able to repay the money they borrowed. Striking the right balance of credit access and risk management, and the question of who is considered to be "creditworthy," continue to be subjects of ongoing debate. A variety of organizations attempt to measure the availability of mortgage credit. While their methods vary, many experts agree that mortgage credit is tighter than it was in the years prior to the housing bubble and subsequent housing market turmoil. In particular, researchers note that a higher proportion of loans are made to the highest credit quality borrowers and that the mortgage market is taking on less default risk than it did in the years that preceded the looser credit standards of the housing bubble. However, some also argue that mortgage credit is not too tight and note that the Federal Housing Administration, in particular, continues to serve lower credit quality borrowers. Relatively low numbers of mortgage originations have persisted despite continued low mortgage interest rates. As shown in Figure 8 , the average interest rate on a 30-year fixed-rate mortgage has been under 5% since May 2010 and was under 4% for most of 2012 and the first half of 2013. Interest rates started to rise slowly in the second half of 2013 but generally remained below 4.5%. Since then, interest rates again declined and were below 4% for much of 2015 and 2016. To the extent that interest rates eventually begin to rise in a more sustained way, it may have implications for mortgage affordability, particularly when combined with rising house prices and, in some cases, higher mortgage insurance fees. Rising interest rates could also deter some existing homeowners from selling their homes, because any new mortgages these homeowners obtained would likely have higher interest rates than what they are currently paying. When a lender originates a mortgage, it can choose to hold that mortgage in its own portfolio, sell it to a private company, or sell it to Fannie Mae or Freddie Mac, two congressionally chartered government-sponsored enterprises (GSEs). Furthermore, a mortgage might be insured by a federal government agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). In the years after the housing bubble burst, there was an increase in the share of mortgages with some federal backing (either mortgage insurance from a government agency or a guarantee from Fannie Mae or Freddie Mac), leading some to worry about increased government exposure to risk and a lack of private capital for mortgages. As shown in Figure 9 , nearly two-thirds of the total dollar volume of mortgages originated in the first three quarters of 2016 were either guaranteed by a federal agency such as FHA or VA (21%) or backed by Fannie Mae or Freddie Mac (44%). Over one-third of the dollar volume of mortgages originated was held in bank portfolios (34%), while less than 1% was securitized in the private market. The share of new mortgage originations, by dollar volume, insured by a federal agency or guaranteed by Fannie Mae or Freddie Mac has fallen from a high of nearly 90% in 2009. Nevertheless, the share of mortgage originations with federal mortgage insurance or a Fannie or Freddie guarantee remains elevated compared to the 2002-2007 period, when FHA and VA mortgages constituted a very small share of the mortgage market and the GSE share ranged from about 30% to 50%. In the years since the housing market turmoil began, the homeownership rate has decreased while the percentage of households who rent their homes has correspondingly increased. Although the supply of rental housing has also increased, both through new construction and as some formerly owner-occupied homes are converted to rentals, in many markets the rise in the number of renters has increased competition for rental housing and pushed up rents. This, in turn, has resulted in more renter households being cost-burdened, defined as paying more than 30% of income toward housing costs. As shown in Figure 10 , the share of renters has been increasing in recent years, reaching close to 37% of all occupied housing units in 2016. This was the highest share of renters since the early 1990s. The homeownership rate has correspondingly decreased, falling from a high of 69% in 2004 to just over 63% in 2016. In addition to an increase in the share of households who rent, the overall number of renter households has been increasing as well. In 2016, there were over 43 million occupied rental housing units, compared to 40 million in 2013 and fewer than 36 million in 2008. In general, the increase in renters has led to a decrease in rental vacancy rates in many, though not all, areas of the country. This has been the case in many areas even though the supply of rental housing has been increasing through both new multifamily construction and the conversion of some previously owner-occupied single-family units to rental housing. In many cases, the increase in the rental housing supply has not kept up with the increase in rental housing demand. As shown in Figure 11 , on a national basis the rental vacancy rate was over 10% in most quarters from 2008 through 2010. Since then, the rate has steadily declined, reaching about 8% at the end of 2013 and 7% at the end of both 2014 and 2015. At the end of 2016, the rental vacancy rate was 6.9%. Decreasing vacancy rates tend to lead to an increase in rents. Harvard University's Joint Center for Housing Studies reports that rents have generally been increasing in recent years at a rate that outpaces inflation. Rising rents can contribute to housing affordability problems, particularly for households with lower incomes. Under one common definition, housing is considered to be affordable if a household is paying no more than 30% of its income in housing costs. Under this definition, households that pay more than 30% are considered to be cost-burdened, and those that pay more than 50% are considered to be severely cost-burdened. According to the Joint Center for Housing Studies, citing American Community Survey data, the overall number of cost-burdened households increased slightly in 2014 to 39.8 million, compared to 39.6 million in 2013. However, this represented a decrease from 40.9 million households in 2012. The number of cost-burdened renter households increased to 21.3 million, compared to 20.8 million in 2013 and 20.6 million in 2012. This represents close to half of all households who rent. Not surprisingly, cost burdens are more common among lower-income households. Minority households are more likely to be cost-burdened, and affordability problems are particularly prevalent in higher-cost housing markets. Figure 12 shows the number of renter households with moderate or severe cost burdens in 2014 and selected previous years. Furthermore, according to HUD, 7.7 million renters were considered to have "worst-case housing needs" in 2013 (the most recent data available). Households with worst-case housing needs are defined as renters with incomes at or below 50% of area median income who do not receive federal housing assistance and who pay more than half of their incomes for rent, live in severely inadequate conditions, or both. The 7.7 million households with worst-case housing needs in 2013 was a decrease from 8.5 million in 2011, but it was 30% higher than the 6 million households with worst-case housing needs in 2007. A number of the housing issues that the 114 th Congress considered had to do with federally assisted housing programs that are intended to provide affordable housing for eligible lower-income households. Most federal housing programs are administered by HUD. HUD was created as a Cabinet-level agency by the Housing and Urban Development Act of 1965, which was signed into law by President Lyndon B. Johnson on September 9, 1965. HUD, stakeholders, researchers, the press, and Members of Congress took the opportunity of HUD's 50 th anniversary to reflect on and assess the function of the department to-date and to consider its role in the future. In honor of the anniversary, the chairman of the House Financial Services Committee put out a call for "all interested advocates, organizations, and ordinary citizens to join the effort to modernize the delivery of federal housing assistance and submit their ideas on how to restructure and rebuild HUD for today's generation." Subsequently, the committee held a hearing entitled "The Future of Housing in America: 50 Years of HUD and its Impact on Federal Housing Policy." Concern in Congress about federal budget deficits has led to increased interest in reducing the amount of discretionary funding provided each year through the annual appropriations process. The desire to limit discretionary spending has implications for HUD's budget, the largest source of funding for direct housing assistance, because it is made up almost entirely of discretionary appropriations. More than three-quarters of HUD's appropriations are devoted to three programs: the Section 8 Housing Choice Voucher (HCV) program, Section 8 project-based rental assistance, and the public housing program. Funding for Section 8 vouchers makes up the largest share of HUD's budget, accounting for nearly half. The cost of the Section 8 voucher program has been growing in recent years. This is in part because Congress has created more vouchers each year over the past several years (largely to replace units lost to the affordable housing stock in other assisted housing programs or to provide targeted assistance for homeless veterans), and in part because the cost of renewing individual vouchers has been rising as gaps between low-income tenants' incomes and rents in the market have been growing. The cost of Section 8 project-based rental assistance has also been growing in recent years as more and more long-term rental assistance contracts on older properties expire and are renewed, requiring new appropriations. Public housing, the third-largest expense in HUD's budget, has, arguably, been underfunded (based on studies undertaken by HUD of what it should cost to operate and maintain public housing) for many years. As a result, there is regular pressure from low-income housing advocates and others to increase funding for public housing. In a budget environment featuring limits on discretionary spending, the pressure to provide more funding for HUD's largest programs must be balanced against the pressure from states, localities, and advocates to maintain or increase funding for other HUD programs, such as the Community Development Block Grant (CDBG) program, grants for homelessness assistance, and funding for Native American housing. Further, HUD's funding needs must be considered in the context of those for the Department of Transportation (DOT). Funding levels for both departments are determined by the Transportation, HUD, and Related Agencies (THUD) appropriations subcommittee, generally in a bill by the same name. While HUD's budget is generally smaller than DOT's, it makes up the largest share of the discretionary funding in the THUD appropriations bill each year because the majority of DOT's budget is made up of mandatory funding. All of these considerations influenced the 114 th Congress's consideration of HUD appropriations. For more information about trends in HUD funding, see CRS Report R42542, Department of Housing and Urban Development (HUD): Funding Trends Since FY2002 , by Maggie McCarty; for the current status of HUD appropriations and related CRS reports, see the CRS Appropriations Status Table . Over most of the past 10 years, Congress has considered reforms to the nation's largest direct housing assistance programs: the Section 8 Housing Choice Voucher, Section 8 project-based rental assistance, and public housing programs. These programs combined serve approximately 4.5 million families, including families headed by individuals who are elderly or have disabilities, as well as families with and without children. The majority of the proposed reforms are aimed at streamlining administration of the programs, although some have been farther reaching than others. Recent reform proposals, including those considered but not enacted in the 111 th and 112 th Congresses, have included a number of fairly noncontroversial administrative provisions, along with others that have proved more controversial. The Section 8 Housing Choice Voucher program is HUD's largest direct housing assistance program for low-income families, both in terms of the number of families it serves (over 2 million) and the amount of money it costs (over $19 billion in FY2015, over 40% of HUD's appropriation). The program is administered at the local level, by public housing authorities (PHAs), and provides vouchers—portable rental subsidies—to very low-income families. They can use the vouchers to reduce their rents in the private market units of their choice (subject to certain cost limits). The program has been criticized for, among other issues, its administrative complexity—particularly income eligibility and rent policies—and growing cost. Project-based rental assistance involves contracts between HUD and private property owners for over 1 million units of affordable housing. Under the terms of those contracts, the property owners receive federal subsidies in exchange for agreeing to lease their units at affordable rents to eligible low-income tenants. Recent reform proposals have called for similar administrative streamlining (involving income eligibility and rent policies) as well as incentives to encourage owners to continue to participate in the program, and enhanced protections for tenants when owners exit the program. The public housing program has existed longer than either Section 8 program but is now smaller in size, with approximately 1 million units of low-rent public housing available to eligible low-income tenants. Public housing is owned by the same local PHAs that administer the Section 8 voucher program and those PHAs receive annual operating and capital funding from Congress through HUD. Much of the public housing stock is old and in need of capital repairs. According to the most recent study conducted by HUD, addressing the outstanding physical needs of the public housing stock would cost nearly $26 billion. The amount Congress typically provides in annual appropriations for capital needs has not been sufficient to address that backlog. In response, PHAs have increasingly relied on other sources of financing, particularly private market loans, to meet the capital needs of their housing stock, including by converting their public housing properties to Section 8 assistance through the Rental Assistance Demonstration. Like the two Section 8 programs, the public housing program has been criticized for being overly complex and burdensome to administer, especially in light of recent funding reductions. Recent reform proposals have included changes to the income eligibility and rent determination process for all three programs, designed to make it less complicated, and changes to the physical inspection process in the voucher program to give PHAs more options for reducing the frequency of inspections and increasing sanctions for failed inspections. Recent reform proposals have also sought to modify and expand the Moving to Work (MTW) demonstration. MTW permits a selected group of PHAs to seek waivers of most federal rules and regulations governing the Section 8 voucher program and the public housing program in pursuit of three statutory purposes: reduce program costs and achieve greater cost effectiveness; provide work incentives and supports for families with children; and increase housing choices for families. The future of MTW and whether it should be expanded has proven to be one of the more controversial elements of assisted housing reform. No major reform legislation was considered in the 113 th Congress. However, the President requested, in his annual budget submissions, that Congress enact several of the less controversial administrative reforms (e.g., those related to income calculation and verification) as part of the annual appropriations acts. The FY2014 Omnibus funding measure ( P.L. 113-76 ) and the FY2015 HUD appropriations law ( P.L. 113-235 ) included several of the requested administrative reforms. The FY2016 appropriations law ( P.L. 114-113 ) contained a more controversial provision: an expansion of the MTW demonstration by 100 agencies. Early in the 114 th Congress, several relatively noncontroversial administrative reform bills were approved by the House, including the Tenant Income Verification Relief Act of 2015 ( H.R. 233 ), to allow PHAs and owners of federally assisted housing to recertify fixed-income families' incomes only once every three years instead of annually; and the Preservation Enhancement and Savings Opportunity Act of 2015 ( H.R. 2482 ), to allow the owners of certain Section 8 project-based rental assistance properties to access property reserves, subject to certain limitations. These bills, and others, were enacted into law as part of the Surface Transportation Reauthorization and Reform Act of 2015 ( P.L. 114-94 ). Late in the first session of the 114 th Congress, the chairman of the Housing and Insurance Subcommittee of the House Financial Services Committee introduced the Housing Opportunity through Modernization Act of 2015 ( H.R. 3700 ), which was co-sponsored by the ranking member of the subcommittee. It included a number of reforms related to administrative streamlining—including changes to income definition and review policies for all three primary assisted housing programs, changes to Section 8 voucher inspection procedures, and increased flexibility in public housing funding—that were similar to consensus provisions from earlier reform bills, among other provisions. It did not include some of the more controversial provisions from prior reform bills, such as a further expansion of the MTW demonstration. It was approved unanimously by the House on February 2, 2016. The Senate approved the bill via unanimous consent on July 14, 2016, and President Obama signed it into law on July 29, 2016 ( P.L. 114-201 ). For more information on H.R. 3700 , see CRS Report R44358, Housing Opportunity Through Modernization Act (H.R. 3700) , by Maggie McCarty, Libby Perl, and Katie Jones. The Native American Housing Block Grant (NAHBG) is the main federal program that provides housing assistance to Native American tribes and Alaska Native villages. It provides formula funding to tribes to use for a range of affordable housing activities that benefit low-income Native Americans or Alaska Natives living in tribal areas. The NAHBG is authorized by the Native American Housing Assistance and Self-Determination Act of 1996 (NAHASDA), which reorganized the federal system of housing assistance for tribes while recognizing the rights of tribal self-governance and self-determination. The most recent authorization for most NAHASDA programs expired at the end of FY2013, although these programs have generally continued to be funded through annual appropriations laws. Although the 113 th Congress considered reauthorization legislation, none was enacted. In the 114 th Congress, both the House and the Senate again considered NAHASDA reauthorization bills. The House passed a NAHASDA reauthorization bill ( H.R. 360 ) in March 2015, while in the Senate a different bill ( S. 710 ) was reported out of committee. Among other things, both H.R. 360 and S. 710 would have reauthorized the NAHBG and the Native Hawaiian Housing Block Grant, which provides housing assistance to low-income Native Hawaiians, as well as two home loan guarantee programs that benefit Native Americans and Native Hawaiians, respectively. Both bills would have also made some changes to NAHBG program requirements, authorized a demonstration program intended to increase private financing for housing activities in tribal areas, and authorized a program to provide housing vouchers and supportive services for Native American veterans who are homeless or at risk of homelessness. In response to concerns about certain tribes not spending their NAHBG funds in a timely fashion, both bills also included a provision to reduce funding to tribes with annual allocations of $5 million or more who have large balances of unexpended NAHBG funds. (The vast majority of tribes receive annual allocations below $5 million.) Although the House and Senate bills were similar in many ways and addressed many of the same issues, they were not identical. Each bill contained some provisions not included in the other, and in some cases the bills addressed the same issue in different ways. Furthermore, while tribes and Congress are generally supportive of NAHASDA, there has been some disagreement in Congress over specific provisions or policy proposals that have been included in reauthorization bills. Ultimately, no NAHASDA reauthorization legislation was enacted during the 114 th Congress. For more information on NAHASDA and the NAHBG in general, see CRS Report R43307, The Native American Housing Assistance and Self-Determination Act of 1996 (NAHASDA): Background and Funding , by Katie Jones. For more information on reauthorization efforts in the 114 th Congress, see CRS Report R44261, The Native American Housing Assistance and Self-Determination Act (NAHASDA): Issues and Reauthorization Legislation in the 114th Congress , by Katie Jones. In 2008, Congress established two new affordable housing funds in the Housing and Economic Recovery Act (HERA, P.L. 110-289 ): The Housing Trust Fund is a HUD program that is intended to provide dedicated federal funding for affordable housing activities, with a focus on the production of rental housing for very low- and extremely low-income households. The funding is provided to states via formula. The Capital Magnet Fund is a Treasury program, administered by the Community Development Financial Institutions (CDFI) Fund, that is intended to provide competitive funding for affordable housing activities to CDFIs and other eligible nonprofit organizations. The Capital Magnet Fund can be used for a broader range of affordable housing activities than the Housing Trust Fund. Rather than being funded through the annual appropriations process, the Housing Trust Fund and the Capital Magnet Fund are funded through contributions from Fannie Mae and Freddie Mac. However, Fannie Mae and Freddie Mac were placed into conservatorship in 2008 shortly after P.L. 110-289 was enacted, and their regulator suspended the contributions to the funds before they ever started. For several years following 2008, the Housing Trust Fund was not funded. The Capital Magnet Fund was funded once, through a one-time discretionary appropriation in FY2010. In December 2014, Fannie Mae's and Freddie Mac's regulator directed them to begin setting aside funds for the Housing Trust Fund and Capital Magnet Fund for the first time during calendar year 2015. The first contributions were transferred to the funds in early 2016. HUD announced the first Housing Trust Fund allocations to states in May 2016, and the CDFI Fund announced competitive grant awards through the Capital Magnet Fund in September 2016. These affordable housing funds, particularly the Housing Trust Fund, have been controversial. Supporters argue that these funds are necessary to address a pressing need for an increased supply of affordable rental housing for the poorest households. Supporters also argue that a benefit of these programs is that they are funded outside of the annual appropriations process, meaning that they are less likely to compete with other housing programs for funding. Critics raise a number of concerns, including arguing that these funds are duplicative of other housing programs and that providing funding outside of the appropriations process limits Congress's role in overseeing them. Further, opponents argue that Fannie Mae and Freddie Mac should not be diverting funds to the Housing Trust Fund or Capital Magnet Fund while they remain in conservatorship, and that the programs could become "slush funds" for favored political groups despite limitations on the uses of funds. Given these concerns, some Members of Congress have sought to stop Fannie Mae and Freddie Mac from funding the Housing Trust Fund and/or the Capital Magnet Fund. For example, in the 114 th Congress, the Pay Back the Taxpayers Act ( H.R. 574 ) would have prohibited Fannie Mae and Freddie Mac from contributing to either fund while Fannie and Freddie remain in conservatorship. The bill was not enacted. Additionally, the FY2016 HUD appropriations bill that passed the House ( H.R. 2577 ) would have diverted any funds intended for the Housing Trust Fund (but not the Capital Magnet Fund) in FY2016 to HUD's HOME program instead. That provision was not included in the final FY2016 HUD appropriations law. For more information on the Housing Trust Fund, see CRS Report R40781, The Housing Trust Fund: Background and Issues , by Katie Jones. Other issues that the 114 th Congress considered were related to the housing finance system and the ability of households to obtain mortgages. Fannie Mae and Freddie Mac are two government-sponsored enterprises (GSEs) that were created by Congress to support homeownership. By law, Fannie Mae and Freddie Mac cannot make mortgages; rather, they are restricted to purchasing mortgages that meet certain requirements from lenders. Once the GSEs purchase a mortgage, they either package it with others into a mortgage-backed security (MBS), which they guarantee and sell to institutional investors, or retain it as a portfolio investment. In 2008, during the housing and mortgage market turmoil, Fannie Mae and Freddie Mac entered voluntary conservatorship overseen by their regulator, the Federal Housing Finance Agency (FHFA). As part of the legal arrangements of this conservatorship, the Treasury Department contracted to purchase up to $200 billion of new senior preferred stock from each of the GSEs. To date, Treasury has purchased a total of nearly $188 billion of senior preferred stock from the two GSEs and has received a total of $251 billion in dividends. These funds become general revenues. Since June 2012, neither GSE has needed additional support from Treasury. Many policymakers agree on the need for comprehensive housing finance reform legislation that would transform or eliminate the GSEs' role in the housing finance system. While there is broad agreement on certain principles of housing finance reform—such as increasing the private sector's role in the mortgage market and maintaining access to affordable mortgages—there is much disagreement over the details. The 113 th Congress considered, but did not enact, housing finance reform legislation. There was less movement toward comprehensive housing finance reform in the 114 th Congress. However, the 114 th Congress considered legislation that would make certain specific, more-targeted reforms to the GSEs. Some of these proposed reforms focused on the terms of the GSEs' conservatorship, while others attempted to advance some of the larger goals of housing finance reform, such as increasing the role of private capital in the housing finance system. Specifically, legislation was introduced in the 114 th Congress to restrict the use of the GSEs' dividends paid to Treasury to offset other spending, prevent Treasury from disposing of the senior preferred stock without enabling legislation, and limit executive compensation at the GSEs. Legislation was also proposed to mandate that the GSEs share mortgage risks with the private sector, and to encourage improvements to the secondary mortgage market through a common platform for mortgage securitization. Each of these issues is discussed in turn. When the GSEs purchase a mortgage, they charge the seller a fee for guaranteeing timely payment of principal and interest to the ultimate investor. Unless offset by reduced mortgage purchases or increased losses due to foreclosure, increasing guarantee fees increases GSE profits. Under the terms of Treasury's support agreements, all of the GSEs' profits from whatever sources —including those arising from increased guarantee fees—are paid as dividends to Treasury. In recent years, Congress has sometimes used, or proposed to use, a portion of the increases to these fees as offsets for other types of government spending. In particular, the Temporary Payroll Tax Cut Continuation Act of 2011 ( P.L. 112-78 ) directed FHFA to increase the GSEs' guarantee fees through 2021 and use the increase to offset the cost of extending the payroll tax cut. More recently, other bills have proposed extending the guarantee fee increase as a "pay for" to offset spending, though legislation that would do so has not been enacted. Some have opposed the use of GSE fees to fund other activities, arguing that raising fees unnecessarily increases costs for mortgage borrowers. Others have raised concerns that the ability to use GSE fees as offsets for other spending could reduce enthusiasm for broader housing finance reform. The Financial Regulatory Improvement Act of 2015 ( S. 1484 ) would have prohibited the use of the GSEs' guarantee fees in scoring appropriations under the Congressional Budget Act of 1974 ( P.L. 93-344 ). The bill contained two exceptions. First, the fees could have been scored if they resulted from the disposition of the senior preferred stock. Second, the fees could have been scored if the proceeds were used to finance reforms of the secondary mortgage market. Fannie Mae's and Freddie Mac's support agreements with Treasury require the GSEs to reduce their capital buffer each year until it is eliminated on January 1, 2018. Both FHFA Director Melvin L. Watt and Fannie Mae President and CEO Timothy J. Mayopoulos have said that after January 1, 2018, any losses would require the GSEs to draw down support agreement funds at Treasury. Fannie Mae has $117.6 billion and Freddie Mac has $140.5 billion available to draw from Treasury under the support agreement. The Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) included provisions that restrict the Secretary of the Treasury from disposing of the senior preferred stock unless future legislation authorizing such action is signed into law. This could give Congress input into the future of the GSEs. Technically, the GSEs' conservatorship and the senior preferred stock are separate issues. The conservatorship could be ended and control returned to the common stockholders without disposing of the senior preferred stock. As a practical matter, it is hard to find any significant value to a company that must pay all its profits to the government. Moreover, the agreements with Treasury that require all profits to be paid to Treasury as dividends prevent the GSEs from accumulating reserves to offset losses greater than quarterly earnings. Under conservatorship, the Treasury's support agreements are substitutes for such reserves. These agreements are unlikely to continue in effect if the GSEs are not in conservatorship. In addition, any change to the status of the GSEs would have to consider the warrants (a type of option) that Treasury can use to purchase control of each of the GSEs at nominal cost. On other occasions when the federal government has provided significant financial support to companies, such as Chrysler and General Motors, Treasury has auctioned off similar warrants at a profit. In July 2015, FHFA approved Fannie Mae's and Freddie Mac ' s requests to raise the annual target compensation of their chief executive officers to $4 million from $600,000. The Equity in Government Compensation Act of 2015 ( P.L. 114-93 ), enacted in November 2015, reduced the maximum executive compensation to $600,000. In 2012, FHFA directed Fannie Mae and Freddie Mac to develop programs to share mortgage credit risk with the private sector, which would reduce the risk they impose on the federal government. Both of the GSEs have developed programs under which they, in effect, purchase insurance from the private sector. S. 1484 would have encouraged these programs by codifying them. Fannie Mae and Freddie Mac each issue their own MBS, which differ from each other. FHFA has determined that both GSEs' computer systems supporting the MBSs must be modernized and that it would improve the efficiency of the secondary mortgage market if the GSEs adopted a common MBS. This MBS system modernization is being developed by a jointly owned subsidiary known as Common Securitization Solutions (CSS). Freddie Mac issued MBS implementing the common securitization platform (CSP) release 1 in December 2016. Both GSEs are expected to issue MBS implementing CSP release 2 in 2018. S. 1484 would have directed FHFA to expand access to CSS to other private MBS issuers besides the GSEs. It would have required reports to Congress, revised the composition of the CSS board of directors, established a timetable for issuing the new type of MBS, and restricted the risks that CSS can take. Financial regulators are continuing to implement mortgage-related rulemakings that are part of the financial reforms implemented in response to the bursting of the housing bubble and the ensuing housing and mortgage market turmoil. The Consumer Financial Protection Bureau (CFPB) has issued rules related to, among other things, the ability to repay and qualified mortgage (QM) standards, homeownership counseling, escrow requirements, mortgage servicing, loan originator compensation, and mortgage disclosure forms. Federal bank regulators have issued rules that affect banks' holdings of mortgage-related assets. In addition, six federal agencies issued a final rule for credit risk retention and qualified residential mortgages (QRM). Regulators have issued additional mortgage-market rules besides those mentioned above. While each of the rules is different, the 114 th Congress focused on several policy issues that are common among them. First, some are concerned about the regulatory burden lenders face in satisfying the new rules, especially small lenders. Others argue, however, that the benefits associated with the new regulations, such as enhanced protections for consumers and promoting stability in the housing finance system, justify the higher costs on lenders. Second, some in Congress question how the rules will affect credit availability for creditworthy borrowers. As discussed earlier in the " Overview of Housing and Mortgage Market Conditions " section, mortgage originations and home sales are at relatively low levels and mortgage credit is relatively tight compared to the early 2000s, and some argue that the new regulations have contributed to the slow recovery. Others contend, however, that the regulations are intended to prevent those unable to repay their loans from receiving credit and have been appropriately tailored to ensure that those who can repay are able to receive credit. The 114 th Congress considered these and other policy concerns in its oversight of the financial regulators through many different hearings and by acting on legislation. In the Senate, the Senate Banking Committee reported the Financial Regulatory Improvement Act of 2015 ( S. 1484 ). S. 1484 encompassed a broad package of reforms to the financial regulatory system, including several sections that would have modified mortgage-related rulemakings. S. 1484 included provisions related to, among other things, the QM rule, appraisals, manufactured housing, and the Federal Home Loan Banks. In the House, the Financial Services Committee reported numerous pieces of legislation that would have also modified some of the mortgage-market rulemakings. The bills covered, among other things, manufactured housing, the QM rule, escrow accounts, mortgage servicing, and mortgage disclosures. Several of these bills passed the House, such as the Preserving Access to Manufactured Housing Act of 2015 ( H.R. 650 ) and the Mortgage Choice Act of 2015 ( H.R. 685 ). Many of the proposals to modify mortgage-related rulemakings that received floor or committee action were also included in the Financial CHOICE Act ( H.R. 5983 ), a wide-ranging package of proposals that would have reformed many aspects of the financial system. The Financial CHOICE Act was reported by the Financial Services Committee on September 13, 2016. For more information on some of the legislative proposals to modify mortgage-related rulemakings in the 114 th Congress, see CRS Report R44035, "Regulatory Relief" for Banking: Selected Legislation in the 114th Congress , coordinated by Sean M. Hoskins. The Federal Housing Administration (FHA), part of HUD, insures certain mortgages made by private lenders against the possibility that the borrower will not repay the mortgage as promised. The insurance protects the lender, rather than the borrower, in the case of borrower default. FHA insurance can make mortgages more easily available to some households that might otherwise have difficulty qualifying for an affordable mortgage, such as those with small down payments. FHA is intended to be self-supporting: fees paid by borrowers are meant to cover the costs of defaults. However, for the last several years there have been concerns about FHA's finances. By law, FHA is required to maintain a capital ratio of 2%. The capital ratio fell below 2% in FY2009 and remained below that level until it again reached the 2% threshold at the end of FY2015. Concerns about FHA's finances culminated when FHA received a mandatory appropriation from Treasury at the end of FY2013 to ensure that it had sufficient funds to cover all of its anticipated future costs. Since that time, FHA's finances have improved (as evidenced by the capital ratio again reaching the 2% threshold), although concerns remain. There is often a tension between FHA's mission of expanding access to affordable mortgage credit and its need to protect its finances. This tension was highlighted in January 2015, when FHA announced that it was reducing the fees that it charges to borrowers for mortgage insurance. Many industry and consumer groups had urged such a decision, noting that lowering the fees would make mortgages more affordable for many prospective homebuyers, and that the decrease could protect FHA's insurance fund by making FHA insurance more attractive for higher-quality borrowers. However, critics argued that lowering the fees could impede FHA's ability to rebuild its finances by reducing its revenue or underpricing its risk. FHA has also been taking steps intended to provide more clarity to lenders about FHA's requirements and under what circumstances FHA would take administrative or legal actions against lenders for not meeting those requirements. In recent years, many have argued that FHA's requirements have not been clear enough, and that lenders fear FHA will pursue significant enforcement actions against them for what they consider to be minor violations of requirements. This, in turn, can make lenders less willing to offer FHA-insured mortgages, or to only offer such mortgages to a narrow subset of borrowers who are the least likely to default on their mortgages. To address these concerns, FHA has been in the process of consolidating its loan requirements in a new handbook, making changes to certifications that lenders must submit to FHA to participate in FHA insurance programs, and updating metrics that measure lenders' performance. Though these changes collectively are intended to provide more clarity to lenders, and in turn expand access to FHA-insured mortgages, some industry groups and others have argued that some of these changes have not gone far enough in providing lenders with additional certainty. On the other hand, some in Congress have raised concerns that certain changes, such as the changes to the lender certifications, could make it more difficult for FHA to hold lenders accountable. For more information on FHA-insured mortgages in general, see CRS Report RS20530, FHA-Insured Home Loans: An Overview , by Katie Jones. For more information on FHA's financial status, see CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund) , by Katie Jones. Over the past few years, Fannie Mae and Freddie Mac (the GSEs) and FHA have implemented initiatives to sell pools of distressed mortgages to outside investors prior to the foreclosure process being completed. This is in contrast to the traditional process of a mortgage servicer foreclosing on a mortgage and then conveying the foreclosed property to the GSEs or FHA, respectively, to market and sell. Loan sales are intended to reduce the losses to FHA and the GSEs by sparing those entities some of the costs of maintaining and marketing a foreclosed property. These sales may also benefit some borrowers, because the investors who purchase the mortgages may be able to offer certain foreclosure prevention options that would not have been allowed under FHA or GSE requirements. Some policy organizations and advocacy groups, as well as some Members of Congress, have opposed these loan sales entirely or argued that FHA and the GSEs should do more to ensure that sales are structured in a way to benefit more homeowners and contribute to neighborhood stabilization. In particular, some worry that the investors who purchase distressed mortgages do not do enough to attempt to keep borrowers in their homes or to make sure that vacant foreclosed properties do not become blights on communities. Among other things, critics of these loan sales have argued that more loans should be sold to nonprofit organizations that may be more committed to keeping borrowers in their homes and that other steps should be taken to protect borrowers. Both FHA and the GSEs have made some changes to their loan sales programs, including adopting some measures called for by advocates. While some argue that these changes have not gone far enough, others have expressed concerns that some of the changes could decrease the prices that investors are willing to pay for the loans and therefore limit the extent to which the loan sales result in lower losses for FHA or the GSEs. In light of these concerns, the House Financial Services Committee held a hearing to examine recent changes to FHA's loan sale program in July 2016. Two issues related to fair housing have also prompted congressional interest and were active during the 114 th Congress. The Fair Housing Act (FHA) was enacted "to provide, within constitutional limitations, for fair housing throughout the United States." It prohibits discrimination on the basis of race, color, religion, national origin, sex, physical and mental handicap, and familial status. Subject to certain exemptions, the FHA applies to all sorts of housing, public and private, including single family homes, apartments, condominiums, and mobile homes. It also applies 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." In June 2015, the Supreme Court, in Texas Department of Housing and 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. 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. The Supreme Court stressed that lower courts and HUD should rigorously evaluate plaintiffs' disparate impact claims to ensure that evidence has been provided to support not only a statistical disparity but also causality (i.e., that a particular policy implemented by the defendant caused the disparate impact). The Court also emphasized that claims should be disposed of swiftly in the preliminary stages of litigation when plaintiffs have failed to provide sufficient evidence of causality. 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" emphasized by the Supreme Court might result in even fewer successful disparate impact claims being raised in the courts and swifter disposal of claims that are raised. This could, in turn, discourage claims from being raised at all. While some in Congress praised the Supreme Court's decision, others have opposed the use of disparate impact claims in Fair Housing Act cases. In the 114 th Congress, the Protect Local Independence in Housing Act of 2015 ( H.R. 3145 ) was introduced in response to the Inclusive Communities ruling. It would have amended the FHA to make clear that the act does not protect against disparate impact discrimination. Furthermore, a floor amendment to the Commerce, Justice, Science, and Related Agencies Appropriations Act, 2016 ( H.Amdt. 337 to H.R. 2578 ), which passed the House, would have prohibited the Department of Justice from using funds appropriated by the bill from being used to enforce the FHA in a manner that relies on disparate impact discrimination. Similarly, a floor amendment to the Transportation, Housing and Urban Development, and Related Agencies Appropriations Act, 2016 ( H.Amdt. 428 to H.R. 2577 ), which passed the House, would have prohibited HUD from using funds appropriated by the bill "to implement, administer, or enforce" its disparate impact regulations. These provisions were not included in the final FY2016 appropriations law. For more information, see CRS Report R44203, Disparate Impact Claims Under the Fair Housing Act , by David H. Carpenter. The Fair Housing Act also requires HUD to administer its programs in a way that affirmatively furthers fair housing. Statutes governing the Community Development Block Grant (CDBG) and public and assisted housing programs also require that funding recipients affirmatively further fair housing, and, through regulation, jurisdictions receiving formula funds through CDBG, Emergency Solutions Grants (ESG), the Home Investment Partnerships Program, and Housing Opportunities for Persons with AIDS (HOPWA) must affirmatively further fair housing as part of the consolidated planning process. These jurisdictions, together with Public Housing Authorities (PHAs), are collectively referred to by HUD as "program participants." On July 16, 2015, HUD published a rule governing the obligation of program participants to affirmatively further fair housing. In general, the requirements of the rule apply to program participants based on the three- or five-year cycle when their Consolidated or PHA Plans are due. The year in which the first AFH is due varies, with entitlement communities receiving CDBG grants greater than $500,000 submitting an AFH as early as 2016, and other grantees and PHAs having later start dates. Until implementation of the AFFH rule, program participants have satisfied their obligation to affirmatively further fair housing by certifying to HUD that they conducted an "Analysis of Impediments" (AI) to fair housing and were taking appropriate actions to overcome impediments. A Government Accountability Office analysis of a sample of AIs in 2010 found that many were outdated or lacked content, serving in part to prompt HUD to develop its AFFH rule. The AFFH rule defines more specifically what it means to affirmatively further fair housing, and requires that program participants submit an Assessment of Fair Housing (AFH) to HUD at least every five years. The rule encourages program participants to collaborate and submit joint or regional AFHs both to save time and resources and to approach fair housing from a broader perspective. Under the AFH, program participants are to assess their jurisdictions and regions for fair housing issues, specifically, areas of segregation or lack of integration, racially or ethnically concentrated areas of poverty, significant disparities in access to opportunity, and disproportionate housing needs. Program participants identify factors that contribute to these fair housing issues and set priorities and goals for overcoming the effects of the contributing factors. Program participants are to include strategies and actions to achieve their goals in their Consolidated and PHA Plans. HUD provides data for program participants to use in preparing their AFHs, and has developed tools that help program participants through the AFH process. In addition, the AFH requires public participation, and, unlike the AI, program participants must submit and have their AFHs approved by HUD. When HUD released its proposed AFFH rule describing the new process on July 19, 2013, it received more than 1,000 comments. Some commenters expressed support for the rule as a way to increase housing opportunity and attain the goals of the Fair Housing Act. Opponents of the AFFH rule contended that it intrudes on local jurisdictions' authority and constitutes social engineering. Other concerns about the rule include the potential cost of preparing AFHs, especially for small jurisdictions and PHAs; whether investment in racially and ethnically concentrated areas of poverty could be prioritized; the fact that program participants may be unable to change the conditions affecting fair housing; and uncertainty about how HUD will enforce the rule. In the 114 th Congress, proposed legislation, including appropriations language, would have kept HUD from implementing the AFFH rule. For example, the Local Zoning Decisions Protection Act of 2015 ( S. 1909 ) would have prohibited federal funds from being used to administer, implement, or enforce the AFFH rule, and from being used to maintain a database containing information on community racial disparities or disparities in access to housing. In addition, the House amended its version of the FY2016 Departments of Transportation and Housing and Urban Development appropriations act ( H.Amdt. 399 to H.R. 2577 ) to prohibit funds appropriated by the bill from being used to carry out the AFFH rule. Such a provision was not included in the final FY2016 HUD appropriations law. Further, when the Senate considered the FY2017 HUD funding bill (also H.R. 2577 ), an amendment to withhold funding was proposed ( S.Amdt. 3897 ), but ultimately tabled. Instead, an amendment was adopted that would have prevented HUD from using funds to direct grantees to make specific changes to their zoning laws as part of enforcing the AFFH rule ( S.Amdt. 3970 ). As of the date of this report, FY2017 appropriations had not been finalized, and funding was provided pursuant to a continuing resolution. For more information about the AFFH rule and HUD Fair Housing programs, see CRS Report R44557, The Fair Housing Act: HUD Oversight, Programs, and Activities , by Libby Perl. In the past, Congress has regularly extended a number of temporary tax provisions addressing a variety of policy issues, including housing. This set of temporary provisions is commonly referred to as "tax extenders." Congress last passed tax extenders legislation on December 18, 2015, via Division Q of P.L. 114-113 —the Protecting Americans from Tax Hikes Act (or "PATH" Act). Historically, when all or part of a taxpayer's mortgage debt has been forgiven, the amount canceled has been included in the taxpayer's gross income. This income is typically referred to as canceled mortgage debt income. The borrower will realize ordinary income to the extent the canceled mortgage debt exceeds the value of any money or property given to the lender in exchange for cancelling the debt. For example, such exchanges are common in a "short sale" when the lender allows the borrower to sell the home for less than the remaining amount owed on the mortgage and may forgive the remaining debt. Lenders report canceled debt to the Internal Revenue Service (IRS) using Form 1099-C. A copy of the 1099-C is also sent to the borrower, who generally must include the amount listed as gross income in the year of discharge. The Mortgage Forgiveness Debt Relief Act of 2007 ( P.L. 110-142 ), signed into law on December 20, 2007, temporarily excluded qualified canceled mortgage debt income that is associated with a primary residence from taxation. Thus, the act allowed taxpayers who did not qualify for one of several existing exceptions to exclude canceled mortgage debt from gross income. The provision was originally effective for debt discharged before January 1, 2010, and was subsequently extended several times. Most recently, the PATH Act extended the exclusion through the end of 2016. The act also allows for debt discharged after 2016 to be excluded from income if the taxpayer entered into a binding written agreement before January 1, 2017. The rationales for extending the exclusion are to minimize hardship for households in distress and lessen the risk that non-tax homeownership retention efforts are thwarted by tax policy. It may also be argued that extending the exclusion would continue to assist the recoveries of the housing market and overall economy. Opponents of the exclusion may argue that extending the provision would make debt forgiveness more attractive for homeowners, which could encourage homeowners to be less responsible about fulfilling debt obligations. The exclusion may also be viewed as unfair, as its benefits depend on whether or not a homeowner is able to negotiate a debt cancelation, the income tax bracket of the taxpayer, and whether or not the taxpayer retains ownership of the house following the debt cancellation. The Joint Committee on Taxation (JCT) estimated the two-year extension included in the PATH Act would result in a 10-year revenue loss of $5.1 billion. For a more detailed analysis of the canceled mortgage debt exclusion, see CRS Report RL34212, Analysis of the Tax Exclusion for Canceled Mortgage Debt Income , by Mark P. Keightley and Erika K. Lunder. Traditionally, homeowners have been able to deduct the interest paid on their mortgage, as well as any property taxes they pay, as long as they itemize their tax deductions. Beginning in 2007, homeowners could also deduct qualifying mortgage insurance premiums as a result of the Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ). Specifically, homeowners could effectively treat qualifying mortgage insurance premiums as mortgage interest, thus making the premiums deductible if homeowners itemized and their adjusted gross incomes were below a certain threshold ($55,000 for single, $110,000 for married filing jointly). Originally, the deduction was to be available only for 2007, but it was subsequently extended several times. Most recently, the PATH Act extended the deduction through the end of 2016. Two justifications for allowing the deduction of mortgage insurance premiums are the promotion of homeownership and, relatedly, the recovery of the housing market. Homeownership is often believed to bestow certain benefits to society as a whole, such as higher property values, lower crime, and higher civic participation, among others. Homeownership may also promote a more even distribution of income and wealth and establish greater individual financial security, though the experience in the recent housing downturn has caused some to question this. Last, homeownership may have a positive effect on living conditions, which can lead to a healthier population. With regard to the first justification, it is not clear that the deduction for mortgage insurance premiums has an effect on the homeownership rate. Economists have identified the high transaction costs associated with a home purchase—mostly resulting from the down payment requirement, but also closing costs—as the primary barrier to homeownership. The ability to deduct insurance premiums does not lower this barrier—most lenders will require mortgage insurance if the borrower's down payment is less than 20% regardless of whether the premiums are deductible. The deduction may allow a buyer to borrow more, however, because they can deduct the higher associated premiums and therefore afford a higher housing payment. Concerning the second justification, it is also not clear that the deduction for mortgage insurance premiums is still needed to assist in the recovery of the housing market. As discussed earlier in the " Overview of Housing and Mortgage Market Conditions " section of this report, home prices have increased consistently since 2012, which suggests that the market as a whole is stronger than when the provision was originally enacted. Extending the deduction may, however, assist some individuals who are in financial distress because of burdensome housing payments. Last, economists have noted that owner-occupied housing is already heavily subsidized via tax and non-tax programs. To the degree that owner-occupied housing is over subsidized, extending the deduction for mortgage insurance premiums would lead to a greater misallocation of resources that are directed toward the housing industry. The Joint Committee on Taxation (JCT) estimated the two-year extension included in the PATH Act would result in a 10-year revenue loss of $2.3 billion. The low-income housing tax credit (LIHTC) was created by the Tax Reform Act of 1986 ( P.L. 99-514 ) to provide an incentive for the development and rehabilitation of affordable rental housing. Two types of LIHTCs are available depending on the nature of the rental housing construction: the so-called 9% credit for new construction, and the so-called 4% credit for rehabilitated housing and new construction that is financed with tax-exempt bonds. The credits are claimed annually over 10 years. The credit percentages do not actually equal 9% or 4%. Instead, the credit percentages are determined by a formula that is intended to ensure that the present value of the 10-year stream of credits equals 70% (new construction) and 30% (rehabilitated construction) of qualified construction costs. The formula depends in part on interest rates that fluctuate over time, implying that LIHTC rates fluctuate as well. The Housing and Economic Recovery Act of 2008 ( P.L. 110-289 ) temporarily changed the credit rate formula used for new construction. The act effectively placed a floor equal to 9% on the new construction tax credit rate. The 9% credit rate floor originally applied only to new construction placed in service before December 31, 2013. The 4% tax credit rate that is applied to rehabilitation construction or new construction jointly financed with tax-exempt bonds remained unaltered by the act. The American Taxpayer Relief Act of 2012 ( P.L. 112-240 ) extended the 9% floor for credit allocations made before January 1, 2014, and the Tax Increase Prevention Act of 2014 ( P.L. 113-295 ) extended the 9% floor through the end of 2014. Most recently, the PATH Act permanently extended the 9% floor, but left the 4% credit unchanged. Historically, relatively low interest rates have resulted in the LIHTC rates being below the 4% and 9% thresholds. Because low interest rates persist, the floors would result in subsidies in excess of 30% and 70%. Specifically, the 4% floor would have resulted in a 37% subsidy and the 9% floor would have resulted in an 84% subsidy as of December 2015. The floors on the credit rates address a concern among some LIHTC participants that the variable rate method for determining the LIHTC rates discourages some investment because of the uncertainty it introduces over what the final credit rate for a particular project will be. The floors also indirectly address a potential problem in the original formula used for determining the variable credit rates. The original formula was designed to ensure that when the 10-year stream of tax credits is discounted, the present value subsidies of 30% or 70% are achieved. However, the interest rate used to discount the tax credit streams is based on U.S. Treasury yields, which are generally viewed as risk-free. Investing in LIHTC projects is not risk-free, which suggests that the interest rate used to compute the subsidy levels should be higher than the yield on U.S. Treasuries. Using a higher discount rate would result in higher LIHTC rates to achieve the 30% and 70% subsidies. The floors may result in credit rates that are closer to what using a higher discount rate would achieve. At the same time, the floors may lead to fewer projects receiving funding. A fixed number of credits are made available each year on a per capita basis, or in the case of the 4% credit are limited by a state's tax-exempt bond capacity. If the total number of credits available does not change but the number of credits each particular project receives is higher because of the floors, then fewer projects may get financing. Additionally, there may be other options for addressing issues about the LIHTC program. Specifically, the target subsidy levels of 30% and 70% could be increased, while still requiring that the variable rate formula for determining credits be used. This could be combined with a requirement that the discount rate used in the formula more accurately reflects the risk of investing in LIHTC projects. The Joint Committee on Taxation (JCT) estimated the permanent extension included in the PATH Act would result in a 10-year revenue loss of $19 million. For more information on the LIHTC program, see CRS Report RS22389, An Introduction to the Low-Income Housing Tax Credit , by Mark P. Keightley and Jeffrey M. Stupak; and CRS Report RS22917, The Low-Income Housing Tax Credit Program: The Fixed Subsidy and Variable Rate , by Mark P. Keightley and Jeffrey M. Stupak. Tenants must have incomes below a particular threshold to live in LIHTC units. Specifically, a tenant must have an income of either 50% or less of the area's median income, or 60% or less of the area's median income. Which threshold applies depends on an election made by the developer that determines the targeted low-income population. Both civilians and servicemembers are potentially eligible to live in LIHTC units. However, when calculating servicemembers' incomes for purposes of determining their eligibility, their annual pay and basic allowance for housing (BAH) must be included. The BAH is a tax-exempt form of compensation that is based on a servicemember's pay grade, location, and number of dependents. The Housing and Economic Recovery Act of 2008 (HERA; P.L. 110-289 ) temporarily excluded military housing allowances from the LIHTC income calculations for properties near rapidly growing military bases. This, in turn, should make more servicemembers eligible to live in LIHTC housing. The exclusion applies to LIHTC properties in a county with a military base that experienced military personnel growth of 20% or more between December 31, 2005, and June 1, 2008, or LIHTC properties located in an adjacent county. The HERA change was originally set to expire on December 31, 2011, but it was subsequently extended through the end of 2013 by the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ). The Tax Increase Prevention Act of 2014 ( P.L. 113-295 ) extended the exclusion through the end of 2014. Most recently, the PATH Act permanently extended the exclusion. The exclusion may help address a concern, held by some, that there is a lack of affordable housing near particular military bases. The exclusion increases the incentive for the development of affordable rental housing available to military families in these locations, and, as a result, may alleviate rising rents near particular military bases. A 2005 Government Accountability Office report, however, suggests that the exclusion may have a limited effect for several reasons. First, junior enlisted servicemembers and those without dependents typically live in barracks. Second, housing allowances are already intended to cover the area median cost of living, and are adjusted for changes in area rents. Third, Department of Defense officials can increase housing allowances if warranted. In addition, the exclusion could have the unintended consequence of displacing the construction of LIHTC properties for civilians. The Joint Committee on Taxation (JCT) estimated the permanent extension included in the PATH Act would result in a 10-year revenue loss of $83 million. The high levels of lead found in the City of Flint's drinking water, and the corresponding public health concerns raised by the elevated blood lead levels detected in children in Flint, raised a number of questions for federal policymakers. Many of these questions involve the state of the nation's water infrastructure. Others involve how best to identify and address environmental hazards in the home. HUD's Office of Lead Hazard Control and Healthy Homes (OLHCHH) administers two grant programs designed specifically to address the hazards presented by lead-based paint in homes, an environmental risk for which the federal government has played a significant role in both regulation and remediation. HUD's OLHCHH also administers a smaller Healthy Homes Demonstration Grant program, which provides competitive grants to address housing-related hazards to children beyond lead-based paint. In light of the situation in Flint, several proposals were introduced in the 114 th Congress to provide additional funding for the Healthy Homes program, although none were enacted. | Housing and residential mortgage markets in the United States are continuing to recover from several years of turmoil that began in 2007-2008, though the recovery has been uneven across the country. Nationally, home prices have been consistently increasing since 2012. Negative equity and mortgage foreclosure rates have been steadily decreasing, though both remain elevated. Home sales have begun to increase, with sales of existing homes approaching levels that were common in the early 2000s, though sales of new homes and housing starts remain relatively low. Mortgage originations have also remained relatively low despite ongoing low interest rates, leading many to argue that it is too difficult for prospective homebuyers to qualify for a mortgage. Some believe that this is because mortgage regulations put in place in recent years are restricting access to mortgages for creditworthy homebuyers, while others hold that these rules provide important consumer protections and suggest that other factors are limiting mortgage access. About two-thirds of new mortgages continue to be backed by Fannie Mae or Freddie Mac or insured by a government agency such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA), with the remaining mortgages mostly being held on bank balance sheets. In the rental housing market, vacancy rates have continued to decline and rents have continued to increase as more households become renters. Although the supply of rental housing has also increased, it has generally not kept pace with the increasing demand. Rising rents have contributed to housing affordability problems, which are especially pronounced for low-income renters. The 114th Congress considered a number of housing-related issues against this backdrop. Some of these issues were related to housing for low-income individuals and families, including appropriations for housing programs in a limited funding environment, proposed reforms to certain rental assistance programs administered by the Department of Housing and Urban Development (HUD), debate over funding for two affordable housing funds (the Housing Trust Fund and the Capital Magnet Fund), and the possible reauthorization of the main program that provides housing assistance to Native Americans. Congress also took the occasion of HUD's 50th anniversary to reflect on the department's role through hearings and other actions. Congress also deliberated on certain housing finance-related issues, including possible targeted changes to Fannie Mae and Freddie Mac, oversight of mortgage-related rulemakings, and issues related to the future and financial health of FHA. Two fair housing issues were also active in the 114th Congress. HUD recently released a new rule updating certain HUD grantees' responsibilities to "affirmatively further" fair housing. Separately, the Supreme Court issued a decision affirming that disparate impact claims are allowable under the Fair Housing Act. Congress expressed interest in both of these developments. As in recent years, the 114th Congress considered several housing-related tax provisions as part of a broader tax extenders bill. These housing-related provisions included extensions of the exclusion for canceled mortgage debt, the deduction for mortgage insurance premiums, and provisions related to the low-income housing tax credit. |
Recent tragic events in Tucson, AZ, have raised questions about the extent to which federal law outlaws crimes of violence committed against federal officials or federal employees. More than a few outlaw such conduct. Murder or assault committed anywhere in the United States is outlawed in the law of the state in which it occurs. Notwithstanding any state prosecution, however, a number of federal laws outlaw crimes of violence committed under various federal jurisdictional circumstances, including but not limited to the fact that crime is committed against a Member of Congress, a federal judge, the President, or a federal employee. The more prominent of these, with particular attention to the events in Tucson, are mentioned briefly below. The federal homicide and related statutes include: 18 U.S.C. 351(a) (killing a Member of Congress, certain senior executive officials, Justices of the Supreme Court, a Presidential or Vice Presidential candidate, or nominee to the Supreme Court) Penalties: 1 st degree murder—death or imprisonment for life or any term of years, 18 U.S.C. 1111 2d degree murder—imprisonment for life or any term of years, id. Voluntary manslaughter—imprisonment for not more than 15 years, 18 U.S.C.1112 Involuntary manslaughter—imprisonment for not more than 8 years, id. attempted murder or manslaughter—imprisonment for any term of years or for life, 18 U.S.C. 351(c) conspiracy to commit murder—imprisonment for any term of years or for life, 18 U.S.C. 351(d)(or death, if death results) 18 U.S.C. 1751(a) (killing the President, Vice President, an official serving as President, or certain senior executive officials) Penalties: 1 st degree murder—death or imprisonment for life or any term of years, 18 U.S.C. 1111 2d degree murder—imprisonment for life or any term of years, id. Voluntary manslaughter—imprisonment for not more than 15 years, 18 U.S.C. 1112 Involuntary manslaughter—imprisonment for not more than 8 years, id. attempted murder or manslaughter—imprisonment for any term of years or for life, 18 U.S.C. 1751 conspiracy to commit murder or manslaughter—imprisonment for any term of years or for life, 18 U.S.C. 1751 (or death, if death results) 18 U.S.C 1114 (killing a federal officer or employee (including a federal judge or a member of the armed forces) during or on account of the performance of their duties or someone during or on account of assistance provided such officers or employees) Penalties: 1 st degree murder—death or imprisonment for life or any term of years, 18 U.S.C. 1111 2d degree murder—imprisonment for life or any term of years, id. Voluntary manslaughter—imprisonment for not more than 15 years, 18 U.S.C. 1112 Involuntary manslaughter—imprisonment for not more than 8 years, id. attempted murder or manslaughter—imprisonment for any term of years or for life, 18 U.S.C. 1114 conspiracy to commit murder or manslaughter—imprisonment for any term of years or for life, 18 U.S.C.1117 18 U.S.C. 930(c) (a use of firearm or dangerous weapon in federal facility to kill another) Penalties: 1 st degree murder—death or imprisonment for life or any term of years, 18 U.S.C. 1111 2d degree murder—imprisonment for life or any term of years, id. Voluntary manslaughter—imprisonment for not more than 15 years, 18 U.S.C. 1112 Involuntary manslaughter—imprisonment for not more than 8 years, id. attempted murder or manslaughter—imprisonment for any term of years or for life, 18 U.S.C. 1113 conspiracy to commit murder or manslaughter—imprisonment for any term of years or for life, 18 U.S.C. 1117 18 U.S.C. 115 (murder of a former federal official or employee or the family member of a current or former federal official or employee, in order to influence, impede, or retaliate against such current or former federal official or employee) Penalties: 1 st degree murder—death or imprisonment for life or any term of years, 18 U.S.C. 1111 2d degree murder—imprisonment for life or any term of years, id. attempted murder—imprisonment for any term of years or for life, 18 U.S.C. 1113 conspiracy to commit murder—imprisonment for any term of years or for life, 18 U.S.C. 1117 18 U.S.C. 1111, 1112, 1113, 1117 (homicide within the special maritime or territorial jurisdiction of the United States (including U.S. overseas facilities and residences when committed by or against a U.S. national, 18 U.S.C. 7(9)) also applicable when committed overseas by those serving in, accompanying, or employed by the U.S. armed forces, 18 U.S.C. 3261) Penalties: 1 st degree murder—death or imprisonment for life or any term of years, 18 U.S.C. 1111 2d degree murder—imprisonment for life or any term of years, id. Voluntary manslaughter—imprisonment for not more than 15 years, 18 U.S.C. 1112 Involuntary manslaughter—imprisonment for not more than 8 years, id. attempted murder or manslaughter—imprisonment for any term of years or for life, 18 U.S.C. 1113 conspiracy to commit murder or manslaughter—imprisonment for any term of years or for life, 18 U.S.C. 1117 18 U.S.C. 924(c) (use of a firearm during and in furtherance of a federal crime of violence) Penalties: firearm is possessed—imprisonment for not less than 5 years to be served consecutive to the sentence imposed for the crime of violence, 18 U.S.C. 924(c) firearm is brandished—imprisonment for not less than 7 years to be served consecutive to the sentence imposed for the crime of violence, id. firearm is discharged—imprisonment for not less than 10 years to be served consecutive to the sentence imposed for the crime of violence, id. second & subsequent convictions—imprisonment for not less than 25 years to be served consecutive to the sentence imposed for the crime of violence and any initial or subsequent conviction for use of a firearm during and in furtherance of a federal crime of violence, id. There are dozens of other federal homicide provisions. Many involve either a violation of some lesser offense where death results or a homicide committed against a federal employee in relation to enforcement of a particular federal law. The federal assault statutes include: 18 U.S.C. 351(e) (assaulting a Member of Congress, certain senior executive officials, Justices of the Supreme Court, a Presidential or Vice Presidential candidate, or nominee to the Supreme Court) Penalties: committed with a dangerous weapon or if personal injury results—imprisonment for not more than 10 years otherwise—imprisonment for not more than 1 year 18 U.S.C. 1751(e) (assaulting the President, Vice-President, an official serving as President, or certain senior executive officials) Penalties: committed with a dangerous weapon or if personal injury results—imprisonment for not more than 10 years otherwise—imprisonment for not more than 1 year 18 U.S.C 1114 (assaulting a federal officer or employee (including a federal judge or a member of the armed forces) during or on account of the performance of their duties or someone during or on account of assistance provided such officers or employees) Penalties: committed with a dangerous weapon or if personal injury results—imprisonment for not more than 20 years resulting in physical contact or committed with intent to commit another felony—imprisonment for not more than 8 years otherwise—imprisonment for not more than 1 year 18 U.S.C. 115 (assaulting a former federal official or employee or the family member of a current or former federal official or employee, in order to influence, impede, retaliate against such current or former federal official or employee) Penalties: committed with a dangerous weapon or if personal injury results—imprisonment for not more than 10 years otherwise—imprisonment for not more than 1 year 18 U.S.C. 113 (assault within the special maritime or territorial jurisdiction of the United States—including U.S. overseas facilities and residences when committed by or against a U.S. national, 18 U.S.C. 7(9)—also applicable when committed overseas by those serving in, accompanying, or employed by the U.S. armed forces, 18 U.S.C. 3261) Penalties: with intent to murder—imprisonment for not more than 20 years assault with intent to commit any other felony—imprisonment for not more than 10 years assault with intent to harm and with a dangerous weapon—imprisonment for not more than 10 years assault resulting in serious bodily injury—imprisonment for not more than 10 years assault resulting in substantial bodily injury of a child under 16 years of age—imprisonment for not more than 5 years simple assault under 16 years of age—imprisonment for not more than 5 years otherwise—imprisonment for not more than 6 months 18 U.S.C. 924(c) (use of a firearm during and in furtherance of a federal crime of violence) Penalties: firearm is possessed—imprisonment for not less than 5 years to be served consecutive to the sentence imposed for the crime of violence, 18 U.S.C. 924(c) firearm is brandished—imprisonment for not less than 7 years to be served consecutive to the sentence imposed for the crime of violence, id. firearm is discharged—imprisonment for not less than 10 years to be served consecutive to the sentence imposed for the crime of violence, id. second & subsequent convictions—imprisonment for not less than 25 years to be served consecutive to the sentence imposed for the crime of violence and any initial or subsequent conviction for use of a firearm during and in furtherance of a federal crime of violence, id. There are dozens of other federal assault provisions. Many involve assaults committed against a federal employee in relation to enforcement of a particular federal law. 18 U.S.C. 115 (threatening to assault, kidnap, or kill a federal official or employee, a former federal official or employee, or the family member of a current or former federal official or employee, in order to influence, impede, retaliate against such current or former federal official or employee) Penalties: threat to kidnap or kill—imprisonment for not more than 10 years threat to assault—imprisonment for not more than 6 years 18 U.S.C. 871 (use of the mails to threaten to kill, kidnap, or harm the President, Vice President, or President- or Vice President-elect) Penalty: imprisonment for not more than 5 years 18 U.S.C. 879 (threatening to kill, kidnap, or harm a candidate for President or Vice President; a former President or Vice President; any member of their immediate families; or any member of the family of a President, of a Vice President, or of a President or Vice President-elect Penalty: imprisonment for not more than 5 years 18 U.S.C. 875(c) (transmitting in interstate or foreign commerce a threat to kidnap or injure another) Penalty: imprisonment for not more than 5 years 18 U.S.C. 876(c) (mailing a threat to kidnap or injure) Penalty: imprisonment for not more than 5 years (not more than 10 years if the victim is a federal judge or other federal official or employee) The First Amendment limits criminal proscription of a threat to "true threats." There are dozens of federal threat statutes relating to threats under more narrow jurisdictional circumstances. | Dozens of federal statutes outlaw homicide, assault, and threats under varying jurisdictional circumstances. Those which appear most relevant to tragic events in Tucson, AZ, are identified in abbreviated form here. |
A number of groups and individuals have recently focused attention on U.S. rules governing imports from North Korea. Their interest has been sparked by the debate over the South Korea-U.S. Free Trade Agreement (KORUS FTA), which would lower or eliminate U.S. tariffs and non-tariff barriers on most imports from South Korea. Some, particularly the agreement's opponents, argue that the agreement could lead to increased U.S. imports of goods or components made in North Korea. The KORUS FTA will not enter into force unless Congress approves implementation legislation, which Obama Administration officials have said they expect to send to the 112 th Congress. As a result of North Korea's relative economic isolation, the undeveloped state of its export sector, and U.S. trade restrictions, the United States imports virtually no finished goods from North Korea. Between 2000 and 2010, cumulative U.S. bilateral imports of finished North Korean goods totaled $335,700, which is equivalent to a rounding error in annual U.S. trade flows with most countries. Nearly half of this amount consisted of stamps, with another 40% or so consisting of women's clothing. Since 2005, according to U.S. trade data, the only finished imports that have entered the United States from North Korea have been $8,363 worth of stamps, which were imported in June 2010. Imports of finished North Korean goods have literally been zero in four of the past five years. Those concerned that the KORUS FTA would change this situation focus considerable attention on the Kaesong Industrial Complex (KIC), a seven-year-old industrial park located in North Korea just across the demilitarized zone, where more than 100 South Korean manufacturers employ over 45,000 North Korean workers at relatively low wages. Critics argue that South Korean firms could obtain low-cost Kaesong-made goods or components, incorporate the latter into finished products such as electronics or automobiles, and then reship the final goods to the United States with "Made in [South] Korea" labels. If the KORUS FTA were in effect, the argument runs, these goods might receive preferential treatment, to the benefit of the North Korean government, which receives revenue from the KIC. The first section of this report examines existing U.S. rules and practices governing imports from North Korea. The second section analyzes the two main portals through which North Korea conducts its minimal economic interaction with the outside world: the KIC and China. The third section addresses the issue of how, if at all, the KORUS FTA would affect potential U.S. imports of North Korean content, including whether the agreement could result in legal action against the U.S. government if it kept out imports of North Korean content. Though the United States requires licenses for all imports from North Korea and severely restricts exports to that country, it no longer maintains the comprehensive embargo that was in place for years after the Korean War (1950-1953). In 1999, President Clinton significantly loosened restrictions on U.S. exports to and imports from North Korea except those involving national security concerns. The Departments of Commerce, Treasury, and Transportation issued new regulations a year later that implemented the new policy. In 2008, President Bush terminated the exercise of Trading With the Enemy Act (TWEA) authorities with regard to North Korea and removed the North Korean government from the list of state sponsors of acts of international terrorism. At the same time, the President declared a new national emergency to continue to block assets that had been frozen as of June 2000 and to continue restrictions related to DPRK-flagged vessels. Throughout this period, from the 1950 outbreak of the Korean War through the 2008 removal of the DPRK-related Trading With the Enemy Act authorities and state sponsor of terrorism designation, importing from North Korea was either highly circumscribed or banned altogether. Though President Bush removed these two obstacles to trade relations, North Korea remained subject to import restrictions based on requirements in the Arms Export Control Act and related determinations that North Korean entities were engaged in missile proliferation activities. In August 2010, President Obama invoked national emergency authorities granted his office in the International Emergency Economic Powers Act and the National Emergencies Act to block assets of any individual and entity found to be importing luxury items into North Korea, and to block assets of targeted individuals and entities engaged in proliferation, money laundering, counterfeiting of goods or currency, bulk cash smuggling, narcotics trafficking, or other illicit economic activity. On April 18, 2011, the President expanded on his 2010 actions to prohibit imports from North Korea. Direct and indirect importation of goods, services, and technology from North Korea is prohibited, and "unless exempt, all imports into the United States from North Korea must be authorized." From late 2008 to 2010, the North Korean government made a series of provocative decisions, including walking away from the Six-Party denuclearization negotiations, testing short-range and long-range ballistic missiles, claiming to have successfully detonated a nuclear explosive device, violating U.N. Security Council resolutions, presumably sinking a South Korean naval vessel (the Cheonan ), and launching artillery shells at the South Korean island of Yeongpyeong. In May 2010, a six-nation, civilian-military ad hoc group determined that North Korea was complicit in the Cheonan 's sinking. In considering how imports from North Korea are treated under U.S. laws and regulations, it is necessary to distinguish between two concepts: (1) whether North Korean finished goods or components are admissible (i.e., allowed) into the United States; and (2) the tariff treatment of goods that are deemed to be admissible. One may not import directly from North Korea without approval from OFAC; this applies to all imports from North Korea. The President's executive order of April 2011 states Except to the extent provided in statutes or in licenses, regulations, orders, or directives that may be issued pursuant to this order, and notwithstanding any contract entered into or any license or permit granted prior to the date of this order, the importation into the United States, directly or indirectly, of any goods, services, or technology from North Korea is prohibited. The Office of Foreign Assets Control prohibits all transactions that are first prohibited by Executive Orders 13466 (continuing some prohibitions imposed under Trading With the Enemy Act authorities), 13551 (prohibiting transactions with designated persons and entities), and 13570 (prohibiting unlicensed direct or indirect importation into the United States from North Korea). The Secretary of the Treasury (or OFAC, as delegated), in consultation with the State Department, is authorized by the President to promulgate the regulations and rules required to implement the purposes of the executive order. OFAC is authorized to issue licenses for engaging in transactions, including those required to import from North Korea. The President retains authority to revise or revoke the executive order at any time if he finds national emergency conditions no longer exist. Executive orders invoking a national emergency require annual renewal, however, to remain in force. Importers seeking to bring North Korean goods into the United States through a third country must have OFAC approval to do so. The President reiterated this in the executive order of April 18, 2011, stating, "except to the extent provided … the importation into the United States, directly or indirectly, of any goods, services, or technology from North Korea is prohibited." The importation of finished goods made with North Korean components is also prohibited, as stated in OFAC guidance issued following the President's 2011 executive order, which provides that goods, services, and technology from North Korea may not be imported into the United States, directly or indirectly, without a license from OFAC. This broad prohibition applies to goods, services, and technology from North Korea that are used as components of finished products of, or substantially transformed in, a third country. New regulations issued by OFAC in June 2011 implement the license requirements for both direct and indirect importing. Although the updated North Korea Sanctions regulations (31 C.F.R. Part 510) do not expressly address such issues as the treatment of North Korean component parts used in third-country manufacturing, OFAC has stated that it "intends to supplement" its June 2011 regulations "with a more comprehensive set of regulations, which may include additional interpretive and definitional guidance and additional general licenses and statements of licensing policy." The relatively small amount of import trade with North Korea presumably accounts for the skeletal nature of the past regulatory regime. If North Korea's export sector expands significantly, the scope and timing of any elaboration of U.S. regulatory requirements may be affected as well. The North Korean economy is one of the world's most isolated. The DPRK's stated policy of self-reliance ( juche ), its suspicion of foreign countries, and the collapse of its industrial base since the late 1980s have resulted in an extremely low level of commercial and financial relations with other nations in the world. Over the course of the 2000s, North Korea's significant export markets shrunk to two countries, South Korea and China, which in 2010 appear to have accounted for over three-quarters of North Korea's export shipments. North Korea's exports to South Korea have increased by nearly 25% since 2006, though at $1 billion in 2010, they are still at a relatively low level. Over time, a greater proportion of these exports have been due to the activities at the Kaesong Industrial Complex. This phenomenon accelerated in 2010, when South Korea halted virtually all non-KIC trade with North Korea following the Cheonan 's sinking in March 2010. By the end of February 2011, almost all of North Korea's exports to South Korea were attributable to activities in the KIC. By the end of 2010, over 120 small and medium-sized South Korean manufacturing companies were operating in Kaesong. The facility in 2010 produced $323 million in output. Most of the manufacturers (71 firms) produce clothing and textiles. Other companies produce kitchen utensils (four firms), auto parts (four firms), semiconductor parts (two firms), and toner cartridges (one firm). Light industry and other manufacturers that depend on low labor costs and low-level technology products (e.g., textiles and apparel, general machinery, some electronics, and furniture) are among those most likely to move facilities into the complex, particularly given concerns about the level of intellectual property rights protection in North Korea. About 10% of the production at Kaesong is exported to third countries after clearing customs in South Korea. In 2010, the primary export destinations were Australia, the European Union, Russia, and China. The Kaesong complex's future hinges on the course of inter-Korean relations and the policies of future South Korean leaders. Since President Lee Myung-bak came into office in 2008, his government has been ambivalent about the KIC. On the one hand, it has halted plans for a major expansion of the complex, due in part to the marked deterioration in inter-Korean relations since early 2008. On the other hand, the complex has continued to expand incrementally under Lee, and his government did not close it down despite the Cheonan 's sinking and the shelling of Yeonpyeong Island in 2010. Lee's reluctance to shut down the KIC reflects not only the financial cost of doing so—a closure could make South Korea's government liable for hundreds of millions of dollars in insurance payments to the South Korean companies that use the complex—but also the political support that the KIC enjoys within South Korea. Lee's term in office ends in 2013, and by law he cannot run for reelection. A future South Korean leader could decide to dust off the KIC's major expansion plans or, alternatively, shut down the complex altogether. The KIC represents a dilemma for U.S. and South Korean policymakers. On the one hand, the project provides an ongoing revenue stream to the Kim Jong-il regime in Pyongyang, by virtue of the share the government takes from the salaries paid to North Korean workers. South Korean and U.S. officials estimate this revenue stream to be around $20 million per year. On the other hand, the KIC arguably helps maintain stability on the Korean Peninsula and provides a possible beachhead for market reforms in the DPRK that could eventually spill over to areas outside the complex and expose tens of thousands of North Koreans to outside influences, market-oriented businesses, and incentives. As discussed below, the KORUS FTA provides for a Committee on Outward Processing Zones (OPZ) to be formed and to consider whether zones such as the KIC will receive preferential treatment. Since the early 2000s, China has emerged as the key to North Korea's economic relations with the outside world. By the end of the decade, more than half of North Korea's imports and most of its foreign assistance came from China. North Korean exports to China rose nearly fivefold from 2001 to 2009, and in 2010, North Korea's $1.2 billion in commercial shipments to China accounted for over 40% of its total annual exports. North Korea's major export items to China include mineral fuels (coal), ores, woven apparel, iron and steel, fish and seafood, and zinc and articles thereof. Recently, North Korea has increased its exports of primary products (such as fish, shellfish and agro-forest products) and mineral products (such as base metallic minerals). Pyongyang reportedly has imported aquaculture technology (mainly from China) to increase production of cultivated fish and agricultural equipment to increase output of grains and livestock. North Korea also has imported equipment for its coal and mineral mines. Much of the coal and mineral exports have resulted from partnering with Chinese firms, through which the Chinese side provides modern equipment in exchange for a supply of the product being mined or manufactured. Thus, to the extent that North Korean content enters the global marketplace via China, it is likely to come from North Korean energy inputs (particularly coal) or mineral deposits. This is likely to be the case unless or until the North Korean manufacturing sector revives and begins to export to China. One Chinese strategy with respect to the DPRK is to create an integrated industrial region focused on Jilin and Liaoning provinces in northeastern China and the bordering provinces in North Korea. The strategy includes building roads, investing in North Korean industries, connecting a North Korean port to industries in landlocked Jilin province, and creating a free trade zone. The two countries have been exploring the possibility of building an industrial park similar to the Kaesong Industrial Complex close to their mutual border. If they are successful, more Chinese companies would be engaged in manufacturing Chinese brand-name products in North Korea and could be interested in exporting them to the U.S. market. Of the 86 Chinese trading companies and joint ventures in North Korea announced by China's Ministry of Commerce, 35 are in mining, 11 are in agriculture/timber, 17 are in industrial parts and materials, 7 are in apparel, 4 are in other consumer goods, 1 is in iron and steel, and 1 is in automotive vehicles and parts. The other nine companies are in transportation or trading. North Korean exports of apparel, other consumer goods, automotive parts, and discrete industrial parts and materials (not products such as paint) conceivably could enter a Chinese supply chain and end up in a product sold in the United States in which the North Korean content could be identified. However, identifying Chinese products manufactured using ores, minerals, or coal from the DPRK would require extensive documentation and disclosure by the manufacturer. Some critics of the KORUS FTA contend that the agreement will increase the chances that North Korean goods or components will enter the United States. Their arguments tend to fall into three categories: 1. The KORUS FTA in the future could allow products made in the Kaesong Industrial Complex to be covered by the agreement, thereby conferring preferential treatment to these products. 2. The KORUS FTA might constrain the U.S. government's ability to impose restrictions on imports from North Korea. 3. The KORUS FTA has insufficient "rules of origin" to determine the country of origin of imported products. This section examines these issues point by point. During the 2006-2007 KORUS FTA negotiations, the previous South Korean government sought to secure preferential treatment for products made in the Kaesong Industrial Complex (KIC) in North Korea. The United States adamantly opposed this position. In the final KORUS FTA agreement, the two sides reached a compromise on the KIC by creating a special committee to handle the issue. As discussed below, incorporating the KIC into the KORUS FTA would require the U.S. executive branch and Congress to approve such a move. The KORUS FTA's KIC-related provision is Annex 22-B, titled "Committee on Outward Processing Zones on the Korean Peninsula." It sets out a process under which the United States and Korea may "review whether conditions on the Korean Peninsula are appropriate for further economic development through the establishment and development of outward processing zones." An "outward processing zone" (OPZ) would be an area outside the FTA territory in which a certain amount of manufacturing or processing of a good could take place for purposes of deeming the good "originating" under the agreement and thus be eligible for preferential tariff treatment and other agreement benefits. To this end, the United States and South Korea would establish a Committee on Outward Processing Zones on the Korean Peninsula comprising officials of both countries. The kinds of people who will serve on the committee has not yet been determined. The committee would initially meet on the first anniversary of the entry into force of the KORUS FTA and at least once annually thereafter or at any other time mutually agreed upon by the committee. The committee is to identify geographic areas that may be designated OPZs and establish various political and economic criteria, including labor and environmental standards, that must be met before "goods from any outward processing zone" may be considered originating goods for FTA purposes. The committee would also determine whether the proposed OPZ has met the committee's criteria. In addition, the committee "shall also establish a maximum threshold for the value of the total input of the 'originating final good' that may be added within the geographic area of the outward processing zone." Committee decisions reached by "unified consent" would be recommended to the United States and South Korea. The two countries would then be responsible "for seeking legislative approval for any amendments to the Agreement with respect to outward processing zones." In March 2011, the Office of the United States Trade Representative (USTR) issued a statement that "Congress would need to pass, and the President would need to sign, a law to extend any KORUS tariff benefits to products made in Kaesong or any OPZ." To the extent that the United States maintains an import embargo on finished goods of North Korea and goods made elsewhere with North Korean components, the United States would first need to deem OPZ goods admissible before the question of applicable tariff treatment arises. Further, because Congress has express constitutional authority to impose duties under Article I, § 8, cl. 1, of the U.S. Constitution, Congress must either itself authorize specific tariff rates to be imposed on particular products or grant the President the authority to proclaim them. As discussed earlier, goods from countries that are subject to Title IV of the Trade Act, such as those of North Korea, may only be accorded NTR (MFN) treatment under the specific requirements of that title. Unless Congress by statute removes a country from the Title IV regime, as it has done with regard to countries entering the World Trade Organization, the President must abide by Title IV requirements in order to grant NTR tariff status to a Title IV country. Further , because Congress has provided that imports that are not subject to Title IV or other statutory restrictions are entitled at most to NTR tariff status under § 136 of the Trade Act of 1974, 19 U.S.C. § 2136, the extension of preferential tariff rates to imports from any country must be expressly authorized. Any grant of presidential proclamation authority in KORUS FTA implementing legislation will likely apply only to "originating goods" of the territory of South Korea as that term is defined in the implementing legislation. Thus, presidential authority to proclaim preferential rates with regard to goods other than those that would currently qualify as "originating" under the FTA would need to be provided in a separate enactment. Some observers, particularly U.S. opponents of the KORUS FTA, have criticized the agreement for including Annex 22-B and have called for the agreement to be renegotiated so that the annex is deleted and/or products made in the Kaesong Industrial Complex are explicitly excluded from the terms of the agreement. Twice before—in the spring of 2007 and in the fall of 2010—South Korea agreed to modifications involving other portions of the KORUS FTA that were requested by the United States. The KORUS FTA's supporters have rejected the argument that a further modification is needed on a number of grounds, principally that the South Korean government is unlikely to consider such a request and that existing U.S. rules are sufficient to restrict imports from North Korea. The question has been raised whether the KORUS agreement could constrain the United States' ability to restrict imports from South Korea (or other countries) of finished goods that contain North Korean components. As discussed below, the KORUS FTA contains provisions that make this prospect highly unlikely. Article 2.8.1 of the KORUS FTA incorporates an obligation that the United States and South Korea currently have under Article XI:1 of the General Agreement on Tariffs and Trade 1994 (GATT), a World Trade Organization (WTO) agreement, not to adopt or maintain any quantitative prohibition or restriction on the importation of each other's goods. The obligation covers prohibitions or restrictions other than duties, taxes, or other charges and includes such measures as quotas or import licenses. Import prohibitions or restrictions may not be applied to "the goods of the other Party," a category that would include not only originating goods, but also any good that qualifies as a good of South Korea under U.S. non-preferential rules of origin. Thus, goods covered by Article 2.8.1 could include final goods of South Korea manufactured with components from a third country. The obligation in Article 2.8.1 would apply, however, "[e]xcept as otherwise provided" in the agreement. One such exception may be found in Article 2.8.4(a), which provides that, in the event that "a KORUS Party adopts or maintains a prohibition on the importation from … a non-Party of a good, no provision of this Agreement shall be construed to prevent the Party from … limiting or prohibiting the importation of the good of the non-Party from the territory of the other Party." This provision contemplates that a country may impose or maintain an import embargo against the goods of a non-signatory country and that the embargo may be implemented without violating the agreement even though it may affect trade with the other KORUS FTA Party. Thus, in the event that the United States were to prohibit the importation of a good from North Korea, the KORUS FTA would not preclude the United States from prohibiting the importation of that North Korean good from the territory of South Korea as well. Further, because Article 2.8.4 would apply with respect to restrictions or prohibitions on the importation of goods of any third country, it would apply with respect to all U.S. import embargoes, including, among others, those with Cuba and Iran. The United States has long taken the position that an FTA provision of this type protects U.S. trade sanctions programs. Although Article 2.8.4 does not expressly state that a "good of the non-Party" includes a non-Party component used in the manufacture of a finished good in another country, the United States has traditionally understood the term "good" in this context to include not only final products of the non-Party but also non-Party components used in third-country production. For example, when the U.S.-Canada Free Trade Agreement (CFTA) was submitted to Congress for approval in 1988, the Cuban Assets Control Regulations—as they continue to do today—made it unlawful for a person subject to U.S. jurisdiction, unless authorized by the Treasury Department, to import merchandise of Cuban origin or merchandise "made or derived in whole or in part of any article that is the growth, produce or manufacture of Cuba." In submitting the agreement to Congress, the Administration emphasized that the CFTA would not affect the existing Cuban sanctions program, stating that the CFTA rules of origin "would not operate to override" the above-quoted regulation and adding that the CFTA contained a provision—similar to Article 2.8.4 of the KORUS FTA—that permitted the United States and Canada to impose restrictions on the importation of products of a third country. The United States took the same position with respect to the North American Free Trade Agreement (NAFTA), noting that a similar NAFTA provision "permits the United States to ensure that Cuban products or goods made from Cuban materials are not imported into the United States from Mexico or Canada." Chapter 6 of the KORUS FTA further separates admissibility from tariff treatment by providing that "whether a good is originating is not determinative of whether the good is also admissible." This statement appears in a note to Article 6.1, the KORUS FTA provision containing the basic requirements for what constitutes an "originating good." Thus, it would appear that if a good with some North Korean content were to qualify as an "originating good" under the agreement, this status would not necessitate that it be admitted into the territory of the United States or South Korea. Further, given that national security considerations may be a factor in restricting imports from North Korea, the "essential security" exception of the KORUS FTA, set out at Article 23.2 of the agreement, may also come into play. Indeed, the United States considered that the security exceptions of the CFTA and the NAFTA could be used to justify its import embargo against Cuba in the event of a challenge. The KORUS FTA security exception states, in pertinent part, that "[n]othing in this Agreement shall be construed … (b) to preclude a Party from applying measures that it considers necessary for the fulfillment of its obligations with respect to the maintenance or restoration or international peace or security or the protection of its own essential security interests." Although the United States has considered clauses of this type to be self-judging—that is, not subject to third-party or arbitral scrutiny —the breadth of such a clause may lead it to be invoked in situations that adversely affected trading partners might not necessarily view as security-related. The KORUS FTA provides, however, that if the essential security exception is invoked as a defense by a country in a KORUS FTA dispute settlement proceeding—be it a dispute between the United States and South Korea under the State-State provisions of Chapter 22 or a dispute brought against a Party by an investor of the other Party under the investor-State dispute provisions of Chapter 11—"the tribunal or panel hearing the matter shall find that the exception applies." In other words, assume that South Korea or a South Korean investor alleged in a dispute settlement proceeding that the United States had implemented a particular sanction against North Korea in a manner that violated a KORUS FTA obligation owed either South Korea or the investor. If the United States defended its measure before the panel or tribunal on the ground that it was covered by the agreement's "essential security" exception, the arbitral tribunal or dispute panel presumably could not examine whether the U.S. measure fell within the scope of the exception. Rather, it would instead be required to find that the exception could be used to justify the measure in question. Further, it is also possible that dispute settlement proceedings may not be instituted at the outset if, in informal consultations, the responding Party conveys to the complainant that it intends to invoke this exception in any such proceeding. A number of U.S. critics of the KORUS FTA have argued that under the agreement's rules of origin (ROO), South Korean manufacturers will be able to incorporate North Korean components into their exports to the United States. ROO are important because they are used to determine the country of origin of imported products for a variety of governmental purposes. Customs officials use them to enforce trade restrictions, properly assess tariffs, apply trade remedies, and collect statistics. Other commercial trade policies are also linked to ROO, such as country-of-origin marking and government procurement. ROO are fairly straightforward when a product is "wholly obtained" from one country. However, when a finished product's component parts are manufactured in many countries, as is often the case in today's global trading environment, determining origin can be a complex process. The automotive sector is a prime example because the global supply chain is extensive. A single passenger vehicle can incorporate as many as 15,000 individual components. For the present discussion of imports from North Korea, the KORUS FTA's ROO are relevant only in those cases where an importer has received permission from OFAC to bring in a South Korean good that contains North Korean components. However, the North Korean content would be considered as non-originating—in other words, not of South Korean or U.S. origin—and thus would not help to qualify the finished good to receive the benefits of the FTA. The KORUS FTA's rules of origin are examples of preferential ROO, which are used to determine the eligibility of products to receive preferential treatment (duty-free status or reduced tariffs) as a result of an FTA. One of the primary trade policy goals of preferential ROO is to exclud e products from countries that are not signatories of the FTA. A second goal is to limit the impact of the FTA on any domestic industry sector that either FTA signatory regards as particularly import-sensitive. Therefore, in order for goods to receive favorable tariff treatment, importers must be prepared to demonstrate that their products meet certain criteria. Preferential rules of origin are individually negotiated and tailored to meet the needs of each party to the agreement; they vary from FTA to FTA. Regional value content rules in the KORUS FTA specify that a percentage of inputs must be sourced from either the United States or South Korea. Thus, the KORUS FTA contains incentives that could encourage manufacturers to use parts, labor, and other inputs from either the United States or South Korea rather than buying components from North Korea (assuming they are admissible), China, or other markets. The strength of these incentives depends, in part, on the size of the two countries' tariffs before the FTA goes into effect. When external tariffs are low, the cost for an FTA manufacturer of not meeting the ROO is small; when a tariff is higher, there is a greater incentive for a manufacturer to satisfy the ROO to save on tariffs. As one example, under the KORUS FTA, a specified subset of costs of producing a passenger car or truck must originate in either the United States or South Korea in order to benefit from the lower (preferential) tariffs. If the FTA's ROO requirements are met, cars imported from South Korea would no longer be subject to the 2.5% U.S. NTR duty on these products. South Korean light truck manufacturers could gain an even greater price advantage if they meet the KORUS FTA rules of origin, while manufacturers located in China, Japan, or Europe would still be obligated to pay the higher 25% U.S. NTR tariff rates. There might also be similar gains for manufacturers in other industrial sectors. CBP officials note that Chapter 7 of the KORUS FTA, "Customs Administration and Trade Facilitation" enhances an already mutually beneficial cooperation between U.S. and South Korean customs officials. This chapter mandates the sharing of information and intelligence, including confidential information when either signatory suspects unlawful activity. Chapter 7 also provides for sharing technical advice, conducting joint training programs, and enforcing regulations that would make the enforcement of the mutual trading relationship more efficient. Since goods from the KIC must also pass through South Korean customs, to the extent that the KORUS FTA (1) further assists in the establishment of rules-based trade between the United States and South Korea, (2) continues to deepen the U.S.-South Korea economic relationship, and (3) continues to provide grounds and methods for customs cooperation and ongoing dialogue between officials of the two countries, one could argue that the proposed FTA may serve to further limit the entrance into the United States of North Korean-manufactured inputs. If Members of Congress are not satisfied with these provisions, they might seek to direct CBP officials to discuss with South Korean customs officials the possibility of requiring additional certification from South Korean exporters to the United States. Congress could also consider directing the CBP to conduct a greater percentage of audits of importers that apply for preferences under the KORUS-FTA, either during the transition period or for the life of the agreement. The KORUS FTA appears likely to have only a minimal impact on whether U.S. sanctions on North Korean imports are put to the test. The KORUS FTA's preferential terms would not apply to finished goods made in the KIC, and the provisions for bringing the KIC into the agreement include multiple opportunities for the United States, including Congress, to block such a move by a future South Korean government. The agreement also contains provisions that aim to help preserve the United States' ability to maintain its restrictions on imports of North Korean goods and components. As long as U.S. sanctions on North Korean imports remain in place and are adequately enforced, the KORUS FTA's rules of origin—which are used to determine the country of origin of imported products—would apply only in cases where an importer has received a license from OFAC to bring in a South Korean good that contains North Korean components. Thus, the issue of how best to handle imports from North Korea appears to center on customs controls, cooperation, and enforcement. At present, because North Korea exports a minimal amount of manufactured goods to the outside world, the application of U.S. restrictions against North Korean imports has not been significantly challenged. However, this situation may change if at some future date North Korean industry revives and its manufacturers become more integrated into the global economy. The most likely ways this integration would occur would be through increased economic ties between the North Korean and Chinese provinces straddling the DPRK-Chinese border or through a decision by the South and North Korean governments to significantly expand the Kaesong Industrial Complex. If either or both of these events occur, the possibility of circumventing U.S. import restrictions against North Korea could become a bigger problem than it is today. There is no means to determine with one hundred percent certainty that there are no goods or components originating in North Korea entering U.S. commerce without proper authorization. An example of the challenge faced is the automobile supply chain, in which Chinese or South Korean producers could source one of thousands of components from a low-wage North Korean producer and then seek to evade U.S. customs authorities by not reporting the item to OFAC or CBP. In the case of South Korea, these imports could receive preferential treatment if the KORUS FTA is passed and if the imports meet the agreement's rules of origin. The ability of the United States to enforce its restrictions would then depend to a large extent upon the level of U.S.-South Korea customs cooperation—which arguably would be enhanced by the KORUS FTA—and the severity of the penalties charged for non-compliance with U.S. import restrictions. | In early 2011, many Members of Congress focused their attention on U.S. rules and practices governing the importation of products and components from North Korea. Their interest was stimulated by debate over the proposed South Korea-U.S. Free Trade Agreement (KORUS FTA) and the question of whether the agreement could lead to increased imports from North Korea. Some observers, particularly many opposed to the agreement, have argued that the KORUS FTA could increase imports from North Korea if South Korean firms re-export items made in the Kaesong Industrial Complex (KIC), a seven-year-old industrial park located in North Korea, where more than 100 South Korean manufacturers employ over 45,000 North Korean workers. Two concerns expressed by critics are (1) that South Korean firms could obtain low-cost KIC-made goods or components, incorporate them into finished products and then reship the goods to the United States with "Made in [South] Korea" labels so that they would receive preferential treatment under the KORUS FTA; and (2) that such exports would benefit the North Korean government. At present, North Korea's relative economic isolation and an array of U.S. restrictions have resulted in less than $350,000 in U.S. cumulative imports from North Korea since 2000. Thus, the issue of U.S. imports from North Korea is essentially about what might happen in the future. This report examines the issue of U.S. imports from North Korea in three parts: U.S. rules and practices governing imports from North Korea. The United States does not maintain a comprehensive embargo against North Korea. However, imports from North Korea require approval from the Treasury Department's Office of Foreign Assets Control (OFAC). This restriction includes finished goods originating in North Korea as well as goods that contain North Korea-made components. The U.S. Customs and Border Protection (CBP), of the Department of Homeland Security, is responsible for reviewing an importer's OFAC license as the goods enter the United States. North Korea's exports to South Korea (via the KIC) and China, its dominant export markets. In 2010, over three-quarters of North Korea's export shipments went to China and South Korea. Most of North Korea's $1.2 billion in exports to China in 2010 were mineral resources or primary products (such as fish, shellfish, and agro-forest products). An increasing proportion of North Korea's exports to South Korea have become attributable to activities in the KIC, where factories manufactured more than $320 million in goods in 2010, a 25% increase over 2009. The present South Korean government has halted plans for a major expansion of the complex. If a future South Korean government resumes these plans, or if China and North Korea significantly boost bilateral economic integration, more North Korean goods and components could enter global supply chains and test U.S. restrictions against North Korean imports. The KORUS FTA's potential effect on U.S. imports of North Korean content. The KORUS FTA appears likely to have only a minimal impact on whether U.S. sanctions on North Korean imports are put to the test. At present, the agreement would not give preferential treatment to finished products made in the KIC. The agreement would establish a binational committee to discuss whether zones such as the KIC should be given preferential treatment in the future. The committee would operate by consensus, and Congress would need to pass a law to extend any KORUS FTA tariff benefits to products made in the KIC. Moreover, the KORUS FTA contains provisions that make it highly unlikely the agreement would constrain the United States' ability to maintain its restrictions on North Korean products. Many critics of the KORUS FTA argue that the agreement's rules of origin would make it possible for South Korean exports with North Korean components to receive preferential treatment. However, the KORUS FTA's rules of origin do not appear to limit the United States' ability to enforce its restrictions on imported products that contain North Korean inputs. The issue of how best to handle imports from North Korea appears to center on customs controls, cooperation, and enforcement. The complex nature of many types of goods, such as automobiles and electronics, poses a particular challenge for Customs and Border Protection officials to determine the origin of these products. There is no means to determine with one hundred percent certainty that there are no goods or components originating in North Korea entering U.S. commerce without proper authorization. This will be true regardless of whether the KORUS FTA is in effect. Thus, perhaps the most important factor that will determine whether U.S. restrictions on North Korean imports are tested appears to be the degree to which North Korean goods enter global supply chains. |
A "pit" is the core of the primary stage of a thermonuclear weapon. Its key ingredient is weapons-grade plutonium (WGPu), which is composed mainly of the fissile isotope plutonium-239 (Pu-239). Detonating the pit provides the energy to detonate a weapon's secondary stage. During the Cold War, the Rocky Flats Plant (CO) made up to 2,000 pits accepted for use in the stockpile per year. Production at Rocky Flats halted in 1989. Since then, the United States has made 29 such pits in total. Yet the Department of Defense (DOD) stated it needed the National Nuclear Security Administration (NNSA), the separately organized agency within the Department of Energy (DOE) that maintains the U.S. nuclear stockpile, to have the capacity to produce 50 to 80 pits per year (ppy). Pits are to be made at Los Alamos National Laboratory (LANL, NM) in the PF-4 building, potentially in proposed smaller structures called modules connected to PF-4 by tunnels, or in both. Pits are made by casting two hemishells, or half-pits, then welding them together. In Section 3112 of P.L. 113-291 , the Carl Levin and Howard P. "Buck" McKeon National Defense Authorization Act for Fiscal Year 2015, Congress directed NNSA to demonstrate the capacity to produce at a rate of 80 ppy for at least a 90-day period in 2027. Accordingly, this report takes as its focus how to move toward that requirement. Producing 80 ppy requires enough "Material At Risk" (MAR) and space. DOE defines MAR as "the amount of radioactive materials … available to be acted on by a given physical stress," such as an earthquake. It is measured in units of Pu-239 equivalent (PE). Space is laboratory floor space available for plutonium operations. This report uses "margin" to measure "enough." Margin is space available for pit production and supporting tasks minus space required for them to be able to produce at a specified rate, and MAR available for pit production and supporting tasks minus MAR required for them to do so. Space and MAR margins are separate; both must be greater than zero to produce pits at the specified rate. MAR and space also figure in analytical chemistry (AC), a production support function. AC determines the composition of very small samples of plutonium. The Radiological Laboratory-Utility-Office Building (RLUOB), which was completed in 2010 and is near PF-4, is to house most AC. There are figures for available space and MAR, but figures for space and MAR required to produce 80 ppy have never been calculated rigorously , so this report cannot determine what options would provide enough margin for producing 80 ppy. Nor can it address whether certain options could meet the 2027 date because time to implement them cannot be determined. Instead, the report presents 16 options that increase the feasibility of producing at a rate of 80 ppy rate by 2027. A decision will likely weigh such factors as margin, cost, schedule, throughput, and safety. DOD stated a need for NNSA to have a capacity to manufacture 50 to 80 ppy, and Los Alamos "estimates that a second shift would increase pit-manufacturing capacity by 60% so that establishing a 50-ppy capacity could supply 80 ppy using a second shift." Further, NNSA deferred to FY2030 the projected delivery of the first production unit of the warhead that might be the first to use a newly manufactured pit since 2011; certain retired pits might prove suitable for reuse, reducing the number of newly manufactured pits needed; and pit lifetime might be longer than currently expected. Thus equipment to produce 50 ppy with a single shift might meet the 80-ppy requirement with less cost and space than equipment to manufacture 80 ppy with a single shift because less equipment would be needed. On the other hand, a higher operating tempo would place more strain on the equipment while allowing less time to maintain and repair it, though this disadvantage would occur only with double-shift operations. A few production processes run continuously for more than one shift, so adding a shift would not increase their capacity. It would be harder to surge production beyond 80 ppy if necessary. LANL is on one side of Los Alamos Canyon; the city of Los Alamos is located on the other side. The Royal Crest trailer park, with several dozen trailers, is on the lab side. It contains the non-lab publicly accessible structures closest to PF-4, about 3,500 feet away. The next closest structures accessible by the public are in the city of Los Alamos, about 6,000 feet from PF-4, and the next closest such structures after those in Los Alamos are in White Rock, about five miles from PF-4. Royal Crest is the location of the maximally-exposed offsite individual (MEOI), the hypothetical person outside the lab boundary who would receive the highest radiation dose from an accident in PF-4 that released plutonium. If Royal Crest were no longer the location of the MEOI, and the road it is on were controlled by the lab so the MEOI was not on that road, the next closest accessible structure would be farther away. Typically, fewer radioactive particles are deposited per unit of area as distance increases, so dose to an MEOI would be expected to be less in Los Alamos than Royal Crest. Since the MAR ceiling in PF-4 depends on dose to the MEOI, reducing the dose to the MEOI would permit increasing MAR in PF-4. Relocating Royal Crest could permit an increase in MAR at PF-4 faster, and probably at less cost, than new construction. NNSA calculates dose to an MEOI from an accident at PF-4 using computer models. The models use assumptions on the amount and form of plutonium released into the atmosphere, mechanisms for releasing it from PF-4, wind direction and speed, temperature, humidity, and the like. Three changes to accident modeling might be made. First, use a different atmospheric transport and dispersion model. Second, assume, based on historical data during drills, that the doors to PF-4 are open for less time during an evacuation, permitting less plutonium to escape in an accident. Third, change time-of-day assumptions in the model. Particles disperse less at night, when winds are calmer. More dispersion occurs in the day, reducing dose to an MEOI at any spot. Yet more plutonium is at risk during the day, when technicians are working with it; at night, it is stored in a less vulnerable state. At present, the model assumes daytime MAR and nighttime dispersion. Harmonizing MAR and time of day would reduce calculated dose. Such changes in PF-4 accident modeling could reduce the calculated dose to the MEOI by several orders of magnitude. That reduction, if incorporated into PF-4's safety documents, would permit more than doubling the MAR permitted in PF-4. It would surely be faster and less costly to change the model and assumptions than to build a new plutonium building. At issue for Congress: would a change made to PF-4's MAR allowance by using the more realistic model increase risk to the public? If so, would the benefits obtained by using that model be worth the added risk? The Defense Nuclear Facilities Safety Board (DNFSB) monitors health and safety issues at DOE defense nuclear facilities. A DNFSB report of October 2014 stated in regard to PF-4, "an entire wall of legacy gloveboxes … contains degraded conditions that workers suspect has contributed to multiple contamination events during the past few years. LANL management does not currently have a plan to remove these gloveboxes in order to both eliminate the hazard and free up the considerable space for new programmatic work." Removing the gloveboxes would reduce the risk of a contamination accident, which would remove a room from service until the contamination was cleaned up, and would free up space. The gloveboxes will have to be removed eventually at the end of PF-4's life; there is a tradeoff between the advantages of removing them sooner and the drawback of incurring cost now rather than later. DOE imposes a MAR limit specific to each building handling radioactive material so the dose to nearby workers and the public from an accident would not exceed limits specified by DOE. For a given MAR, dose is calculated with a ten-factor "MAR-to-dose" equation that includes the damage the building sustains, the fraction of plutonium released into the atmosphere by the event, and others. Five variables would vary from one scenario to another; NNSA typically assigns them a very conservative worst-case, or "bounding," value to keep dose within guidelines. According to Kamiar Jamali, Associate Administrator for Safety and Health, Office of Nuclear Safety, NNSA, "Extreme conservatism is often intentionally exercised in safety analyses because it can pay dividends in simplified analysis and review efforts. However, the search for increased conservatism cannot be pursued without consequences. Extreme conservatism can lead to safety conclusions and decisions with significantly higher safety costs, which can make nuclear facilities, even those with very low hazard and risk profiles, prohibitively expensive." He proposed using the mean value for the variables "as the metric that is consistent with the concept of reasonable conservatism in nuclear safety analysis, as its value increases towards higher percentiles of the underlying distribution with increasing levels of uncertainty." (For purposes of safety basis calculations applicable to LANL, mean and median are very close together.) In the MAR-to-dose equation, using bounding values for a PF-4 accident calculation results in an estimated dose 35,000 times larger than when using median values. Yet an increase in the MAR ceiling in PF-4 by a factor of less than ten, and perhaps less than two, would probably permit enough MAR for production of 80 pits per year in PF-4. Increasing the MAR ceiling could also benefit AC. RLUOB is ideally configured for AC, but DOE regulations limit facilities like it to a level that, in the case of RLUOB, would be 26 g of weapons-grade plutonium, which has the volume of two nickels. Increasing the MAR ceiling by a factor of 40 or less might permit RLUOB to perform most of the AC needed to support production of 80 ppy. The most conservative assumptions provide the greatest margin of safety, but at the highest cost. At issue for Congress: at what point are the marginal costs no longer worth the marginal benefits? Additive manufacturing (AM), often called 3-D printing, forms physical objects by depositing multiple layers of material. Many analysts view AM as the future of manufacturing. It can save time, space, and money; reduce waste; reduce the reject rate, increasing throughput; make parts on demand; and switch rapidly from making one part to making another. It can avoid some manufacturing steps, such as drilling holes, saving time and reducing the risk of error. It can make parts that are too complex to be manufactured in any other way. AM is not the best manufacturing method for all materials and components, and may not be suitable for some. Recognizing the potential of AM, Congress, in P.L. 113-235 , the Consolidated and Further Continuing Appropriations Act for FY2015, provided $12.6 million for AM for the nuclear weapons program, and the appropriations committees directed NNSA to provide "a ten-year strategic plan for using additive manufacturing to reduce costs at NNSA production facilities while meeting stringent qualification requirements." The report was due in mid-April 2015. In late April, NNSA indicated that it expects to transmit the report to Congress in several weeks. NNSA is exploring applications of AM in the nuclear weapons complex. Donald Cook, Deputy Administrator for Defense Programs at NNSA, said in January 2015, "within the last year, more than half of the new fixturing within the new Kansas City National Security Campus was made with AM processes." (Fixtures hold material in place for machining and inspection.) AM parts, such as tools and fixtures, might support pit production. In some cases, they can be stronger and lighter than conventionally made tools. They can be "lightweighted," e.g., made with honeycomb in areas that do not require much strength and solid in areas that do, providing ergonomic benefit for glovebox work. AM might save time, as it can prototype tools quickly and make them to order, increasing throughput. Currently, tools for pit work are made with conventional methods, which is generally satisfactory. However, "very little work is being done to explore tooling used in conjunction with pit production." At issue for Congress: given the potential of AM, what applications, if any, might it have for pit production? The electrorefining process for purifying plutonium, discussed in " Discard Byproducts of Electrorefining ," below, is conducted in magnesium oxide crucibles. A crucible consists of an outer cup, about 4.5 inches in diameter, and an inner cup. The process deposits a ring of purified plutonium in the space between the two cups. To fit in a furnace, this ring must be broken into several pieces so it can be melted for casting. This procedure has several problems. First, crucibles have been made as two separate cups, with the inner cup joined with an adhesive to the bottom of the outer cup. Sometimes, given the high heat and the reactive nature of plutonium, the adhesive fails and the cups come apart. Second, a failed electrorefining run produces more waste than a successful run, reducing throughput and increasing cost. Third, the plutonium ring is broken in a glovebox using a hydraulic breaking press; the breaking operation produces chunks, shards, and grains of plutonium metal. Shards may puncture gloves used in gloveboxes, posing a risk to technicians. Fourth, this operation adds a process step and exposes workers to radiation. Fifth, the breaking press glovebox takes space that could be used to add an electrorefining station. So doing would increase the throughput of that process and support a higher pit production rate. The United Kingdom's Atomic Weapons Establishment (AWE) is conducting final development trials of a crucible that addresses these problems. It is made in one piece with ridges running from the outer wall of the inner cup to the inner wall of the outer cup so that molten purified plutonium is deposited in segments, eliminating the need for a separate glovebox for breaking the plutonium ring and the resulting problems. These crucibles would appear applicable to U.S. electrorefining operations. On the other hand, development of the new crucibles is not complete, and there is no operational experience with them, so there is no guarantee that they will function properly in practice. A decision on whether to use them must therefore await additional data. One way to reduce MAR in PF-4 is to place plutonium in containers designed to withstand a severe accident. If 10% of the plutonium in a container is expected to escape, as compared to all of that plutonium in a glovebox, MAR for that plutonium is reduced by 90%. "Damage ratio" measures the fraction of plutonium expected to escape: for a damage ratio of 1.0, all the plutonium is expected to escape; for a damage ratio of 0.1, one-tenth is expected to escape. To reduce MAR, the reduction in damage ratio must be credited in PF-4's Documented Safety Analysis, which sets the limit on the amount of MAR allowed in PF-4. To qualify containers as having a certain damage ratio, they are subjected to intense testing. Technicians measure the amount of particulate that comes out of the container after each test. (Damage ratio does not apply to a complete collapse of PF-4, as containers are not expected to survive that event.) Some years ago, Los Alamos used a container that had a damage ratio of 0.05. Since then, a newer container has been introduced commercially, with a damage ratio of 0.01. These containers are intended for long-term storage, not for ease of use in gloveboxes. Yet a substantial amount of plutonium on PF-4's lab space is in process. Placing more of that plutonium in containers when not in immediate use would reduce MAR on the main floor. At issue: would this use of containers adversely affect plutonium processing? Pit production requires a detailed characterization of plutonium at various stages, from the electrorefined product to hemishells to waste streams, to determine if the sample falls within required specifications. This characterization is done with analytical chemistry (AC). Samples of metal for AC are taken from larger pieces of plutonium and dissolved in acid. The liquid is split into smaller samples for analysis. Many contain milligram or smaller quantities of plutonium. At present, LANL conducts most plutonium AC in the Chemistry and Metallurgy Research (CMR) building. CMR opened in 1952 and is in poor condition. NNSA plans to halt programmatic activities there by FY2019. As part of that plan, NNSA plans to move most AC to RLUOB. However, it is not known if RLUOB has enough space and a high enough MAR limit to conduct, along with PF-4, the AC needed to support production of 80 ppy. One way to reduce space and MAR required for AC is to analyze fewer samples per pit. That would enable fewer pieces of equipment to support a given rate of production, reducing space requirements and cost and increasing throughput; would make it more likely that RLUOB could perform most AC needed, which would reduce the amount of AC that would have to be done in PF-4; and would reduce waste generated per pit, reducing the load on AC and on waste processing. Similarly, smaller samples, or samples measured with less accuracy for some processes, might suffice. The chief concern about taking fewer or smaller samples per pit or performing fewer or less accurate analyses is a reduction in precision. This concern can be addressed in several ways. For some process steps, less accurate analytic techniques would suffice; using them may increase throughput. As pit production rate increased, fewer samples per pit taken during metal production would probably suffice to demonstrate that production processes were operating properly. The experience level of technicians would be expected to increase as production rate increased, reducing the need for rework and increase throughput of sample analysis. Plutonium must be purified to be used in pits. This process involves several steps; the final step is electrorefining. In electrorefining, an ingot of impure plutonium is placed in the inner cup of a crucible. The rest of both cups are filled with a salt mixture that acts as an electrolyte. Plutonium and salt are melted at high temperature, and an electric current is passed through the mixture. The process produces a ring of purified plutonium and two byproducts, an ingot of impure plutonium (the "heel") in the inner cup, and the salt, which retains some plutonium (here referred to as the Pu-salt mixture). The plutonium in the heel is converted to plutonium oxide; it and the Pu-salt mixture are dissolved (separately) in acid to recover their plutonium. PF-4 has two "aqueous" process lines, i.e., those that involve a liquid. One uses hydrochloric acid and the other uses nitric acid. They dissolve plutonium compounds in acid. Recovering plutonium from the liquid involves extensive MAR, space, and labor. Might it be possible to reduce this burden? Data from 653 electrorefining runs at LANL, 1964-1977, are available. While the data are old, the process for electrorefining plutonium has not changed much since that time, so the figures provide a rough idea of the products of electrorefining: 9.2% of the plutonium left in the heel; 10.7% left in the salt and stuck to the crucible, almost all of which is in the salt; 78.8% purified in the product ring; and a small amount elsewhere. Might it be possible to discard the Pu-salt mixture and the heel? That would lose some plutonium, but would avoid the need to use aqueous processes to recover it. The plutonium loss would arguably not be a problem. The U.S. plutonium inventory was 95.4 metric tons as of September 2009, with 43.4 metric tons surplus to defense needs; pits use kilogram quantities of plutonium. The Pu-salt mixture could probably be sent to the Waste Isolation Pilot Plant (WIPP), the nation's underground storage repository for such waste, once it reopens. The heel could be converted to plutonium oxide for shipment. Shipping the material to WIPP would avoid the need to send it through aqueous processes, reducing the space and MAR needed for these processes or permitting existing equipment to process more plutonium in order to support a higher rate of pit production. Congress may wish to consider the costs vs. benefits of discarding this plutonium. Electrorefining uses sodium chloride and potassium chloride. That entails several problems. Plutonium held in salts reduces yield (fraction of total plutonium recovered as pure plutonium), increasing time, space, equipment, MAR, cost, process steps, and worker exposure required to produce a given amount of pure plutonium. Hydrochloric acid processing for recovering plutonium produces a substantial waste stream that requires further treatment. The plutonium content of this waste must be monitored with AC techniques, adding to the workload. Preparing plutonium-contaminated waste for disposition takes up space in PF-4 and elsewhere at LANL. The process from waste generation to processing to disposition is costly. An alternative would be to use calcium chloride as the electrolyte. Lawrence Livermore National Laboratory (LLNL) has used this method since 1992 and AWE has used it for over a decade. This approach offers several advantages. Calcium chloride retains less plutonium after an electrorefining run, increasing the yield. A process ("salt scrub") can remove most of the rest of the plutonium from the calcium chloride-plutonium mixture. As a result, the salt left after the salt scrub would be expected to contain very little plutonium. Disposing of that salt as waste would release aqueous process capacity. In this way, equipment could produce more plutonium, supporting a higher rate of pit production. LANL had poor results when it tried this approach in the 1990s. It plans to revisit this option. LANL will use sodium chloride and potassium chloride when electrorefining in PF-4 resumes, but plans to convert to calcium chloride if the process can be successfully demonstrated. LANL expects to draw on LLNL and AWE resources and experience in this effort. Weapons-grade plutonium (WGPu) consists of several plutonium isotopes. Each decays radioactively at its own rate. Pu-241 decays much faster than the others, producing americium-241 (Am-241). It is desirable to remove Am-241 because it is an intense emitter of low-energy gamma rays. While these gamma rays are relatively easy to shield, so that gloveboxes protect workers' bodies from them, workers handling aged WGPu in gloveboxes have only gloves to protect their hands. As a result, gamma rays from Am-241 can provide substantial dose to their hands. This dose can be the limiting factor in how many days per year federal regulations and LANL policies permit them to handle plutonium while staying within dose guidelines. Am-241 can be removed through a process, metal chlorination, that captures almost all the americium. Of the Pu-241 in newly produced WGPu, 89% will have decayed to Am-241 after 50 years. Most U.S. WGPu was produced between 1956 and 1970. It had essentially no impurities resulting from radioactive decay when newly produced; plutonium purified since then has, in effect, had its age reset to zero. There is no official unclassified (and perhaps no classified) figure for the average age of plutonium in the DOE inventory, but preliminary calculations by LANL are that the average age of that plutonium is about 50 years. Due to radioactive decay, little Pu-241 is left to form more Am-241 after 50 years. Since Pu-241 decay is the only source of Am-241, after passing aged plutonium through a final run of metal chlorination to remove Am-241, so little Pu-241 would remain that even if it all decayed to Am-241, the latter would never reach the level in 30-year-old WGPu, and the weapons laboratories have certified weapons with pits that old and older as acceptable for use in the stockpile. This final run would greatly reduce worker exposure. Also, since additional runs of metal chlorination would not be needed for WGPu thus processed, capacity of the metal chlorination line could be reduced, reducing space and operating cost. Pu-241 decays faster than the other plutonium isotopes in WGPu. The others decay over longer times into uranium. After 50 years, uranium accounts for 0.17% of WGPu, and uranium will form at this rate, declining only slightly, for millennia. At issue is whether newly fabricated pits can use plutonium that has not been purified for several decades, or if the uranium would affect pit performance. The last year in which the United States made pits for the stockpile (with a minor exception) was 1989. NNSA plans a life extension program (LEP) for the B61 bomb, with the first production unit expected in FY2020. Thus the newest pit in B61s would, in 2020, be at least 30 years old. Yet the LEP is to use existing pits, and weapon designers expect to be able to certify the performance of life-extended B61 bombs. Similarly, the W76 warhead was first manufactured in 1978 and is now undergoing an LEP that does not use new pits. A 2007 report by the JASON group evaluated studies on pit lifetime performed by LANL and LLNL, and found "no evidence from the [underground nuclear testing] analyses for plutonium aging mechanisms affecting primary performance on timescales of a century or less in ways that would be detrimental to the enduring stockpile." Thus there may not be a need to conduct electrorefining to purify plutonium for pits for decades. Capacity and space required for pit production could be further reduced if weapon designers were willing to allow a larger uranium content in the WGPu specification. That would depend on detailed studies of properties of WGPu with levels of uranium isotopes that are in existing pits. Hemishells are cast by gravity feed, i.e., pouring molten plutonium between an inner and outer mold. When it solidifies, the molds are separated and the cast part is removed. The part is heat-treated to impart the required material properties. It is then machined to final dimension. Near net shape casting (NNSC) has a thinner space between the molds, yielding a cast part much closer to final dimension. Otherwise, processing is the same. The thinner space requires less plutonium for casting, reducing the amount of plutonium that must be machined away to produce the hemishell. On the other hand, a thinner cast part could result in a higher reject rate, as there would be less margin for error in machining. To offset this disadvantage, NNSC could use various electronic techniques to align the part more precisely and remove excess material more precisely. Current equipment can purify enough plutonium to support low production rates, but supply would become a bottleneck at higher pit production rates. Since NNSC uses less plutonium per hemishell, existing equipment could provide plutonium for a higher rate of pit production. Using less plutonium per pit would reduce the waste stream, the burden on material control and accountability, and, on a per-pit basis, worker exposure, MAR, and cost. LANL has conducted some R&D into NNSC using gravity feed and plans to use this method in the future if it proves successful. LANL's planning basis for future pit manufacture includes it. LLNL worked on developing NNSC as early as 1994, and has demonstrated NNSC using plutonium die casting, in which molten plutonium is forced into the space between an inner and outer mold. LLNL stated in April 2015, "Die casting technology is another approach to significantly reduce the amount of plutonium required per casting and therefore, the amount of feed metal." PF-4 became operational in 1978; since then, seismic studies have increased the predicted threat to it. For example, an older model assumed that an earthquake would shake the building, while a newer model treated an earthquake as a wave of earth that could push PF-4 over. These studies increased concern that a major earthquake could collapse PF-4. In 2013, to reduce the dose resulting from collapse followed by a fire, LANL reduced PF-4's MAR limit for the main (laboratory) floor from 2,600 kg PE to 1,800 kg PE. To increase MAR, reduce potential dose, and reduce the risk of collapse, LANL is taking steps to strengthen PF-4 seismically. To strengthen PF-4 against seismic shaking, LANL added a drag strut to the roof. (A drag strut gathers lateral forces from a large flat surface and transmits them to a shear wall, which is designed to resist those forces.) Other steps strengthened PF-4 against pushover. Many columns that run from the basement to the roof support PF-4. Some run through a plutonium vault in the basement. Its ceiling holds them rigidly in place, making them more vulnerable to shear forces that could collapse them. Collapse could result in concrete and steel crashing through the vault ceiling. To strengthen the columns, LANL wrapped them in carbon fiber sealed with epoxy. LANL is now working to strengthen the ties between girders, which are located above the laboratory floor of PF-4, and other structural elements. To reduce the risk of fire, LANL removed about 20 tons of combustible material from PF-4, mostly from the lab floor, and plans to upgrade the system that would deliver water to PF-4 and nearby buildings for firefighting. Such upgrades could greatly reduce the amount of plutonium released in an earthquake and fire. The Consolidated and Further Continuing Appropriations Act, 2015, P.L. 113-235 , provided $1 million for seismic safety mitigation for PF-4 and nearby facilities. Plutonium-238 (Pu-238) is highly radioactive. It is used in deep space probes and has some military applications. It is not used in pits. As of February 2013, PF-4 held about 1.6 kg of Pu-238, but because of its high radioactivity it accounted for 24.5% of the building's MAR. For comparison, pit fabrication accounted for 26.4% of the building's MAR. In addition, Pu-238 programs accounted for 9,600 square feet, or 16%, of PF-4 laboratory floor space. One approach to providing more MAR and space in PF-4 for pit fabrication is to build modules, buried reinforced-concrete structures with about 5,000 square feet of lab space connected to PF-4 by tunnels. As stated in the FY2016 DOE budget request, "NNSA is planning to construct not less than two modular structures that will achieve full operating capability not later than 2027." However, Pu-238 is not uniformly distributed within the space for Pu-238 programs. If some Pu-238 work were moved to a module, that module could accommodate most of the Pu-238-related MAR from PF-4, releasing MAR and space for pit production or other plutonium work. Thus one module for Pu-238 might suffice to enable pit production in PF-4. Building one module may offer advantages if others are to be built. Modules would have a basic design, and each would be provided the capabilities needed for its specific mission. In contrast, a large multi-mission building would require all features needed for every mission it contained. Building a module would provide lessons that could reduce cost of other modules. NNSA states that modules offer "the potential to scale facility acquisition to appropriations and adapt more quickly to changes in program requirements." On the other hand, some lessons from building a module might increase cost. A design flaw or a need for larger modules or more concrete could make the second module more expensive than the first. Also at issue is whether other measures to increase MAR and space margin might provide enough margin without any modules. This report shows options, many of which NNSA and its labs are pursuing, that can help move toward the ability to manufacture pits at a rate of 80 per year by 2027. One option by itself will not suffice to meet that requirement. As a result, NNSA faces the prospect of assembling a package of options, and Congress faces the prospect of evaluating, perhaps amending, and approving it. Any package would need to optimize among such goals as margin, cost, worker safety, and throughput. Questions and tradeoffs to consider in formulating a package include: MAR reduction techniques include strengthening PF-4, using special containers for plutonium not in use, and removing contaminated gloveboxes. Would all such techniques be needed, or would some provide enough MAR margin? Using a different wind model and more realistic assumptions could reduce calculated dose by more than half in a major accident at PF-4, permitting more than doubling the MAR allowance for PF-4 quickly and at essentially no cost. Would that suffice? Techniques to increase space margin include removing contaminated gloveboxes, setting up a production line able to make 50 ppy with one shift per day and operating it with two shifts per day, and building a module for Pu-238 work. Which combination of techniques would be most cost-effective? A module for Pu-238 work would permit moving much MAR out of PF-4 and freeing some space there. Would that module be cost-effective, or would other alternatives render it unnecessary? Would other advantages argue for building a Pu-238 module even if enough margin could be obtained by other means? Using conservative rather than very conservative assumptions to calculate dose could reduce the need for costly, time-consuming changes to PF-4. Would that increase risk to workers and the public substantially? What is the risk-benefit balance? In sum, while arriving at a satisfactory package will require complex analyses, many options offer the potential to boost U.S. pit production capacity toward, if not to, the congressionally mandated requirement of 80 pits per year by 2027. | A pit is the plutonium core of a thermonuclear weapon. Imploding it with conventional explosives provides the energy to detonate the rest of the weapon. The Rocky Flats Plant made up to 2,000 pits per year (ppy) through 1989; since then, the United States has made 29 pits for the stockpile. Yet the FY2015 National Defense Authorization Act requires the National Nuclear Security Administration (NNSA), which manages the nuclear weapons program, to produce at a rate of 80 ppy for 90 days in 2027. How can that requirement be met? Pits are to be made at Los Alamos National Laboratory's main plutonium facility, PF-4. To manufacture pits, a facility must have enough laboratory floor space and a high enough limit for Material At Risk (MAR), the amount of radioactive material a worst-case accident could release. Producing 80 ppy requires enough "margin," the space or MAR available to produce pits minus space or MAR required for that production rate. While space and MAR available have been calculated, amounts required to produce 80 ppy have never been calculated rigorously, leaving space and MAR needs undefined. Although CRS cannot address whether certain options could meet the 2027 date because time to implement them cannot be determined, this report presents 16 options that seek to increase the feasibility of producing 80 ppy by 2027, including: The radiation dose an individual would receive from a worst-case accident determines MAR permitted in PF-4. A ten-factor equation calculates dose as a function of MAR. NNSA uses worst-case values in this equation, yet median values may provide sufficient conservatism. Median values reduce calculated dose by orders of magnitude, permitting a large increase in PF-4 MAR. Yet merely doubling permitted MAR might suffice for producing 80 ppy. Providing this increase through construction at PF-4 could be costly and take years. In determining MAR for PF-4, the closest offsite individual is at a nearby trailer park. Relocating it would place the next closest individual farther away. The added distance would reduce dose, permitting increased MAR in PF-4. Using a different meteorological model and different assumptions would greatly reduce the currently calculated dose, perhaps permitting doubling PF-4 MAR. Plutonium decays radioactively, creating elements that various processes remove to purify plutonium. One process generates byproducts; plutonium is recovered from them with processes that take space and MAR. Since the United States has tons of plutonium surplus to defense needs, byproducts could be dispositioned as waste. Pits use weapons-grade plutonium (WGPu). U.S. WGPu is about 50 years old. About nine-tenths of plutonium-241, a WGPu isotope, decays to americium-241 in that time. Since plutonium-241 is the source of americium-241 in WGPu, removing the current americium-241 would prevent WGPu from ever reaching its americium-241 limit, permitting reduction in equipment for that process and reducing worker radiation exposure. A plutonium isotope used in space probes, plutonium-238, is extremely radioactive. It accounts for a small quantity of PF-4 plutonium but a quarter of PF-4's MAR. Building a "module" near PF-4 for plutonium-238 work would free MAR and space in PF-4, so one module might suffice instead of two or three. To reduce risk of collapse, loss of life, and radiation release from an earthquake, NNSA increased the seismic resilience of PF-4. More steps are planned; more could be taken. Many options may boost U.S. pit production capacity, but none by itself could meet capacity and schedule requirements. NNSA therefore faces the prospect of assembling a package of options, and Congress faces the prospect of evaluating, perhaps amending, and approving it. Arriving at a satisfactory package will require complex analyses to optimize among such goals as margin, cost, worker safety, and throughput. At issue for Congress: What are the risks, costs, and benefits of the options? What is the optimum package? This report is a condensed version of CRS Report R44033, Nuclear Weapon "Pit" Production: Options to Help Meet a Congressional Requirement, by [author name scrubbed]. |
The Higher Education Act of 1965 (HEA; P.L. 89-329), as amended, authorizes a broad array of federal student aid programs that assist students and their families with financing the cost of a postsecondary education, as well as programs that provide federal support to postsecondary institutions of higher education (IHEs). Programs authorized by the HEA provide support for higher education in several ways, including providing support to students in financing a postsecondary education, with additional support and services given to less-advantaged students; providing support to students pursing international education and certain graduate and professional degrees; and providing support to IHEs in improving their capacity and ability to offer postsecondary education programs. The Department of Education (ED) administers the programs authorized by the HEA. The most prominent programs under the HEA are the Title IV programs that provide financial assistance to students and their families. In FY2017, approximately $122.5 billion in financial assistance was made available to 12.9 million students under these programs. In the same year, ED provided approximately $2.3 billion in federal support to institutions of higher education under the HEA. The HEA was first enacted in 1965 and has since been amended and extended numerous times, and it has been comprehensively reauthorized eight times. The most recent comprehensive reauthorization of the HEA occurred in 2008 under the Higher Education Opportunity Act (HEOA; P.L. 110-315 ), which authorized most HEA programs through FY2014. Following the passage of the HEOA, the SAFRA Act, as part of the Health Care and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152 ), made several notable changes to the HEA. Authorization for the appropriations for many HEA programs expired at the end of FY2014 and was automatically extended through the end of FY2015 under Section 422 of the General Education Provisions Act (GEPA). Additionally, Congress provided appropriations beyond 2015 under a variety of appropriations legislation and continuing resolutions, most recently under the Department of Defense and Labor, Health and Human Services, and Education Appropriations Act, 2019 and Continuing Appropriations Act, 2019 ( P.L. 115-245 ).The HEA is organized into eight titles: Title I, General Provisions; Title II, Teacher Quality Enhancement; Title III, Strengthening Institutions; Title IV, Student Assistance; Title V, Developing Institutions; Title VI, International Education Programs; Title VII, Graduate and Postsecondary Improvement Programs; and Title VIII, Additional Programs. This report provides a brief overview of the major provisions of the HEA, organized by title and part. Appendix A of this report provides detailed appropriations figures for HEA programs, from FY2015 through FY2018. Appendix B gives a brief overview of the General Education Provisions Act, which applies to the majority of federal education programs administered by ED, including those programs authorized by the HEA. Finally, Appendix C provides information related to the eight comprehensive reauthorizations that the HEA has undergone. Other CRS reports provide more detailed discussions and analyses of the major HEA provisions. Title I of the HEA is divided into four parts and lays out definitions and provisions that generally apply to most of the programs authorized by the HEA. Title I, Part A of the HEA includes two definitions of an institution of higher education (IHE). The definition of IHE in Section 101 applies to institutional participation in HEA programs, other than federal student aid (FSA) programs under Title IV. The definition of an IHE provided in Section 102 applies to institutional participation in Title IV FSA programs and includes all institutions that meet the Section 101 IHE definition and proprietary institutions (or for-profit institutions), postsecondary vocational institutions, and foreign institutions (i.e., those located outside of the United States). Section 102 also specifies additional conditions institutions must meet to participate in Title IV programs, including provisions related to the types of courses and educational programs offered, student enrollment, and institutional management. Section 103 contains additional definitions relevant to the HEA, such as "distance education" and "diploma mill." Part B of Title I lists additional general provisions pertaining to the HEA. It includes provisions related to antidiscrimination based on race, religion, sex, or national origin at IHEs receiving federal financial assistance and a Sense of Congress regarding the protection of student speech and association rights. Title I-B requires that IHEs adopt alcohol and drug abuse prevention programs to participate in Title IV programs and authorizes the Secretary of Education (Secretary) to award competitive grants to IHEs or consortia of IHEs to implement drug and alcohol prevention programs; however, these grants have not been funded in several years. Title I-B also grants the Secretary the authority to waive program eligibility criteria in any case in which the criteria do not take into account any unique circumstances of the outlying areas. Other Part B provisions require that information be made available to students and their families to help them make informed college decisions, such as requiring the Secretary to develop a website with information about federal aid available from other federal departments and agencies and requiring the Secretary, working with other federal agencies, to publish information to help students, parents, and employers to identify and avoid diploma mills. Part B also establishes the National Advisory Committee on Institutional Quality and Integrity (NACIQI), which is a committee tasked with assessing the process of accreditation in higher education and the institutional eligibility and certification of IHEs to participate in Title IV programs. Specific requirements for NACIQI, such as membership criteria and meeting procedures, also are delineated. Part B prohibits the development, implementation, or maintenance of a federal database containing the personally identifiable information of students. However, this prohibition does not apply to systems necessary for the operation of programs authorized under Titles II (Teacher Quality Enhancement), IV (Student Assistance), or VII (Graduate and Postsecondary Improvement Programs) and that were in use the day before the enactment of the HEOA (August 13, 2008). Finally, Part B authorizes necessary appropriations to pay obligations incurred related to previously funded programs supporting the construction of college housing and academic facilities. Title I, Part C includes many provisions that focus on collecting data on college costs and prices and student characteristics. It directs the Secretary to collect and make available online, among other information, individual IHEs' tuition and fees; cost of attendance; acceptance rate of undergraduate students who apply; number of first-time, full-time, and part-time students enrolled; number of students receiving financial aid; and average amount of financial assistance received by students. Other provisions require publishers that sell college textbooks and supplemental materials to "unbundle" materials (i.e., make textbooks and each supplement to a textbook available as separate items) and require IHEs to publish online pre-course registration and registration materials delineating information about all required texts that will be used in the class and the retail price of course materials. Additionally, Section 135 requires public IHEs to charge in-state tuition rates to eligible members of the Armed Forces on active duty and their spouses and dependent children. Finally, Part C includes a maintenance of effort (MOE) provision, which requires states to maintain appropriations for the general operations of public IHEs and for amounts provided for financial aid for students attending private IHEs within the state in each academic year that at least equal the average appropriation over the preceding five years. If a state fails to meet MOE requirements, the Secretary is required to withhold the state's allotment of funds for the College Access Challenge Grant Program (Title VII, Part E), until the state makes "significant efforts to correct such violations." Part D of Title I authorizes the establishment of a Performance-Based Organization (PBO) that manages the administration of Title IV programs within ED. A PBO is a discrete government management unit that is responsible for managing the administrative and oversight functions that support a program, while other entities are responsible for the policy setting functions relating to the PBO. PBOs are led by chief executives who are personally accountable for meeting measurable goals within the organization. In exchange, the PBO is allowed greater flexibility to manage personnel, procurement, and other services. The PBO authorized under HEA Title D-I is known as the Office of Federal Student Aid. Part E of Title I establishes disclosure and reporting requirements applicable to lenders and IHEs with respect to Title IV federal student loans and private education loans. Many of the provisions relate to the disclosure to borrowers of the terms and conditions for both federal loans made under Title IV and private education loans, as defined under Section 140 of the Truth in Lending Act. Title II of the HEA authorizes grants for improving teacher education programs, strengthening teacher recruitment efforts, and providing training for prospective teachers. This title also includes reporting requirements for states and IHEs regarding the quality of teacher education programs. Part A of Title II authorizes competitive grants to improve teacher education programs. The Pre-Baccalaureate Preparation Program awards funds to partnerships to, among other activities, reform teacher preparation programs, provide clinical experiences and literacy training, and prepare highly qualified teachers and early childhood educators. The Teacher Residency Program awards one-year stipends to recent college graduates and mid-career professionals (who are not teaching) to obtain graduate-level teacher training in exchange for agreements to serve three years in a high-need school. Finally, the Leadership Development Program awards funds to partnerships to prepare students for careers as school administrators, as well as to support activities that promote strong leadership skills. Each eligible partnership receiving a grant under Part A must provide nonfederal matching funds equal to 100% of the amount of the grant. Part A also requires states and IHEs offering teacher preparation programs and receiving federal assistance under the HEA to report specified data annually. IHEs must report to states the pass rates of their graduates on state certification assessments and other program data. States, in turn, are required to report to ED information on state certification and licensure requirements; the number of students enrolled in teacher preparation programs disaggregated by gender, race, and ethnicity; pass rates on state assessments, disaggregated and ranked by institution; criteria for identifying low-performing schools of education; and other information. Part B of Title II authorizes several competitive grants for teacher training programs that meet specific needs, such as preparing graduate teacher candidates to use technology-rich teaching methods, preparing general education teacher candidates to instruct students with disabilities, and preparing graduate students to become education professors who will prepare highly qualified teachers in high-need areas. These programs have never received funding. Title III is one of the primary sources of institutional support authorized by the HEA. Most of the programs authorized in Title III provide grants or other financial support to institutions that serve high concentrations of minority and/or needy students to help strengthen the institutions' academic, financial, and administrative capabilities. Typically, the institutions served by Title III are called minority-serving institutions. The Section 311, Strengthening Institutions Program (SIP) is the foundational program for all other programs established under Title III-A. It provides competitive grants to eligible IHEs that have low educational and general expenditures (E&G) as compared to similar institutions and where at least 50% of enrolled degree-seeking students are receiving need-based assistance under HEA Title IV or where the percentage of Pell Grant recipients exceeds the median percentage of Pell Grant recipients at similar institutions. Additionally, eligible IHEs must be legally authorized by their states to award bachelor's degrees or be authorized to operate as a junior or community college and must be accredited or preaccredited by an ED-recognized accrediting agency. In this report, the SIP eligibility criteria are referred to collectively as the Section 312(b) criteria. Authorized uses for grant funds include facilities improvement, faculty development, curriculum development, and student services. Grantees are also allowed to establish endowments or increase endowment funds with SIP grants, but they may not use more than 20% of grant monies for such purposes and must provide matching funds from nonfederal sources. Section 316 establishes the Strengthening American Indian and Tribally Controlled Colleges and Universities (TCCUs) program. This program provides formula grants to TCCUs that meet the Section 312(b) criteria and that qualify for funding under the Tribally Controlled Colleges and Universities Assistance Act of 1978 (25 U.S.C. §1801), the Navajo Community College Act (25 U.S.C. §640a), or Section 532 of the Equity in Education Land-Grant Status Act of 1994 (7 U.S.C. §301 note). Authorized uses for grant funds are similar to those of the SIP. Section 317 establishes the Strengthening Alaska Native and Native Hawaiian-Serving Institutions (ANNHs) program. This program provides competitive grants to ANNHs that meet the Section 312(b) criteria and that have an enrollment of undergraduate students that is at least 20% Alaska Native students or at least 10% Native Hawaiian students. Authorized uses for grant funds are similar to those of the SIP. Section 318 establishes the Strengthening Predominantly Black Institutions (PBIs) program. To be eligible for a PBI grant, an institution must be legally authorized within its state to award bachelor's or associate's degrees, accredited or preaccredited by an ED-recognized accrediting agency, enroll at least 1,000 undergraduates (half of which must be enrolled in degree programs), have low E&G, and have an undergraduate student enrollment that is at least 40% Black American students. PBIs may not also be designated as a Historically Black College or University (HBCU) or a Hispanic-serving institution (HSI). PBIs must have a requisite enrollment of needy students. For purposes of the Strengthening PBIs program, the needy student enrollment criterion requires that at least 50% of an institution's enrolled degree-seeking undergraduate students (a) are Pell Grant recipients; (b) come from families that receive benefits under a means-tested federal benefit program; (c) attended a secondary school that was eligible to receive benefits under Title I of the Elementary and Secondary Education Act of 1965 (ESEA); or (d) are first-generation college students and a majority of such first-generation colleges students are low-income. Grants are formula-based and divided among eligible institutions based on each institution's percentage of Pell Grant recipients, percentage of graduates, and percentage of graduates who pursue the next higher degree level. Authorized uses for grant funds are similar to those of the SIP. Section 319 establishes the Strengthening Native American-Serving, Nontribal Institutions (NASNTIs) program. This program provides competitive grants to NASNTIs that meet the Section 312(b) criteria, that are not TCCUs, and that have an enrollment of undergraduate students that is at least 10% Native American students. Authorized uses for grant funds are similar to those of the SIP. Section 320 establishes the Asian American and Native American Pacific Islander-Serving Institutions (AANAPISIs) program. This program provides competitive grants to AANAPISIs that meet the Section 312(b) criteria and that have an enrollment of undergraduate students that is at least 10% Asian American or Native American Pacific Islander students. Authorized uses for grant funds are similar to those of the SIP. Part B of Title III authorizes assistance to Historically Black College and Universities (HBCUs) and Historically Black Graduate Institutions (HBGIs). Section 323 authorizes the Strengthening HBCUs program, which provides grants to IHEs that were established before 1964 with the mission of educating Black Americans, are accredited or preaccredited by an ED-recognized accrediting agency. Strengthening HBCU grants are formula-based and divided among eligible institutions based on an institution's percentage of Pell Grant recipients, percentage of graduates, and percentage of graduates who go on to attend a graduate or professional school in a degree program in disciplines in which Blacks are underrepresented. Authorized uses for grant funds are similar to those of the SIP under Title III-A. Section 326 of Title III-B establishes the HBGI program. This program provides formula grants to eligible postgraduate and professional institutions and programs to increase the number of African Americans in certain professional fields. Eligible institutions are specifically listed in Section 326. HBGI grants are formula-based. The first $56.9 million appropriated each fiscal year is available exclusively to the 18 HBGIs that were specifically listed in the HEA prior to the passage of the Higher Education Opportunity Act of 2008 (HEOA; P.L. 110-315 ). Appropriations greater than $56.9 million and less than $62.9 million are available to the six HBGIs that were added to Section 326 by the HEOA. Finally, appropriations greater than $62.9 million are made available to any eligible HBGI, pursuant to a formula to be developed by ED. Authorized uses for grant funds are similar to those of the SIP. Title III, Part C authorizes the Endowment Challenge Grants program. This program provides matching grants to IHEs eligible under Parts A and B of Title III to assist them in establishing or increasing their endowments and thus increase their self-sufficiency. The program has not been funded since FY1995. Title III, Part D authorizes the HBCU Capital Financing program, which provides federal insurance for bonds issued to support capital financing projects at HBCUs for the repair, renovation, and, in exceptional circumstances, construction or acquisition of facilities used for instruction, research, or housing. A designated bonding authority is charged with raising funds in the bond market; in turn, these funds are lent to HBCUs. Repayments on these loans are used to make principal and interest payments on outstanding bonds. Borrowers deposit a portion of their loans into an escrow account to cover principal and interest payments on outstanding bonds in the event borrowers are delinquent in repaying their loans. Title III, Part E authorizes the Minority Science and Engineering Improvement Program (MSEIP), which provides grants to effect long-term improvements in science and engineering education at minority institutions. Grants are provided to IHEs with an undergraduate student enrollment that is at least 50% minority students, nonprofit science-oriented organizations, and consortia of organizations. MSEIP grants are competitively awarded, and authorized uses include participating in faculty development programs, strengthening an institution's science and engineering programs, and conducting research in science education. Title III-E authorizes two additional programs: the Yes Partnership Grant Program and Promotion of Entry into STEM Fields. The Yes Partnership Grant Program authorizes the Secretary to make grants to support the engagement of underrepresented minority youth in STEM outreach. Promotion of Entry into STEM Fields authorizes the Secretary to contract with a firm to implement an advertising campaign to encourage youths to enter STEM fields. Neither program has been implemented. Title III, Part F provides annual mandatory appropriations through FY2019 for programs that support minority-serving institutions under Title III-A and Title III-B. Programs that receive mandatory appropriations under this part are Strengthening TCCUs, Strengthening ANNHs, Strengthening PBIs, Strengthening NASNTIs, Strengthening ANNAPISIs, and Strengthening HBCUs. These mandatory funds are provided in addition to discretionary appropriations authorized for these programs under Title III-G (discussed below). In general, Title III-F funds are to be used by eligible minority-serving institutions as though they were funds provided under Titles III-A and III-B; however, there are some exceptions. Title III-F provides 25 grants of $600,000 each annually to eligible PBIs for programs in science, technology, engineering, or mathematics (STEM); health education; internationalization or globalization; teacher preparation; or improving educational outcomes of African American males. Additionally, IHEs eligible for Title III-F NASNTIs funds are not required to meet the Section 312(b) needy student and low E&G eligibility criteria that NASNTIs receiving funds under Title III-A are required to meet. Title III-F also authorizes the Hispanic-Serving Institutions STEM and Articulation program (HSI STEM). This program awards competitive grants to eligible HSIs to increase the number of Hispanic and low-income students attaining degrees in STEM fields and to develop model transfer and articulation agreements between two-year HSIs and four-year institutions in STEM fields. Eligible HSIs are IHEs that meet the Section 312(b) criteria and that have an undergraduate student enrollment that is at least 25% Hispanic students. Title III-F also provides annual mandatory appropriations for this program through FY2019. Title III, Part G contains general provisions, including the Secretary's waiver authority for Title III programs. Title III-G also specifies the authorizations of appropriations for each Title III program, other than programs authorized under Title III-F. Other general provisions relate to the grant application process, technical assistance for IHEs in applying for Title III grants, and the Secretary's ability to make continuation awards for multiyear grants. Title IV of the HEA contains nine parts that authorize a broad array of programs and provisions to assist students and their families in gaining access to and financing a postsecondary education. The programs authorized under this title are the primary sources of federal aid to support postsecondary education. Title IV, Part A authorizes numerous grant programs—financial assistance that does not need to be repaid by the recipient—for students who attend eligible institutions participating in Title IV programs. It also authorizes federal early outreach and student services programs. Subpart 1 authorizes the Federal Pell Grant program, which is the single largest source of grant aid for postsecondary education attendance funded by the federal government. The Pell Grant program provides need-based grants to financially needy undergraduate students and is the foundation for all federal student aid (FSA) awarded to undergraduates (i.e., all other FSA is calculated after the amount of a student's Pell Grant award has been determined). To be eligible to receive a Pell Grant, a student must meet the general eligibility criteria for all FSA programs and be enrolled at an eligible IHE for the purpose of earning a degree or certificate. In general, students must be enrolled as undergraduates and are subject to a cumulative lifetime eligibility cap on Pell Grant aid of 12 full-time semesters (or the equivalent). Pell Grants are portable, which means the grant aid follows the recipient to any eligible IHE in which they enroll. The amount of grant aid available to students is primarily based on the financial resources that students and their families are expected to contribute toward the cost of financing a postsecondary education and the annual maximum award amount set forth in the last enacted applicable appropriations act, combined with the award amount of a mandatory add-on award provided annually in the HEA. Pell Grant awards are prorated for students who attend on less than a full-time basis. Subpart 1 authorized the Academic Competitiveness (AC) Grant and National Science and Mathematics Access to Retain Talent (SMART) Grant programs, which provided additional grant aid to certain Pell-eligible students. The authority to make grants under the programs expired at the end of award year (AY) 2010-2011. Subpart 2 authorizes programs for early outreach and student services programs. Chapter 1 establishes the six TRIO programs, and Chapter 2 authorizes the Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP). Subpart 2 of Part A authorizes six separate discretionary grant programs—collectively known as the TRIO programs—designed to assist qualified individuals from disadvantaged backgrounds with preparing for and completing postsecondary education. While the TRIO programs primarily serve individuals who are or would be low-income, first-generation college students, they also serve students with disabilities, students at-risk of academic failure, veterans, homeless youth, foster youth, and individuals underrepresented in graduate education. Typically, for each of the TRIO programs, eligible grantees may include institutions of higher education; public and private agencies and organizations with experience in serving disadvantaged youth; secondary schools; and combinations of such institutions, agencies, and organizations. Talent Search (TS). The TS program is intended to encourage students to complete their high school diplomas and enroll in postsecondary education. TS grantees must provide participants with, among other services, course selection advice and assistance, assistance in preparing for college entrance examinations, assistance in completing college admission applications, assistance in completing financial aid applications, and guidance on and assistance in methods for achieving a secondary school diploma or an equivalent postsecondary education. Generally, program participants must have completed five years of elementary education or be between the ages of 11 and 27. At least two-thirds of participants must be low-income, first-generation college students. Upward Bound (UB) . The UB program is intended to prepare and encourage high school students and veterans toward success in postsecondary education. UB grantees must provide participants with, among other services, instruction in specified courses such as foreign language and mathematics, tutoring, and assistance in preparing for college entrance examinations and in completing college admissions applications. UB grantees may also provide monthly stipends to eligible participants. Program participants must have completed eight years of elementary education or, with some exceptions, be between the ages of 13 and 19. At least two-thirds of participants must be low-income, first generation college students. Student Support Services (SSS). The SSS program is intended to provide support services to college students to improve the retention, graduation rates, financial and economic literacy, and transfer rates of students from two-year to four-year schools. SSS grantees must offer participants, among other services, tutoring, counseling to improve financial literacy, and assistance in applying for admission to the next higher level of degree attainment. Grantees may provide grant aid to eligible participants. Program participants must be enrolled, or accepted for enrollment, at the grantee IHE. At least two-thirds of participants must be either students with disabilities or low-income, first-generation college students; the other one-third must be low-income, first generation college students or students with disabilities. At least one-third of participating students with disabilities must be low-income. Ronald E. McNair Postbaccalaureate Achievement (McNair) Program . The McNair Program is intended to prepare disadvantaged undergraduate students for subsequent doctoral study by providing research opportunities, internships, counseling, tutoring, and other preparatory activities. Grantees may provide stipends to eligible participants. Program participants must be enrolled in a degree program at the grantee IHE. At least two-thirds of program participants must be low-income, first-generation college students, and the remaining one-third must be from a group that is underrepresented in graduate education, including Alaska Natives, Native Hawaiians, and Native American Pacific Islanders. Educational Opportunity Centers (EOCs). The EOC program is intended to support high school completion and postsecondary enrollment by providing information on financial and academic assistance available to individuals wishing to pursue a postsecondary education and assisting them in applying for college admission and financial aid. Generally, program participants must be at least 19 years old. At least two-thirds of program participants must be low-income, first-generation college students. Staff Development. The Staff Development Program is intended to improve TRIO project administration, operation, outcomes, and outreach by providing training to existing and potential TRIO program staff. Program participants must be staff and leadership personnel employed in, participating in, or preparing for employment in TRIO programs and projects. Subpart 2 also authorizes GEAR UP, which provides grants to states and partnerships between local educational agencies (LEAs) and degree-granting IHEs to assist primarily low-income students in obtaining a secondary school diploma (or its recognized equivalent) and to prepare for and succeed in postsecondary education. GEAR UP partnership grantees must, and state grantees may, serve an entire cohort of students, beginning no later than the seventh grade and follow the cohort through high school or the first year of attendance at an IHE. GEAR UP projects provide services such as academic support, mentoring, career counseling, and college visits. GEAR UP state grantees must, and partnerships grantees may, also provide college scholarships to eligible participating students. Subpart 3 of Title IV-A authorizes the FSEOG program, which is one of three programs collectively referred to as the campus-based aid programs. Under the FESOG program, the ED allocates funds to IHEs for the purpose of awarding need-based grant aid to undergraduate students with exceptional financial need to aid them in funding an undergraduate education. Funds are awarded to students as part of their financial aid package, with priority given to Pell Grant recipients with the lowest expected family contributions (EFCs). FSEOG aid consists of a federal share, which, in general, may not exceed 75% of FSEOG aid, and a nonfederal share of at least 25%. The federal share consists of funds that are allocated to IHEs according to a statutory formula. Federal funds are first allocated to IHEs in proportion to the amount they received in previous years, with priority going to those that participated in the program in FY1999 or earlier. This amount is referred to as their base guarantee allocation. Next, any remaining FSEOG funds are allocated to IHEs proportionately, according to the aggregate financial need of the IHE's undergraduate students. This is referred to as their fair share allocation. Subpart 4 authorizes the Leveraging Education Assistance Partnership Program (LEAP) and Grants for Access and Persistence (GAP). These programs provide matching grants to states to establish need-based scholarship programs. GAP grants also fund early awareness and outreach activities and support services to students. GAP is only funded if the amount appropriated for LEAP exceeds $30 million. Neither program has been funded since FY2010. Subpart 5 authorizes the High School Equivalency Program (HEP) and the College Assistance Migrant Program (CAMP). These programs target individuals who themselves or whose family have recently engaged in migrant or seasonal farmwork. For each of these programs, grantees may include IHEs or private nonprofit organizations working in cooperation with an IHE. HEP assists individuals who are at least 16 years old or who are beyond the age of compulsory school attendance to obtain a secondary school diploma or its equivalent. CAMP assists students with placement, persistence, and retention in postsecondary education. Grantees may provide stipends to eligible participants. The Robert C. Byrd Honors Scholarship Program funds state-administered college scholarship programs that recognize exceptionally able high school seniors who show promise for continued excellence in postsecondary education. The program has not been funded since FY2010. The Child Care Access Means Parents in School program supports the participation of low-income parents in postsecondary education by providing competitive grants to IHEs to establish or support campus-based childcare programs. Subpart 9 authorizes the Teacher Education Assistance for College and Higher Education (TEACH) Grant program, which is a service payback program. The program provides scholarships of $4,000 per year to undergraduate and graduate students who are preparing for a career in teaching. Recipients are required to teach in a high-need subject in a high-poverty elementary or secondary school for four years within eight years after completing their course of study If recipients do not fulfill their service requirement, TEACH grants are converted to Federal Direct Unsubsidized Stafford Loans, with interest accrued from the date each grant was awarded. Subpart 10 authorizes Scholarships for Veteran's Dependents, known as Iraq and Afghanistan Service Grants, which are non-need-based grants awarded to assist eligible veterans' dependents in paying their cost of attendance at an IHE. To receive an award, an individual must be a student whose parent or guardian was a member of the U.S. Armed Forces and who died during military service in Iraq or Afghanistan after September 11, 2001 and must have been younger than 24 years old at the time of the parent or guardian's death. Recipients need not qualify for a Pell Grant based on need but must meet all the other eligibility requirements for the Pell Grant program. Grants made under this section for any award year equal the maximum Federal Pell Grant available for that award year. The FFEL program offered several types of federal student loans to assist individuals in financing the costs of a postsecondary education; those loans included Subsidized Stafford Loans and Unsubsidized Stafford Loans for undergraduate and graduate and professional students, PLUS Loans for graduate and professional students and the parents of dependent undergraduate students, and Consolidation Loans. For many years the FFEL program was the primary source of federal student loans; however, the SAFRA Act ( P.L. 111-152 , Title II, Part A) terminated the authority to make new FFEL program loans after June 30, 2010. The FFEL program made available essentially the same types of loans (with substantially similar terms and conditions) as are now offered under the William D. Ford Federal Direct Loan (Direct Loan) program and which are discussed later in this report. However, the FFEL program significantly differed from the Direct Loan program in its administration. Under the FFEL program, loans were originated by private sector and state-based lenders and were funded with nonfederal capital. The federal government guaranteed lenders against loss due to borrower default, permanent disability, or, in limited circumstances, bankruptcy, and holders of the loans were (and still are) responsible for servicing the loans (e.g., billing borrowers and collecting loan payments). FFEL program lenders may receive a special allowance payment (SAP), a type of interest subsidy paid by the federal government to ensure a specified rate of return on their loans. Although the authority to make new FFEL program loans was terminated, borrowers of FFEL program loans remain responsible for making payments on their loans, loan holders continue to be responsible for servicing the loans, and guaranty agencies continue to administer the federal loan insurance program. Approximately $305.8 billion in outstanding FFEL program loans are due to be repaid in the coming years. Part C of Title IV authorizes the Federal Work-Study programs (FWS), which are among the campus-based aid programs previously described. FWS employment is the primary FWS program. Separate authorizations of appropriations are also provided for the work colleges and community service work-study programs. FWS programs are intended to provide part-time employment to undergraduate, graduate, and professional students in need of earnings to pursue their courses of study and to encourage participation in community service activities. FWS aid may be provided to any student in an eligible program who demonstrates financial need. Awards typically are based on factors such as the amount of a student's financial need, the availability of FWS funds at the institution, and whether the student requests FWS employment and is willing to work. Students receive their FWS awards as compensation for the hours they have worked in specified types of jobs. In general, FWS earnings consist of a federal share of 75% and a nonfederal share of at least 25%; however, these ratios may vary depending on the nature of employment. The nonfederal share of compensation is provided by the employer, which may be the IHE the student attends, a private nonprofit organization, a governmental agency, or a private for-profit entity. IHEs must use at least 7% of their FWS allocation to compensate students employed in community service jobs and operate at least one tutoring or family literacy project that serves the community. FWS funding is made available to support comprehensive work-learning-service programs at select institutions known as "work colleges." Among other requirements, all resident students at work colleges must be required to participate in work-learning-service programs that are an integral part of the institution's educational philosophy and program. The HEA provides a separate authorization for the work colleges program. The HEOA amendments established an Off-Campus Community Service Employment program as a distinct FWS program. Under this program, the Secretary may make grants to FWS-participating IHEs to supplement their off-campus community service employment activities. Funding for this FWS program was only provided in FY2010; it has not since received appropriations. As with the other campus-based programs, FWS funds are allocated to IHEs according to statutorily prescribed procedures, in which funds are first allocated on the basis of IHEs' base guarantees, and then according to fair-share criteria that take into account each IHE's proportionate share of aggregate financial need of students at FWS-participating institutions. Part D of Title IV authorizes the Direct Loan program, which is the primary source of federal student loans. As previously discussed, the Direct Loan program provides essentially the same set of loans as the FFEL program did, but uses a different administrative structure and draws on a different source of capital. Under the program, the federal government lends directly to students using federal capital. While the government owns the loans, loan origination and servicing is performed by federal contractors. Several broad types of loans are available through the Direct Loan program: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans. The terms and conditions of these loans (e.g., borrowing limits, interest rates) are determined according to statutory provisions. Loans made available through the Direct Loan program are an entitlement to qualified borrowers. Many of the terms, conditions, and benefits applicable to Direct Loans, such as student eligibility requirements, deferment criteria, and certain repayment plans, are specified in other parts of the HEA, including Title IV, Part B (the FFEL program). The Direct Loan program is classified as a federal credit program for budgeting purposes. As a credit program, most of the costs to the government associated with the program are accounted for on an accrual basis according to criteria specified under the Federal Credit Reform Act of 1990 (FCRA; P.L. 101-508 ). Indefinite mandatory budget authority is provided to fund the loans made through the program. The costs of administering the Direct Loan program are accounted for separately on a cash basis; and funding for administrative expenses is provided through discretionary appropriations. Direct Subsidized Loans are available only to undergraduate students who demonstrate financial need. The federal government "subsidizes" these loans by paying the interest that accrues on the loans while the borrower is enrolled in an eligible program on at least a half-time basis, during grace periods, and during periods of authorized deferment. Interest rates are set by statute, and loans first disbursed on or after July 1, 2013, are made with market-indexed fixed interest rates. Direct Unsubsidized Loans are available to undergraduate, graduate, and professional students. Borrowers do not need to demonstrate financial need to obtain these loans. The federal government does not pay the interest on these loans while the borrower is in school or during grace periods and deferment periods. Interest rates are set by statute, and loans first disbursed on or after July 1, 2013, are made with market-indexed fixed interest rates. Direct PLUS Loans are available to parents of dependent undergraduate students and to graduate and professional students. Borrowers do not need to demonstrate financial need to obtain these loans. However, borrowers with an adverse credit history are ineligible to borrow PLUS Loans unless another individual agrees to serve as an endorser. The federal government does not pay the interest on these while the student is in school, nor during grace periods and deferment periods. Interest rates are set by statute, and loans first disbursed after on or July 1, 2013, are made with market-indexed fixed interest rates. Consolidation Loans allow borrowers to combine multiple federal loans into a single loan. Consolidation enables borrowers to simplify the repayment of their federal student loans and, in some cases, extend their repayment period, which reduces the monthly payment amount. Interest rates on Consolidation Loans are determined by taking the weighted average of the interest rates on the loans being consolidated and rounding the result up to the nearest higher one-eighth of 1%. Part E of Title IV authorizes the Federal Perkins Loan program, another of the campus-based programs. Previously, the HEA authorized the allocation of federal funds to IHEs to assist them in capitalizing revolving loan funds for the purpose of making low-interest loans to students with exceptional financial need. Historically, IHEs capitalized their revolving Perkins Loan funds with a combination of federal capital contributions (FCCs) and institutional capital contributions (ICCs). FCCs were allocated according to statutorily prescribed procedures somewhat similar to those used for the FSEOG and FWS programs. Perkins Loans were available to undergraduate and graduate and professional students, with priority given to students with exceptional financial need. Terms and conditions of the Perkins Loan included a fixed 5% interest rate, no accrual of interest prior to a borrower beginning repayment or during periods of authorized deferment, and loan cancellation for borrowers engaged in certain types of public service. The authorization to make new Perkins Loans to eligible students expired on September 30, 2017. Starting on October 1, 2017, each IHE was to begin returning to the Secretary the federal share of its Perkins Loan fund and the federal share of payments and collections made on outstanding Perkins Loans. Because institutions were allowed to make loan disbursements to eligible borrowers through June 30, 2018, ED indicated that it will begin collecting the federal share of IHEs' Perkins Loan funds following the submissions of the 2019-2020 Fiscal Operations and Application to Participate (FISAP), which was due October 1, 2018. Institutions are permitted to retain any remaining funds after remitting the federal share. Although the authority to make new Perkins Loans has expired, borrowers of the loans remain responsible for making payments on them. IHEs may continue to service their Perkins Loan portfolio or may liquidate their portfolio and assign it to ED for servicing. Approximately $7.4 billion in outstanding Perkins Loans is due to be repaid in the coming years. Part F of Title IV establishes the need analysis methodology, which informs students' eligibility for Title IV need-based aid. Generally, a student's need for the Title IV programs is the difference between an institution's cost of attendance (COA) and the student's expected family contribution (EFC)—the amount of financial resources that students and their families are expected to use to meet the COA. The bulk of Part F establishes three EFC formulas: one for dependent students and one each for independent students with and without dependents. A student's dependency status is determined by the student's age and other characteristics. The dependent student formula considers the financial resources of the student and the student's parents. The independent student formulas consider the financial resources of the student and, if applicable, the student's spouse. The EFC is calculated on the basis of information provided on the Free Application for Federal Student Aid (FAFSA). Some EFC formula factors are based on tax information. When completing the FAFSA, students and applicable family members use tax information from the year that is two years prior to the beginning of the award year. For example, the FAFSA for AY2018-2019 is completed using information from tax year 2016. The full EFC formulas consider the income (including taxable and certain untaxed income) and assets (e.g., bank accounts, stocks) of the student and relevant family members. If students (or, in the case of dependent students, the students' parents) have an adjusted gross income (AGI) of less than $50,000 and meet other criteria, the family may be eligible for a "simplified needs test" (SNT). The SNT considers fewer financial factors and requires the student's family to provide correspondingly less information on the FAFSA. Some applicants who qualify for the SNT and have an AGI at or below a specified level ($25,000 in AY2018-2019) may be eligible for an "automatic zero" EFC. Students eligible for the automatic zero are not subject to the EFC formula and instead automatically receive a zero EFC. Students who do not qualify for an automatic zero EFC can qualify for a "calculated zero" EFC on the basis of their financial characteristics and the SNT or full EFC formula. A student with a zero EFC can qualify for the maximum amount of need-based federal aid. For example, a student with a zero EFC can qualify for the maximum Pell Grant award in an award year. Part G of Title IV establishes many institutional requirements for Title IV participation and related provisions. It includes definitions of "academic year" and "eligible program" and requires IHEs participating in Title IV to enter into program participation agreements (PPAs) with the Secretary. It also establishes a master calendar requirement for the Secretary to ensure adequate notification and timely delivery of Title IV student aid. Part G contains provisions related to forms and regulations used in administering Title IV programs, including requirements related to the contents and distribution of the FAFSA. Student eligibility criteria to receive Title IV financial assistance are found in Part G, which includes citizenship requirements for Title IV aid recipients and satisfactory academic progress requirements for students to maintain Title IV eligibility. Provisions also prescribe the manner in which Title IV funds are to be returned to the federal government in the event that a student withdraws from an institution. Additionally, Part G contains numerous requirements related to the types of information institutions must disseminate to prospective and enrolled students, including graduation or completion rates, financial aid entrance and exit counseling to borrowers, campus crime statistics and security policies, and transfer of credit policies. Part G establishes the National Student Loan Data System, which is ED's central database containing information on student aid participation. Part G also contains wage garnishment requirements for borrowers who are not currently making required payments on their Title IV loans and criminal penalties in cases of fraud, abuse, and other crimes related to Title IV funds. Part G contains several provisions related to members of the Armed Forces and veterans, such as procedures for loan cancellations or deferments for eligible disabled veterans and deferment of loan repayment following periods of active duty. Finally, Part G also authorizes the income-based repayment plan for Title IV loans. The Advisory Committee on Student Financial Assistance had been authorized under Part G until the end of FY2015. Part H of Title IV contains what is known as the program integrity triad. The triad comprises three requirements to ensure program integrity in postsecondary education. The three requirements are state authorization, accreditation by an accrediting agency recognized by ED, and eligibility and certification by ED. Section 102 requires that IHEs fulfill all three program integrity requirements to be eligible to participate in Title IV FSA programs, and Title IV, Part H describes each component of the triad. Subpart 1 describes that state's responsibility in authorizing IHEs to operate postsecondary educational programs within their bounds. States must provide information to ED about the processes it uses to authorize institutions, notify ED if it has any evidence that an IHE has committed fraud in the administration of Title IV FSA programs, and notify ED if it revokes an IHE's authorization. Subpart 2 describes the criteria the Secretary must use when determining whether to recognize an accrediting agency as a reliable authority for determining the quality of education or training offered at an IHE for the purposes of participating in Title IV FSA programs. Such requirements relate to an accrediting agency's structure, operating procedures (e.g., its institutional review process), and due process requirements. Subpart 3 includes the eligibility and certification procedures administered by ED. Here, ED is responsible for verifying an institution's legal authority to operate within a state and its accreditation status. Additionally, ED must evaluate an institution's financial responsibility and administrative capacity to administer Title IV FSA programs. Part I authorized the Secretary to implement a pilot student loan auction program for lenders to obtain rights to disburse FFEL program parent PLUS loans. Loans are no longer being made through the FFEL program, and this program is currently inapplicable. Title V is one of the primary sources of institutional support to Hispanic-serving institutions (HSIs) under the HEA. In general, Title V programs are similar in scope to the Title III-A and Title III-B programs authorized to support other types of minority-serving institutions. Title V, Part A authorizes the HSI program. This program provides competitive grants to HSIs that meet the HEA Section 312(b) criteria and that have an enrollment of undergraduate students that is at least 25% Hispanic students. Authorized uses for grant funds are similar to those of the Title III-A programs, including facilities improvement, faculty development, curriculum development, and student services. Part B of Title V establishes the Promoting Postbaccalaurate Opportunities for Hispanic Americans (PPOHA) program. This program provides competitive grants to eligible HSIs to expand postbaccalaureate educational opportunities for Hispanic and low-income students. PPOHA grants are available to IHEs that meet the eligibility criteria for the Title V-A HSI program and that offer a postbaccalaureate certificate or degree program. Authorized uses for grant funds are similar to those under the HSI program, but also include providing direct financial assistance (e.g., scholarships, fellowships) to Hispanic and low-income postbaccalaurate students. Part C contains general provisions related to the HSI and PPOHA programs, including waiver authorities that apply to the administration of these programs and the authorized funding levels for these programs. Title VI authorizes a variety of grants to IHEs and related entities to enhance instruction in foreign language and area and international studies. Part A of Title VI authorizes a series of programs, centers, and fellowships related to international and foreign language studies. Graduate and Undergraduate Language and Area Centers and Programs . This program provides grants to IHEs to establish and operate (1) National Resource Centers, which are comprehensive foreign language and area or international studies centers and programs, and (2) a network of undergraduate foreign language and area or international studies centers and programs. Fellowships for Foreign Language and Area or International Studies . This program provides grants to IHEs to enable them to pay stipends to individuals participating in advanced training at National Resource Centers and Undergraduate International Studies and Foreign Language Program centers and programs. Language Resource Centers . This program provides grants to IHEs for the purposes of establishing, strengthening, and operating national language resource and training centers, which serve as resources to improve the capacity to teach and learn foreign languages. Undergraduate International Studies and Foreign Language Programs . This program provides grants to IHEs and related entities to plan, develop, and carry out programs to improve undergraduate instruction in international studies and foreign languages and to strengthen existing programs in undergraduate international studies and foreign language programs. Technological Innovation and Cooperation for Foreign Information Access . This program provides grants to IHEs and related entities to develop innovative techniques or programs using electronic technologies to collect and disseminate information from foreign sources on world regions and foreign countries that address U.S. teaching and research needs in international education and foreign languages. American Overseas Research Centers . This program provides grants to consortia of IHEs to establish or operate overseas research centers that promote postgraduate research, exchanges, and area studies. Part B authorizes two programs to promote and enhance international business skills and education. The Centers for International Business Education program authorizes the Secretary to make grants to enable IHEs to establish and operate centers for international business education that serve as national resources for the teaching of international business, foreign languages, and international studies and provide research and training in the international aspects of trade and commerce. The Education and Training Program authorizes grants to IHEs to operate programs designed to promote linkages between IHEs and the American business community engaged in international economic activity. Part C establishes the Institute for International Public Policy, which provides a grant to a consortium of minority-serving institutions eligible under Title III, Parts A and B, and Title V to support the preparation of underrepresented minority students for international and foreign service careers. Allowable activities include the development of a study abroad program and fellowships for graduate study. Funds for the Institute have not been appropriated since FY2011. Part D contains definitions relevant to Title VI and grants the Secretary waiver authority to reduce any nonfederal shares required by Title VI programs. Part D also authorizes the Science and Technology Advanced Foreign Language Education Grant Program. The program makes grants available to IHEs to develop programs that teach foreign languages and emphasize the understanding of science and technology, foster international scientific collaboration, and provide professional development to K-12 teachers. This program has never received funding. Title VII authorizes several programs related to supporting graduate education programs. Other programs authorized under Title VII encourage innovation in postsecondary education, enable IHEs to better serve disabled students, and support state-level postsecondary education improvements. Part A authorizes programs to support graduate education. Jacob K. Javits Fellowship Program . Subpart 1 establishes the Jacob K. Javits Fellowship Program, which awards fellowships for graduate study in the arts, humanities, and social sciences to students who intend to pursue a doctoral degree or the terminal highest degree awarded in the area of study. This program has not received funding since FY2011. Graduate Assistance in Areas of National Need . Subpart 2 establishes the Graduate Assistance in Areas of National Need program, which awards fellowships to postbaccalaureate students who pursue the highest possible degree at their institutions and in areas of national need, as designated by the Secretary. Thurgood Marshall Legal Educational Opportunity Program . Subpart 3 authorizes the Thurgood Marshall Legal Educational Opportunity Program, which provides a grant to the Council on Legal Education Opportunity (CLEO) to support low-income, minority, or disadvantaged secondary school and college students by providing such students with information, preparation, and financial assistance to gain access to and complete law school study and admission to law practice. This program has not received funding since FY2011. Masters Degree Programs at Historically Black Colleges and Universities and Predominantly Black Institutions. This program provides grants to specified HBCUs and PBIs to improve graduate education opportunities for Black Americans at the master's level in mathematics, sciences, nursing, and other scientific disciplines. This program did not receive appropriations for FY2015 and FY2016; however, the program received appropriations in FY2017 through FY2019 to fund grants for Masters Degree Programs at Historically Black Colleges and Universities. Part B of Title VII authorizes FIPSE, which authorizes the Secretary to award grants to and enter into contracts with IHEs and other nonprofit institutions and agencies to encourage the reform, innovation, and improvement of postsecondary education. Allowable uses of FIPSE grants and contracts include, but are not limited to, the design and introduction of cost-effective methods of instruction, reforms in graduate and remedial education, partnerships between high schools and colleges to establish programs to increase secondary school graduation rates of limited English proficient students, scholarships for the dependents of military service members, and special projects in areas of national need. Part B also establishes the Board of the Fund for the Improvement of Postsecondary Education, which advises the Secretary on priorities for the improvement of postsecondary education and for the evaluation, dissemination, and adaptation or demonstrated improvements in postsecondary educational practice. Title VII, Part D authorizes several programs related to postsecondary education for students with disabilities. Demonstration Projects to Support Postsecondary Faculty, Staff, and Administrators in Educating Students with Disabilities. Subpart 1 authorizes a competitive grant or contract program for model demonstration projects, technical assistance, and professional development relating to teaching methods, secondary to postsecondary transitions, research, distance learning, career pathways transitions, professional development, and accessibility in postsecondary education. This program has not received funding since FY2010. Transition Programs for Students with Intellectual Disabilities into Higher Education . Subpart 2 authorizes a competitive grant program for IHEs to create model transition and postsecondary education programs for students with intellectual disabilities. Programs to Support Improved Access to Materials. Subpart 3 authorizes a competitive grant or contract program to eligible partnerships of IHEs and expert organizations for model demonstration programs to support improved access to postsecondary materials for students with print disabilities. This program has never been funded. National Te chnical Assistance Center: Coordinating Center. Subpart 4 authorizes the Secretary to award a grant, contract, or cooperative agreement to an IHE or other nonprofit organization to establish and support a National Center for Information and Technical Support for Postsecondary Students with Disabilities, which offers a database of information on disabilities services in higher education and other support services. Subpart 4 also authorizes the Secretary to award a cooperative agreement to create a National Coordinating Center for IHEs offering inclusive, comprehensive transition programs for students with intellectual disabilities. Part E of Title VII authorizes the College Access Challenge Grant Program, which fosters partnerships between federal, state, and local governments and philanthropic organizations through matching formula grants. The partnerships are intended to increase the number of low-income students who are prepared to enter and succeed in postsecondary education. Authorized activities for grant recipients include disseminating information about the benefits of a postsecondary education, outreach activities, need-based grant aid, and professional development for guidance counselors. CACG last received appropriations in FY2014. Title VIII of the HEA includes 27 parts, each of which establishes one or more new programs focusing on an array of topics. All of the programs in Title VIII were newly added to the HEA by the Higher Education Opportunity Act of 2008. Most of these programs have not been funded. Several programs authorized under Title VIII support the goals of improving access to postsecondary education and improving enrollment, persistence, and completion rates. Generally, these programs seek to address the postsecondary education needs of specific groups of prospective or current postsecondary students. For instance, Part T, Centers of Excellence for Veteran Student Success, authorizes competitive grants to IHEs to support the academic, financial, physical, and social needs of students who are veterans of the Armed Forces. Many other programs in Title VIII are directed at enhancing programs in certain areas of study to meet workforce needs. For instance, Part S, Training for Realtime Writers, authorizes the Secretary to award grants to postsecondary court reporting programs to promote training and placement of realtime writers. Finally, Title VIII, Part AA provides annual mandatory appropriations through FY2014 to Masters Degree Programs at Historically Black Colleges and Universities and Predominantly Black Institutions and the PPOHA program, which are found under HEA Title VII-A-4 and Title V-B, respectively. The mandatory appropriations for these programs expired at the end of FY2014 and were not reauthorized. Thus, these programs have not received mandatory appropriations since FY2015. Appendix A. History of Funding for HEA Programs: FY2015-FY2019 Table A-1 of this appendix lists the sections of the HEA that provide discretionary or mandatory authorization of appropriations or budget authority for HEA programs and presents the funding amounts provided for these programs for FY2015 through FY2019. The programs are presented in the order in which they appear in the HEA. For each program, the section authorizing the appropriation of funds or providing budget authority is identified, as is the indicator of whether funding is considered discretionary (D) or mandatory (M). Appendix B. General Education Provisions Act The General Education Provisions Act (GEPA) contains a broad array of statutory provisions that are applicable to the majority of federal education programs administered by the Department of Education (ED), as well as provisions related to the powers and responsibilities of ED. These provisions cover topics as varied as appropriations, evaluations, privacy, and enforcement. This appendix briefly discusses several of the GEPA provisions that apply to programs authorized by the Higher Education Act (HEA). Part A: Functions of the Department of Education GEPA, Part A includes provisions related to the authority and responsibility of ED to administer education programs. It confers regulatory authority on the Secretary of Education and specifies that any regulation affecting an institution of higher education shall only become effective if the regulation is published in the Federal Register with an educational impact assessment statement. Part B: Appropriations and Evaluations GEPA, Part B includes provisions that address, among other issues, authorizing forward funding for programs (e.g., appropriated funds that are to be obligated in FY2011 may be appropriated in the FY2010 appropriations act). Section 422 of GEPA provides that if Congress, in the regular session that ends prior to the beginning of the terminal fiscal year of authorization of appropriations of an applicable program, does not pass legislation extending the program, the program is automatically extended for one additional fiscal year. This provision does not apply to the authorization of appropriations for commissions, councils, or committees that have statutorily specified termination dates. Part C: General Requirements and Conditions Concerning the Operation and Administration of Education Programs GEPA, Part C addresses the general authority of the Secretary, administrative requirements and limitations, the administration of education programs and projects by states, and records and limitations on withholding federal funds. Part C also contains the Family Educational Rights and Privacy Act, which provides privacy protections for student records. Part C clarifies that no provision of any applicable programs is intended to authorize federal control over educational curriculum, administration, or personnel of any educational institutions. Part D: Enforcement GEPA, Part D addresses the enforcement of laws and regulations administered by ED, including the establishment of ED's Office of Administrative Law Judges, procedures for recovering federal funds from recipients, and remedies for violations of ED laws and programs. Appendix C. Previous HEA Reauthorizations Although Congress may amend the HEA at any point in time, in general, reauthorizations are comprehensive and amend, extend, delete, and establish new programs. The HEA was first enacted in 1965 and has been comprehensively reauthorized eight times, in 1968, 1972, 1976, 1980, 1986, 1992, 1998, and 2008. Authorization for most HEA programs expired at the end of FY2014. GEPA authorized the appropriation of funds for one additional year through FY2015, and additional funds for many of the expired programs have been appropriated since FY2015. Table C-1 lists the previous reauthorization, their public law numbers, and additional resources about each reauthorization, when available. | The Higher Education Act of 1965 (HEA; P.L. 89-329) authorizes numerous federal aid programs that provide support to both individuals pursuing a postsecondary education and institutions of higher education (IHEs). Title IV of the HEA authorizes the federal government's major student financial aid programs, which are the primary source of direct federal support to students pursuing postsecondary education. Titles II, III, and V of the HEA provide institutional aid and support. Additionally, the HEA authorizes services and support for less-advantaged students (select Title IV programs), students pursing international education (Title VI), and students pursuing and institutions offering certain graduate and professional degrees (Title VII). Finally, the most recently added title (Title VIII) authorizes more than two dozen other programs that support higher education; most have never been funded. The HEA was last comprehensively reauthorized in 2008 by the Higher Education Opportunity Act of 2008 (HEOA; P.L. 110-315), which authorized most HEA programs through FY2014. Following the enactment of the HEOA, the HEA has been amended by numerous other laws, most notably the SAFRA Act, part of the Health Care and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152), which terminated the authority to make federal student loans through the Federal Family Education Loan (FFEL) program. Many HEA programs were authorized through FY2014 and were extended for an additional year, through FY2015, under the General Education Provisions Act (GEPA). Additionally, many HEA programs due to expire at the end of FY2015 were provided additional appropriations beyond FY2015 under a variety of appropriations legislation and continuing resolutions, and most recently under the Department of Defense and Labor, Health and Human Services, and Education Appropriations Act, 2019 and Continuing Appropriations Act, 2019 (P.L. 115-245). This report provides a brief overview of the major provisions of the HEA. |
Real property disposal is the process by which federal agencies identify and then transfer, donate, or sell real property they no longer need. Agencies may also consolidate or co-locate their offices in order to reduce the amount of unneeded space they own or lease. Disposition is an important asset management function because the costs of maintaining unneeded properties can be substantial, consuming financial resources that might be applied to long-standing real property needs, such as repairing existing facilities, or other pressing policy issues, such as reducing the national debt. In FY2010, the government held 77,700 buildings it identified as either not utilized or underutilized and spent $1.67 billion dollars operating and maintaining them. Federal agencies have indicated that their disposal efforts are often hampered by legal and budgetary disincentives, and competing stakeholder interests. In addition, Congress may be limited in its capacity to conduct oversight of the disposal process because it currently lacks access to reliable, comprehensive real property data. The government's inability to efficiently dispose of and utilize its property is a major reason that federal real property management has been identified by the Government Accountability Office (GAO) as a "high-risk" area since 2003. As noted, the government maintains a large inventory of unneeded or underutilized properties. These properties not only incur costs to the government to operate and maintain, but could, in some instances, be utilized by nonfederal entities—state and local governments, nonprofits, private sector businesses—to accomplish a range of public purposes, such as providing services to the homeless, or facilitating economic development. GAO reports have consistently noted that efforts to dispose of unneeded and underutilized properties are hindered by statutory disposal requirements, the cost of preparing properties for disposal, conflicts with stakeholders, and a lack of accurate data. Each of these issues is discussed here. The steps in the real property disposal process are set by statute. Agencies must first offer to transfer properties they do not need (excess properties) to other federal agencies, who generally pay market value for excess properties they wish to acquire. Unneeded properties that are not acquired by federal agencies (surplus properties) must then be offered to state and local governments, and qualified nonprofits, for use in accomplishing public purposes specified in statute, such as use as public parks or for providing services to the homeless. Agencies may convey surplus properties to state and local governments, and qualified nonprofits, for public benefit at less than fair market value—even at no cost. Surplus properties not conveyed for public benefit are then available for sale at fair market value or are demolished if the property could not be sold due to the condition or location of the property. Agencies have consistently argued that these statutory requirements slow down the disposition process, compelling agencies to incur operating costs for months—sometimes years—while the properties are being screened. Real property officials at the Department of Veterans Affairs (VA) have said the McKinney-Vento Act—which mandates that all surplus property be screened for homeless use—can add as much as two years to the disposal process. Because public benefit conveyance requirements are set in law, agencies do not have the authority to skip screening, even for surplus properties that could not be conveyed anyway. The Department of Energy (DOE), for example, told auditors that they had properties that they felt could be disposed of only by demolition, due to their condition or location, but that still had to go through the screening process, thereby forcing DOE to pay maintenance costs that could have been avoided. Statutes pertaining to environmental remediation or historic preservation also add time to the process. It may take agencies years of study to assess the potential environmental consequences of a proposed disposal, and to develop and implement an abatement plan, as required by law. Similarly, the National Historic Preservation Act requires agencies to plan their disposal actions so as to minimize the harm they cause to historic properties, which may include additional procedures such as consulting with historic preservation groups at the state, local, and federal level. Unneeded buildings are often among the older properties in an agency's portfolio. As a consequence, agencies sometimes find that they are required to complete expensive repairs and renovations before the properties are ready for disposal. Agencies may need to invest in repairs that will enable a building to meet health and safety standards, for example, or restore historic sites in accordance with federal standards. It has been estimated, for example, that VA would need to spend about $3 billion to repair the buildings in its portfolio that it rated in "poor" or "critical" condition—56% of which were vacant or underutilized, and therefore might be candidates for disposal. Agencies that wish to demolish vacant buildings face deconstruction and cleanup costs that, at times, exceed the cost of maintaining the property—at least in the short run—which may encourage real property managers to retain a property rather than dispose of it. Federal agencies frequently cite the cost of complying with environmental regulations as a major disincentive to disposal. Generally speaking, agencies are required to assess and pay for any environmental cleanup that may be needed before disposing of a property. Identifying and addressing environmental hazards, such as lead paint, asbestos, medical waste, and soil contamination, prior to disposition can result in "significant" up-front costs for agencies. Some agencies have found their disposal efforts complicated by the involvement of stakeholders with competing agendas. The Department of the Interior has said that it can be stymied by the competing concerns of local and state governments, historic preservation offices, and political factors, when attempting to dispose of some of its unneeded real property. Similarly, VA has found that communities sometimes oppose disposals that would result in new development, and veterans groups have opposed disposing of building space if that space would be used for purposes unrelated to the needs of veterans. The Department of State has had difficulty in disposing of surplus real property overseas, due to disputes with host governments that restrict property sales. These conflicts can result in delay, or even cancellation of proposed disposals, which, in turn, prevent agencies from reducing their inventories of unneeded properties. In addition to the obstacles mentioned above, data about agency real property portfolios—which might be useful for both decision making at the agency level and congressional oversight—appear to be inaccurate, and government-wide data are accessible only to the agency that manages it, the General Services Administration (GSA). Moreover, GAO audits and congressional hearings have determined that agencies regularly enter into leases rather than new construction when acquiring space, even though the leased space is more expensive over time. The Federal Real Property Profile (FRPP) is the government's most comprehensive source of information about real property under the control of executive branch agencies. GSA manages the FRPP and collects real property data from 24 of the largest landholding agencies each year. Other agencies are encouraged, but not required, to report data to GSA. The data elements that participating agencies collect and report are determined by the Federal Real Property Council (FRPC), an interagency taskforce that is funded and chaired by the Office of Management and Budget (OMB). The other members of the council are agency senior real property officers (SRPOs) and GSA. The FRPP contains data that could enhance congressional oversight of federal real property activities, such as the number of excess and surplus properties held by major landholding agencies, the annual costs of maintaining those properties, and agency disposition actions. GSA, however, does not permit direct access to the public and most federal employees, including Congress, on the grounds that the data are proprietary. GSA does respond to requests for real property data from congressional offices, but GSA staff query the database and provide the results to the requestor. Some FRPP data are made public through an annual summary report posted on GSA's website, but the summary reports are of limited use for several reasons. Most of the data are highly aggregated (e.g., the number of assets disposed of, government-wide, through public benefit conveyance), and very limited information is provided on an agency-by-agency basis. It is not possible, therefore, for Congress to monitor the performance of individual agencies through the summary reports. Basic questions, such as how many excess and surplus properties each agency holds or has disposed of in a given fiscal year, cannot be answered. Nor is it possible to compare the performance of agencies, which limits the ability of Congress to study the policies and practices at the most successful agencies and hold poorly performing agencies accountable. The quality of the FRPP data has been questioned. GAO audits have found, for example, that some real property data were incomplete or were not comparable across agencies, which limited the usefulness of those data for analysis. The most recent GAO report, from June 2012, declared that the FRPP had not been populated through sound data collection practices and key data elements—such as a building's utilization, condition, annual operating costs, mission dependency, and value—are not consistently and accurately captured in the database. The GAO report concluded that FRPP users cannot be sure that the data are sufficiently reliable to support sound management and decision making about excess and underutilized property." In addition, annual summary reports based on FRPP data may miscategorize important information on disposal methods. As discussed previously, agencies are statutorily required to dispose of properties through transfer, conveyance, sale, or demolition. Recently published FRPC summary reports, however, identify "other" as the largest or second largest category of property disposal, accounting for 46% of the total number of real property assets disposed by agencies in FY2007, nearly 73% of those disposed in FY2008, 41% in FY2009, and 33% in FY2010. Typically, the "other" data category is reserved for a relatively small number of cases that do not clearly fit into one of the major data categories, so it is unusual to see such a large number of "other" dispositions. In fact, the FRPP defines "other" disposals as those "that cannot be classified in any of the other disposition methods." The annual reports, however, do not explain why so many disposals cannot be classified as transfer, conveyance, sale, or demolition. One explanation may be that agencies are misreporting their disposal data; another may be that some disposals are a combination of methods. If so, then the data reported for all types of dispositions may be of limited use, because thousands of properties may have been miscategorized. The annual summary reports also omit data that Congress might find valuable. The FRPP contains, for example, the number of excess and surplus properties held by each agency and the annual operating costs of those properties—issues about which Congress has expressed ongoing interest—but the summary report only provides the number and annual operating costs of disposed assets, thereby providing the "good news" of future costs avoided through disposition while omitting the "bad news" of the ongoing operating costs associated with excess and surplus properties the government maintained. In addition, agencies estimate a dollar amount for the repair needs of their buildings and structures as part of their FRPP reporting, but the estimate is then folded into a formula for calculating the condition of each building. Given that repair needs are an obstacle to disposing of some properties, Congress may find it useful to have the repair estimates reported separately to help inform funding decisions. In a 2011 report, GAO wrote that it considers the government's "overreliance on costly leased space" to be one of the primary reasons federal real property continues to be designated as a "high risk" issue. The percentage of square feet leased by GSA—which leases property for itself and on behalf of many agencies—now exceeds the percentage of square feet it owns. According to GAO, leasing space is typically more expensive than owning space over the same time period. GAO cited, for example, a long-term operating lease that cost an estimated $40.3 million more than if the agency had purchased the same building. Similarly, in FY2010, the annual operating cost for a square foot of space in a building owned by the government was $5.30, but for leased space it was $15.00. GAO wrote that while the decision to lease rather than purchase space may be driven by operational requirements—such as the United States Postal Service (USPS) leasing space in areas that it believes will optimize the efficiency of mail delivery—agencies often choose to lease rather than purchase space because of budget scoring rules, even if the decision to lease is not the most cost-effective option. Under the Budget Enforcement Act of 1990, an agency must have budget authority up-front for the government's total legal commitment before acquiring space. Thus, if an agency were to construct or purchase a building, it would need up-front funding for the entire cost of the construction or acquisition, while leased space only requires the annual lease payment plus the cost of terminating the lease agreement. In addition to the budget scoring issue, some agencies have been granted independent leasing authority, which means they do not have to work with GSA to acquire leased space. Some agencies with independent leasing authority, such as the USPS and VA, have established in-house real property expertise, while other agencies with independent authority have not. The Securities and Exchange Commission (SEC), for example, entered into a $557 million, 10-year lease for 900,000 square feet, which the SEC's inspector general (IG) called "another in a long history of missteps and misguided leasing decisions made by the SEC since it was granted independent leasing authority." The IG found that "inexperienced senior management" at the SEC made poor decisions that led to acquiring three times the space needed—the original estimate provided to Congress was for 300,000 square feet—and bypassing other locations that were closer and less expensive. H.R. 1734 , which passed the House on February 7, 2012, would draw on the military base realignment and closure (BRAC) model of real property disposal by establishing an independent commission to assess agency portfolios and to recommend actions for reducing the government's inventory of unneeded and underutilized buildings and structures, as well as disposing of some properties that are not listed as excess or surplus, but which could yield savings through their disposal. Another proposal in the 112 th Congress, S. 2232 , is also loosely based on the BRAC model, but the Senate and House bills are not identical and some of their differences are identified in this report. H.R. 1734 has a broad scope, applying to space owned and leased by all executive branch agencies and government corporations—not just properties that are excess or surplus. The bill would exclude some properties, such as those held by the Department of Defense, the Coast Guard, the USPS, certain Indian and Native Alaskan properties, and properties located outside the United States. The legislation would encompass most major real property asset management functions, collectively referred to as "realigning" actions, including the consolidation, reconfiguration, co-location, exchange, sale, redevelopment, and transfer of unneeded or underutilized properties. The first step in the process proposed by H.R. 1734 would be for federal landholding agencies to develop their own recommendations for realigning their real property portfolios and for reducing operating and maintenance costs. Agencies would submit these recommendations to GSA and OMB not later than 120 days after the start of each fiscal year, along with specific data on each of the properties they own, lease, or otherwise control, including the age and condition of the property, its operating costs, and size. The GSA Administrator and the OMB Director would have two primary responsibilities under H.R. 1734 . First, they would work together to develop criteria that would be used to determine which properties should be realigned and what type of realignment should be recommended (e.g., sale or consolidation) for each property. The bill specifies that nine "principles" must be taken into account when establishing the criteria; some of the supporting data may already be collected by agencies as they develop their asset management plans or meet existing reporting requirements, such as those for the FRPP: The extent to which a property aligns with the current mission of the agency The extent to which there are opportunities to consolidate similar operations across or within agencies The potential costs and savings over time The economic impact on existing communities in the vicinity of the property The extent to which the utilization rate is being maximized and is consistent with nongovernment standards The extent to which leasing long-term space would be reduced The extent to which the property could be redeveloped The extent to which the operating and maintenance costs would be reduced through the consolidation, co-location, and reconfiguring of space The extent to which energy consumption specifically would be reduced The OMB Director, in consultation with the GSA Administrator, would then review the recommendations submitted by the agencies and revise the submissions, as needed, after conducting their own independent analysis. They would then submit revised recommendations, along with the criteria, to a newly established Civilian Property Realignment Commission. The Commission would be composed of nine members, each serving a six-year term. The chair would be appointed by the President, with the advice and consent of the Senate. The President would appoint the other eight members of the Commission, but would also be required to consult with the Speaker of the House regarding the appointment of two members, the minority leader of the House regarding one member, the Senate majority leader regarding two members, and the minority leader of the Senate regarding one member. H.R. 1734 would also require that the Commission include members with expertise in commercial real estate and redevelopment, government management or operations, community development, or historic preservation. The Commission would terminate after six years. The Commission would assess agency real property inventories and submit the "final" recommendations to the President regarding which properties should be realigned and by what method, with the over-arching objectives of decreasing the size of the federal real property portfolio, reducing operating costs, and ensuring that properties are put to their "best use" in the interest of the taxpayer. The Commission would be required to hold public hearings and develop an accounting system to help evaluate the costs and returns of various recommendations. The Commission would then submit a report to the President that would include its findings, conclusions, and recommendations. The bill would also require the Commission to submit a list of at least five federal properties not listed as excess or surplus, which have an estimated fair market value of at least $500 million. CBO estimated in its evaluation of the committee-passed version of H.R. 1734 —which included a similar provision—that the sale of high-value assets could yield $164 million in savings. The text of the House-passed version of H.R. 1734 does not specify that all of the high-value assets must be sold, although the Commission may choose to recommend selling each of them, subject to the approval of the President and Congress, as described below. While the Commission "shall seek to develop consensus" in its recommendations, the report may include recommendations supported by only a majority of Commission members. The Commission would also be required to establish a website and post its findings, conclusions, and recommendations on it. H.R. 1734 would require GAO to publish a report on the recommendations, including how properties were selected for realignment. The President would be required to review the Commission's recommendations and submit, within 30 days of receiving them, a report to Congress that identifies which recommendations are approved, and which, if any, are not. If the President approves of all of the Commission's recommendations, then he must submit a copy of the recommendations to Congress along with a certification of his approval. If the President disapproves of some or all of the Commission's recommendations, he would be required to submit a report to Congress and to the Commission identifying the reasons for disapproval, and the Commission would have 30 days to submit a revised list of recommendations to the President. If the President approves of all of the revised recommendations, he must submit a copy of the revised recommendations along with a certification of his approval to Congress. If the President does not submit a report within 30 days of the receipt of the Commission's original or revised recommendations, then the process terminates for the year and agencies are not required to dispose of any properties under H.R. 1734 . In effect, the President would be able only to approve or reject a complete list of recommendations. He would not be able to amend the Commission's recommendations himself before approving them. After receiving the recommendations approved by the President, Congress would have 45 days to review them and debate their merits. Congress would be required to vote on a joint resolution of approval by the end of that period. As with the President, Congress would have the authority only to act on the entire list, not to approve or disapprove of individual recommendations. If no joint resolution of approval is passed within the 45 day time limit, or if the resolution is passed and the President vetoes it, then agencies would not be required to implement the recommendations. If a joint resolution of approval were enacted, agencies would be required to begin implementation not later than two years from the date the President transmitted the recommendations to Congress, and to complete implementation no later than six years from the same date, unless notice is provided to the President and to Congress that "extenuating circumstances" have caused the delay. The GSA Administrator would be given authority to "take such necessary and proper actions, including the sale, conveyance, or exchange of civilian real property, as required to implement the Commission recommendations," as enacted. Other federal agencies must either use their existing authorities to implement the recommendations or work with GSA to do so. The Administrator would also have the authority to convey property for less than fair market value, or for no consideration at all. This would appear to permit agencies, working either through GSA or through their own authorities, to bypass steps in the existing disposal process. A property recommended for public sale, for example, may not have to go through the public benefit screening process. H.R. 1734 would require the Secretary of the Department of Housing and Urban Development to evaluate "to the extent practicable" certain properties for homeless use as required under the McKinney-Vento Act. The provision would apply to properties identified for disposal in an enacted joint resolution of approval that were not more than 25,000 square feet or were valued at less than $5 million. H.R. 1734 would also expand the reporting requirements for all real property actions that exceed the prospectus threshold—the dollar amount established in 40 U.S.C. 3307 above which agencies must obtain approval from the House Transportation and Infrastructure Committee and the Senate Environment and Public Works Committee. The bill would require each prospectus to include a statement of whether the proposal was consistent with H.R. 1734 and how life-cycle cost analysis was used to determine long-term costs, the life-cycle cost of a building, and "any increased design, construction, or acquisition costs identified" that are offset by lower long-term costs. H.R. 1734 would establish two accounts: a salaries and expense account to fund the Commission's administrative and personnel costs, and an asset proceeds and space management fund (APSMF), which would be used to implement recommended actions. Both accounts would receive funds from appropriations—the bill authorizes a one-time appropriation of $20 million for the salaries and expenses account and a $62 million appropriation for the APSMF—but the APSMF would also receive the proceeds generated by the sale of properties pursuant to the Commission's recommendations. The sales proceeds deposited in the APSMF account could only be used to cover the costs associated with implementing the Commission's recommendations. H.R. 1734 would require most executive agencies seeking to acquire leased space to do so only by working through GSA. This restriction would not apply to VA properties or properties excluded for reasons of national security by the President. This requirement may facilitate oversight by consolidating leasing decisions with a single agency, although it is not clear whether this would restrict GSA's ability to delegate leasing authority to other agencies. If agencies were no longer able to use independent or delegated leasing authority, it could delay the acquisition of space needed to carry out their missions. As noted earlier, the language in S. 2232 is also based on the BRAC model of real property disposal. While sections of S. 2232 are similar or even identical to sections of H.R. 1734 , there are differences, including the size of the independent Commission and the Congress's role in approving or disapproving the recommendations it receives from the President. Federal buildings, leased space, and grounds with improvements or occupants under the control of any federal agency—with a few exceptions—would be subject to S. 2232 . Properties excluded from S. 2232 include military installations subject to BRAC, properties excluded for reasons of national security, USPS properties, and certain Indian and native Eskimo properties. As with H.R. 1734 , the first step in the process under S. 2232 would be for federal landholding agencies to develop their own recommendations for realigning their real property portfolios and for reducing operating and maintenance costs. Agencies would submit these recommendations to GSA and OMB not later than 120 days after the start of each fiscal year, along with specific data on each of the properties they own, lease, or otherwise control, such as age, condition, size, funding history, and operating costs. The ultimate objective of these recommendations would be to reduce the federal inventory, reduce spending on operating costs, and to obtain the greatest value for the taxpayer. The legislation specifically mentions pursuing enhanced use leases—where the government leases unused space in federally owned buildings—as a way to realize the "highest and best use" of buildings. Also like H.R. 1734 , the GSA Administrator and the OMB Director would be required to work together to develop criteria that would be used to determine which properties should be realigned and what type of realignment should be recommended (e.g., sale or consolidation). The bill specifies the same nine "principles" from H.R. 1734 which must be taken into account when establishing the criteria. S. 2232 would also require the OMB Director, in consultation with the GSA Administrator, to review the recommendations submitted by the agencies and revise them, as needed, after conducting their own independent analysis, and submit the revised recommendations, along with the criteria, to a new Civilian Property Realignment Commission. The seven-member Commission under S. 2232 would be smaller than the nine-member Commission proposed under H.R. 1734 . The Commission in the Senate bill would include a chairperson appointed by the President, with the advice and consent of the Senate. In addition, the President would appoint two other members of the Commission, and one Commission member would be appointed each by the Senate Majority and Minority Leaders, the Speaker of the House, and the House Minority Leader. Each member would serve a six-year term. S. 2232 , like H.R. 1734 , would require that the Commission include members with expertise in commercial real estate and redevelopment, government management or operations, community development, or historic preservation. The Commission under S. 2232 would independently analyze agency real property portfolios and provide its own recommendations to the President. The Commission would be given access to all available agency real property portfolio data, including data in the FRPP. Moreover, the Commission may receive proposals and data from state and local governments and the private sector, with all such information made available to the public. The Senate bill, like H.R. 1734 , would also require the Commission to hold public hearings on its proposed recommendations and to establish a website through which it would make "relevant information" about the Commission available to the public. S. 2232 and H.R. 1734 are similar in that under both bills, the Commission would be required to identify at least five federal properties not listed as excess or surplus but which have an estimated sale price, as determined by the Commission, of at least $500 million each. Under S. 2232 , these "high-value assets" would be submitted to the President as recommendations, which, if approved, would require the sale of those properties not later than 120 days after approval, at fair market value. The Commission would also be required to identify, on an annual basis, the number of assets outside the United States managed by the Department of State—a provision not found in H.R. 1734 —that may be sold for proceeds or otherwise disposed. These properties would be included in the Commission's recommendations. The President's authorities under S. 2232 are essentially the same as those that would be provided in H.R. 1734 . Under the Senate bill, the President would be required to review the Commission's recommendations and submit, within 30 days of receiving them, a report to Congress that identifies which recommendations are approved, and which, if any, are not. If the President approves of all of the Commission's recommendations, then he must submit a copy of the recommendations to Congress along with a certification of his approval. If the President disapproves of some or all of the Commission's recommendations, he would be required to submit a report to Congress and to the Commission identifying the reasons for disapproval, and the Commission would have 30 days to submit a revised list of recommendations to the President. If the President approves of all of the revised recommendations, he must submit a copy of the revised recommendations along with a certification of his approval to Congress. If the President does not submit a report within 30 days of the receipt of the Commission's original or revised recommendations, then the disposal process terminates for the year. As noted in the discussion of H.R. 1734 , the President would be able only to approve or reject a complete list of recommended realignment actions under S. 2232 —he would not be able to amend individual recommendations. Under S. 2232 , Congress would be required to pass a joint resolution of disapproval to within 45 days of the date on which the President submits the approved list of recommendations. If Congress does not pass a joint resolution within that time frame, then agencies are required to implement the recommendations, as if they had the force of law. To assist Congress in evaluating the recommendations, S. 2232 would permit certain committees and legislative branch agencies access to the FRPP: the Senate Committees on Environment and Public Works and Homeland Security and Governmental Affairs, the House Committees on Transportation and Infrastructure and Oversight and Government Reform, and the Committees on Appropriations in both the House and the Senate. Access to FRPP data would also be provided to the Congressional Research Service, the Government Accountability Office and the Congressional Budget Office. Agencies would be required to begin implementing recommendations within one year from when the President submits them to Congress, and complete them not later than three years from the date of the President's submission. If implementation of a recommendation is not complete in three years, then the agency responsible for implementation must notify the President and Congress of the delay and estimate the time to completion. Properties that are recommended for disposal or other realignment actions, such as consolidation, would be exempted from provisions of several real property laws, including those requiring public benefit conveyance screening, specifically the homeless assistance screening requirements currently established by the McKinney-Vento Act. S. 2232 would, however, establish a streamlined disposal process for properties that were recommended for public benefit conveyance. Under the streamlined process, the Secretary of HUD would have 30 days from the date the recommendations are submitted to Congress to determine which, if any, of the properties recommended for public benefit conveyance are suitable for homeless use. Parties interested in obtaining federal property for homeless use would have another 30 days to submit a proposal. Parties interested in properties recommended by the Commission for public benefit use other than homeless assistance, must submit proposals within 30 days from which the Commission's recommendations are submitted to the President. The bill would also change the reporting requirements for all real property actions that exceed the prospectus threshold—the dollar amount established in 40 U.S.C. 3307 above which agencies must obtain approval from the House Transportation and Infrastructure Committee and the Senate Environment and Public Works Committee. S. 2232 would require each prospectus to include a statement of how it relates to CPRA and how life-cycle cost analysis was used to determine long-term costs. The life-cycle cost of a building, according to the bill, includes costs for capital investment, energy consumption, and building operations, maintenance and repairs. Smaller buildings, such as those with estimated construction costs of under $1 million or leases less than 25,000 square feet, would be exempt from the life-cycle cost requirements. In addition, the bill would require the prospectus to include, for all proposed leases, the net present value of the total estimated obligation of the federal government over the life of the contract and of the cost of constructing new space. S. 2232 would require that all agencies, other than the USPS and VA, would be required to work through GSA to obtain a lease. Properties excluded by the President for reasons of national security would also be exempt from this requirement. S. 2232 would establish the same two accounts as H.R. 1734 —one for salaries and expenses and another for real property activities, called the Asset Proceeds and Space Management Fund (APSMF). Both accounts would receive funds from appropriations—also the same structure as in H.R. 1734 —and the bill authorizes a one-time appropriation of $20 million for the salaries and expenses account and a $62 million appropriation for the APSMF—but the APSMF would also receive the proceeds generated by the sale of properties pursuant to the Commission's recommendations or appropriated funds from agencies for the costs of real property management. The sales proceeds deposited in the APSMF account could only be used to cover the costs associated with implementing the Commission's recommendations. S. 2178 was introduced on March 8, 2012, and reported with an amendment in the nature of a substitute by the Homeland Security and Governmental Affairs Committee on June 29. The bill takes a broad approach to real property management, one that builds on existing resources and expertise, requires new performance measures and reporting, emphasizes finding opportunities for agency consolidation, co-location, and reconfiguration, and requires a thorough examination of the federal leasing process. S. 2178 applies to federal buildings and structures under the control of any agency of the federal government, with the exception of Department of Defense (DOD) properties subject to Base Realignment and Closure (BRAC) legislation, properties excluded for reasons of national security, certain Indian and native Eskimo lands, and properties owned by the United States Postal Service (USPS). S. 2178 refers throughout to "underutilized" properties, which it defines as properties that are excess, surplus, underperforming (a term the bill does not define), or "otherwise not meeting the needs of the federal government," as determined by the Office of Management and Budget (OMB) Director. S. 2178 would require landholding agencies to develop a system of managing their real property holdings that would include maintaining adequate inventory controls and accountability systems; defining future workforce projections and their real property needs; identifying underutilized properties through ongoing surveys; reporting underutilized property to GSA promptly; establishing goals for reducing underutilized property; reassigning underutilized property to another activity within the agency; transferring underutilized property to other federal agencies; obtaining underutilized properties from other federal agencies before acquiring nonfederal property when new space is needed; and adopting workplace practices, management techniques, and space configurations that decrease the need for space. Some of these duties are already required by regulation, but, by codifying them, agencies would have clear standards, set in statute, against which their real property management practices could be evaluated. In addition, the language makes it clear that a complete asset management plan must include identifying opportunities for reconfiguration that could result in a more efficient use of space. S. 2178 would set in statute an interagency real property working group, the Federal Real Property Council (FRPC), that was initially established through Executive Order 13327 under President George W. Bush. S. 2178 would not alter the structure of the working group, which would consist of the senior real property officer (SRPO) of each major landholding agency, OMB's Deputy Director for Management, OMB's Controller, and the GSA Administrator. Under S. 2178 , as with E.O. 13327, OMB would chair the FRPC and provide administrative support and funding as necessary. While the structure of the FRPC would remain unchanged, S. 2178 would expand its duties. Among those new responsibilities, the FRPC would be required to publish an annual asset management plan that includes performance measures which would enable Congress both to track government-wide progress in achieving real property goals and to compare the performance of landholding agencies against industry and other public sector agencies. The FRPC would also be required to submit an annual report on the federal real property portfolio to the Senate Committees on Environment and Public Works and Homeland Security and Governmental Affairs, and the House Committees on Transportation and Infrastructure and Oversight and Government Reform. The report would include an analysis of the entire federal real property inventory, including, for each property, data on the age, condition, size, location, operating costs, history of capital expenditures, number of full time employees, and relevance of each property to the mission of the agency that controls it. The report would also be required to include data on leasing that are not reported regularly to Congress or made available to the public. For example, the report would be required to include a list of agency field offices that might be co-located with another federal real property asset; an evaluation of the leasing process that identified and documented inefficiencies in that process; and a strategy for reducing the amount of leased space used for long-term needs when doing so would be less costly. Among the data required would be a description of the quantity and type of space leased by the government as a whole and a list of existing leases where the leased space is not fully used or occupied. S. 2178 would also require the report to include an analysis of all underutilized property broken out by agency and a recommended disposal strategy for those properties that might be sold, transferred, conveyed, or demolished. The report would also be required to include an asset disposal plan that includes annual goals for reducing underutilized real property, the number of real property disposals completed and the method of disposal used, and specific milestones, measurable savings, and evaluation criteria for disposal of real property. The FRPC would be required to review all leases and work with agencies to renegotiate leases having at least two years remaining to a lower rate in an effort to achieve savings. The OMB Director would be required to prepare annual scorecards for each landholding agency to measure the success in achieving savings through all of its realignment activities. S. 2178 would require the FRPC to annually "identify and compile a list of agency field offices that are suitable for co-location with another federal civilian real property asset." The list would be submitted to the Director of OMB and the Postmaster General, and a 90-day process would begin. The first step in this process would require OMB and USPS to identify the field offices within "a reasonable distance" of other federal facilities. The second step would require USPS to send to the Director of OMB a report reviewing the initial list. After these steps are completed, agencies may lease space in USPS facilities for durations of not less than five years at a cost that is within 5 percent of the prevailing market lease rate for a similarly situated space identified under this subsection. Congress has given USPS independent authority to acquire and dispose of its real estate as it deems proper. Allowing USPS to make decisions over its real estate and property holdings has been viewed as integral to the concept of the USPS as encapsulated in the Postal Reorganization Act (PRA). This 1970 statute replaced the Post Office Department with the U.S. Postal Service, and required it to be financially self-supporting. With the PRA, Congress relinquished a great deal of control over USPS's operations as that control had proven problematic. The PRA assigned USPS the "general duty" to "maintain an efficient system of collection, sorting, and delivery of the mail nationwide." In order to carry out this obligation, Congress provided USPS with a number of powers to generate revenue and control its operational costs, including authority to "determine the need for post offices, postal and training facilities and equipment, and ... provide such offices, facilities, and equipment as it determines are needed." This authority has helped USPS respond to shifts in population by expanding its presence in areas where the number of people and businesses was growing, and scaling back USPS's operational footprint in places where population was decreasing. This authority over its property and facilities also permits USPS to alter its logistical (mail-moving) network to accommodate mail volume changes and technological developments in mail processing. The definition of "underutilized property" in Section 2 of S. 2178 would appear to do little to alter the USPS's existing authority over its real estate and properties, as it specifically excludes properties under control and custody of the Postal Service. However, the scope of the co-location provisions are not clear, because they define the term "postal property" as "real property owned by the United States Postal Service." This definition would appear to encompass the 8,644 properties that USPS owns, including post offices, mail sorting factories, and area field offices. An additional ambiguity is that the co-location provisions define "agency field office" as "the field office of a landholding agency." This would appear to apply to USPS as the Postal Service is a "landholding agency," though it is unclear if that is what is intended. (This is the sole portion of the bill to define "agency field office," a term used throughout the legislation.) The implications of this latter ambiguity are discussed below. If S. 2178 is intended to include all postal properties within its scope, then the legislation would mark a significant shift from congressional postal policy since 1970. S. 2178 would reduce some of USPS's property authority by directing USPS to work with OMB to co-locate other federal agencies into any excess space in the 8,644 USPS-owned facilities. The proceeds resulting from any lease would be required to be deposited in the Postal Service Fund. S. 2178 would require agencies with independent leasing authority to consult with GSA for leases that exceed the threshold set by GSA annually under the authority of 40 U.S.C. 3307. Agencies would also be required to acquire space at rates comparable to other properties in the area, and the GSA Administrator would be required to submit a report within 180 days of enactment that "describes the use of independent leasing authority" by agencies. S. 2178 would require the GSA Administrator to establish and maintain a "single, comprehensive, and descriptive" database of all federal real property. The Administrator would have broad discretion in determining which information is included on the website, with the bill broadly requiring the Administrator to collect information that "will best describe the nature, use and extent" of the government's real property portfolio. In addition, the database must be accessible to the public at no cost. Section 626 of S. 2178 would streamline the real property disposal process. It would require agencies to dispose of properties the OMB Director determines are underutilized. The disposal may occur through transfer, sale, conveyance, or demolition, and GSA may obligate funds to pay for the costs of identifying and preparing properties to be reported as excess—the first step in the disposal process. GSA would be repaid through the proceeds of any sale of underutilized properties. Properties may not be sold unless they would generate revenue, so properties that would cost more to prepare for sale than their estimated fair market value would not go to market at all. All properties selected for the disposal program would be exempt from a range of provisions in existing laws, including statutory provisions that would require agencies to offer the properties for public benefit conveyance. Underutilized properties may be sold, transferred, or demolished, for example, without first being offered to aid the homeless or for other public purposes, as current law requires. Proceeds from the disposal of real property would be distributed as follows: 80% would be returned to the U.S. Treasury for debt reduction; the lesser of 18% or the share of proceeds otherwise authorized to be retained under law would be retained by the landholding agencies; not more than 2% would be used to fund homeless assistance grants (as described in Section 627 of the bill). Any remaining proceeds would be returned to the Treasury for deficit reduction. Agencies would have one year to use the proceeds they received, but only after use of those funds had been authorized in annual appropriations acts. The funds could only be used for real property asset management and disposal. If an underutilized property was not sold within two years of being listed for sale, then it may be conveyed to state and local governments or qualified nonprofits, with the exception of underutilized properties not used for housing that have an area greater than 25,000 square feet or a fair market value in excess of $2 million, which would presumably remain available for sale or transfer. Within a year of enactment and annually thereafter for a period of five years, the FRPC would be required to submit to the OMB Director a report concerning which agencies had not met their disposal goals, including a list of properties awaiting disposal. In addition, the Director would be required to issue an annual scorecard that measures the success of each agency in achieving savings, and determine whether it is possible for the government to save at least $15 billion over a 10-year period. S. 2178 would permit the Secretary of the Department of Housing and Urban Development (HUD) to use funds made available under Section 626 to provide grants to eligible private nonprofit organizations through the continuum of care program established under title IV of the McKinney-Vento Homeless Assistance Act. Eligible nonprofits must use any grant funds they receive to acquire or rehabilitate property in order to provide housing or shelter for the homeless. Grant recipients must also agree to use the property only for homeless services for at least 15 years. Section 202 would require the FRPC to take the life-cycle cost of an asset into account when determining whether to lease or construct new space. The requirement applies only to properties with estimated construction costs in excess of $1 million, leased space in excess of 25,000 square feet, and assets where federal funding comprises more than 50% of the estimated total construction or lease costs. The life-cycle costs are defined in the legislation as including the sum of the estimated costs of investment, capital, installation, energy, operating, maintenance, and repair over the lifetime of the asset. S. 2178 defines "lifetime" as 50 years or the period of time in which the asset is projected to be used. H.R. 665 , which passed the House on March 20, 2012, also takes a broad approach to real property disposal reform. It includes provisions that would expedite the disposal of certain high-value properties, require GSA to establish a publicly accessible real property database, reduce the scope of the McKinney-Vento Act, and require landholding agencies to implement policies and practices that would reduce the number of unneeded properties in their portfolios. The bill would establish a real property disposal program under which the GSA Administrator and the OMB Director, based on recommendations from landholding agencies, would identify the 15 federal properties that are excess or surplus and have the highest fair market value and the greatest potential to sell. Those properties would then bypass statutory transfer and conveyance requirements and be offered for sale immediately through public auction. Upon the sale of a property, the Administrator and Director would select another high-value property to take its place, thus maintaining a pool of 15 properties for sale under the program at all times. Properties subject to BRAC legislation, USPS properties, certain Indian and Native Eskimo properties, and properties the Administrator determined are suitable for use as a public park or recreation would be excluded from the program. The expedited disposal program under H.R. 665 would not permit the sale of properties in the program for less than fair market value or if the property would not generate revenue in excess of the costs of disposal. In addition, properties selected for the H.R. 665 expedited program would be exempt from a range of provisions in existing laws, including statutory provisions that would require agencies to screen the properties for homeless use and public benefit conveyance. Under H.R. 665 , proceeds generated by the disposal of properties under the program would be deposited into the Treasury's General Fund, with 2% of that amount authorized for homeless assistance grants as authorized in Section 625 of the bill. H.R. 665 would permit HUD to use the proceeds from the disposal of properties for grants to eligible private nonprofit organizations that aid the homeless. H.R. 665 would require GSA to issue guidance on the development and implementation of agency real property plans, including recommendations for identifying excess properties, evaluating the costs and benefits associated with disposing of real property, and prioritizing disposal decisions based on agency missions and anticipated future holdings. Executive agencies would be required to maintain adequate inventory controls and accountability systems, identify underutilized properties through ongoing surveys, report underutilized property to GSA, and transfer or dispose of excess property as promptly as possible. H.R. 665 would also require agencies to develop and implement a real property plan, identify and categorize all real property owned, leased or otherwise managed by the agency, and establish goals for reducing excess property in the agency's inventory. Finally, H.R. 665 would require agencies, "to the extent possible," to reassign underutilized property to another activity within the agency, transfer underutilized property to other federal agencies, and obtain underutilized properties from other federal agencies first before acquiring nonfederal property. The bill would require GSA to issue a report within three years of enactment that would detail the efforts of each agency to reduce its excess and surplus properties, and for each property disposed of, the date, method, and cost of the disposal, the proceeds obtained from disposition, and the amount of time required to complete the disposition. The cost of bringing a property to market would be paid out of proceeds generated from the sale or transfer of real properties that were not included in the expedited disposal program. The remaining amount—net proceeds—would be deposited into the real property account of the agency that had custody of the property at the time it was declared excess. H.R. 665 would require net proceeds to be authorized for expenditure in annual appropriations acts, and those funds, if appropriated back to the agency, may only be used for real property activities. Any net proceeds not expended would be used for deficit reduction. H.R. 665 would require GSA to establish a database of all federal real property other than properties excluded for purposes of national security. The database would have to include the location and size of each property; the relevance of each property to the agency's mission; the level of utilization of each property, including whether it was excess, surplus, underutilized, or unutilized, and the number of days each property was designated as such; the annual operating costs of each property; and the replacement value of each property. Under S. 2178 , the database must also to be accessible to the public at no cost through the GSA website; use a machine-readable format; and permit users to search, sort, and download data. H.R. 665 would require the head of each of each agency to divert at least 50% of construction and demolition materials and debris by the end of year 2015. While the legislation does not define "divert," this term typically refers to recycling or reusing materials that otherwise would be disposed of at a landfill. Under H.R. 665 agencies would not be required to report properties for potential use for homeless assistance if those properties were located in an area for which the general public is denied access in the interest of national security, which the McKinney-Vento act currently requires. In addition, H.R. 665 would not eliminate the requirement that HUD publish a list of all surplus properties approved to assist the homeless in the Federal Register as current law requires. Instead, the bill would require this information to be published on a HUD or GSA website. Table 1 , below, compares key provisions from each of the four proposals examined in this report— H.R. 1734 , S. 2232 , S. 2178 , and H.R. 665 . An analytical discussion of the same provisions follows Table 1 . Both H.R. 1734 and S. 2232 propose establishing a Civilian Property Realignment Commission (CPRC) that would be responsible for the final list of recommendations to be considered by Congress. In addition, both bills, by requiring the President to seek the consent of the Senate and to consult with leaders in both chambers, could enable Congress to influence the composition of the commission. On the other hand, consultations with congressional leaders and Senate confirmation of the Commission chair could slow down the development of recommendations if the nominations of several CPRC members of the nomination process are delayed. S. 2178 would not create a new body to oversee the disposal process, but would instead utilize the existing Federal Real Property Council (FRPC) to develop asset management plans for each agency, which would include recommendations for disposal of underutilized properties. Membership on the FRPC would not be subject to congressional approval, but it would ostensibly require that the most knowledgeable real property officials from each agency play a central role in improving real property management by developing government-wide asset management principles and policies, as well as in vetting and finalizing recommendations to the OMB Director regarding which properties should be disposed of and by what method. Under H.R. 665 , agency heads would recommend properties for disposal under the program that the bill would establish, but the OMB Director and the GSA Administrator would make the final selections. Both H.R. 1734 and S. 2232 would require a 45-day timeframe for congressional action. Congress would thus have fewer than seven weeks to review all recommendations—of which there may be hundreds—before voting, which could reduce oversight of major real property actions. Consolidation projects, for example, are often complex, multi-year efforts, with long-term consequences for the agencies and communities involved, and for which Congress is asked to provide hundreds of millions, or even billions, of dollars. For this reason, Congress regularly holds hearings on major consolidation proposals. For example, the effort to consolidate the Department of Homeland Security at St. Elizabeth's in the District of Columbia (D.C.) is estimated to cost $3.26 billion and has been the subject of several congressional hearings. The consequences of the project are wide ranging, and include changing traffic patterns in D.C., relocating thousands of employees, and ensuring historic preservation requirements are met. Similar issues have been raised regarding the consolidation of Food and Drug Administration headquarters, a project that has received hundreds of millions of dollars since FY2000. Congress may not feel it has sufficient time, under the proposed time constraints, to either approve or disapprove of the recommendations. S. 2178 and H.R. 665 , on the other hand, would not require Congress to approve or disapprove a list of recommendations: both bills would use programs that are managed entirely by executive agencies. Requiring Congress to approve or disapprove of the entire list of recommended actions, rather than approving or disapproving of actions regarding each individual property, could reduce conflict between various stakeholders interested in the properties in question. Some civilian agencies have found their disposal efforts complicated by the involvement of state and local governments, nonprofits, businesses, and community leaders with competing agendas. In 2002, for example, the USPS identified a number of "redundant, low-value" facilities that it sought to close in order to reduce its operating costs. As part of the facility closure process, USPS was required to formally announce its intention to close each facility and solicit comments from the community. USPS ultimately abandoned its plans to close many facilities it identified—including post offices that were underutilized, in poor condition, or not critical to serving their geographic areas—in part due to political pressure from stakeholders. By moving the locus of decision making away from agencies and placing it in the hands of an independent commission, the amount of pressure that stakeholders exert on the process might be reduced. The consequences of Congress failing to enact a joint resolution of approval would be quite different, however, than Congress failing to enact a joint resolution of disapproval. Should Congress fail to pass a joint resolution approving the Commission's recommendations, as would be required under H.R. 1734 , then agencies would not be required to implement any of the recommended actions. If Congress failed to pass a joint resolution of disapproval of the Commission's recommendations, as proposed under S. 2232 , then the recommendations would take legal effect and agencies would be required to begin implementation. The joint resolution of disapproval would potentially make it much more difficult to stop recommendations sent to Congress from becoming law, particularly if the President vetoed the joint resolution of approval.. Agencies have long argued that public benefits conveyance requirements, particularly those that require screening for homeless use, create an administrative burden that delays disposition and drives up maintenance costs (see the " Statutory Disposal Requirements " section of this report). Therefore, savings may be generated to the extent that properties are able to bypass screening requirements and move through the disposal process more quickly. Under H.R. 1734 agencies would not be permitted to go beyond their existing authorities when disposing of properties as required by enacted recommendations, although GSA would be given the authority to "take such necessary and proper actions" to implement the Commission's recommendations. In addition, the identification of specific properties for specific disposal or realigning actions may permit those properties to bypass statutory requirements that may otherwise have applied, such as those regarding public benefit conveyance. By contrast, S. 2232 , H.R. 665 and S. 2178 explicitly exempt properties from public benefit conveyance requirements, but the exemptions under H.R. 665 would apply only to the 15 "high-value" properties that would be included in the program at any given time, while the exemptions under both S. 2232 and S. 2178 would apply to all properties recommended for disposal—potentially a much higher number than would be exempted under H.R. 665 . As discussed earlier in this report, basic data on the federal real property portfolio—including information on how many excess and surplus properties each agency holds—are currently limited. H.R. 1734 would require a report to be posted on a federal website that would make "relevant information" about the Commission's recommendations available. H.R. 1734 would also require GAO to perform a detailed analysis of the recommendation and selection process, although no timeline is specified for the completion of the report, so it may not be completed until after Congress has had to vote on the President's recommendations. The Commission, however, would have the authority to access all information pertaining to the recommendations, including detailed data on each property's age, condition, operating costs, size, and the number of employees housed at the property. The Commission would also have access to other data that may be used by agencies when making their recommendations, such as the potential costs and savings of each realignment proposal. The Commission itself would be required to post a report on its findings, conclusions, and recommendations on its own website, which may result in agency-level data being made public through the Commission. As noted, S. 2232 would make the central database of government-wide real property information—FRPP—available to six committees and three legislative agencies. This would permit Members and their staff, and their support agencies, to more effectively assist Congress with evaluating the Commission's recommendations and develop future legislation. Agency recommendations would be published in the Federal Register and transmitted as a report to the committees with FRPP access, and the Commission would post "relevant information" about its proceedings and recommendations on a publically accessible website. S. 2178 would require the FRPC to submit to four committees a report that contains descriptive data similar to the report required under H.R. 1734 . The report proposed by S. 2178 would require data not found in other proposals that Congress may find useful, such as an assessment of the leasing process, and recommendations for reducing the use of leased space for long-term needs; specific milestones for disposing of properties; and a requirement to attempt to renegotiate properties with at least two years left on their leases to reduce costs. S. 2178 would require GSA to establish a descriptive database that must be available at no cost to the public, but it does not specify what data must be included, or what functionality the database must have. If the database includes all of the data currently stored in the Federal Real Property Profile (consistent with national security concerns), and has the same search capabilities as the FRPP, then the new database could become a very useful oversight tool. However, the data might be limited in scope or could suffer from poor quality, which could decrease the utility of the data for making decisions or conducting analyses. As noted, H.R. 665 would require GSA to establish and maintain a database of all federal real properties (other than those excluded for reasons of national security) that would be accessible to the public at no cost. The database would be required to include a wealth of descriptive information of each property, and it would permit users to search, sort, and download data. This approach would potentially provide the widest public access to federal real property data, and is the only proposal that would require online data to be searchable and downloadable—functions that transparency advocates believe are important tools for effective public oversight of federal spending. Each of the bills analyzed in this report establishes procedures for selecting federal properties to sell and for the distribution of sales proceeds. Generally, each of the bills would apply net proceeds towards further real property disposals and reducing the federal deficit or debt. It is not clear, however, that much revenue might be generated under each bill, given the lack of even the most basic data needed for analysis. For example, it is not known how many excess, surplus, and underutilized properties are held by each agency, how much it would cost to bring each property to market, and the estimated fair market value of individual properties. FRPP data show that sales have not generated significant net proceeds—the amount of revenue remaining after the costs of bringing the property to market are deducted—in recent years. For example, in FY2010, the government sold 466 properties that generated in $57 million in net proceeds, and in FY2009 the government sold 2,228 properties that generated $50 million in net proceeds. The costs of bringing properties to market—whether they are due to environmental remediation, a backlog of needed repairs, or historic preservation requirements—or the undesirable location of unneeded properties are among reasons that so little profit is generated through sales. The proposed bills may increase sales revenue, however, by bringing properties to market that are in more desirable locations or less costly to prepare for sale. S. 2232 and H.R. 1734 , for example, would both require the Civilian Property Realignment Commission to recommend at least five properties that are not identified as excess or surplus—and therefore not subject to disposal requirements—but which have relatively high fair market value ($500 million total under H.R. 1734 and $500 million each under S. 2232 ). Similarly, under S. 2178 the Director of OMB would have the authority to require agencies to sell properties that are not excess or surplus. If agencies are holding properties that are valuable, and which they have not declared excess—the first step in the disposal process—then these bills may provide a mechanism by which those properties may be brought to the market and possibly generate greater net proceeds than sales have in recent years. H.R. 665 would limit the scope of its real property disposal pilot program to properties that are declared excess or surplus, but it might also increase sales revenue and net proceeds by bringing the 15 properties most likely to sell at a high market value to be auctioned. If agencies invest their real property funds in bringing these properties to market as soon as possible, then valuable properties which might otherwise have been conveyed or slowly moving through the screening process would be up for sale weeks, months, or even years sooner than under the current process. FRPP data also show that the reduction of operating and maintenance costs through three methods of disposal—conveyance, sale, and demolition—have yielded greater annual savings to the government than net proceeds from sales have. In FY2010 the government reduced its annual operating costs by $274 million by disposing of unneeded properties through all methods and by $145 million in FY2009—four times the amount of net proceeds from sales for those same years. These figures do not include savings reported in the FRPP data that are the result of transferring properties between federal agencies, since the operating and maintenance costs have only been shifted from one agency to another, not eliminated, as when properties are taken out of the federal portfolio through sale, conveyance, or demolition. The government might generate greater value to the taxpayer, then, by disposing of some properties through the quickest possible method, rather than attempting to sell them, depending on variables such as how likely properties are to be sold, the cost of bringing them to market, and whether estimated net proceeds would exceed the operating and maintenance costs accrued while the property was on the market. | Federal executive branch agencies hold an extensive real property portfolio that includes approximately 399,000 buildings. These assets have been acquired over a period of decades to help agencies fulfill their diverse missions. Agencies hold buildings with a range of uses, including offices, health clinics, warehouses, and laboratories. As agencies' missions change over time, so, too, do their real property needs, thereby rendering some assets less useful or unneeded altogether. Healthcare provided by the Department of Veterans Affairs (VA), for example, has shifted in recent decades from predominately hospital-based inpatient care to a greater reliance on clinics and outpatient care, with a resulting change in space needs. Similarly, the Department of Defense (DOD) reduced its force structure by 36% after the Cold War ended, and has engaged in several rounds of base realignments and installation closures. Real property disposition is the process by which federal agencies identify and then transfer, donate, or sell real property they no longer need. Disposition is an important asset management function because the costs of maintaining unneeded properties can be substantial, consuming financial resources that might be applied to pressing real property needs, such as repairing existing facilities, or towards other pressing policy issues, such as reducing the national debt. In FY2010—the most recent data available—the government held 77,700 buildings it identified as either not utilized or underutilized and spent $1.67 billion dollars operating and maintaining them. Agencies have said that their efforts to dispose of unneeded space are often hampered by legal and budgetary disincentives, and competing stakeholder interests. In addition, Congress may be limited in its capacity to conduct oversight of the disposal process because it currently lacks access to reliable, comprehensive, real property data. The government's inability to efficiently dispose of its unneeded property is a major reason that federal real property management has been identified by the Government Accountability Office (GAO) as a "high risk" area since 2003. This report begins with an explanation of the real property disposal process, and then discusses some of the factors that have made disposition relatively inefficient and costly. It then examines four bills introduced in the 112th Congress that would address those problems: the Federal Real Property Asset Management Reform Act (S. 2178), the Excess Federal Building and Property Disposal Act (H.R. 665), and two bills titled the Civilian Property Realignment Act (H.R. 1734 and S. 2232) which are similar, but not identical. This report concludes with a discussion of policy options for enhancing both the disposal process and congressional oversight of it. |
In recent years, state and federal laws have facilitated law enforcement's expanded use of deoxyribonucleic acid (DNA) for investigating and prosecuting crimes. These laws authorize compulsory collection of biological matter, which local law enforcement agencies send to the Federal Bureau of Investigation (FBI) for analysis. The FBI then stores unique DNA profiles in a national distributive database, through which law enforcement officials match individuals to crime scene evidence. Early laws authorized compulsory extraction of DNA only from people convicted for violent or sex-based felonies, such as murder, kidnapping, and offenses "related to sexual abuse"—crimes associated with historically high recidivism rates and for which police were likely to find evidence at crime scenes. However, in recent decades, new laws have greatly extended the scope of compulsory DNA collection, both by expanding the range of offenses triggering collection authority and, more recently, by authorizing compulsory collection from people who have been arrested but not convicted. Opponents of DNA databases suggest that DNA databases are "Orwellian" because of the amount of information about private citizens that they put into the control of the government. The most frequent criticism is that the programs violate the Fourth Amendment to the U.S. Constitution. Several federal courts have heard cases alleging that it is unconstitutional for an individual's pre- or post-trial release to be conditioned on DNA collection. Another Fourth Amendment argument, albeit a less litigated one, contends that it is unconstitutional to permit the use of databanked DNA profiles for purposes other than identifying a genetic match with a suspect. The Fourth Amendment protects individuals' privacy from unreasonable searches and seizures by the government. Federal courts have generally held that compulsory DNA collection from a person who has been convicted of a felony or other qualifying crime and placed under the supervision of the criminal justice system does not constitute an unreasonable search under the Fourth Amendment. These courts found that a convicted felon has a diminished expectation of privacy and that DNA profiling is a minimal intrusion into that privacy. Far fewer cases have given the federal courts an opportunity to decide whether DNA collection from arrestees is also constitutional. The two federal circuit courts of appeals to hear the question upheld the mandatory DNA profiling of indicted arrestees, but no federal court has assessed the constitutionality of profiling arrestees in the absence of a grand jury indictment or judicial finding of probable cause. Similarly, the courts have not yet had an opportunity to articulate the constitutional limits on how databanked DNA profiles may be used. This report traces the expansion of the statutory authorities for DNA databases and identifies emerging areas of consensus and discord among the federal courts over the Fourth Amendment consistency of compulsory DNA collection and the use of DNA databases. It also predicts additional Fourth Amendment issues that may come before both Congress and the federal courts in the near future. DNA is a complex molecule found in the nucleus and mitochondria of an organism's cells. It consists of two strands of nucleotides, the sequence of which contains the information that forms the basis of the human genetic code. The vast majority of human DNA is exactly the same, but small variations in the sequencing of the nucleotides create people's distinguishing characteristics. Only identical twins share the same DNA profile. With the help of DNA profiling technology, forensic scientists can examine different regions—or "loci"—of DNA to develop a DNA profile of the person from whom the DNA was extracted. Because forensic analysts examine a select group of loci, the resulting DNA profile may not necessarily be unique to that individual. However, advances in technology have enabled analysts to produce increasingly discriminating profiles. Today, the probability that two unrelated individuals would share a DNA profile derived from an uncontaminated sample of DNA from a cell's nucleus is estimated to be one in a billion at most. DNA profiles are often compared to fingerprints. As with fingerprints, law enforcement officers collect DNA samples from specific classes of individuals, such as prisoners. However, compulsory DNA collection generally entails blood or saliva samples rather than finger impressions, and DNA profiles can later match any of many types of biological matter obtained from crime scenes. For these reasons, DNA matching is considered a complement to, rather than merely a supplement for, fingerprint analysis in identifying criminal suspects. The FBI administers DNA storage and analysis for law enforcement agencies across the country. FBI analysts create DNA profiles by "decoding sequences of 'junk DNA.'" So-called "junk DNA" is the name for DNA loci that are "not presently recognized as being responsible for trait coding." Because junk DNA is not currently "associated with any known physical or medical characteristics," its use in forensic analysis prevents, at least for the time being, DNA profiles from containing private or sensitive information about the subject. Typically, a law enforcement agency's phlebotomist collects a blood or saliva sample from the subject pursuant to state or federal law. The sample may then be analyzed and converted into a DNA profile by a public laboratory (or outsourced by that public lab to a private one) that adheres to the FBI's Quality Assurance Standards. Assuming the laboratory and analyst that generated the profile are adequately credentialed, the resulting DNA profile may then be entered into the Combined DNA Index System (CODIS). CODIS includes DNA profile databases composed at the local, state, and national levels. At the national level, the National DNA Index System (NDIS) facilitates sharing of DNA profiles among participating law enforcement agencies throughout the United States. At each level, profiles are categorized into forensic (crime scene) profiles, offender profiles, and arrestee profiles. As of March 2011, NDIS contained over 9,535,059 offender profiles. CODIS is primarily evaluated by the number of criminal investigations that CODIS aids. As of March 2011, CODIS had assisted more than 135,500 investigations, suggesting that between 1% and 2% of all samples taken from an offender have assisted a criminal investigation. The categories of individuals from whom law enforcement officials may require DNA samples have expanded in recent years. The federal government and most states authorize compulsory collection of DNA samples from individuals convicted for specified criminal offenses, including all felonies in most jurisdictions and extending to misdemeanors, such as failure to register as a sex offender or crimes for which a sentence greater than six months applies, in some jurisdictions. In addition, the federal government and some states now authorize compulsory collection from people whom the government has arrested or detained but not convicted. As amended, the DNA Analysis Backlog Elimination Act 2000, discussed below, authorizes compulsory collection from individuals in federal custody, including those detained, arrested, or facing charges, and from individuals on release, parole, or probation in the federal criminal justice system. Under the federal law, if an individual refuses to cooperate, relevant officials "may use or authorize the use of such means as are reasonably necessary to detain, restrain, and collect a DNA sample." State laws vary, but nearly all states authorize compulsory DNA collection from people convicted for specified crimes, and a small but growing number of states also authorize compulsory collection from arrestees. At the federal level, statutory authority for compulsory DNA collection has expanded relatively rapidly. During the 1990s, a trio of federal laws created the logistical framework for DNA collection, storage, and analysis. The DNA Identification Act of 1994 provided funding to law enforcement agencies for DNA collection and created the FBI's Combined DNA Index System to facilitate the sharing of DNA information among law enforcement agencies. Next, the Antiterrorism and Effective Death Penalty Act of 1996 authorized grants to states for developing and upgrading DNA collection procedures, and the Crime Identification Technology Act of 1998 authorized additional funding for DNA analysis programs. The resulting framework centers on CODIS; more than 180 law enforcement agencies throughout the country participate in the system. In recent years, federal and state laws have expanded law enforcement authority for collecting DNA in at least two ways. First, laws have increased the range of offenses which trigger authority for collecting and analyzing DNA. In the federal context, the DNA Analysis Backlog Elimination Act of 2000 limited compulsory extraction of DNA to people who had been convicted of a "qualifying federal offense." Under the original act, "qualifying federal offenses" included limited but selected felonies, such as murder, kidnapping, and sexual exploitation. After September 11, 2001, the USA PATRIOT Act expanded the "qualifying federal offense" definition to include terrorism-related crimes. In 2004, the Justice for All Act further extended the definition to reach all crimes of violence, all sexual abuse crimes, and all felonies. Similarly, almost all states now authorize collection of DNA from people convicted of any felony. Second, laws have authorized compulsory DNA collection from people who have been detained or arrested but not convicted on criminal charges. The DNA Fingerprinting Act of 2005 authorized collection "from individuals who are arrested or from non-U.S. persons who are detained under the authority of the United States." The Adam Walsh Child Protection and Safety Act of 2006 subsequently substituted "arrested, facing charges, or convicted" for the word "arrested" in that authority. The U.S. Department of Justice implementing regulations took effect January 9, 2009. Mirroring the statutory language, it requires U.S. agencies to collect DNA samples from "individuals who are arrested, facing charges, or convicted, and from non-United States persons who are detained under authority of the United States." As mentioned, some states have likewise enacted laws authorizing collection of arrestees' DNA. Legislation was proposed in both the 111 th and 112 th Congress to provide incentives to encourage states to establish processes for collecting DNA from persons arrested for specified state offenses. As discussed below, courts measure the intrusiveness of DNA databanking programs by considering both the circumstances under which a DNA profile was collected and the uses to which that DNA profile can be put upon its inclusion in a database. It is, therefore, noteworthy that, in addition to expanding the number and variety of circumstances under which DNA profiling is statutorily required, policymakers have expanded the number and variety of purposes for which databanked profiles can be used. In particular, the number of states that permit "familial searching" is increasing. Familial searching is a DNA database search method based on "partial matches" between the DNA profile searched and one—or several—of the DNA profiles in the database. By contrast, a "routine" search of a DNA database compares a complete, well-preserved DNA sample from a single source with the databanked profiles. It is also a "high stringency" search, which means that it is a very discriminating search intended to produce only a "direct match." However, in some circumstances, a crime laboratory seeking to perform a routine search may find it necessary to conduct a lower stringency search, perhaps because the DNA sample being processed is degraded. In that case, the search could generate partial matches that are less accurate than a direct match at predicting the identity of the sample's source. In some states, partial matches may be recorded and used in a criminal investigation. Although some commentators characterize this method of generating partial matches as a type of familial searching, the FBI does not. According to the FBI, familial searching entails taking a complete and well-preserved DNA sample from a single source and, usually after conducting an unsuccessful high stringency search, conducting a lower stringency search with the intent of generating partial matches. In other words, under the FBI's definition, a familial search is a deliberate database search for potential relatives of the suspect—not for the suspect himself. These searches may not be conducted in the National DNA Index System (NDIS), but the FBI has developed provisional procedures for authorizing the release of inadvertently obtained partial match information to law enforcement. As for state databases, some states prohibit familial searching by law or by informal policy, while others have permitted it. Although Congress has encouraged DNA databanking, it has also constrained the government's authority to use and retain all DNA profiles indefinitely. In particular, federal law mandates expungement of DNA samples upon an arrestee's showing of discharge or acquittal or a convict's showing that the conviction was overturned. These provisions apply to DNA collected by state and local law enforcement officers, in addition to DNA collected in the federal justice or detention systems. However, DNA profiles of convicts who complete their sentences are not eligible for expungement under federal law. Expungement occurs upon written request; it does not occur automatically. To have a DNA profile expunged from the database, its source must submit, in addition to the written request, a certified copy of a final court order establishing that the conviction was overturned or that charges were dismissed, not filed, or resulted in acquittal. The Fourth Amendment to the U.S. Constitution provides a right "of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures." Two fundamental questions arise in every Fourth Amendment challenge. First, does the challenged action constitute a search or seizure by federal or local government and thus trigger the Fourth Amendment right? Second, if so, is the search or seizure "reasonable"? Different tests trigger the Fourth Amendment right depending on whether a litigant challenges government conduct as a seizure or as a search. Seizures involve interference with property rights; a seizure of property occurs when government action "meaningfully interferes" with possessory interests or freedom of movement. In contrast, searches interfere with personal privacy. Government action constitutes a search when it intrudes upon a person's "reasonable expectation of privacy." A reasonable expectation of privacy requires both that an "individual manifested a subjective expectation of privacy in the searched object" and that "society is willing to recognize that expectation as reasonable." In general, people have no reasonable expectation of privacy for physical characteristics they "knowingly expos[e] to the public." In evaluating whether people "knowingly expose" identifying characteristics, the Supreme Court has sometimes distinguished the drawing of blood and other internal fluids from the taking of fingerprints. At times, it has signaled that people lack a reasonable expectation of privacy in their fingerprints, but it has held that extraction of blood, urine, and other fluids implicates an intrusion upon a reasonable expectation of privacy, presumably because the former category is "knowingly exposed" to the public while the latter category generally is not. Under modern Supreme Court precedent, a further complicating factor is that reasonable expectation of privacy depends not only on the type of evidence gathered, but also on the status of the person from whom it is gathered. The inquiry is not simply a yes-or-no determination, but appears to include a continuum of privacy expectations. For example, in United States v. Knights , the Court held that the "condition" of probation "significantly diminished" a probationer's reasonable expectation of privacy. This diminished privacy expectation did not completely negate the probationer's Fourth Amendment right; however, it affected the outcome under the Court's Fourth Amendment balancing test. When government action constitutes a search or seizure, "reasonableness" is the "touchstone" of constitutionality. A search by law enforcement officers is reasonable if supported by a warrant backed by probable cause. However, some searches do not need to meet this warrant standard. For example, searches that entail only a limited intrusion of the suspect's privacy, such as a pat-down, satisfy Fourth Amendment strictures if justified by "reasonable suspicion" based on "specific reasonable inferences." Courts have generally analyzed the Fourth Amendment consistency of DNA databanking programs under yet another reasonableness test: the "general balancing," or "totality-of-the-circumstances" test, which determines the constitutionality of certain "suspicionless" searches that the courts have deemed particularly non-intrusive and/or necessary. This general balancing test weighs the "degree to which [a search or seizure] intrudes upon an individual's privacy" with "the degree to which it is needed for the promotion of legitimate governmental interests." Historically, courts used the general reasonableness test in three situations: (1) when a routine, administrative purpose justified regular searches; (2) where a long-recognized warrant exception existed, such as for border searches; and (3) where a "special nee[d], beyond the normal need for law enforcement, [made] the warrant and probable cause requirements impracticable." Recently, the Supreme Court cast its Fourth Amendment analysis in "totality-of-the-circumstances" terms in addressing a suspicionless search of a parolee's pockets. In that case, Samson v. California , the Court seemed to apply the general balancing test because the petitioner, as a parolee, had diminished legitimate expectations of privacy that were easily outweighed by the state's substantial interests. In other words, the Court found that the search was particularly non-intrusive because the petitioner was subject to the penal system's supervision. The status of a search's subject within the penal system is now an accepted justification for evaluating the Fourth Amendment consistency of that search under the general reasonableness test. Notably, however, while prisoners, parolees, probationers, and supervised releasees all have diminished privacy rights, their privacy rights are not all diminished equally. Instead, the privacy rights of prisoners, parolees, probationers, and supervised releasees exist on a spectrum. Prisoners have virtually no privacy rights but each subsequent category has slightly greater privacy rights than the one preceding it. The Supreme Court has not accepted a case reviewing a compulsory DNA collection statute. However, the courts have uniformly held that compulsory DNA collection and analysis constitutes a search, and thus triggers Fourth Amendment rights. Accordingly, compulsory DNA collection and profiling laws violate the Fourth Amendment if they fail the reasonableness test. As stated, on the "privacy continuum" prisoners, parolees, probationers, and supervised releasees share diminished, but not necessarily equivalent, privacy rights. Moreover, according to the federal appeals courts, the privacy rights of all four types of convicted offenders are diminished to such an extent that they have no reasonable expectation of privacy in their DNA or DNA profile. Indeed, the vast majority of U.S. Courts of Appeals have upheld either the federal law mandating DNA collection and analysis from prisoners, parolees, and probationers or a similar state law. In these cases, the only source of conflict between the courts appears to be the appropriate rationale for evaluating these laws under the "totality-of-the-circumstances" test. A majority of courts use the state's court-ordered supervision of the subject as their sole rationale for applying this standard. However, some federal circuit courts of appeals have applied the traditional special needs methodology, assessing whether the collection of the subject's DNA was justified by a "special need beyond the ordinary needs of normal law enforcement" before evaluating whether the government's acquisition and use of the subject's DNA was reasonable under the totality of the circumstances. Although courts have noted this analytical distinction, it may have no practical import because, regardless of the standard applied, courts have consistently upheld compulsory post-conviction DNA collection laws. To date, only a handful of state and federal judicial decisions address compulsory collection of DNA from persons awaiting a criminal trial, making it difficult to draw conclusions about the constitutionality of this policy. However, recently two federal circuit courts of appeals—the Ninth Circuit and the Third Circuit—held that conditioning an arrestee's pre-trial release on DNA sampling is consistent with the Fourth Amendment. These cases may indicate the approach to this question that other federal circuits are likely to take. In United States v. Mitchell and United States v. Pool , the Third and Ninth Circuits respectively upheld the government's request of a criminal arrestee's DNA sample after the arrestee had been indicted but before trial. Both applied the general reasonableness test on the grounds that the subject of the DNA profile was an arrestee and therefore had sufficiently diminished privacy rights to be subjected to reasonable suspicionless searches. The courts also adopted similar views of the extent to which (1) the arrestee's privacy rights were diminished because of the probable cause determination justifying arrest; (2) DNA collection and databanking intruded upon a person's privacy interests; and (3) DNA profiling served a substantial government interest. In both cases, the arrestee had been indicted by a grand jury prior to his arrest. For the Ninth Circuit, Pool's indictment was a "watershed event" after which the arrestees' privacy rights were so diminished as to make warrantless and suspicionless searches reasonable. The Third Circuit, however, left undecided whether grand jury indictment—or a judicial finding of probable cause—was a necessary prerequisite for finding that the arrestee had substantially reduced privacy rights. This suggests that, in future cases, courts might find that a person who is detained solely upon the arresting officer's finding of probable cause might have greater privacy rights in his DNA profile than either Mitchell or Pool. On the extent of the privacy intrusion, both courts characterized DNA profiling as no more intrusive than fingerprinting or photographing a suspect. In adopting this position, the Third Circuit rejected the lower court's description of DNA collection as an act of "information science"—a "quantum leap" in terms of intrusiveness from the "identification science" involved in fingerprinting. Having determined that the only intrusion entailed in DNA collection was the identification of the arrestee, the Third Circuit wrote that the indictment and subsequent arrest of a person deprives the arrestee of any legitimate privacy right in anonymity. The Third and Ninth Circuits also agreed that the government's interests in DNA databanking are sufficiently important to outweigh any privacy intrusion created by DNA collection. In Pool , the Ninth Circuit stated that the government had two "substantial" interests in DNA profiling: (1) identifying the arrestee so as to determine who is in government custody and whether that person may have been involved in other crimes; and (2) discouraging the arrestee from violating the conditions of pre-trial release. The Third Circuit in Mitchell characterized the "most compelling" government interest as the accurate identification of arrestees, reasoning that this information helps the state determine whether or not the arrestee should be detained pending trial. Moreover, the Third Circuit wrote, the government needs this information "as soon as possible," which means that the government's interest in identifying the arrestee is not served equally well by collecting his DNA after conviction rather than before it. In addition to the constitutionality of compulsory DNA collection, a second set of emerging Fourth Amendment issues with DNA database programs concerns the retention and use of DNA samples and profiles. For example, in United States v. Mitchell , discussed above, the arrestee argued that the indefinite retention of his DNA profile would violate the Fourth Amendment. However, the Third Circuit declined to reach the merits of his argument because Mitchell's DNA sample had not yet been collected, rendering its potential retention not yet ripe for judicial review. Federal law requires the FBI to expunge DNA profiles for people who receive acquittals or whose convictions are overturned. Courts have pointed to these provisions as reducing the intrusiveness of collecting DNA samples from arrestees. This case law suggests that sources of lawfully collected and databanked DNA maintain some degree of privacy interests in their DNA profiles. However, it is not clear whether convicted felons retain those rights as well, and, if they do, what types of actions would unreasonably intrude upon those rights. The federal expungement provisions do not address storage of DNA from people who have successfully completed their sentences. Rather, once a person's DNA profile has been entered into CODIS database, "police at any level of government with a general criminal investigative interest ... can tap into that DNA without any consent, suspicion, or warrant, long after his period of supervised release ends." Convicted felons who have completed their sentences have initiated Fourth Amendment challenges to the government's indefinite storage of their DNA profiles and samples. However, few courts have been convinced by their arguments. In particular, judicial skepticism of genetic exceptionalism has made it difficult for defendants to overcome the established constitutionality of the government's indefinite retention of fingerprints and other identification records of convicted felons. Nevertheless, like the cases over DNA collection from an arrestee, cases upholding the government's use and storage of databanked DNA after its source completes his sentence diverge. In particular, dicta in state and federal court opinions augur judicial divergence over the extent to which an offender retains privacy rights in his DNA sample and profile after his full release from the penal system. The First Circuit acknowledged this apparent dissensus in its 2010 case, Boroian v. Mueller . In that case, the court upheld the government's indefinite retention and periodic matching of a felon's DNA after his sentence was completed. However, it also expressly refused to hold "as some courts have suggested" that, upon a DNA sample's lawful extraction and databanking, its source "loses a reasonable expectation of privacy with respect to any subsequent use of that profile." Instead, the First Circuit ruled that, once a qualified offender's DNA "profile has been lawfully created and entered into CODIS ... the FBI's retention and periodic matching of the profile against other profiles in CODIS for the purpose of identification is not an intrusion on the offender's legitimate expectation of privacy." In other words, Boroian suggests that there could be circumstances in which the post-sentence retention and use of a DNA profile violate its source's reasonable expectation of privacy. As the First Circuit in Boroian pointed out, however, several state courts have not reached such a limiting conclusion, and their more expansive view may have support within the federal judiciary. For example, the Supreme Court of the State of Hawaii held in State v. Hauge that "once a blood sample and DNA profile is lawfully procured from a defendant, no privacy interest ... in either the sample or the profile" prevents its indefinite use and retention by the government. Significantly, Judge Easterbrook of the U.S. Court of Appeals for the Seventh Circuit expressed support for this perspective in his concurrence in the 2004 case Green v. Berge , in which he wrote that lawfully obtained DNA samples may be put to a wide variety of uses beyond indefinite storage and periodic matching because "the Fourth Amendment does not control how properly collected information is deployed." The difference between the First Circuit's view in Boroian and Judge Easterbrook's opinion in Green has significant implications for the potential uses of DNA databases and the information they contain. Database opponents characterize laws that authorize or condone the use of DNA databases to research anything other than a suspect's identity as making the database program particularly intrusive. Although these concerns have yet to form the basis of a Fourth Amendment challenge to a DNA databanking program, they are premised on a belief that people retain a substantial privacy interest in the information encoded in their DNA even after they have been convicted and their DNA lawfully included in a DNA database. Congress has generally sought to restrict the non-forensic use of DNA databases to those with the potential to enhance the forensic utility of CODIS. The DNA Analysis Backlog Elimination Act of 2000 criminalized both (1) the knowing disclosure of a sample or DNA analysis to someone who is not authorized to receive it and (2) the unauthorized acquisition or use of such a sample or analysis. However, federal law does not also entitle individuals aggrieved by the misuse of their profiles to pursue a private cause of action against those responsible. In other words, federal law prohibits most non-forensic uses of DNA databases but does not specifically authorize private individuals to enforce this prohibition. While database opponents would like to see federal law incorporate a private cause of action, their primary concern is with state laws that permit a wider range of non-forensic uses of state DNA databases. Some state legislatures, for example, have expressly authorized the use of the state DNA database for medical and academic research. In the eyes of database opponents, these states have established databanking programs that are more intrusive for the purposes of the Fourth Amendment than those that follow the stricter federal standards. Although these claims have not been raised before a federal judge, they can draw support from language in existing case law. Several courts have considered, as part of their Fourth Amendment analysis, both the range of purposes for which a given DNA database can be used and the penalties for any misuse. However, courts have also indicated that, until a case presents facts establishing that a DNA database was used for a non-forensic purpose, a court cannot accurately measure any resulting privacy intrusion or assess its Fourth Amendment reasonableness. Although concerns about possible non-forensic use of DNA databases are reflected in state and federal laws, the universe of possible forensic uses of DNA databases has generated greater public concern in recent years. In particular, the technique known as "familial searching" has received widespread media attention—both positive and negative—over the last decade. The FBI defines a familial search as a deliberate database search for potential relatives of the suspect. Federal courts have not yet had an occasion to assess the constitutionality of familial searching. The arrestee in United States v. Mitchell , discussed above, argued that one reason that developing his DNA profile is more intrusive than obtaining his fingerprints is that, through the former, the government can obtain information about his biological relationships and any criminal activity by a member of his family. However, the court did not address this argument in its analysis, finding, inter alia , that Mitchell had failed to provide any evidence to establish the possibility that his DNA—which had not yet been collected—would be used in this way. Some privacy interests implicated by familial searching are different from those implicated by more routine DNA database searches. In particular, commentators have asserted that familial searching may violate two types of—and more than one person's—privacy interests. The first type is the privacy interests of the person whose DNA profile was located as a partial match. Commentators assert that this person has a privacy interest in information about his genetic relationships, information that may be revealed by a familial search of the DNA database. The second set of privacy interests belongs to family members of the person whose profile was a partial match. Law enforcement may violate these privacy rights if, while following up on the lead provided by the partial match, they collect DNA from the partial match's family members without a warrant. These family members may have privacy interests in their genetic identities as well as in their genetic relationship—or lack thereof—with the person whose DNA was profiled. Because the constitutionality of familial searching has not yet reached the federal courts, the existence of a reasonable privacy interest in genetic relationships remain a largely untested assertion. Commentators defend its existence on the grounds that, unlike other types of information, people do not knowingly expose their genetic relationships and, moreover, may not necessarily be credited with knowledge—let alone amenability to public exposure—of their genetic kin. Despite the "rapid pace of technological development in the area of DNA analysis," much of DNA's scientific value remains a mystery. As mentioned, FBI analysts rely on junk DNA precisely because it is not believed to reveal sensitive medical or biological information. Partly for that reason, proponents of expansive DNA collection argue that any privacy intrusion resulting from DNA storage or analysis is minimal at most. For example, when he introduced the amendment that authorizes collection and analysis of DNA from arrestees in the federal system, Senator Kyl emphasized that storage of DNA samples would not intrude upon individuals' privacy rights, stating that "the sample of DNA that is kept ... is what is called 'junk DNA'—it is impossible to determine anything medically sensitive from this DNA." Likewise, courts have assumed that DNA analysis and storage involves only a minimal privacy intrusion. However, language in some opinions suggests that this assumption might change if scientists discover new uses for junk DNA. The First, Second, and Third Circuits have all suggested that "discovery of new uses for 'junk DNA' would require a reevaluation of the [Fourth Amendment] reasonableness balance." In addition, at least two judges on the Ninth Circuit have expressed concern about the potential for profiles developed from junk DNA to yield more sensitive information about their sources in the future. Scientific research on junk DNA is still emerging, and some research suggests that junk DNA contains more genetic information than previously assumed. For example, in October 2008, University of Iowa researchers released study findings showing that junk DNA has the potential to "evolve into exons, which are the building blocks for protein-coding genes." Other scientists have similarly hypothesized that there are "gems among the junk" in DNA. Hence, a remaining question is whether use of junk DNA will continue to offer superficial identifying information or whether it will reveal more detailed medical or biological characteristics. The nation, all 50 states, and many localities have adopted some type of DNA database program. Over time, Congress and state legislatures have expanded the types of crimes and circumstances that can result in DNA collection and databanking. Congress has demonstrated concern toward some aspects of DNA databanking by requiring expungement of a DNA profile in certain circumstances, prohibiting most non-forensic uses of DNA profiles and databases, and restricting familial searching. However, in general, Congress has taken a supportive attitude toward DNA databanking and incentivized the development, expansion, and integration of DNA databases. As DNA database programs have widened in scope and grown in numbers, their consistency with the Fourth Amendment's prohibition on unreasonable searches and seizures has increasingly been challenged. In the context of compulsory DNA collection, courts have widely upheld laws mandating the collection of DNA from persons who were convicted and are subject to the penal system's custody or supervision. Far fewer cases have given the federal courts an opportunity to decide whether DNA collection from arrestees is also constitutional. The two federal circuit courts of appeals to hear the question upheld the mandatory DNA profiling of indicted arrestees, but no federal court has assessed the constitutionality of profiling arrestees in the absence of a judicial finding of probable cause. Courts have generally upheld the indefinite use and storage of a lawfully databanked DNA profile after its source's conviction. However, not all courts agree that any post-conviction use of those profiles is constitutionally acceptable. In particular, observers are now raising questions about the Fourth Amendment consistency of using databases for non-forensic purposes and for familial searching. Currently, these concerns are largely confined to the scholarly literature—they have not come before a federal court—and primarily centered on state database programs. Unlike some state DNA databases, the National DNA Index System (NDIS) and the Combined DNA Index System (CODIS) can not be used for either non-forensic research or intentional familial searching. However, the increase in states that authorize familial searching suggests that it may not be long before the constitutionality of familial searching comes before a federal court. Much of the Fourth Amendment analysis of these issues depends on the current state of scientific knowledge on DNA and, more importantly, "junk" DNA—that is, the subset of DNA used to create databanked profiles. Decisions upholding DNA databanking programs have often described junk DNA as empty or meaningless genetic material because it is believed to reveal no sensitive information about its source. However, recent scientific research is challenging the accuracy of this description. While it may be too early for courts to give weight to this new research as fact, some have suggested that the constitutionality of DNA database programs should be reevaluated if "junk" DNA is ultimately found to reveal sensitive genetic information. | Over the past few decades, state and federal lawmakers have promoted the development of databases containing DNA (deoxyribonucleic acid) profiles for individuals who are under the supervision of the criminal justice system due to their known or suspected involvement in a felony or other qualifying crime. Congress has demonstrated concern toward some aspects of DNA databanking by requiring expungement of a DNA profile in certain circumstances, prohibiting most non-forensic uses of DNA profiles and databases, and restricting familial searching. However, in general, Congress has taken a supportive attitude toward DNA databanking and has incentivized the development, expansion, and integration of DNA databases. As DNA database programs have widened in scope and grown in numbers, their consistency with the Fourth Amendment's prohibition on unreasonable searches and seizures has increasingly been challenged. In the context of compulsory DNA collection, courts have widely upheld laws mandating the collection of DNA from persons who were convicted and are subject to the penal system's custody or supervision. Far fewer cases have addressed whether DNA collection from arrestees is also constitutional. The two federal circuit courts of appeals to hear the question upheld the mandatory DNA profiling of indicted arrestees, but no federal court has assessed the constitutionality of profiling arrestees in the absence of a judicial finding of probable cause. Courts have generally upheld the use and permanent storage of a lawfully databanked DNA profile. However, not all courts agree that any post-conviction use of those profiles is constitutionally acceptable. In particular, observers are now raising questions about the Fourth Amendment consistency of using databases for non-forensic purposes and for familial searching—that is, using the DNA databases to locate potential relatives of an unidentified suspect. Currently, these concerns are largely confined to the scholarly literature—they have not come before a federal court—and are primarily centered on state database programs. Unlike some state DNA databases, the National DNA Index System (NDIS) and the Combined DNA Index System (CODIS) can not be used for either non-forensic research or intentional familial searching. However, the increase in states that authorize familial searching suggests that it may not be long before the constitutionality of familial searching comes before a federal court. As these issues percolate up to the courts, new advances and revelations in the science of forensic analysis and databanking may have potentially significant legal implications. Several courts have suggested that new forensic techniques and scientific findings would require them to reevaluate their legal conclusions and analysis. In particular, research into the scope and nature of the information revealed by the "junk" DNA used in forensic analysis may alter how courts measure the intrusiveness of DNA profiling if it suggests that "junk" DNA reveals more sensitive information about its source than scientists previously thought. |
Congress appropriated $2.649 billion for legislative branch operationsin FY2001, a 6.6% increase overthe FY2000 appropriation of $2.486 billion. The FY2001 funding level includes the appropriation in theregular annual legislative branch appropriations bill; a supplemental appropriation of $118 million in amiscellaneous appropriations bill; and a rescission of 0.22%. Regular FY2001 Appropriations . The first regular FY2001 legislative branch appropriations bill( H.R. 4516 ) approved by Congress was vetoed by President Clinton in late October 2000. Seven weeks later, on December 14, a new legislative branch appropriations bill ( H.R. 5657 ),which contained the funding levels as approved in the original bill, was introduced and incorporated byreference in the FY2001 Consolidated Appropriations Act ( H.R. 4577 ). The latter act wassigned into law ( P.L. 106-554 ) on December 21, 2000. During initial consideration of the regular legislative branch bill, the House Appropriations Committee,in compliance with budget allocation restrictions, established funding for FY2001 at 5.5% less than the levelappropriated for FY2000. When the Senate took up the bill it approved an overall 3.7 % increase. TheHouse later restored most of the funds cut at the committee level when it adopted a manager's amendmentcontaining an additional $95.7 million in funding during floor consideration of the House bill. Thecompromise bill approved by the conference committee provided for a 2.1% over FY2000. Additional Regular Appropriations and Rescission . A second bill ( H.R. 5666 ), whichcontained an additional $118 million in regular FY2001 legislative branch appropriations funds, and a 0.22%across-the-broad cut in FY2001 appropriations, was also incorporated by reference into P.L. 106-554 . From October 1, the beginning of FY2001, to December 21, 2000, the legislative branch was fundedat its FY2000 level in continuing resolutions. Effective in FY1978, the legislative branch appropriations bill has beendivided into two titles. TitleI, Congressional Operations, contains budget authorities for activities directly serving Congress. Includedin this title are the budgets of the House, the Senate, Joint Items (joint House and Senate activities), theOffice of Compliance, the Congressional Budget Office (CBO), the Architect of the Capitol (AOC) (exceptthe Library of Congress (LOC) buildings and grounds), the Congressional Research Service (CRS) withinthe Library of Congress, and congressional printing and binding activities of the Government Printing Office(GPO). Title II, Related Agencies, contains budgets for activities not directly supporting Congress. Includedin this title are the budgets of the Botanic Garden, the Library of Congress (except the CongressionalResearch Service), the Library buildings and grounds maintained by the Architect of the Capitol, theGovernment Printing Office (except congressional printing and binding costs), and the General AccountingOffice (GAO). Periodically since FY1978, the legislative bill has contained additional titles for suchpurposes as capital improvements and special one-time functions. In FY2000, Title I budget authority was 69.7% of the total appropriation of $2.486 billion, includinga rescission and supplementals. (1) Title II budgetauthority was 30.3% of the total appropriation. In addition,there is legislative budget authority that is not included in the annual legislative branch appropriations actor supplemental appropriations acts. It includes permanent budget authority for both federal funds and trustfunds, and other budget authority. (2) Permanent federal funds are available as the result of previously enacted legislation and do not requireannual action. (3) Permanent trust funds are monies held in accounts credited with collections from specific sourcesearmarked by law for a defined purpose. Trust funds do not appear in the annual legislative bill since theyare not budget authority. They are included in the U.S. Budget either as budget receipts or offsettingcollections. (4) The Budget also contains some non-legislative entities within the legislative branch budget. They arefunded in other appropriation bills, but are placed in the legislative section by the Office of Management andBudget for bookkeeping purposes. (5) Table 1. Status of LegislativeBranch Appropriations, FY2001(H.R. 4516) (S. 2603) (H.R. 5657 Which Was Incorporated by Reference inP.L. 106-554) 1 The subcommittee vote to report the measure was 6-3. The full House Appropriations Committee markup was May 9,2000. Thecommittee voted 31-23 to report the measure to the House. 2 The Senate version was marked up by the full SenateAppropriations Committee on May 18, 2000. The committee voted 28-0 toreport the measure ( S. 2603 ) to the Senate. 3 Passage was by unanimous consent. On May 25, 2000, bya vote of 98-2, the Senate agreed to the motion to advance S. 2603 to the third reading, and subsequently the bill was engrossed and returned to the Senate calendar. The Senatepassed H.R. 4516 , after incorporating the text of S. 2603 , as amended. 4 Conference report appeared in the CongressionalRecord on July 27, p. H7095-7126. 5 On July 27, the House agreed to H. Res. 565, the rule waivingpoints of order against the conference report to accompany H.R. 4516 (214-210). 6 Earlier, on Sept. 20, 2000, the Senate failed to approve theconference report (28-69). 7 The first FY2001 bill, H.R. 4516 , was vetoed Oct. 30,2000. The second bill, H.R. 5657 , introduced Dec.14, was incorporated by reference in H.R. 4577 , FY2001 consolidated appropriations bill, signed by thePresident onDec. 21 ( P.L. 106-554 ). Submission of FY2001 BudgetEstimates. On February 7, 2000, President Clinton released the FY2001budget request of $2.688 billion for legislative activities funded in the legislative branchappropriations bill. (6) The revised budget estimatefor the legislative branch was $2.716billion, (7) and was an increase of $258.3 million, or10.5%, over the FY2000 appropriationof $2.458 billion, before supplementals. Actions on the House FY2001 Legislative Funding Bill(H.R. 4516). On June 22, the House passed its version of theFY2001 legislative funding bill, H.R. 4516 , which contained $1.914 billion(excluding Senate items). The FY2001 funding level was a decrease of $9.8 million, or0.5%, from the FY2000 appropriation of $1.924 billion. (8) During floor consideration theHouse adopted a managers' amendment adding $95.7 million to the bill as it was reportedby the House Appropriations Committee. As reported earlier on May 23, H.R. 4516 contained a 5.5% reduction of$105.6 million, to $1.818 billion in FY2001 (excluding Senate items) from $1.924 billionin FY2000 ( H.Rept. 106-635 ). (9) The overall reduction was the result of compliance by theSubcommittee on Legislativeand the House Appropriations Committee with the FY2001 House budget allocations madeby the concurrent budget resolution passed by the House on March 23, 2000. (10) Thereduction was based on maintaining the FY2000 budget authority, less $94 million. As reported, the bill contained reductions that included -1.2% for the House ofRepresentatives, -11.7% for the Capitol Police (including the pending FY2000supplemental), -8.8% for the Office of Compliance, -17.9% for the Architect of the Capitol(including the pending FY2000 supplemental and excluding Senate items), -6.7% for theCongressional Research Service, -25.3% for the Government Printing Office, -6.9% for theGeneral Accounting Office, and -3.9% for the Congressional Budget Office. The House Appropriations Committee estimated that 1,720 full time equivalentpositions (FTEs) would be eliminated in the legislative branch. Some agencies, however,would have had limited authority to make their budget reductions in some non-personalareas. Based on agency estimates, according to members expressing additional views, thebill possibly meant reductions of 438 from the Capitol Police, 707 from the GAO, 114 fromCRS, 31 from CBO, 156 from the AOC, 62 minimum from GPO, and 319 from the Houseof Representatives. Earlier, on May 4, the House Appropriations Committee chairman released fundingallocations (referred to as 302(b) allocations) of $2.355 billion in budget authority for thelegislative branch in FY2001. The House allocation was $45 million less than the Senateallocation of $2.5 billion. On May 8, the House Appropriations Committee voted to reportits version of the overall FY2001 legislative budget, agreeing without change to the billreported by its Subcommittee on Legislative on May 3. On June 20, in order for the manager's amendment of an additional $95.7 million tobe adopted, the House Appropriations Committee reallocated an additional $113 million tothe Subcommittee on Legislative from the Subcommittee on Transportation. Hearings were held by the House Appropriations Subcommittee on Legislative onJanuary 27 and February 1 and 2, 2000. Actions on the Senate FY2001 Legislative Funding Bill(S. 2603). On July 17, the Senate passed H.R. 4516 by unanimous consent, after incorporating the text of S. 2603 , as amended. Aspassed, H.R. 4516 contained $1.721 billion (excluding House items), a 3.7%increase from $1.662 billion in FY2000 (excluding House items). (11) The FY2000appropriation base used by the Senate did not include an FY2000 supplemental of $17.1million in H.R. 3908 , passed by the House on March 30 ( S.Rept. 106-635 ). Prior to Senate consideration, however, the Senate minority leader had stated hisintention of seeking to postpone Senate passage until after the House considered its version. Earlier, on May 24, the Senate began consideration of its version of the FY2001legislative branch appropriations bill, S. 2603 . On May 25, by a vote of 98-2,the Senate agreed to the motion to advance S. 2603 to the third reading (therebyending the time to offer amendments), and subsequently the bill was engrossed and returnedto the Senate calendar. As passed by the Senate, H.R. 4516 contained a 3.9% increase for theSenate, a 29.1% increase for the Capitol Police, a 3.7% increase for the Office ofCompliance, a 3.8% increase for the Congressional Budget Office, a 0.1% increase for theArchitect of the Capitol (including Library buildings and grounds, but excluding Houseoffice buildings), a 1.0% increase for the Library of Congress, excluding the CongressionalResearch Service, a 3.4% increase for the Congressional Research Service, 3.7% increasefor the Government Printing Office, and a 1.9% increase for the General Accounting Office. Discussion during the Senate Appropriations Committee markup indicated that the bill didnot reduce FTE staff positions. Earlier, on May 4, 2000, the Senate Appropriations Committee approved its FY2001budget allocations for its subcommittees, with an allocation of $2.5 billion for the legislativebranch. The Senate allocation was $145 million more than the House allocation of $2.355billion. Hearings were held by the Senate Subcommittee on Legislative Branch on February8, 22, and 29, and March 21, 2000. Actions on the FY2001 Conference Report on H.R.4516. The conference report on H.R. 4516 was filedJuly 27, and approved by the House on September 14 (212-209). The Senate approved thereport on October 12 (58-37), after having failed to approve it earlier on September 20(28-69). The report contained $2.527 billion, a 2.1% increase over the FY2000appropriation of $2.475 billion. The report also contained $51.1 million in emergencyFY2000 supplemental appropriations for the legislative branch and the Department ofHousing and Urban Development, Federal Housing Administration. Both the legislativebranch and the FY2000 supplemental appropriations are contained in Division A of the bill. Division B contained provisions of the FY2001 treasury and postal service appropriationsbill and a repeal of the excise tax on telephone and other communications services. Of the $51.1 million in FY2000 emergency supplemental appropriations, $11.1 millionwas for legislative branch activities - $2.1 million for the Capitol Police Board for securityenhancements, and $9 million for repairs to the garage of the Cannon House office building. Veto of H.R. 4516 by thePresident. On October 30, 2000, the President vetoed H.R. 4516 . In his veto message, the President criticized the bill for providing funds for operationof the Congress and White House before passing other appropriations measures affectingthe public. His statement read in part: I am returning herewith without my approval, H.R. 4516 , the Legislative Branch and the Treasury and General GovernmentAppropriations Act, 2001. This bill provides funds for the legislative branch and the WhiteHouse at a time when the business of the American people remainsunfinished. The Congress' continued refusal to focus onthe priorities of the American people leaves me no alternative but to veto this bill. I cannotin good conscience sign a bill that funds the operations of the Congress and the White Housebefore funding our classroom, fixing our schools, and protecting ourworkers." (12) Until the FY2001 bill was enacted on December 21, the legislative branch was fundedat its FY2000 level by continuing resolutions beginning on October 1, at the start ofFY2001. Enactment of FY2001 Legislative Branch Funds inP.L. 106-544. Pursuant to the President's veto of H.R. 4516 , FY2001 legislative branch funds were contained in H.R. 5657 , introduced on December 14. H.R. 5657 was includedby reference in P.L. 106-554 , the FY2001 Consolidated Appropriations Act( H.R. 4577 ), signed by the President on December 21, 2000. P.L. 106-554 also incorporated by reference the provisions of H.R. 5666 ,miscellaneous appropriations bill, which contained additional FY2001 legislative branchappropriations of $118 million (13) and a 0.22%across-the-board cut. The total FY2001 legislative branch appropriation including the 0.22% cut is $2.649billion. During 2000, Congress also approved the following FY2000 supplementalappropriations - $10 million for the Russian leadership program of the Library of Congress,$136,700 for a gratuity payment, and a 0.38% rescission ( P.L. 106-113 ); $17.5 million forthe Architect of the Capitol for fire safety ( P.L. 106-246 ); $2.1 million for the Capitol policeboard for security and $9 million for the Architect of the Capitol for House office buildings( P.L. 106-554 ). Action on a Rescission and Supplemental to FY2000Legislative Branch Appropriations (P.L. 106-113). Duringthe last days of the 1999 session, Congress approved a 0.38% across-the-board rescissionin the FY2000 appropriations acts, including that for the legislative branch. The provisionwas contained in H.R. 3194 , the FY2000 Consolidated Appropriations Act,which was signed into law as P.L.106-113 on November 29, 1999. P.L. 106-113 alsocontained a $10 million supplemental for the Library of Congress to continue operation ofthe Russian leadership program and $136,700 for a gratuity payment. Action on a Second Bill Containing an FY2000Supplemental for the Legislative Branch (H.R. 3908). On March30, the House passed an FY2000 supplemental appropriations measure, H.R. 3908 , which contained $17 million for the legislative branch, as follows: (14) $1.9 million to the Capitol Police Board for additional costs of securityenhancements to the Library of Congress buildings and grounds; and, $15.2 million to the Architect of the Capitol, for the account "Capitolbuildings and grounds," for fire safety, as follows: Capitol buildings and grounds, "Capitolbuildings - salaries and expenses," $7.0 million; House office buildings, $4.2 million;Capitol power plant, $3,000; Botanic garden, "salaries and expenses," $26,000; Architectof the Capitol, "Library buildings and grounds - structural and mechanical care," $3.9million. The Senate delayed further action on H.R. 3908 due in part to concernsover the rising costs of the supplemental and the desire of Senate Majority Leader Lott toattach a reduced supplemental to one of the first FY2001 regular annual appropriations bills. Subsequently, the $17 million supplemental was added to S. 2536 (seebelow). Action on a Third Bill Containing an FY2000Supplemental for the Legislative Branch (S. 2536 and H.R.4461). The FY2000 legislative supplemental appropriation contained in H.R. 3908 , as passed by the House on March 30 (see above), was subsequentlyincorporated in S. 2536 , the FY2001 agriculture, rural development, food anddrug administration, and related agencies appropriations bill. S. 2536 , whichwas reported to the Senate on May 9 ( S.Rept. 106-288 ), contained: $11.9 million in emergency appropriations for the Capitol Police Board (under joint items) for additional security enhancement expenses including (1) $10million for the initial implementation of the Capitol Police master plan, subject to approvalof the Committees on Appropriations of the House and Senate, and (2) $1.9 million forsecurity enhancements to the Library of Congress buildings and grounds to completeinstallation of a closed circuit television and to install bollards around the Madison buildingperimeter. $2.7 million in emergency appropriations for the Capitol Police, salaries (under joint items) for overtime expenses; and, $17.5 million in emergency appropriations for the Architect of the Capitol to implement identified fire safety upgrades as follows: "Capitol buildings andgrounds, "Capitol buildings - salaries and expenses," $7.0 million; Senate office buildings,$2.3 million; House office buildings, $4.2 million; Capitol power plant, $3,000; Botanicgarden, "salaries and expenses," $26,000; and Architect of the Capitol, "Library buildingsand grounds - structural and mechanical care," $3.9 million; language regarding expenditure of funds received by the Architect asgifts for construction of the national garden associated with the Botanic Gardens. language that makes changes in funding and reporting requirements of the Trade Deficit Review Commission. The $17.5 million appropriation for fire safety was subsequently deleted from S. 2536 and inserted in H.R. 4425 , the FY2001 militaryconstruction appropriations, during conference (see discussion following). Also deletedfrom S. 2536 was language relating to the Trade Deficit Review Commission. The other three legislative branch provisions (for $11.9 million, $2.7million, andArchitect of the Capitol language) were incorporated by the Senate in H.R. 4461 , the House version of the FY2001 agriculture appropriations bill. H.R. 4461 was amended by the Senate to contain the language of S. 2536 and passedby the Senate on July 20. The three provisions were dropped during alter consideration of H.R. 4461 . Action on a Fourth Bill Containing an FY2000Supplemental for the Legislative Branch, H.R. 4425 (P.L.106-246). Conferees on the FY2001 military construction appropriationsbill, H.R. 4425 , agreed to add a $17.5 million supplemental for the Architectof the Capitol for fire safety. H.R. 4425 was signed into law by the Presidenton July 13 ( P.L. 106-246 ). The appropriations for fire safety upgrades were as follow: "Capitol buildings andgrounds, "Capitol buildings - salaries and expenses," $7.0 million; Senate office buildings,$2.3 million; House office buildings, $4.2 million; Capitol power plant, $3,000; Botanicgarden, "salaries and expenses," $26,000; and Architect of the Capitol, "Library buildingsand grounds - structural and mechanical care," $3.9 million. Action on Conference Report on H.R. 4475,FY2001 Department of Transportation appropriations bill (P.L.106-346). Conferees on H.R. 4475 ( H.Rept. 106-940 , October5, 2000) added language relating to operations of the legislative branch which: provided additional funds to the Federal Law Enforcement TrainingCenter to establish a Washington, D.C. area law enforcement training center for theTreasury Department, other federal agencies, the United States Capitol Police, and theWashington, D.C. Metropolitan Police Department, primarily for firearms and vehicleoperations requalifications. included a new provision amending section 108 of the FY2001 legislative branch appropriations bill (15) to placethe chief administrative officer (CAO)position for the U.S. Capitol Police under the direct control of the Capitol Police, inconsultation with the Comptroller General of the United States. According to theconference report "The Comptroller General is to monitor the performance of the CAO andreport to the chief of the Capitol Police, the Capitol Police Board, and the appropriationsand authorizing committees of the Senate and House. The chief is to report the CAO's plansand progress made in resolving the several administrative problems of the Capitol Police tothe appropriations and authorizing committees of the Senate and House ofRepresentatives." Action on Supplementals in H.R. 5666,Miscellaneous Appropriations Bill (P.L. 106-554). H.R. 5666 contained an FY2000 supplemental of $11.1 million - $2.1 millionfor the Capitol Police Board for security and $9 million to the Architect of the Capitol forHouse office buildings. H.R. 5666 was incorporated by reference in P.L.106-554 , FY2001 Consolidated Appropriations Act. Among the major funding issues considered and resolved were actionsto: increase funds for the Capitol Police for 100 - 115 additional officersto implement the Capitol Police Board's security plan; temporarily transfer administrationof the Capitol Police to a chief administrative office, under jurisdiction of the GeneralAccounting Office (subsequently changed to jurisdiction of the U.S. CapitolPolice); merge the Library of Congress police and the Government PrintingOffice police with the Capitol Police (provision deleted in conference); provide adequatefunds for electronic document printing, the digital online program of the Library ofCongress, and enhancements to the legislative information system; fund the support agencies' staff succession programs to replaceemployees eligible for retirement in the immediate future; and authorize the comptrollergeneral greater authority for flexibility in a reduction-in-force and for voluntary earlyretirement authority and separation payments (provision deleted in conference). Each spring, as members of the House Subcommittee on Legislative and the SenateSubcommittee on Legislative Branch consider funding requests from legislative agencies,they are faced with three options on funding levels: to maintain a flat budget; to provide amodest increase; or to approve a budget decrease. Statements by subcommittee membersduring the January and February 2000 hearings suggested support for a fairly flat budget forFY2001. However, the FY2001 bill reported to the full Appropriations Committee, andsubsequently reported to the House, represented a 5.5% reduction, or $105.6 million, fromthe current funding level for FY2000. The House subsequently added $95.7 million duringfloor consideration on June 22. As reported from conference, H.R. 4516 contained a 2.1% increase, to $2.527 billion in FY2001 from $2.475 billion in FY2000. The legislative branch budget is 0.15% of the total federal budget. Flat Budget. A "flat" budget typicallyprovides new funds for mandatory cost increases, but denies additional funding requests. (16) A flat budget can be difficult to achieve due to a number of factors, such as ongoing andemergency maintenance and repair needs or an effort to keep operations current with recenttechnology developments. The FY2001 budget of $2.527 billion, as reported fromconference in H.R. 4516 , represented a flat budget, compared with $2.475billion appropriated for FY2000 at that time. This follows the trend of FY1999 and FY1998. The FY1999 regular annualLegislative Branch Appropriations Act ( P.L. 105-275 ), without theemergencysupplementals , contained a 2.8% increase over FY1998, to $2.352 billion from $2.288billion (both figures in current dollars). The rate of inflation for the comparable period oftime was 2.2%. When including the FY1999 emergency supplementals, the FY1999 increase washigher, 12.8%, to $2.581 billion in FY1999 from $2.288 billion in FY1998. Allowing forinflation, the increase was 10.5%. In the previous year, conferees on the FY1998 legislative funding bill also approveda fairly flat budget, or a 3.9% increase based on current dollars, to $2.288 billion in FY1998from $2.203 billion in FY1997. Allowing for inflation, the FY1998 conference figure wasactually a 2.2% increase, to $2.391 billion in FY1998 from $2.340 billion in FY1997 (inconstant 1999 dollars). Modest Increase. When including theFY1999 emergency supplemental appropriations in P.L. 105-277 , the FY1999 totalappropriation allowed for a modest increase, to $2.581 billion from $2.288 billion inFY1998, or a 12.9% increase. The emergency supplemental contained funds for securitysystems, a Capitol visitors' center, and Year-2000 compliance of software and othercomputer changes. Budget Decrease. In FY1996 andFY2000, Congress reduced the legislative budget. For FY1996, Congress approved a budgetthat was an 8.2% reduction from the previous year. The FY1996 budget was $2.184 billion,down from the FY1995 budget of $2.378 billion. When accounting for inflation, thedecrease was more, 12.4%, to $2.328 billion in FY1996 from $2.659 billion in FY1995. The FY2000 appropriation of $2.475 billion (enacted at the time of the conferencereport on H.R. 4516 ) was a 4.1% reduction from the FY1999 appropriation of$2.581 billion. Allowing for inflation, the decrease was more, 6.3%. Security of Legislative Information. TheHouse Appropriations Committee report on the FY2001 bill contained language expressingits concern for the security of electronically formatted legislative information. The Housedirected the clerk of the House, in consultation with the secretary of the Senate, to meetwith legislative entities that electronically create or store legislative information, to prepareinformation security standards and procedures for these entities, and to establish a processto routinely evaluate security risks. The clerk was required to submit proposed standards and procedures to the Committeeon House Administration and the Senate Committee on Rules and Administration forapproval. Upon approval, the clerk's plans were to be submitted to the House and SenateAppropriations Committees. The Library of Congress and the Government Printing Office are directed to "workwith the clerk and secretary of the Senate to test, develop, and implement, no later thanJanuary 3, 2001, systems that will enable them to confirm the authenticity of such legislativeinformation." (17) House and Senate Legislative InformationSystems. Both houses continued to seek ways to reduce duplication ofeffort in tracking legislation and to upgrade legislative tracking and document managementsystems. Toward this end, both houses continue to develop information systems that createand manage legislative data files. The House legislative information system is administered by the House clerk. TheSenate system is administered by the secretary of the Senate. They report, respectively, tothe House Administration Committee (formerly House Oversight) and the Senate Committeeon Rules and Administration on their recommendations regarding the electronic transfer oflegislative data between the two houses and among other legislative branch entities. In support of the development of the House and Senate legislative information systems,both houses directed the Congressional Research Service in 1996 to develop a data retrievalsystem with the technical support of the Library of Congress and in collaboration with otherlegislative branch agencies, such as the Government Printing Office. (18) The House andSenate legislative information systems are expected to reduce duplication through theconsolidation of existing legislative retrieval systems. HouseSystem. In FY1996, theCommittee on House Administration (formerly House Oversight) directed the clerk to studymethods for increasing the capacity of the House to manage its documents electronically. The committee further directed that subsequent proposals of the clerk relating to printingbe coordinated with GPO and all House entities requiring printing and storage of documents. The clerk of the House requested $750,000 for FY2001 to continuedevelopment ofthe House document management system (DMS), which would provide a method forcreating, tracking, editing, sharing, printing, and transmitting documents. Identical appropriations were made for the DMS in FY1998 and FY1999. According to the clerk, thegoals of the DMS are "to improve the legislative document creation and revision process;to provide pro-active tracking, routing, and control of legislative documents; to improveinformation exchange with the Senate and other government entities in order to facilitate thelegislative process; to enable the Office of the Clerk to become the repository for Houselegislation and related documents for current and future use, for the general public,legislative organizations, and the House of Representatives; [and] to allow the House ofRepresentatives to become more independent for preparation, printing, and distribution ofofficial House of Representatives documents." (19) The DMS is designed to automate document preparation, using a system forprint-on-demand and for electronic transmission to GPO. Although development of theDMS is costly, anticipated savings to the House in administrative and printing costs wereestimated to be about $1 million annually. (20) Senate System. The FY1997 LegislativeBranch Appropriations Act directed the secretary of the Senate to develop a legislativeinformation system for the Senate. (21) The actdirected that the secretary oversee the system'sdevelopment and implementation, subject to the approval of the Senate Committee on Rulesand Administration. Like the House, the Senate system provides a means for creating,tracking, editing, sharing, and transmitting documents. The FY1997 Legislative Branch Appropriations Act funded the Senate system byauthorizing the secretary to use unspent FY1995 monies previously appropriated for theOffice of the Secretary of the Senate; they remained available until September 30, 1998. The secretary was also authorized to transfer to the development of the legislativeinformation system, as he determined to be necessary, funds already appropriated to thesecretary's office for the purpose of development of the Senate financial managementsystem. Access to additional funding was provided in the FY1997 supplemental appropriationsbill signed into law ( P.L. 105-18 ; H.R. 1871 ) on June 12, 1997. That actauthorized the transfer of $5 million from other Senate accounts to the account, "ContingentExpenses of the Senate," under the subaccount, "Secretary of the Senate." (22) That moneywas made available through September 30, 2000. The transfer was made subject to theapproval of the Senate Committee on Appropriations. The FY1999 Senate report on S. 2137 also contained language directingthe Congressional Research Service and the Library "to continue their development of thelegislative retrieval system for the Senate and provide an annual report outlining thestrategic objective of this initiative." (23) In July 2000, Congress approved an FY2000 supplemental of $17.5 million to theArchitect of the Capitol for fire safety in the Capitol and other congressional buildings. Conferees on the FY2001 military construction appropriations bill ( H.R. 4425 )added the supplemental to the bill, which was signed into law by the President on July 13( P.L. 106-246 ). Congress made the appropriation subsequent to the release of a report bythe Office of Compliance which identified 253 possible fire safety hazards or violations inCapitol Hill buildings. Earlier, both houses had approved FY2000 fire safety supplemental appropriations inseparate bills. First, the House passed H.R. 3908 , an FY2000 supplementalappropriation bill, on March 30 containing $15.2 million for fire safety. Second, althoughthe Senate delayed further action on H.R. 3908 , the Senate added the Houselanguage, plus $2.3 million for fire safety upgrades in Senate office buildings, to S. 2536 , the FY2001 agriculture, rural development, food and drugadministration, and related agencies appropriations bill. As reported ( S.Rept. 106-288 ), S. 2536 contained $17.5 million for fire safety upgrades. This appropriationwas dropped from S. 2536 with conferees on the FY2001 military constructionappropriations bill agreeing to add the funding to their bill. House Committee Funding. The FY2001request for committee operations was $121.8 million, an increase of $6.8 million, or 5.9%,over the FY2000 funding level of $115.0 million. The appropriation is contained in theappropriations heading "committee employees" that comprises two subheadings. The firstsubheading contains funds for personnel and non-personnel expenses of House committees,except the Appropriations Committee, as authorized by the House in a committee expenseresolution. The request for this subheading was $99.2 million, which was an increase of$5.4 million, or 5.7%, over the FY2000 funding level of $93.9 million. The conference on H.R. 4516 contained $92.2 million, a reduction from FY2000 of 1.8%, or $1.7million. The second subheading contains funds for the personnel and non-personnel expensesof the Committee on Appropriations. The FY2001 request was $22.5 million, an increaseof $1.4 million, or 6.8%, over the FY2000 level of $21.1 million. The conference on H.R. 4516 contained $20.6 million, a decrease of 2.2%, or $467,000. Most of the requested increase for both subheadings was for personnel expensespursuant to the January 2000 pay increase of 3.7%, and price level increases. The increasefor House committees, other than Appropriations, was also to pay expenses for use of cellphones and pagers, use of which is growing, and to meet expenses incurred in providinggreater flexibility by allowing staff to use their residential lines for official business, withreimbursement to them by the House. The Appropriations Committee request includedfunds for equipment and additional travel. Senate Committee Funding. S. 2603 contained $79.9 million for Senate committees in FY2001, a 2.3%increase from $78.1 million in FY2000. The FY2001 appropriation is a total of committeeappropriations contained in two separate Senate accounts. The first account is the Senate"Committee on Appropriations;" the second is "Inquiries and Investigations," whichcontains funds for all other Senate committees. The FY2001 appropriation for the SenateAppropriations Committee was $6.9 million, an increase of $392,000, or 6%, over theFY2000 level of $6.5 million. The FY2001 appropriation for all other Senate committeeswas $73.0 million, an increase of $1.4 million, or 2.0%, over the FY2000 appropriation of$71.6 million. Capitol Complex Security Plan. TheOffice of the Architect of the Capitol (AOC) continued to develop a perimeter security planfor the Capitol, the Senate and House office buildings, and adjacent grounds. Congressapproved $20 million for the perimeter plan as part of an FY1998 supplementalappropriations bill ( P.L. 105-174 ). The relevant provision of the law reads: For necessary expenses for the design, installation and maintenance of the Capitol Square Perimeter Security Plan, $20,000,000 (ofwhich not to exceed $4,000,000 shall be transferred upon request of the Capitol PoliceBoard to the Capitol Police Board, "Capitol Police," "General Expenses," for physicalsecurity measures associated with the Capitol Square perimeter security plan) to remainavailable until expended, subject to the review and approval by the appropriate House andSenate authorities. (24) The appropriation for the perimeter security plan was based on recommendations thata task force prepared for the U.S. Capitol Police Board. Of the $20 million, $4 million wasmade available to the Capitol Police Board for the design and installation of securitysystems that were to be part of the perimeter plan. The perimeter security plan has beenapproved by the four oversight and funding committees that responsible for itsimplementation. Other Security Activities of the CapitolPolice. Several current Capitol Police security projects are the result of acomprehensive security survey of the Capitol complex conducted by a task force in 1998. The task force was composed of security experts from five federal law enforcementagencies. Pursuant to the findings of the task force, the Capitol Police requested andreceived funding for 260 additional police officers and other personnel (including 215authorized officers), upgraded police equipment, and new security technology. (25) ForFY2001, the Capitol Police requested an additional 100 police officers in their FY2001request to implement the task force recommendations. In 1999, the Capitol Police Board and the police department developed a "StrategicPlan for the U.S. Capitol Police," primarily dealing with financial management of the police. The police requested funding for the first phase of the plan in the FY2001 bill. Additionally, the Architect of the Capitol, who was directed to study the facility needs ofthe Capitol Police, developed a master plan, which addresses major issues of police trainingfacilities, a vehicle maintenance facility, and an off-site delivery center. Funding for the Capitol Police Board. Conferees on H.R. 4516 agreed to $103.9 million for the Capitol Police Board,revised to $103.8 million pursuant to a rescission of 0.22%. The revised appropriationrepresents an increase of 22.3%, or $18.9 million, from the FY2000 funding level of $84.9million. (26) This increase funded 1,481 FTEs, whichwas the number recommended by theSenate, and conferees directed that the Chief of Police obtain approval of the House andSenate Committees on Appropriations before filling positions above an FTE level of 1,402. Conferees also stated that they "intend that sufficient resources be allocated to implementthe 'two officers per door' policy," and required the Capitol Police Board to study therequirements of each post and report to the House and Senate Appropriations Committee. The study and report were to be made before the Chief of Police could hire any employeesover an FTE level of 1,402. Conferees retained a House provision that created a new Office of Administrationwithin the Capitol Police directed by a chief administrative officer (CAO) to be appointedby the comptroller general, after consultation with the Capitol Police Board. The CAOwould be an employee of the General Accounting Office until October 1, 2002, when hewould become an employee of the Capitol Police. Conferees dropped a provision (section 310 of S. 2603 ) which containedadministrative language transferring uniformed officers of the Library of Congress andGovernment Printing Office to the Capitol Police, effective October 1, 2000. Prior to thetransfer, the General Accounting Office was to identity issues to be addressed before thetransfer; the agency was to report its findings to the Senate Appropriations Committee andthe Capitol Police Board by July 1, 2000. The FY2001 request for the board was $110.9 million, an increase of $26 million, or31%, over FY2000. Most of the requested increase was to fund 100 new FTE (27) policeofficers in FY2001, and to continue to fund the additional 260 FTEs (police officers andother personnel) hired in FY1999 and FY2000. (28) The total number of FTEs would increaseto 1,611 from 1,511, which would allow the Capitol Police Board to staff each congressionalentrance with two officers. The increased funds would allow the board to continueimplementation of its strategic plan for training and other security enhancement programs. The House bill, as reported, contained $76.7 million, a reduction of 9.7%, or $8.2million, from the FY2000 level of $84.9 million, excluding a pending supplemental CapitolPolice appropriation of $1.9 million for Library of Congress security. However, anamendment adopted on the House floor contained an additional $22.7 million, increasingthe FY2001 appropriation to $99.3 million. The Senate bill contained $109.6 million, an increase of $24.7 million, or 29.1% overthe FY2000 appropriation of $84.9 million. Funds for the Capitol Police Board are contained under two headings, "Capitol Policesalaries," and "Capitol Police, general expenses." For Capitol Police salaries, the requestwas $106.0 million, an increase of $27.7 million, (29) or 35.4%, over the FY2000 appropriationof $78.4 million. The House bill contained $92.8 million; the Senate bill contained $102.7million. Conferees agreed to $97.1 million. For Capitol Police general expenses, $10.0 million was requested. This was anincrease of $3.4 million, or 52.1%, over the FY2000 appropriation of $6.6 million. TheHouse bill contained $6.6 million; the Senate bill contained $6.9 million. Conferees agreedto $6.8 million. The accompanying House report language - Appropriated $4 million for overtime, equally divided between theHouse and Senate police details. Appropriated for 1,058 FTEs, 506 for the House and 552 for the Senate. Directed a policy shift by the Capitol Police from emphasis on manpower to security technology. Created a new Office of Administration within the Capitol Police directed by a chief administrative officer (CAO) to be appointed by the comptroller general,after consultation with the Capitol Police Board. The CAO would be an employee of theGeneral Accounting Office until October 1, 2002, when he would become an employee ofthe Capitol Police. Upon transfer, the Capitol Police Board would assume theresponsibilities previously held by the comptroller general. This language was changed inthe conference report on H.R. 4475 , the FY2001 Department of Transportationappropriations bill, to place the CAO under jurisdiction of the U.S. CapitolPolice. Encouraged the Capitol Police to study the possible use of eye-viewsecurity technology, which permits real time surveillance and monitoring over the Internetthrough secure connections. Administration of Security EnhancementMoney. Besides administering funds from annual appropriations, theCapitol Police are responsible for administering the security enhancements fund and thephysical security fund, both established for specific purposes. Transfer of money fromeither fund to the Capitol Police Board is subject to the approval of the police oversight andappropriations committees. Activities are coordinated by a memorandum of understandingamong the Capitol Police, the Office of the Architect of the Capitol, and the Library ofCongress. Recent Appropriations for SecurityEnhancements. In FY1997, the Capitol Police Board received $3.25million for the "design and installation of security systems for the Capitol buildings andgrounds," and the Architect was given $250,000 for "architectural and engineering servicesrelated to the design and installation" of those systems. (30) In addition, the FY1999 Omnibus Appropriations Act ( P.L. 105-277 ) contained$106.8 million for the board to make "security enhancements to the Capitol complex,including the buildings and grounds of the Library of Congress." (31) The accompanyingconference report ( H.Rept. 105-825 ) identified 22 specific categories of priority securityneeds. The Omnibus Appropriations Act also transferred responsibility for the design,installation, and maintenance of the Library of Congress security system from the Architectof the Capitol to the Capitol Police Board. (32) The supplemental allocations resulted from (1) a broad review of the existing securityprogram by the Capitol Police, with assistance from other federal security agencies andprivate consultants. There were also hearings and discussions with congressional leaders,as well as the committees of jurisdiction; and (2) a personnel audit of security operations ofthe police. As a result of these and other studies, a comprehensive 10-year Capitol Policemaster plan was issued in August 1999. Congress appropriated an FY1999 emergency supplemental appropriation for theCapitol Police Board as a result of recommendations for security upgrades made pursuantto a comprehensive security study of the Capitol complex. The Capitol Police Boardmandated the study in 1998 by a task force composed of security experts from federal lawenforcement agencies and the private sector. Language in the FY1999 emergency supplemental appropriation directed the CapitolPolice Board to prepare an implementation plan for the use of the emergency supplementalto include necessary equipment upgrades and detailing the first phase of the securityenhancements to the Capitol complex and Library of Congress buildings and grounds. TheCapitol Police Board prepared a security enhancement implementation plan, now pendingbefore the authorizing and appropriations committees. Parts of the plan have already beenapproved. For FY2000, Congress appropriated a supplemental of $2.1 millionto the CapitolPolice Board for security enhancements contained in P.L. 106-554 . Capitol Visitors' Center. Although theFY2001 legislative budget request does not contain funds for a proposed Capitol visitors'center, several references were made to the center's development during House and Senatehearings on the FY2001 budget. Current Status. Congressional leadershipbroke ground for the center on June 20, 2000. (33) Construction is scheduled to begin in late2001 or early 2002 and is expected to be completed by December 2004. (34) Appropriations and Other Funds Available. The current estimated cost of the center is $265.6 million. (35) Congress agreed to an FY1999emergency supplemental appropriation of $100 million to the architect "for planning,engineering, design, and construction" of a Capitol visitors' center. The funding was addedin the conference on H.R. 4328 , the FY1999 Omnibus Consolidated andEmergency Supplemental Appropriations Act ( P.L. 105-277 ). The conference report on H.R. 4328 stipulated that appropriated funds forthe project are to be supplemented by private funds, and the clerk of the House and thesecretary of the Senate were directed by the Capitol Preservation Commission to developa fund-raising plan. The clerk and secretary presented a plan on February 9, 2000, whichthe commission accepted, to authorize the Pew Charitable Trusts to establish a nonprofit501(c)(3) foundation to seek private funds. The target for the foundation is $100,000. (36) In addition, $26.6 million in Capitol Preservation Commission funds are reportedlyavailable for the center; (37) other funds will beavailable through the sale of a recentlyapproved commemorative coin program marking the 200thanniversary of the convening ofCongress in the Capitol. (38) Discussions During FY2000 Hearings. Theissue was also discussed during House and Senate hearings on the FY2000 budget of theOffice of the Architect of the Capitol; several subcommittee members urged the architectto move expeditiously to construct a Capitol visitors' center. A sponsor of earlier legislationauthorizing construction of the center, Representative John Mica, also spoke before theHouse subcommittee in favor of the project. He stated that "my concern is that this projectmay now be delayed, unduly putting off construction unnecessarily and adding costs to theproject." (39) Architect of the Capitol Appropriation forFY2001. Conferees on H.R. 4516 agreed to $201.2 millionfor all activities of the Architect of the Capitol. When adding supplementals and adjustingfor a 0.22% rescission, the total FY2001 figure is $210.9 million. This figure represents adecrease of 9.6%, or $22.4 million, from the FY2000 level of $233.3 million. The FY2001budget proposal was $247.2 million. H.R. 4516 , as passed by the House, contained $137.2 million for theArchitect in Title I and Title II, excluding funds for Senate office buildings in Title I. (40) Theappropriation was a decrease of 13.3%, or $21 million, from the FY2000 funding level of$158.2 million. Previously, the House Committee on Appropriations reported $129.9million, a decrease of 17.9% from the FY2000 appropriation of $158.2 million (excludingSenate items). The Senate bill, S. 2603 , as passed, contained $169.6 million, a decreaseof 0.06% from the FY2000 appropriation of $169.7 million (excluding House activities). During consideration of the FY2001 budget, Congress approved FY2000 supplementalappropriations of $17.5 million for fire safety, contained in P.L. 106-246 ) and $9 million tothe Architect for House office buildings. Appropriation Accounts of the Office of the Architect ofthe Capitol in the Annual Legislative Branch Appropriations Bill. TheOffice of the Architect of the Capitol's budget is contained in two places in a legislativebranch appropriations bill, in Titles I and II. Title I contains funds for the Capitol buildingsand grounds, the Senate office buildings, the House office buildings, and the Capitol powerplant. Occasionally, funds for special projects are included in Title I. For example, in theFY1999 legislative branch appropriations act, Title I also contained the emergencysupplemental of $100 million for a Capitol visitors' center. (41) For Title I, the House and Senate consider separate requests because the House budgetrequest does not include Senate office building funds (which are determined by the Senate),and the Senate budget request does not include House office building funds (determined bythe House). For FY2001, the total Title I budget request, including funds for House andSenate office buildings, was $226.9 million, a $36 million increase, or 18.9%, over theFY2000 appropriation of $190.9 million. Conferees on H.R. 4516 agreed to $185.2 million for Title I activities. The House bill, as reported, contained $114.8 million in Title I, excluding Senateitems . This was a reduction of 17.1%, or $23.6 million, from the FY2000 appropriation of$138.4 million, excluding Senate items and including pending supplemental appropriations. As passed, the House bill contained $121.4 million for Title I. The Senate bill contained $153.2 million in Title I, excluding House items , a reductionof 0.4% from the FY2000 appropriation of $153.8 million, excluding House items andpending supplemental appropriations. Title II contains funds for the architect to maintain the buildings and grounds of theLibrary of Congress (LOC). From time to time, other projects of the architect are fundedin Title II. For example, the FY1999 legislative branch appropriations act contained aone-time appropriation of $1 million for the congressional cemetery in Title II. For Title II activities conferees agreed to $16.0 million. The FY2001 budget request for Title II activities was $20.3 million, an increase of $4.3million, or 27%, over the appropriation of $16 million in FY2000. For Title II activities, theHouse bill, as reported, contained $15.1 million, a reduction of $4.7 million, or 23.8%, fromthe FY2000 appropriation of $19.9 million, including appropriations pending in the FY2000supplemental, H.R. 3908 . As passed, the House bill contained $15.8 million inTitle II. S. 2603 contained $16.3 million, a 1.9% increase from the FY2000appropriation of $16.0 million. Title II also contains funds for the Botanic Garden, which areadministered by thearchitect. In the legislative branch appropriations bill, funds for the Botanic Garden arecontained in a separate account; for purposes of this report, they are not included withinfunding of the Office of the Architect of the Capitol. Botanic Garden. Conferees agreed to$3.3 million. The FY2001 request of $4.9 million was an increase of $1.5 million, or 4.4%,over the FY2000 appropriation of $3.4 million. The request contained $200,000 for thedesign of the renovation and addition to the garden's administrative building. The Housebill, as reported and passed, contained $3.2 million, a reduction of $222,000, or 6.5%, fromthe FY2000 level of $3.4 million, including appropriations in the pending supplemental, H.R. 3908 . The Senate bill contained $3.7 million. Funds were not requested for FY2001 for renovation of the conservatory, to becompleted in September 2000. Most of the renovation funds were made available in theFY1997 Legislative Branch Appropriations Act ( P.L. 104-197 ). A contract for renovationwas awarded in September 1998, with the architect authorized to award contracts foradditional garden projects if additional funds were available. (42) A privately funded nationalgarden, a new addition to the Botanic Garden, will be located next to the conservatory. Congressional Budget Office Budget. Conferees on H.R. 4516 agreed to $28.5 million for the Congressional BudgetOffice (CBO), which was the same amount requested by CBO's director. The appropriationsubsequently was adjusted to $28.4 million, pursuant to a 0.22% rescission. The FY2001appropriation was an increase of $2.3 million, or 9.0%, over the FY2000 appropriation of$26.1 million. In his testimony before the Senate Subcommittee on Legislative Branch, thedirector said the increase was "largely necessitated by our need to compensate for asignificant funding shortfall in 2000 - our appropriation increase for fiscal year 2000 wasonly 1.8 percent, or $450,000." (43) He stated thatthe $450,000 increase was less than the $1.5million necessary to meet additional expenses of pay and benefits for its 232 FTEs, notingthat the number of staff on payroll was 225. (44) The additional FY2001 funds will also pay for mandatory pay and benefit increasesin FY200l, for enhanced computer technology ($588,000), and for expenses of an increasedworkload, including a number of congressionally mandated reports and studies. The director also expressed concern about the ability of CBO to offer the salariesnecessary to attract and retain staff, noting that there was a loss of "very good analysts andmanagers in 1999," and that he expects "a significant number of senior staff to retire in thenext 12 months." Approximately half of CBO managers and more than half of its topexecutive are currently eligible to retire, with several others becoming eligible to retire inthe next three years. (45) H.R. 4516 , as reported, contained a $1.0 million, or 3.9%, reduction to$25.1 million from $26.1 million in FY2000. As passed, H.R. 4516 contained$27.4 million, an increase of 4.9%, or $1.3 million. S. 2603 contained$992,000, a 3.8% increase to $27.1 million. General Accounting Office Budget. Conferees on H.R. 4516 agreed to $384.9 million for the General AccountingOffice (GAO), which was subsequently reduced to $384.0 million, pursuant to a 0.22%rescission. This was an increase of $6.4 million, or 1.7%, over the FY2000 funding levelof $377.6 million. The FY2001 budget request of the General Accounting Office (GAO)was $399.9 million, (46) an increase of $22.4million, or 5.9%, over the FY2000 appropriationof $377.6 million. (47) Seventy-three percent of theincrease, or $16.3 million, was requestedfor mandatory pay and related personnel costs. In his testimony before the Senate Subcommittee on Legislative Branch, theComptroller General said that major initiatives in the FY2001 budget were in the area ofhuman resources. (48) He noted that the FY2001budget request maintains the FY2000 FTElevel of 3,275 (estimate), and that GAO would continue to use existing staff resourcesbefore requesting additional personnel. Funds requested would allow GAO to provide staffwith enhanced training and rewards in line with those given in the executive branch. Inorder to make the best use of existing staff, GAO is currently revising its performanceappraisal system in developing a new system for its evaluators to assist in retaining existingstaff. He also said that GAO was "sparse" at the entry level due to the five-year freeze onhiring and downsizing since 1992. The comptroller general discussed his request for legislative authorityto allow theagency greater flexibility in personnel matters, including the ability to offer early-outs toselected individuals, to apply reductions-in-force so as to prevent an unbalanced workforce,and, in order to attract and retain staff, to compensate selected scientific and technicalpersonnel at senior executive pay levels. In his prepared testimony, the Comptroller General cited staff succession as a majorissue, noting the percentages of staff eligible to retire by the end of FY2004 (September 30,2003). Those eligible will be 34% of evaluators and related staff, 48% of managementevaluators, and 55% of senior executives. H.R. 4516 , as reported, reduced the budget of GAO by $26 million, or6.9%, to $351.5 million in FY2001 from $377.6 million in FY2000. The AppropriationsCommittee included language in the report that the level of FY2001 funding "support 2,698FTEs, a decrease of 577 below the number currently expected to be utilized in fiscal2000." (49) As passed, H.R. 4516 contained $368.9 million, a decrease of 2.3%, or$8.7 million. S. 2603 contained an increase of $7.3 million, or 1.9%, to $384.9 millionfrom $377.6 million. Library of Congress Budget. The budgetof the Library of Congress is included in both Title I and Title II of the legislativeappropriations bill. Title I contains funds for the Congressional Research Service (CRS); Title II contains funds for all other activities of the Library of Congress. Conferees on H.R. 4516 agreed to an FY2001 funding level of $412.3million, an increase of 4.6%, or $18.0 million, over the FY2000 level of $394.4 million. (50) Pursuant to a supplemental of $100 million for the digital preservation program and a 0.22%rescission, the revised FY2001 appropriation is $511.1 million. Appropriations for theLibrary, excluding CRS, are $437.7 million; the CRS appropriation is $73.4 million. The FY2001 budget request for activities of the Library of Congress in both titles was$428.1 million, an 8.6% increase of $33.7 million from the FY2000 appropriation of $394.4million. (51) Almost half of the increase, or $16.6million, was to meet mandatory pay andrelated personnel costs, and price increases for goods and services. Most of the remaining net increase of $27.1 million was to meet the costs of workloadincreases related to support for the digital futures initiative to create the National On-LineLibrary ($21.3 million); for additional domestic and international digital content ($7.6million); for storage, maintenance, and preservation of collections ($3.2 million); forenhanced security of collections and facilities ($7 million); and for other activities. Whileincreases total more than $27.1 million, they were offset by decreases and savings in otherareas - for example, savings of $2 million by the integrated library system and completionof funding for other programs. Another concern of the Librarian during his FY2001 budget testimony wascontinuation of a staff succession program. A recent risk assessment study of the Library'sworkforce showed that almost 45% of employees will be eligible to retire in 2004. TheFY2001 request contained $2.6 million for the plan, including development of a recruitmentprogram and establishment of an internal career enhancement plan. The Librarian requested an increase of 192 FTE positions, increasing staff to 4,268from 4,076, which is 6.0% lower than the Library's staff in 1992. The primary need foradditional staff is to meet a significantly increased internet activity workload. Library of Congress, Except CRS (in TitleII). Conferees on H.R. 4516 agreed to $338.7 million forFY2001 for the Library of Congress, except the Congressional Research Service. Theappropriation represented an increase of $15.4 million, or 4.8%, over the FY2000appropriation of $323.4 million. Both the FY2001 and FY2000 figures were subsequently adjusted to reflectsupplementals and rescissions. When accounting for these adjustments, the FY2000 figurewas adjusted to $394.4 million and the FY2001 figure to $437.7 million. The increase was$43.3 million, or 11.0%. The Title II budget request was $352.5 million, an increase of $29.1 million, or 9.0%,above the FY2000 appropriation. H.R. 4516 contained $323.9 million, anincrease of $523,000, or 0.2%, over FY2001. S. 2603 contained a 0.7%increase to $325.6 million. Congressional Research Service (in TitleI). Conferees on H.R. 4516 agreed to $73.6 million for theCongressional Research Service (CRS), revised to $73.4 million, pursuant to a rescissionof 0.22%. The FY2001 funding level represents an increase of $2.5 million, or 3.5%, fromthe FY2000 level of $71 million. The FY2001 Title II request was $75.6 million, anincrease of $4.7 million, or 6.6%, from the FY2000 funding level of $71.0 million. Mostof the request, or 72.7%, was to fund mandatory pay and related personnel costs, andincreases in prices due to inflation. The remaining $1.1 million was to fund the third yearof the staff succession program. Of this amount, $860,045 was to fund the program inFY2001, and $279,727 to restore positions lost in the FY2000 rescission. Approximatelyhalf of all CRS staff will be eligible to retire by 2006. H.R. 4516 , as reported, reduced the budget of CRS by 6.7%, or $4.8million, to $66.2 million from the FY2000 appropriation of $70.97 million. It wasestimated that CRS staff would have been reduced by 114 FTE positions in FY2001. As passed, H.R. 4516 contained $73.8 million, an increase of $2.8million, or 4.0%. The Senate bill, S. 2603 , contained $73.4 million, an increaseof 3.4%, or $2.4 million. Government Printing Office (GPO)Budget. Conferees on H.R. 4516 agreed to $99.4 million forthe Government Printing Office, revised to $99.2 million, pursuant to a 0.22% rescission. The FY2001 funding level is a decrease of 3.9%, or $4 million, from the FY2000appropriation of $103.2 million. The FY2001 request was $121.3 million, an increase of$18.1 million, or 17.5%, over FY2000. The primary reasons the Public Printer requestedthe increase were expenses related to mandatory pay and related personnel benefitsincreases, and to price increases for services and supplies; expenses of making governmentdocuments electronically available through the Federal Depository Library program'selectronic collection; and costs of an increased statutory workload requirement, includingpublication of a new edition of the U.S. Code . The FY2001 requestincluded a directappropriation of $6 million to the GPO revolving fund to replace the agency's airconditioning equipment. (52) GPO is funded in Title I for congressional printing and binding, and in Title II for theOffice of Superintendent of Documents. Title II also contains funding from time to time forthe GPO revolving fund, as it does in the FY2001 request. The FY2001 appropriation for Title I is $71.5 million. The request of $80.8 millionwas a 10.2% increase of $7.5 million over the FY2000 $73.3 million appropriation. H.R. 4516 , as reported, contained $65.5 million, a reduction of $7.8 million,or 10.7%, over FY2000. As passed, H.R. 4516 contained $69.6 million, areduction of $3.7 million, or 5.0%. The Senate's bill contained $73.3 million, the same asappropriated for FY2000. The Title II appropriation in H.R. 4516 for FY2001 is $28.0 million,compared with the Public Printer's request of $40.5 million (including $6 million for the revolving fund). H.R. 4516 , as reported, contained $11.6 million, a reductionof 61.1%, or $18.3 million, from the FY2000 appropriation. As passed by the House, H.R. 4516 contained $25.7 million, a reduction of 14.1%, or $4.2 million. S. 2603 contained $30.3 million, an increase of 1.3% over the FY2000appropriation of $30.0 million. The GPO budget reduction in H.R. 4516 , as reported to the House, was25.3% when combining Title I and Title II appropriations. As passed, the total budgetreduction is 7.7%, or $7.9 million, to $95.3 million from $103.2 million in FY2000. Guide to Determining Legislative BudgetTrends. Interpretation of budget trends is determined primarily by threefactors: (1) selection of current or constant dollars to express budget authority (constantdollars reflecting the impact of inflation); (2) selection of budget authority contained inannual appropriations bills, with or without permanent budget authority (permanent budgetauthority not requiring annual approval by Congress); and (3) selection of fiscal years to becompared. Note: This discussion excludes FY2000supplemental appropriations. Selection of Current or Constant Dollars. Current-dollar data reflect actual budget authority appropriated each year. Constant-dollardata reflect the conversion of actual budget authority into equivalent 2000 dollars. Forexample, Congress appropriated budget authority of $41,793,000 for the Senate in FY1968,excluding permanent budget authority. Converted into 2000 dollars, $41,793,000 is$204,641,586. When reviewing the 31-year growth of the Senate budget from FY1968-FY2000 incurrent dollars, the increase amounts to 830.8%. In constant dollars, the increase is 90.1%. The constant-dollar figure indicates budget growth after the effects of inflation areneutralized. Selection of Fiscal Years. Differences alsoappear based on choice of fiscal years used to compare budgets. For example, a comparisonof budget growth, FY1968 and FY2000, shows these changes in total legislative budgets after adjustment for inflation: FY1968-FY2000, +90.1%;FY1972-FY2000, +13.0%; andFY1978-FY2000, -8.8%. (53) Changes in the 1970s significantly affected the congressional budget. Implementationby Congress of the 1970 Legislative Reorganization Act increased the budgets and staffs ofcongressional committees and support agencies from FY1971 through FY1978. Forexample, the increase in total legislative budget authority, adjusted for inflation, fromFY1969 (pre-1970 Reorganization Act) through FY1973 (a year of significantimplementation of the 1970 Act) was 64.5%. The legislative budget during the 1970s also reflected implementation of the 1974Congressional Budget and Impoundment Control Act, which created the House and SenateBudget Committees and the Congressional Budget Office. Also, Congress began to providesignificant funding for its computer capabilities. This growth in the legislative budgetstabilized by FY1978 and has remained fairly level since that time. Current Legislative Budget Trends. BetweenFY1978 and FY2000, the total legislative budget, adjusted for inflation, decreased by 8.9%. Budget authority for direct congressional operations in Title I decreased by 4.1% over thistime. Throughout the 12 years following FY1978 (FY1979-FY1990), the legislative budgetremained lower than the FY1978 budget authority, when adjusted for inflation. The firstincrease over the FY1978 budget occurred in FY1991, a 1.1% increase from the FY1978level. Compared to the FY1978 budget, funding increased again in FY1992, FY1995,FY1997, FY1998, and FY1999, and decreased in FY1993, FY1994, FY1996, and FY2000,when adjusted for inflation. If inflation is taken into account, the total legislative budgetdecreased by 5.9% between FY1994 and FY2000. Without allowing for inflation, thechange between FY1994 and FY2000 was an increase of 8.2%. Table 2. Legislative Branch Appropriations, FY1995to FY2000 (budget authority in billions of current dollars) a a These figures represent current dollars, exclude permanent budget authorities, and containsupplementals and rescissions. Permanent budget authorities are not included in theannual legislative branch appropriations bill but, rather, are automatically fundedannually. b Includesbudget authority contained in the FY1999 regular annual legislative branchappropriations act ( P.L. 105-275 ), the FY1999 emergency supplemental appropriation( P.L. 105-277 ), and the FY1999 supplemental appropriation ( P.L. 106-31 ). c Includesbudget authority contained in the FY2000 regular annual legislative branchappropriations act ( P.L. 106-57 ); a supplemental and a 0.38% rescission in P.L.106-113 ; and supplementals in P.L. 106-246 and P.L. 106-554 . Table 3. Legislative BranchAppropriations, FY2001(H.R.4516) (S. 2603) H.R. 5657 Which Was Incorporated byReference in P.L. 106-554 (in thousands of current dollars) Sources: House and Senate Appropriations Committees and public laws. a Includes budget authority contained in the FY2000 regular annual legislative branchappropriations act in P.L. 106-57 ; a $10 million supplemental for the Library ofCongress' Russian leadership program, $136,700 supplemental for a gratuity payment, and a 0.38% rescission contained in P.L. 106-113 ; a supplemental of $17.5 million forthe Architect of the Capitol contained in P.L. 106-246 ; and a supplemental of $11.1million contained in provisions of H.R. 5666 , miscellaneousappropriations, which were incorporated by reference in P.L. 106-554 , ConsolidatedAppropriations Act, FY2001. The $11.1 million supplemental contained $2.1 millionfor the Capitol Police Board for security and $9 million for the Architect of the Capitolfor House office buildings. b This account is non-discretionary; hence, appropriations forit are not counted in the totallegislative branch appropriations figures in this table. c This figureincludes a $10 million supplemental for the Russian leadership programcontained in P.L. 106-113 . d These figuresdo not contain appropriations for the Senate. The House does not considerappropriations in Title I for Senate internal activities and Senate activities funded underthe Architect of the Capitol. e These figuresdo not contain appropriations for the House. The Senate does not considerappropriations in Title I for House internal activities and House activities funded underthe Architect of the Capitol. f This column includes FY2001 regular annual appropriationscontained in H.R. 5657 , legislative branch appropriations bill, and additional FY2001 appropriations of $118million and a 0.22% across-the-board rescission contained in H.R. 5666 ,miscellaneous appropriations bill. Both bills were incorporated by reference in P.L. 106-554 ,FY2001 Consolidated Appropriations Act. The first FY2001legislative branchappropriations bill, H.R. 4516 , was vetoed Oct. 30, 2000. The second legislativebranch appropriations bill, H.R. 5657 , was introduced Dec. 14 and incorporatedin P.L 106-554. g This figure represents scorekeeping adjustments in application of the0.22% rescission tothe House and Senate. Table 4. Senate Items,FY2001 (inthousands of current dollars) Note: FY2001 appropriations for the Senate do not contain a0.22% rescission of $1million. The final numbers that reflect the rescission are not yet available. Sources: House and Senate Appropriations Committees and public laws. a There are six Senate appropriations headings; they are indicated in bold print. b Officeoperations of the secretary of the Senate also are funded under "Salaries, Officers,and Employees." c Activities ofthe Office of Sergeant at Arms and Doorkeeper are also funded under"Salaries, Officers, and Employees." d Includesbudget authority contained in the FY2000 regular annual Legislative BranchAppropriations Act ( P.L. 106-57 ) and a supplemental and rescission of 0.38% containedin P.L. 106-113 . e The contingentexpenses appropriation heading is $392.4 million when including a 0.38%rescission of $2.036 million, pursuant to P.L. 106-113 . The rescission was made in sixof the seven accounts within the contingent expenses heading, with the exception of theofficial mail costs heading. Sources provide the revised FY2000 appropriation adjustedfor the rescission for the contingent expenses heading (revising the appropriation from$394.404 million to $392.360 million), but do not provide the adjusted amounts for thesix accounts. As a result, the seven headings add to $394.4 million, not to $392.4million. f This figure reflects a $2.036 million rescission in theappropriation subheading, ContingentExpenses. g Figures in this column do not contain the 0.22% rescissionrequired in P.L. 106-554 . Table 5. House of Representatives Items,FY2001 (in thousands of current dollars) Source: House Appropriations Committee. a The appropriations bill has two House accounts: (1) payments to widows and heirs ofdeceased Members of Congress and (2) salaries and expenses. b Thisappropriation heading was new in the FY1996 bill. The heading represents aconsolidation of (1) the former heading Members' clerk hire; (2) the former headingofficial mail costs; and (3) the former subheading official expenses of Members, under the heading allowances and expenses. c Thisappropriation heading was new in the FY1996 bill. The heading represents aconsolidation of (1) the former heading committee employees; (2) the former headingstanding committees, special and select; (3) the former heading Committee on Budget (studies); and (4) the former heading Committee on Appropriations (studies andinvestigations). d Includesbudget authority contained in the FY2000 regular annual Legislative BranchAppropriations Act in P.L. 106-57 , and a supplemental and a rescission of 0.38%contained in P.L. 106-113 . e Includes FY2001 regular annual appropriationscontained in H.R. 5657 ,legislative branch appropriations bill, and additional FY2001 appropriations of $101.5million and a 0.22% across-the-board rescission contained in H.R. 5666 ,miscellaneous appropriations bill. Both bills were incorporated by reference in P.L.106-554 , FY2001 Consolidated Appropriations Act. The first FY2001legislativebranch appropriations bill, H.R. 4516 , was vetoed Oct. 30, 2000. Thesecond legislative branch appropriations bill, H.R. 5657 , was introducedDec. 14 and incorporated in P.L 106-554. Table 6. Legislative Branch Budget Authority Containedin Appropriations Acts, FY1995-FY2000 (Does not include permanentbudget authority; in thousands of current dollars) See notes at end of Table 7. Table 7. Legislative Branch Budget Authority Containedin Appropriations Acts, FY1995-FY2000 (Does not include permanentbudget authority; Sources: Budget authorities for FY1994-FY2000 are from the House AppropriationsCommittee. FY1995 budget authorities reflect rescissions and a supplemental contained in P.L. 104-19 , 109 Stat. 219-221, July 27, 1995, FY1995 Supplemental and Rescissions Act( H.R. 1944 ). FY1996 budget authorities reflect rescissions contained in P.L.104-208 , 110 Stat. 3009-510-511, Sept. 30, 1996, FY1997 Omnibus ConsolidatedAppropriations Act ( H.R. 3610 ). FY1998 budget authorities representsupplementals contained in P.L. 105-174 , May 1, 1998, and an $11 million transfer to theGovernment Printing Office (GPO) from the GPO revolving fund. FY1999 budget authoritiescontain emergency supplemental appropriations in P.L. 105-277 , and supplementalappropriations in P.L. 106-31 . FY2000 budget authorities contain a supplemental and a 0.38%rescission in P.L. 106-113 . Totals reflect rounding. FY1999 budget authority contains $223.7 million in emergency supplemental appropriations( P.L. 105-277 ), and $3.8 million for expenses of a House page dormitory and $1.8million for expenses of life safety renovations to the O'Neill House Office Building( P.L. 106-31 ). The FY1999 appropriation also contains a recission of $3.5 million, anda supplemental for the same amount in P.L. 106-31 . Excludes permanent federal funds (in thousands of current dollars): FY1995, $343,000; FY1996, $302,000; FY1997, $325,000; FY1998, $333,000; FY1999, $358,000; andFY2000, $279,000. Sources are the U.S. Budget and the Houseand Senate Committeeson Appropriations. Excludes permanent trust funds (in current dollars, in thousands):FY1995, $16,000; FY1996,$31,000; FY1997, $29,000; FY1998, $29,999; FY1999, $47,000; and FY2000, $51,000. Sources are the U.S. Budget and the House and Senate Committeeson Appropriations. The formula for conversion to constant dollars is as follows: 2000 Consumer Price Index(CPI) number divided by each year's CPI number multiplied by that year's budgetauthority. The CPI index numbers used were 152.4 (1995), 156.9 (1996), 160.5 (1997),163.0 (1998), 166.6 (1999), and 170.4 (2000 est.). Source for 1995-1999 index figuresis the Bureau of Labor Statistics. Source for 2000 estimate is the Congressional BudgetOffice. a Prior to FY1978, the legislative branch appropriations act contained numerous titles.Effective in FY1978, Congress restructured the legislative bill so that it would "moreadequately reflect actual costs of operating the U.S. Congress than has been true in thepast years" (H.Rept. 95-450, FY1978 Legislative Appropriations). As a result, the actwas divided into two titles. Title I, Congressional Operations, was established to containappropriations for the actual operation of Congress. Title II, Related Agencies, wasestablished to contain the budgets for activities not considered as providing directsupport to Congress. Periodically, the act has contained additional titles for suchpurposes as capital improvements and special one-time functions. b FY1996figures contain rescissions in the Omnibus Consolidated Appropriations Act,FY1997 ( P.L. 104-208 , Sept. 28, 1996). Provisions applicable to legislative branchbudget authority in P.L. 104-208 appear in Congressional Record ,daily edition, vol.142, Sept. 28, 1996, pp. H11778-H11779. c Grand totalsreflect rounding and, as a result, may differ slightly from totals obtained byadding Titles I and II in this table. d Includesbudgetauthority contained in the FY1999 regular annual Legislative BranchAppropriations Act ( P.L. 105-275 ), $223.7 million in FY1999 emergency supplementalappropriations in P.L. 105-277 , and $5.6 million in FY1999 supplemental appropriationsin P.L. 106-31 . e Includes $5.5million in emergency supplementals under the sergeant at arms for completionof Year-2000 computer conversion ( P.L. 105-277 ). f Includes$6.373 million in emergency supplementals under the chief administrative officerfor completion of Year-2000 computer conversion ( P.L. 105-277 ), and includes arescission of $3.5 million from the House heading "salaries, officers, and employees"and a supplemental appropriation of $3.5 million for the chief administrative officer forreplacement of the House payroll system ( P.L. 106-31 ). g Includes$106,782,000 for emergency security enhancements funded under the CapitolPolice Board's general expenses account ( P.L. 105-277 ). The total Joint Items figure alsoincludes $2 million for the Trade Deficit Review Commission. h This figureincludes $100,000,000 for design and construction of a Capitol visitors' center,funded under the Architect of the Capitol's Capitol buildings account, in "salaries andexpenses" ( P.L. 105-277 ), and includes $3.8 million for expenses of a House pagedormitory and $1.8 million for expenses of life safety renovations to the O'Neill HouseOffice Building ( P.L. 106-31 ). i In FY1999,the Library had authority to spend $28 million in receipts. j Includes $1million for the Congressional Cemetery. k Includes $5million in emergency supplemental appropriations under the salaries andexpenses account of the General Accounting Office for completion of the Year-2000computer conversion ( P.L. 105-277 ). l Includesregular annual appropriations and a 0.38% rescission and supplemental in P.L.106-113 . Figures do not contain appropriations pending in the FY2000 supplemental, H.R. 3908 , passed by the House on March 30, 2000. m In FY2000, the Library has authority to spend $33.1 millionin receipts. n This figure also includes a gratuity payment of $136,700contained in FY2000 supplementalappropriations in P.L. 106-113 . CRS Report RL30212 . Legislative Branch Appropriations for FY2000 , by Paul Dwyer CRS Report 98-212 . Legislative Branch Appropriations for FY1999 , by Paul Dwyer. CRS Report RL30083(pdf) . Supplemental Appropriations and Rescissions for FY1999 , coordinatedby [author name scrubbed]. These sites contain information on the FY2000 legislative branch appropriations request andlegislation, and the appropriations process. House Committee on Appropriations http://www.house.gov/appropriations Senate Committee on Appropriations http://www.senate.gov/~appropriations/ CRS Appropriations Products Guide http://www.crs.gov/products/appropriations/apppage.shtml Congressional Budget Office http://www.cbo.gov General Accounting Office http://www.gao.gov Office of Management & Budget http://www.whitehouse.gov/omb/ 1. (back) The figure includes funds in the regularannual FY2000 Legislative Branch Appropriations Act( P.L. 106-57 ); a 0.38% rescission and supplemental of $10 million in P.L. 106-113 ; a supplementalof $17.5 million in P.L. 106-246 ; and a supplemental of $11.1 million in P.L. 106-554 , whichincorporated by reference the provisions of H,.R. 5666, miscellaneous appropriations bill. 2. (back) Other budget authorities are those of somenon-legislative entities within the legislative branchbudget that are actually funded in other appropriations bills. 3. (back) FY2000 total legislative branch permanentfederal fund authority was $279 million, comprisedof House and Senate Member pay ($95 million); House and Senate use of foreign currencies ($3million); House and Senate international conferences and contingencies ($1 million); and LOCpayments to copyright owners ($180 million). Sources for permanent federal funds are FY2001 U.S.Budget (for Senate items) and House Appropriations Committee. Figures in the U.S. Budget arerounded to the nearest million. 4. (back) FY2000 total legislative branch permanenttrust fund authority was $51 million. This figurecomprises the Library of Congress gift and trust fund accounts ($41 million); the Library of Congresscooperative acquisitions revolving fund ($2 million); U.S. Capitol Preservation Commission trustfunds ($1 million); Architect of the Capitol for the Botanic Garden, gifts and donations ($6 million);and John C. Stennis Center for Public Service Training and Development trust funds ($1 million). The source for permanent trust funds is the House Committee on Appropriations. 5. (back) The FY2001 U.S. Budget includes non-legislative entities under two headings: (1) "U.S. TaxCourt" and (2) "other legislative branch agencies - legislative branch boards and commissions." Included in the latter category are the National Bipartisan Commission on the Future of Medicine;the Medicare Payment Advisory Commission; the Census Monitoring Board; the U.S. Commissionon International Religious Freedom; the Gambling Impact Study Commission; and a subcategorytitled "other legislative branch boards and commissions," with no indication of boards andcommissions included. For a more accurate picture of the legislative branch budget in FY2001,the budget authorityfor non-legislative entities should be subtracted from the total legislative budget authority providedin the U.S. Budget. The FY2001 U.S. Budget shows an FY2001 total legislative budget authorityrequest of $3.082 billion, including permanent federal and permanent trust funds, non-legislativeentities, and a deduction of $8 million in off-setting receipts from sales to the public. Afterremoving non-legislative entities ($38 million), the total is $3.036 billion, still including permanentfederal funds and permanent trust funds. Excluding permanent federal funds ($311 million) andpermanent trust funds ($37 million), the total is $2.688 billion. The source for these figures is theFY2001 U.S. Budget. The pending legislative branch budget request before the HouseAppropriations Committee was $2.716 billion, which reflected a revision by the legislative branchof the President's request. 6. (back) The source is the FY2001 U.S. Budget. This figure is not exact because the Office of Managementand Budget (OMB), which prepares the U.S. Budget, rounds to the nearest millions of dollars. 7. (back) The source is the House AppropriationsCommittee. In December of each year, legislativeagencies submit their budget requests for the upcoming fiscal year to OMB. The agencies' requestsare prepared during the previous months. Subsequently, OMB incorporates the agencies' requestswithout change into the President's annual budget submitted to Congress early the following year. Legislative agencies may revise their budget requests at any time, and the $2.716 billion was arevision by the legislative branch of the amount included in the President's budget. 8. (back) The FY2000 appropriations base used bythe House Appropriations Committee contained a $17.1million supplemental appropriation in H.R. 3908 , passed by the House on March 30,2000. 9. (back) The FY2000 appropriations base used bythe House Appropriations Committee contained a $17.1million supplemental appropriation in H.R. 3908 , passed by the House on March 30. 10. (back) The conference report on H.ConRes. 290 was adopted by the House and Senate onApril 13, 2000. 11. (back) The FY2000 appropriation base usedby the Senate in the Senate Appropriations Committeereport did not contain a $17.1 million FY2000 supplemental appropriation in H.R. 3908 ,as passed by the House on March 30, 2000. The House Appropriations Committee included the$17.1 million in its FY2000 appropriation base. 12. (back) U.S. Congress, House, Veto Message on H.R. 4516 - Message from the Presidentof the United States , H. Doc. 106-306, 106th Cong.,2nd sess., prepared by the House Committee onAppropriations (Washington: GPO, 2000), p. 1. 13. (back) This appropriation contained $423,900for gratuity payments, $1,033,000 for the Architect of theCapitol, $100 million for the Library of Congress digital program, and an additional $16.5 millionfor the Senate subheading, Miscellaneous Items. 14. (back) Due to rounding, the followingappropriations do not add exactly to $17.1 million. 15. (back) At the time conferees reported H.R. 4475 , the FY2001 legislative branchappropriations bill had been reported from conference and approved by the House. 16. (back) Mandatory costs are those requiredby statute. They include such items as annual pay adjustmentsand increases in the federal government's contribution to the federal employee retirement program. 17. (back) U.S. Congress, House Committee onAppropriations, Legislative Branch Appropriations Bill,2001 , report to accompany H.R. 4516 , 106th Cong.,2nd sess., H.Rept. 106-635 (Washington: U.S. Govt. Print. Off., 2000), p. 8. 18. (back) In the FY1997 legislative branchappropriations bill, the Senate directed CRS and the Library todevelop a retrieval system. The language was contained in an amendment that was deleted from thelegislation, but maintained in the conference report. Subsequent to passage of the FY1997 bill, thechairman of the House Administration Committee (formerly House Oversight) directed CRS and theLibrary to ensure that the retrieval system being developed for the Senate would also meet therequirements of the House. The chairman's directive was contained in a letter to the CRS directordated Oct. 9, 1996. 19. (back) Testimony of the clerk of the House,Jeff Trandahl, before the House Subcommittee onLegislative, Legislative Branch Appropriations for FY2000 ,hearings, Feb. 2, 1999, pp. 34-35. 20. (back) Comments of the former clerk of theHouse, Robin Carle. U.S. Congress, House Committee onAppropriations, Subcommittee on Legislative, Legislative Branch Appropriations for FY1998 ,hearing, 105th Cong., 1st sess., Feb. 4, 1997. See also the clerk's testimony on the DMS before theHouse Subcommittee on Legislative, Legislative Branch Appropriationsfor 1998 , hearings, part 2,Feb. 1997, p. 43. 21. (back) P.L. 104-197 , 110 Stat. 2398, Sept.16, 1996, sec. 8, FY1996 Legislative Branch AppropriationsAct. 22. (back) For language in H.R. 1871 thatis relevant to the legislative branch, see Rep. RobertLivingston, remarks in the House, Congressional Record , dailyedition, vol. 143, June 12, 1997, p.H3766. This provision was originally included in the earlier version of the FY1997 supplementalbill, H.R. 1469 , which was vetoed by the President on June 9, 1997. 23. (back) U.S. Congress, Senate Committee onAppropriations, Subcommittee on Legislative Branch, Legislative Branch Appropriations, 1999, report to accompany S.2137, 105th Cong., 2ndsess., S.Rept. 105-204 (Washington: U.S. Govt. Print. Off., 1999), p. 41. 24. (back) P.L. 105-174 , 112 Stat. 89, May 1,1998, Making Emergency Supplemental Appropriations forFY1998. See also U.S. Congress, House Committee on Appropriations, Making SupplementalAppropriations and Rescissions for the Fiscal Year Ending September 30, 1998 , report toaccompany H.R. 3580 , 105th Cong., 2nd sess., H.Rept. 105-470 (Washington: GPO,1998), pp. 11-12, and U.S. Congress, Senate Committee on Appropriations, Making EmergencySupplemental Appropriations for Recovery from Natural Disasters, and for Overseas PeacekeepingEfforts, for the Fiscal Year Ending September 30, 1998 , report to accompany S. 1768 ,105th Cong., 2nd sess., S.Rept. 105-168 (Washington: GPO, 1998), p. 22. 25. (back) Testimony of the sergeant at arms ofthe Senate, James W. Ziglar, before the HouseSubcommittee on Legislative, Legislative Branch Appropriations forFY2000 , hearings, Feb. 3,1999, p. 532. 26. (back) The FY2000 figure is the regularannual appropriation, and does not include a $2.1 millionsecurity enforcement supplemental appropriation contained in P.L. 106-544 . 27. (back) FTE stands for full-time equivalentemployee position. An FTE is determined by dividing thetotal number of hours worked by the number of hours in a work year (2,080 ). 28. (back) In FY2000, $16.5 million wastransferred to the Capitol Police from the security enhancementfund, established pursuant to P.L. 105-277 . 29. (back) The figure contains $8.0 million in apending amended request for overtime expenses. 30. (back) P.L. 104-208 ; 110 Stat. 3009-510-511. 31. (back) P.L. 105-277 ; 112 Stat. 2681-570. The enhancements are subject to approval by the Committeeon House Administration, Senate Committee on Rules and Administration, and House and SenateCommittees on Appropriations. 32. (back) U.S. Congress, Conference Committee,Making Omnibus Consolidated and EmergencySupplemental Appropriations for Fiscal Year 1999, conference report to accompany H.R. 4328 , H.Rept. 105-825 , 105th Cong., 2nd sess. (Washington: U.S. Govt. Print. Off.,1998), pp. 1530-1531. (Hereafter cited as H.Rept. 105-825 ). The conference agreement includedfunds for 260 additional Capitol Police personnel over a 2-year period, and $12 million for overtimepay. 33. (back) Ben Pershing, "Leaders Break NewGround: Actual Visitors Center Construction to Start in2001," Roll Call , June 22, 2000, pp. 1, 33. 34. (back) Testimony of the Architect of theCapitol, Alan Hantman, U.S. Congress, House Committee onAppropriations, Subcommittee on Legislative, Legislative BranchAppropriations for FY2001 ,hearings, 106th Con., 2nd sess., Feb. 1, 2000, p.361. 35. (back) Testimony of the Architect of theCapitol, U.S. Congress, House Committee on Appropriations,Subcommittee on Legislative, Legislative Branch Appropriations for FY2001, hearings, 106th Cong.,2nd sess., Feb. 1, 2000, p. 360. 36. (back) Testimony of the secretary of theSenate, Gary Sisco. U.S. Congress, Senate Committee onAppropriations, Subcommittee on Legislative Branch, Legislative Branch Appropriations forFY2001, hearings, 106th Cong., 1st sess., March 21, 2000 (not yet printed). 37. (back) Testimony of the secretary of theSenate, Gary Sisco, before the Senate Subcommittee onLegislative Branch, Legislative Branch Appropriations for FY2000, hearings, March 24, 1999, p.222. 38. (back) P.L. 106-57 ; 113 Stat. 427. 39. (back) Statement of Rep. John Mica, beforethe House Subcommittee on Legislative, Legislative BranchAppropriations for FY2000, hearings, Feb. 10, 1999, p. 795. 40. (back) The House does not consider fundsfor Senate activities. 41. (back) Congress provided the additionalfunding "for planning, engineering, design, and constructionof a Capitol visitor center." The architect is "directed not to expend any funds for this projectwithout an obligation plan approved by the House and Senate Committees on Appropriations whichshall specify the purpose and amount of anticipated obligations." 42. (back) Ibid. 43. (back) Remarks of the director of CBO, DanCrippen, before the Senate Subcommittee on LegislativeBranch, Legislative Appropriations for FY2001, hearing, Feb. 8, 2000 (not yet printed). 44. (back) FTE stands for full-time equivalentemployee position. An FTE is determined by dividing thetotal number of hours worked by the number of hours in a work year (2,080 ). 45. (back) Ibid. 46. (back) This figure does not include $3 millionavailable to GAO from collections. 47. (back) This figure does not include $1.4million available to GAO from collections. 48. (back) Testimony of Comptroller General ofthe United States David Walker, before the SenateSubcommittee on Legislative Branch, Legislative Branch Appropriations for FY2001, hearing, Feb.29, 2000 (not yet published). 49. (back) House report, FY2001, p. 29. 50. (back) The figure for FY2000 is the regularannual appropriations and does not include $10 millionappropriated for the Russian leadership program of the Library of Congress contained in P.L. 106-113 . 51. (back) The FY2000 figure does not includean FY2000 supplemental appropriation of $10 million forthe Library of Congress' Russian leadership program. 52. (back) The GPO revolving fund is an accountwhich is funded by reimbursements from sales ofpublications and by appropriations. Appropriations are made for specific purposes. The three majoroperations of the revolving fund are (1) preparation of electronic databases of governmentpublications; the procurement and production of printing, CD-ROMs, and electronic formats; (2)public sales of government documents through the Superintendent of Documents; and (3) publicdistribution of publications on behalf of federal government agencies on a reimbursable basis. 53. (back) These figures are based on constantdollars and do not include permanent budget authority, whichis not included in the annual legislative branch appropriations bill, but, rather, is automaticallyfunded annually. Return to CONTENTS section of this Long Report. | Congress appropriated $2.649 billion for legislative branch operations in FY2001, a 6.6% increase over the FY2000 appropriation of $2.486 billion. The FY2001 funding level includes theappropriation in the regular annual legislative branch appropriations bill; a supplementalappropriation of $118 million in a miscellaneous appropriations bill; and a rescission of 0.22%. Regular FY2001 Appropriations . The first regular FY2001 legislative branch appropriations bill ( H.R. 4516 ) approved by Congress was vetoed by President Clinton in late October2000. Seven weeks later, on December 14, a new legislative branch appropriations bill( H.R. 5657 ), which contained the funding levels as approved in the original bill, wasintroduced and incorporated by reference in the FY2001 Consolidated Appropriations Act( H.R. 4577 ). The latter act was signed into law ( P.L. 106-554 ) on December 21, 2000. During initial consideration of the regular legislative branch bill, the House Appropriations Committee, in compliance with budget allocation restrictions, established funding for FY2001 at5.5% less than the level appropriated for FY2000. When the Senate took up the bill it approved anoverall 3.7 % increase. The House later restored most of the funds cut at the committee level whenit adopted a manager's amendment containing an additional $95.7 million in funding during floorconsideration of the House bill. The compromise bill approved by the conference committeeprovided for a 2.1% over FY2000. Among the major funding issues considered were actions to: increase funds for the Capitol Police to employ 100-115 additional officers toimplement the Capitol Police Board's security plan; temporarily transfer administration of the Capitol Police to a chiefadministrative officeunder jurisdiction of the General Accounting Office; merge Library of Congress and Government Printing Office policewith the CapitolPolice; provide adequate funds for electronic document printing, the digitalonline programof the Library of Congress, and enhancements to the legislative information system; fund the support agency staff succession programs to replaceemployees eligible forretirement in the immediate future; and authorize GAO greater flexibility in reductions-in-force and earlyretirements andseparation payments. Additional Regular Appropriations and Rescission. A second bill ( H.R. 5666 ), whichcontained an additional $118 million in regular FY2001 legislative branch appropriations funds, and a 0.22%across-the-broad cut in FY2001 appropriations, was also incorporated by reference into P.L. 106-554 . Key Policy Staff Division abbreviations: GOV/FIN = Government and Finance |
China's policy of intervention to limit the appreciation of its currency, the renminbi (RMB) against the dollar and other currencies has become a major source of tension with many of its trading partners, especially the United States. Some analysts contend that China deliberately "manipulates" its currency in order to gain unfair trade advantages over its trading partners. They further argue that China's undervalued currency has been a major factor in the large annual U.S. trade deficits with China and has contributed to widespread job losses in the United States, especially in manufacturing. President Obama stated in February 2010 that China's undervalued currency puts U.S. firms at a "huge competitive disadvantage," and he pledged to make addressing China's currency policy a top priority. At a news conference in November 2011, President Obama stated that China needed to "go ahead and move towards a market-based system for their currency" and that the United States and other countries felt that "enough is enough." Legislation to address China's currency policy has been introduced in every session of Congress since 2003. The House passed currency legislation in 2010 and the Senate did so in 2011, although none became law. On March 20, 2013, Representative Sander Levin introduced H.R. 1276 to "clarify that U.S. countervailing duties may be imposed to address subsidies relating to a fundamentally undervalued currency of any foreign country." On June 7, 2013, Senator Sherrod Brown introduced S. 1114 , which would require action against certain misaligned currencies. In recent years, congressional concerns over misaligned (or undervalued currencies) have extended to other countries as well, leading some Members to propose that currency provisions be included in future U.S. trade agreements. China began to gradually reform its currency policy in July 2005, and between then and the end of June 2013, the RMB has appreciated by 34% on a nominal basis (and 42% on an inflation-adjusted basis) against the U.S. dollar. In addition, China's trade surpluses have fallen sharply in recent years and its accumulation of foreign exchange reserves has slowed. These factors have led some analysts to conclude that the RMB exchange rate with the dollar may be approaching market levels, or is, at best, only modestly undervalued. However, other analysts contend that the RMB remains significantly undervalued against the dollar and complain that the RMB has appreciated little against the dollar since the end of 2011. Thus, they argue that continued pressure must be applied until the Chinese government adopts a market-based exchange rate. Although economists differ as to the economic effects an undervalued RMB might have on the United States (many cite both positive and negative effects), most agree that greater currency flexibility by China would be one of several reforms that would help reduce global imbalances, which are believed to have been a major factor that sparked the global financial crisis and economic slowdown. They further contend that currency reform is in China's own long-term interests because it would boost economic efficiency. China's government has pledged to continue to make its currency policy more flexible, but has maintained that appreciating the RMB too quickly could cause significant job losses (especially in China's export sectors), which could disrupt the economy. Some economists question whether RMB appreciation would produce significant net benefits for the U.S. economy. They argue that prices for Chinese products would rise, which would hurt U.S. consumers and U.S. firms that use imported Chinese components in their production. In addition, an appreciating RMB might lessen the Chinese government's need to purchase U.S. Treasury securities, which could cause U.S. interest rates to rise. It is further argued that an appreciating currency would do little to shift manufacturing done by foreign-invested firms (including U.S. firms) in China to the United States; instead, such firms would likely shift production to other low-cost East Asian countries. Finally, it is argued that an appreciating RMB might boost some U.S. exports to China, but the effects of lower prices for U.S. products in China could be negated to a large extent by China's restrictive trade and investment barriers. Such analysts view currency reform as part of a broad set of goals that U.S. trade policy should pursue. These goals include inducing China to rebalance its economy by making consumer demand, rather than exports and fixed investment, the main sources of China's economic growth; eliminate industrial policies that seek to promote and protect Chinese firms (especially state-owned firms); reduce trade and investment barriers; and improve protection of U.S. intellectual property rights. This report provides an overview of the economic issues surrounding the current debate over China's currency policy. It identifies the economic costs and benefits of China's currency policy for both China and the United States, and possible implications if China were to allow its currency to significantly appreciate or to float freely. It also examines legislative proposals that seek to address China's (and other countries') currency policy. Prior to 1994, China maintained a dual exchange rate system. This consisted of an official fixed exchange rate system (which was used by the government), and a relatively market-based exchange rate system that was used by importers and exporters in "swap markets," although access to foreign exchange was highly restricted in order to limit imports, resulting in a large black market for foreign exchange. The two exchange rates differed significantly. The official exchange rate with the dollar in 1993 was 5.77 yuan versus 8.70 yuan in the swap markets. China's dual exchange rate system was criticized by the United States because of the restrictions it (and other policies) placed on foreign imports. In 1994, the Chinese government unified the two exchange rate systems at an initial rate of 8.70 yuan to the dollar, which eventually was allowed to rise to 8.28 by 1997 and was then kept relatively constant until July 2005. The RMB became largely convertible on a current account (trade) basis, but not on a capital account basis, meaning that foreign exchange in China is not regularly obtainable for investment purposes. From 1994 until July 2005, China maintained a policy of pegging the RMB to the U.S. dollar at an exchange rate of roughly 8.28 yuan to the dollar. The peg appears to have been largely intended to promote a relatively stable environment for foreign trade and investment in China (since such a policy prevents large swings in exchange rates)—a policy utilized by many developing countries in their early development stages. The Chinese central bank maintained this peg by buying (or selling) as many dollar-denominated assets in exchange for newly printed yuan as needed to eliminate excess demand (supply) for the yuan. As a result, the exchange rate between the RMB and the dollar varied little, despite changing economic factors which could have otherwise caused the yuan to appreciate (or depreciate) relative to the dollar. Under a floating exchange rate system, the relative demand for the two countries' goods and assets would determine the exchange rate of the RMB to the dollar. The Chinese government modified its currency policy on July 21, 2005. It announced that the RMB's exchange rate would become "adjustable, based on market supply and demand with reference to exchange rate movements of currencies in a basket," and that the exchange rate of the U.S. dollar against the RMB would be adjusted from 8.28 yuan to 8.11, an appreciation of 2.1%. Unlike a true floating exchange rate, the RMB would be allowed to fluctuate by up to 0.3% (later changed to 0.5%) on a daily basis against the basket. After July 2005, China allowed the RMB to appreciate steadily, but very slowly. From July 21, 2005, to July 21, 2008, the dollar-RMB exchange rate went from 8.11 to 6.83, an appreciation of 18.7% (or 20.8% if the initial 2.1% appreciation of the RMB to the dollar is included). The situation at this time might be best described as a "managed float"—market forces determined the general direction of the RMB's movement, but the government retarded its rate of appreciation through market intervention. China halted its currency appreciation policy around mid-July 2008 (see Figure 1 ), mainly because of declining global demand for Chinese products that resulted from the effects of the global financial crisis. In 2009, Chinese exports fell by 15.9% over the previous year. The Chinese government reported that thousands of export-oriented factories were shut down and that over 20 million migrant workers lost their jobs in 2009 because of the direct effects of the global economic slowdown. In response, the Chinese government intervened to prevent any further appreciation of the RMB to the dollar. The RMB/dollar exchange rate was held relatively constant at 6.83 through around mid-June 2010. On June 19, 2010, China's central bank, the People's Bank of China (PBC), stated that, based on current economic conditions, it had decided to "proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility." It ruled out any large one-time revaluations, stating "it is important to avoid any sharp and massive fluctuations of the RMB exchange rate," in part so that Chinese corporations could more easily adjust (such as through technology upgrading) to an appreciation of the currency. Many observers contend the timing of the RMB announcement was intended in part to prevent China's currency policy from being a central focus of the G-20 summit in Toronto in June 2010. As indicated in Figure 2 , the RMB's exchange rate with the dollar has gone up and down since RMB appreciation was resumed, but overall, it has appreciated. From June 19, 2010, (when appreciation was resumed) to July 10, 2013, the yuan/dollar exchange rate went from 6.83 to 6.17, an appreciation of 10.7%. Most of the appreciation occurred in 2010 and 2011. From January 1, 2012, to July 10, 2013, the RMB appreciated by only 2.1% against the dollar. Figure 3 shows the annual percentage change in the RMB's value against the dollar from 2001 to 2012 and indicates that the sharpest appreciation occurred in 2008 when it rose by 9.4%. Some economists contend that a more accurate measurement of the yuan/dollar exchange rate involves accounting for differences in inflation between China and the United States—the real exchange rate. This approach is relevant because if prices are rising faster in China than in the United States, then the prices of Chinese tradable goods may be rising as well (even with no change in the nominal exchange rate). In effect, a higher Chinese inflation rate relative to the United States acts as a de facto appreciation of the RMB. From June 2005 to June 2013, China's consumer price inflation was about 31% higher than the U.S. level. Factoring in inflation into the RMB/dollar exchange rate indicates that the RMB appreciated in real terms by 42% during this period (as opposed to a 34% increase on a nominal basis). A broader measurement of the RMB's movement involves looking at exchange rates with China's major trading partners by using a trade-weighted index (i.e., a basket of currencies) that is adjusted for inflation, often referred to as the "effective exchange rate." The Bank of International Settlements maintains such an index for major economies, based on their trade with 61 trading partners. Such an index is useful because it reflects overall changes in a country's exchange rate with its major trading partners as a whole—not just the United States. China's relative peg to the dollar has meant that as the dollar has depreciated or appreciated against a number of major currencies, the RMB has depreciated or appreciated against them as well. For example, from July 2008 to May 2010, when the RMB exchange rate to the dollar was kept constant (at 6.83 yuan per dollar), the real trade-weighted exchange rate index of China's currency (based on its trade with 61 major economies) appreciated by 8.2%. Between June 2010 (when appreciation of the RMB to the dollar was resumed) and May 2013, China's real trade-weighted exchange rate appreciated by 16.9%; and during the first five months of 2013, it rose by 4.6% (see Figure 4 ). Many U.S. policymakers and certain business and labor representatives have charged that the Chinese government "manipulates" its currency in order to make it significantly undervalued vis-à-vis the U.S. dollar, thus making Chinese exports to the United States less expensive, and U.S. exports to China more expensive, than they would be if exchange rates were determined by market forces. They further contend that, while a pegged currency may have been appropriate during China's early stages of economic development, it can no longer be justified, given the size of China's economy and trade flows, and the impact these have on the global economy. Critics have further charged that the undervalued currency has been a major factor behind the burgeoning U.S. trade deficit with China, which grew from $84 billion in 2000 to $315 billion in 2012 and is projected to reach $325 billion in 2013 (based on data for January-May 2013). Other factors that have been cited as evidence of Chinese currency manipulation (and misalignment) have been China's massive accumulation of foreign exchange reserves and the size of its current account surpluses. China is by far the world's largest holder of foreign exchange reserves. These grew from $212 billion in 2001 to $3.3 trillion in 2012 (year-end values). Many analysts contend that large increases in China's foreign exchange reserves reflect the significance of Chinese intervention in currency markets to hold down the value of the RMB, which, they argue, has been a major factor behind China's large annual current account surpluses. According to one economist, a country's current account balance increases between 60 and 100 cents for each dollar spent on currency intervention. As can be seen in Figure 5 , China's foreign exchange holdings grew significantly from 2004 to 2011, averaging $363 billion in new reserves each year, but that growth slowed sharply in 2012 ($129 billion). As indicated in Figure 6 , the annual rate of increase (percent change) in China's foreign exchange reserves went from a 51.3% rise in 2004, to 27.2% in 2008, to 4.1% in 2012. China's current account surplus rose from $69 billion in 2004 to a historical peak of $421 billion in 2008. It then declined over the next few years, dropping to $140 billion by 2011; it rose to $192 billion in 2012, according to the International Monetary Fund (IMF). More significantly, China's current account surplus as a percent of GDP fell as well. It dropped from a historical high of 10.1% in 2007 to 1.9% in 2011, but increased to 2.3% in 2012. In addition, China's exports of goods and services as a percent of GDP declined from a historical high of 38.3% in 2007 to 27.5% in 2012, as indicated in Figure 7 . Many analysts contend the sharp drop in China's current account surpluses may have had more to do with the effects of the global economic slowdown (which greatly diminished global demand for Chinese products and led to a fall in foreign direct investment in China) than a change in China currency policies (although other Chinese economic policies were a major factor in the decline of the current account surplus, such as government policies to boost fixed investment and consumption which were employed to maintain rapid economic growth in the face of the global economic crisis). In a July 2010 report, the IMF warned that, over the medium term, there was potential for China's sizable current account surpluses to return once its stimulus measures wound down and the global economy began to recover. In July 2012, the IMF stated that, although the fall of China's current account surplus was a welcome sign, the external rebalancing was achieved at the cost of rising internal imbalances—namely the high rate of investment spending, which, the IMF assessed, would be difficult to sustain. The current high rate of unemployment in the United States appears to have intensified concerns over the perceived impact of China's currency policy on the U.S. economy, especially employment. Many have argued that RMB appreciation would boost the level of U.S. jobs. Some analysts contend that there is a direct correlation between the U.S. trade deficit and U.S. job losses. For example, a 2012 study by the Economic Policy Institute (EPI) claims that the U.S. trade deficit with China (which EPI claims is largely the result of China's currency policy) led to the loss or displacement of 2.7 million jobs (of which, 77% were in manufacturing) between 2001 and 2011. The EPI report states that, while U.S. exports to China support U.S. jobs, U.S. imports from China "displace American workers who would have been employed making these products in the United States." Claims about the negative effect of China's exchange rate on U.S. employment and trade are often juxtaposed with the observation that China's economy has grown rapidly over the past five years (real GDP grew at an average annual rate of 9.2% from 2008 to 2012), while other countries have experienced slow or stagnant growth since the beginning of the global financial crisis. This has led some commentators to argue that China's exchange rate intervention represents a "beggar thy neighbor" policy (i.e., meant to promote Chinese economic development at the expense of other countries). (The validity of claims about the RMB's effect on the U.S. economy will be analyzed in the section below entitled " An Economic Analysis of the Effects of China's Currency ") For example, U.S. economist Paul Krugman in 2009 argued that the undervalued RMB had become a significant drag on global economic recovery, estimating that it had lowered global GDP by 1.4%, and had especially hurt poor countries. Because of these factors, some Members have argued that China should be cited by the Department of the Treasury as a country that manipulates its currency in order to gain an unfair trade advantage (see text box). Numerous bills have been introduced in Congress over the past several years that have sought to induce China (and other countries) to reform its currency policy or to address the perceived effects of that policy on the U.S. economy. For example, one bill introduced in the 108 th Congress by Senator Schumer ( S. 1586 ) sought to impose additional duties of 27.5% on imported Chinese products unless China appreciated its currency to market levels. The House approved a currency bill ( H.R. 2378 ) in the 111 th Congress and the Senate passed one ( S. 1619 ) in the 112th Congress, though neither became law. Over the past few years, some legislative proposals have sought to apply U.S. anti-dumping and countervailing duty measures to address the effects of China's undervalued currency, namely to treat it as an export subsidy (countervailing measures) or as a factor that is included in the determination of anti-dumping duties. This would likely increase U.S. countervailing and anti-dumping duties on certain imports from China. A major source of contention is whether such measures would be consistent with U.S. obligations in the World Trade Organization (WTO). Some contend that the WTO allows countries (under certain conditions) to administer their own trade remedy laws, and thus they argue that making currency undervaluation a factor in determining countervailing or anti-dumping duties would be consistent with WTO rules. Critics of such proposals counter that WTO rules do not specifically include currency undervaluation as a factor that can be used to implement trade remedy actions, and thus, such proposals, if enacted, might be challenged by China (and possibly other WTO members) as a violation of WTO rules. Another major objective of various recent currency bills is to eliminate current provisions of U.S. trade laws that require the Treasury Department to identify countries that intentionally "manipulate" their currency. Treasury has not identified any country for manipulating its currency since 1994. Some bills have sought to create a process whereby Treasury would identify countries with currencies that were estimated to be fundamentally misaligned (based on certain criteria), regardless of intent. Such bills list a number of actions (some of which would be punitive) the U.S. government would be directed to take against certain "priority" countries. Some supporters of currency legislation aimed at China hope that the introduction of such bills will induce China to appreciate its currency more rapidly. Opponents of the bills contend that such legislation could antagonize China and induce it to slow the rate of RMB appreciation. Another concern of opponents is that China might also retaliate against U.S. exports to China and/or U.S.-invested firms in China if such legislation became law. H.R. 1276 was introduced by Representative Sander Levin on March 20, 2013. The bill is identical to the one he introduced in the 112th Congress ( H.R. 639 ) and nearly identical to H.R. 2378 , which passed the House during the 111 th Congress by a vote of 284 to 123. H.R. 1276 would seek to clarify certain provisions of U.S. countervailing duty laws (pertaining to foreign government export subsidies) that would allow the Commerce Department to consider a "fundamentally misaligned currency" as an actionable subsidy. For example, it would clarify that a fundamentally undervalued currency could be treated by the Commerce Department as a benefit conferred by a foreign government to its exports. In addition, the bill seeks to clarify that, in the case of a subsidy relating to a fundamentally undervalued currency, the fact that the subsidy (i.e., the undervalued currency) may have also benefitted non-exporting firms (in addition to exporting firms), would not, for that reason alone, mean that the undervalued currency was not an actionable subsidy under U.S. countervailing duty law. The bill would direct the Commerce Department to use, if possible, data and methodologies utilized by the International Monetary Fund (IMF) to estimate real effective exchange rate undervaluation. Factors that would be used by the Commerce Department to determine if a country's currency is fundamentally undervalued for the purposes of U.S. countervailing duty laws would include (over an 18-month period): (1) protracted and large-scale intervention in currency markets; (2) a real effective exchange rate estimated to be undervalued by at least 5%; and (3) foreign asset reserves held by the government that exceed: (A) the amount needed to repay its debt obligations over the next year; (B) 20% of the nation's money supply; and (C) the value of the country's imports over the previous four months. The bill would direct the Commerce Department to estimate the "subsidy" relating to a fundamentally undervalued currency for the purpose of imposing countervailing duties, which would be defined as the difference between a currency's real effective exchange rate and its equilibrium real effective exchange rate. The bill further directs Commerce (when appropriate) to use the simple average of the methodologies used by the IMF's Consultative Group on Exchange Rates. If such data are not available from the IMF, Commerce would be directed to use generally accepted economic and econometric techniques and methodologies to measure the level of undervaluation. S. 1114 was introduced by Senator Sherrod Brown on June 7, 2013. It is essentially the same bill ( S. 1619 ) that Senator Brown introduced in 2011 and was passed by the Senate on October 11, 2011. The bill would provide for the identification of fundamentally misaligned currencies and require action to correct the misalignment for certain "priority" countries. The bill would require the Treasury Department to issue a semiannual report to Congress on international monetary policy and currency exchange rates, which, in addition to several provisions under current law, would include: a description of any currency intervention by the United States or other major economies or trading partners of the United States, or other actions undertaken to adjust the actual exchange rate relative to the U.S. dollar; an evaluation of the domestic and global factors that underlie the conditions in the currency markets; with respect to currencies of countries with significant trade flows with the United States and other major global currencies, a determination and designation by Treasury as to which of these are in fundamental misalignment; a list of currencies designated for "priority action"; an identification of the nominal value associated with the medium-term equilibrium exchange rate relative to the U.S. dollar for each currency listed for priority action; and a description of any consultations conducted, including any actions taken to eliminate the fundamental misalignment. Treasury would be required to seek negotiations with countries designated for priority action. Factors used to determine priority countries would include those that are (1) engaging in protracted large-scale intervention in currency markets, particularly if accompanied by monetary sterilization measures; (2) engaging in excessive and prolonged accumulation of foreign exchange reserves for balance of payment (BOP) purposes; (3) introducing or modifying restrictions or incentives (for balance of payment purposes) on capital inflows and outflows that are inconsistent with the goal of achieving full currency convertibility; and (4) pursuing any other policy or action that the Treasury Secretary views as warranting designation for priority action. If a country that has a currency designated for priority action fails to eliminate the fundamental misalignment within 90 days, the following would occur: In antidumping duty investigations, the Commerce Department would be required to factor in the estimated level of currency undervaluation when comparing the export price with the normal value (i.e., the exporter's home market value) when determining the level of dumping that may have taken place. This could raise the level of anti-dumping duties imposed on imports. The President would be required to prohibit the procurement by the federal government of products or services from the country unless it is a party to the World Trade Organization's Government Procurement Agreement (GPA). China is negotiating to join the GPA, but is currently not a member. The Overseas Private Investment Corporation (OPIC) would be prohibited from approving any new financing (including insurance, reinsurance, or guarantee) with respect to a project located within the country. This provision would not affect China because OPIC is already prohibited by U.S. law from operating in China. The U.S. Executive Director at each multilateral bank would be directed to oppose the approval of any new financing to the government of a country, or for a project located within that country. The United States would request the IMF to hold special consultations with the country on ways to eliminate the fundamental misalignment. If a country that has a currency designated for priority action fails to take steps to eliminate the fundamental misalignment within 360 days after its designation by Treasury, the following would occur: The U.S. Trade Representative (USTR) would be required to request consultations in the WTO (i.e., initiate a dispute settlement case) with the country regarding the consistency of the country's actions with its obligations in the WTO. The Treasury Secretary would be required to consult with the Board of Governors of the Federal Reserve System to consider undertaking remedial intervention in international currency markets in response to the fundamental misalignment of the designated currency and coordinating such intervention with other monetary authorities and the IMF. The Treasury Department would be required to oppose increasing the voting shares or representation in any international financial institution (such as the IMF) if the country in question would benefit from that change. S. 1114 would also amend U.S. countervailing duty law to require the Commerce Department to initiate an investigation to determine whether currency undervaluation is providing, directly or indirectly, a countervailing subsidy if a petition is filed by an interested party and is accompanied by information supporting those allegations. The bill also seeks to clarify that, in the case of a subsidy relating to a fundamentally undervalued currency, the fact that the subsidy (i.e., the undervalued currency) may have also benefitted non-exporting firms would not, for that reason alone, mean that the subsidy could not be considered to be a measure that is contingent upon export performance. The bill includes waiver provisions for actions taken toward priority countries and a process for Congress to disapprove the waivers. S. 1114 would also add a provision to U.S. antidumping law that would require the Commerce Department to include whether a country has been designated as having a currency for priority action as a factor to be considered during a review of whether to change the designation of a non-market economy country to one that is a market economy country. For the purposes of measuring a benefit conferred by a misaligned currency in a regular countervailing duty case, Commerce would be directed to compare the simple average of the real exchange rates derived from the application of the IMF's equilibrium real exchange rate approach and the macroeconomic balance approach to the official daily exchange rate, relying on IMF or World Bank data, if available, or other international organizations or national governments if such data are not available. For a countervailing duty case involving a fundamentally misaligned currency for priority action, S. 1114 would direct Commerce to calculate the benefit of a misaligned currency by comparing the nominal value associated with the medium-term equilibrium exchange rate of the currency of the exporting country to the official daily exchange rate. For the purposes of antidumping duty cases involving a fundamentally misaligned currency for priority action, S. 1114 would require the Department of Commerce to adjust the price used to establish the export price or constructed export price to reflect the fundamental misalignment of the currency of the exporting country. Fundamental misalignment is defined as a significant and sustained undervaluation of the prevailing real effective exchange rate, adjusted for cyclical and transitory factors, from its medium-term equilibrium level. The term "fundamental misalignment" and measurements of misalignment in the bill appear to have been largely drawn from the IMF's 2007 Decision on Bilateral Surveillance over Members' Policies (see text box below). President Obama stated in February 2010 that China's undervalued currency puts U.S. firms at a "huge competitive disadvantage," and he pledged to make addressing China's currency policy a top priority. At a news conference in November 2011, President Obama stated that China needed to "go ahead and move towards a market-based system for their currency" and that the United States and other countries felt that "enough is enough." Administration officials have welcomed greater congressional involvement on the China currency issue as long as legislative proposals do not violate U.S. WTO obligations and do not complicate ongoing bilateral and multilateral negotiations with China on the issue. The Administration did not publicly indicate whether it supported or opposed the House-passed version of H.R. 2378 in the 111 th Congress. During considering of S. 1619 by the Senate in October 2011, an Administration official stated: We share the goal of the legislation in taking action to ensure that our workers and companies have a more level playing field with China, including addressing the under-valuation of their currency, an issue that I've spoken about and certainly Secretary Geithner and others have spoken about. Aspects of the legislation do, as I've said, raise concerns about consistency with our international obligations, which is why we're in the process of discussing with Congress those issues. And if this legislation were to advance, we would expect those concerns to be addressed. The Obama Administration has sought to directly engage China on the currency issue through the Strategic & Economic Dialogue (S&ED) and the Joint Commission on Commerce and Trade (JCCT). At the end of the May 2011 S&ED session, then Secretary of the Treasury Tim Geithner stated: "We hope that China moves to allow the exchange rate to appreciate more rapidly and more broadly against the currencies of all its trading partners. And this adjustment, of course, is critical not just to China's ongoing efforts to contain inflationary pressures and to manage the risks that capital inflows bring to credit and asset markets, but also to encourage this broad shift to a growth strategy led by domestic demand." At the May 2012 S&ED talks, Geithner acknowledged that China had made progress, stating: "China has acted to move toward a more flexible exchange rate system in which the market plays a greater role. It is intervening less in exchange markets. China is also moving to liberalize controls on the international use of its currency and on capital movements into and out of the country." At the July 2013 S&ED session, China reiterated its commitment to move to a market-determined exchange rate. It addition, the Obama Administration has sought to use multilateral channels, such as the Group of 20 (G-20) of leading economies and the IMF, as a means to boost international cooperation on external balances and exchange rate policies and to bring more pressure on China to appreciate its currency. For example, on October 20, 2010, Secretary Geithner issued a proposal aimed at the G-20 meeting of finance ministers and central bank governors on October 23, 2010. The proposal contained three main points: G-20 countries should commit to taking steps to reduce external imbalances (both surpluses and deficits) below a specified share of GDP over the next few years. G-20 countries should commit to refrain from exchange rate policies designed to achieve competitive advantage by either weakening their currency or preventing appreciation of an undervalued currency. G-20 emerging market countries with significantly undervalued currencies (and adequate precautionary foreign exchange reserves) need to allow their exchange rates to adjust fully over time to levels consistent with economic fundamentals. G-20 advanced economies should work to ensure against excessive volatility and disorderly movements in exchange rates. The G-20 should call on the IMF to assume a special role in monitoring progress on these commitments and should publish a semiannual report assessing progress the G-20 countries have made to achieve these goals. China and a number of other G-20 members, though supporting efforts to rebalance the global economy, opposed the idea of using numerical targets. In February 2013, the G-7 finance ministers and central bank governors issued a statement reaffirming their "longstanding commitment to market-determined exchange rates" and that fiscal and monetary policies would remain oriented towards meeting domestic objectives, and that members would not target exchange rates. They noted that members agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. This section examines a number of issues pertaining to the effects of China's undervalued currency on the U.S. economy. The economic effects on the Chinese economy of an undervalued currency are examined later in the report. A major question raised by U.S. policymakers is: what would the RMB's exchange rate with the dollar (and other currencies) be if China allowed its currency to float freely in international markets and did not intervene to affect the RMB's value and how does this compare to the current rate of exchange? Such a question attempts to ascertain to what degree the RMB is misaligned or undervalued against the dollar. Several economic studies have been issued over the years that have attempted to estimate the degree of the RMB's undervaluation against the dollar with varying results. For example, four separate studies issued in 2009 concluded that the RMB was undervalued against the dollar by rates of 12%, 25%, 40% , and 50%, respectively. A 2006 Department of the Treasury report describes a number of challenges that arise from attempting to use economic models to predict market exchange rates. It notes that there is no single model that accurately explains exchange rate movements, that such models rarely, if ever, incorporate financial market flows, and that their conclusions can vary considerably, based on the variables used. However, the report stated that examining such models can produce useful information in understanding exchange rate movements if they focus only on serious misalignments; use real effective, not bilateral, exchange rates; utilize several different models, recognizing that no one model will provide precise answers; focus only on protracted misalignments where currency adjustments are not taking place; supplement judgments about misalignment with analysis of empirical data, indicators, policies, and institutional factors; and verify whether there are any market-based reasons for a currency's misalignment. The IMF appears to largely follow the approach outlined by the Treasury Department's report. The IMF's Consultative Group on Exchange Rates uses three different methodologies for its surveillance and assessment of the exchange rate regimes of its members, including an equilibrium real exchange rate (ERER) approach, an external sustainability (ES) approach, and the macroeconomic balance (MB) approach. In July 2011, the IMF stated that it believed "that the renminbi remains substantially below the level consistent with medium-term fundaments." For the first time, the IMF made public its estimates of the RMB's undervaluation, which included 3% under the ERER approach, 17% under the ES approach, and 23% under the MB approach. However, an IMF report that described its three exchange rate methodologies cautioned: While adopting different empirical methodologies goes some way towards strengthening the robustness of exchange rate assessments, it should be recognized that such assessments are unavoidably subject to large margins of uncertainty. These relate to a number of factors, such as the potential instability of the underlying macroeconomic links, differences in these links across countries, significant measurement problems for some variables, as well as the imperfect "fit" of the models. Some of these problems may be more severe for emerging market economies, where structural change is more likely to play an important role and where limitations in terms of data availability and length of sample are more acute. In July 2012, the IMF declared that: "The renminbi is assessed to be moderately undervalued, reflecting a reassessment of the underlying current account, slower international reserves and in accumulation, and past real effective exchange rate appreciation." The IMF gave a range of the RMB's undervaluation (described as the difference between the real effective exchange rate and the rate that would be "consistent with fundamentals and desirable policies") of 5%-10%. In May 2013, the IMF repeated its assessment that the RMB remained moderately undervalued against a basket of currencies. Most studies of the RMB's projected market value against the dollar have involved one-time estimates made for a given period of time and thus may not reflect fundamental economic changes that may have subsequently occurred, which in turn would affect estimates of the RMB's equilibrium exchange rate with the dollar in other years. For example, a one-time study on China's exchange rate in 2009 will not reflect any change (appreciation or depreciation) in the currency that has occurred since the study was done. One exception to these limitations is partially addressed by work done by William R. Cline with the Peterson Institute for International economics, who has made estimates of the equilibrium exchange rates for a number of countries, including China, from 2008 to 2013 on a semiannual basis. Cline uses the fundamental equilibrium exchange rate (FEER) method to estimate exchange rates. One of the assumptions that he uses is that current account balances around the world are temporarily out of line with their "fundamental" value. Once an estimate has been made of what the fundamental current account balance should be, one can calculate how much the exchange rate must change in value to achieve that current account adjustment. To calculate the level of misevaluation for one country under this method, estimates of how far exchange rates for every country are out of equilibrium, including countries with floating exchange rates, must be made. One of the main sources of contention in FEER estimates is choosing an "equilibrium" current account balance for each country. Estimates of the RMB's undervaluation are typically defined as the appreciation that would be required for China to attain "equilibrium" in its current account balance. But there is no consensus based on theory or evidence to determine what equilibrium would be, so a judgmental approach is used. Cline determines his own current account targets for different countries—for China the target is a current account surplus of no more than 3% of GDP while the target for the United States is a current account deficit that is no greater than 3% of GDP. The estimates of the RMB's undervaluation made by Cline utilize actual and projected data (such as GDP growth and current account balances) from the IMF's World Economic Outlook in order to calculate an equilibrium exchange rate. For example, Cline's May 2013 study used the IMF's projection for China's current account surplus as a percent of GDP in 2018 (4.0%) and estimates how much the RMB would need to appreciate against the dollar to obtain a current account surplus target goal that is 3% of GDP. As indicated in Figure 8 , Cline's estimates of the amount of appreciation the RMB would need to obtain equilibrium (i.e., a current account surplus of 3% of GDP) has fallen from a peak of 40.7% in December 2009 to 5.9% in October 2012; it rose to 6.0% for April 2013. As noted earlier, Cline made FEER estimates relative to the dollar for a number of currencies, not just the RMB. His May 2013 study estimates the equilibrium level of the currencies of 33 countries plus the euro area. The top 10 countries with the most undervalued currencies as of April 2013 are listed in Table 1 in ranking order. The top five countries with the most undervalued currencies were Singapore (undervalued by 25.7%), Taiwan (18.8%), Sweden (13.4%), Japan (13.1%), and Switzerland (10.8%); China ranked ninth. There is no universally accepted methodology for precisely determining a country's real market exchange rate. The economic conditions and assumptions that are used to determine "equilibrium" exchange rates change continuously. As a result, many analysts question their usefulness to U.S. policymakers, such as providing a precise U.S. goal for an appreciation of the RMB vis-a-vis dollar or for use in trade remedy legislation that would seek to offset the benefit ("subsidy") conferred by the RMB's undervaluation, such as through the use of countervailing or antidumpting measures. Many policymakers might expect that if China significantly appreciated its currency, U.S. exports to China would rise, imports from China would fall, and the U.S. trade deficit would decline within a relatively short period of time. For example, C. Fred Bergsten from the Peterson Institute for International Economics argued in 2010 that a market-based RMB would lower the annual U.S. current account deficit by $100 billion to $150 billion. But the issue of the possible effects of an RMB appreciation on the U.S. economy is complicated by the fact that there are short-term and long-term implications of RMB appreciation, and that exchange rates are but one of many factors that affect trade flows To illustrate that exchange rates are only one factor that determine trade flows, one can look at the effect of the 21% RMB appreciation of the RMB to the dollar from July 2005 to July 2008 on U.S.-China trade flows. On the one hand, during this period U.S. imports from China increased by 39%, compared to a 92% increase from 2001 to 2004 (when the exchange rate remained constant). On the other hand, U.S. exports to China during the 2005-2008 period did not grow as fast as during the 2001-2004 period (71% versus 81%). Despite the RMB's appreciation from 2005 to 2008, the U.S. trade deficit with China still rose by 30.1% (although the overall U.S. current account deficit declined by nearly 6%). The appreciation of the RMB appears to have had little effect on China's overall trade balance from 2005 to 2008. During this time, China's merchandise trade surplus increased from $102 billion to $297 billion, an increase of 191%, and China's current account surplus and accumulation of foreign exchange reserves both increased by 165% over this period. Part of the problem in attempting to evaluate the effects of the RMB's appreciation is that it can take time (perhaps a few years) before changes in exchange rates are reflected in changes to prices of tradable goods and services, and, hence, result in changes to imports, exports, and trade balances. An appreciated RMB could actually worsen the U.S. trade deficit in the short run if the volume (demand) of imports from China did not decline at the same rate that prices increased (the so-called J-Curve effect). It would take time for U.S. consumers of higher-priced Chinese products to find lower-priced (non-Chinese) products or other alternatives and thus reduce overall demand for Chinese imports. In addition, there would be a lag time in terms of the effects of an appreciated RMB on prices of Chinese products, since prices for many exports are set several months ahead of time in contracts. If an appreciated currency lowered prices for U.S. products, it could take time for increased Chinese demand to be signaled to U.S. producers and exporters and for them to boost production to meet the new demand. Over time, one would expect the effects of currency appreciation to affect the flow of bilateral trade and, possibly, produce a decrease in the bilateral trade imbalance (although the size of the overall U.S. trade deficit might not change because that is determined by a number of factors other than exchange rates). Another factor to consider in evaluating the effects an RMB appreciation may have had on trade flows is to examine how price changes would be passed on or distributed. If the RMB appreciates against the dollar, not all of the price increase resulting from the appreciation may be passed on to the U.S. consumer. Some of it may be absorbed by Chinese laborers, producers, or exporters, and some by U.S. importers, wholesalers, or retailers. According to the U.S. Department of Labor, from 2003 to 2012 (year-end), the price index for U.S. imports from China rose by 6.1% (compared to a 19.2% rise in import prices for total U.S. imports of non-petroleum products) even the RMB appreciated in nominal terms by 33.7% over this period (see Figure 9 ). This would suggest that only a small part of the increase in prices for Chinese products that might have resulted from the RMB's appreciation was passed on to U.S. consumers. If prices are not completely passed through to consumers, then consumer demand for Chinese imports will fall less than if they were, all else equal. The issue of exchange rate effects is further complicated by China's role as a major assembly center for multinational corporations. Many analysts contend that the sharp increase in U.S. imports from China over the past several years (and hence the growing bilateral trade imbalance) is largely the result of movement in production facilities from other (primarily Asian) countries to China. That is, various products that used to be assembled in such places as Japan, Taiwan, Hong Kong, etc., and then exported to the United States are now being made in China (in many cases, by U.S. and other foreign firms in China) and exported to the United States. According to Chinese data, foreign-invested firms in China account for over half of China's trade flows (both exports and imports). Such firms import raw materials, intermediate goods (such as components), and production machinery to China. One study of Apple Inc.'s iPod found that the product itself was assembled in China in factories owned by a Taiwanese company from components that were produced by numerous multinational corporations. The level of value added by Chinese workers who assembled the iPod in China was estimated to be small relative to the total cost of producing each unit (about 3%), and much smaller relative to the retail price of the unit sold in the United States. Some analysts contend that, because of the high level of imported inputs that comprise a large share of China's exports, an appreciated RMB would have little effect on the prices of Chinese exports, and hence have little effect on bilateral trade flows. Others contend that, even if foreign-invested firms in China faced significantly higher costs because of an appreciated RMB, they would move production to another low-cost country, and thus, while the U.S trade deficit with China decreased, the U.S. trade deficit with other countries would increase. By accounting identity, the overall trade deficit is equal to the shortfall between domestic saving and investment, while an overall trade surplus is equal to a surplus of domestic saving relative to investment. For many years, China has been a high-saving country that has run overall trade surpluses and the United States has been a low-saving country that has run overall trade deficits (for more discussion on this issue, see Appendix ). China's use of an exchange rate peg and capital controls may have contributed to its high saving rate, but it is unlikely that movement to a floating exchange rate would eliminate the large disparity between U.S. and Chinese saving rates. Thus, it is likely that the United States would continue to be a net debtor and China would continue to be a net creditor if the RMB rose in value. If so, economic theory predicts the countries' bilateral trade imbalance would either persist or possibly be replaced by new bilateral imbalances with third countries. As noted earlier, a number of U.S. economists have argued that China's undervalued currency has negatively affected the U.S. and global economies. However, other economists contend that, while an undervalued RMB may have distorted trade flows to some extent, it is not the most significant challenge to U.S. economic interests vis-à-vis China, and therefore, they argue, an appreciation of the currency by itself would do little to boost the U.S. economy. For example, Derek Scissors at the Heritage Foundation contends that appreciation of the RMB would have little impact on U.S. employment, stating it would create "a few thousand jobs at best." He argues that the Chinese government's extensive use of industrial policies, namely subsidies and regulatory protection (such as state-sponsored monopolies), sharply limits imports of goods and services that compete with the state sector, which would remain unaffected even if the RMB were appreciated. He notes: "Guaranteed revenue and economies of scale make state firms modestly competitive as exporters when they would otherwise be uncompetitive. The real harm, however, is to imports of goods and services from the U.S. The degree of state predominance caps the total share available to all domestic private and foreign companies, leaving American producers in a vicious battle for permanently minor market segments. This is a far more stringent limitation than an undervalued currency." Michael Pettis with the Carnegie Endowment for International Peace makes a similar argument except that he contends that Chinese government "financial repression" policies have kept real returns to deposits low (and sometimes negative) in China in order to keep real lending rates artificially low (since they are set by the government, not market conditions) for Chinese firms (especially state-owned firms). He states that this constitutes a forced transfer of income from Chinese households to Chinese producers, which has led to over-investment and over-capacity by Chinese firms, with much of that excess capacity being exported. Pettis concludes that "as long as China continues to subsidize its production growth at the expense of household income, it will have difficulty increasing domestic demand and cutting its reliance on exports." A study by the Federal Reserve Bank of San Francisco contends that, although the United States is running record trade deficits with China, the level of imports from China relative to U.S. GDP and U.S. personal consumption expenditures is relatively small. According to the study, U.S. imports of goods and services from China accounted for 2.5% of GDP in 2010, and these imports accounted for only 2.7% of U.S. personal expenditures for goods and services in 2010. The study estimated that on average for every one dollar that is spent in the United States on a product that is labeled "made in China," 55 cents goes for services supplied in the United States, such as transportation, wholesale, and retail. As a result, according to the study, the actual value of goods and services originating in China totaled only 1.2% of U.S. personal expenditures in 2010; accounting for the level of imported intermediate inputs from China that are used to manufacture goods that are labeled "made in the USA" would raise this level to 1.9%. Some argue that the Federal Reserve Bank study illustrates that U.S. imports from China do not necessarily displace U.S. workers (and in fact, support U.S. jobs in a number of sectors) and that RMB appreciation would likely have little effect on the U.S. economy. Economists generally oppose the use of policies (such as subsidies and trade protection) that interrupt market forces and distort the most efficient distribution of resources. A fixed or managed float exchange rate whose level is not adjusted when economic conditions change might be viewed as such a distortion. Thus, from an economist's perspective, adopting a more market-based currency would likely be a win-win situation for China, the United States, and the global economy as a whole, in the sense that it would lead to a more efficient allocation of resources in both countries (though not necessarily any effect on overall employment levels, as discussed below). From a policy perspective, it could be argued that China's current undervalued currency produces economic "winners and losers" in both countries, and therefore, an adjustment to that policy would produce a new set of economic "winners and losers." Although numerous factors affect global economic growth and trade flows, let us assume that an appreciation of the RMB produces a significant change in trade. What would the effects be for the U.S. economy? When exchange rate policy causes the RMB to be less expensive than it would be if it were determined by supply and demand, it causes Chinese exports to be relatively inexpensive and U.S. exports to China to be relatively expensive. As a result, U.S. exports and the production of U.S. goods and services that compete with Chinese imports fall, in the short run. Many of the affected firms are in the manufacturing sector. This causes the trade deficit to rise and reduces aggregate demand in the short run, all else equal. A market-based exchange rate could boost U.S. exports and provide some relief to U.S. firms that directly compete with Chinese firms. According to economic theory, a society's economic well-being is usually measured not by how much it can produce, but how much it can consume. An undervalued RMB that lowers the price of imports from China allows the United States to increase its consumption through an improvement in the terms-of-trade. Since changes in aggregate spending are only temporary, from a long-term perspective, the lasting effect of an undervalued RMB is to increase the purchasing power of U.S. consumers. Imports from China are not limited to consumption goods. U.S. firms also import capital equipment and inputs from China to produce finished goods. An undervalued RMB lowers the price of these U.S. products, increasing their output, and thus making such firms more internationally competitive. An appreciation of China's currency could raise prices for U.S. consumers, lowering their economic welfare, meaning they have less money to spend on other goods and services. In addition, firms that use imported Chinese parts could face higher costs, making them relatively less competitive. An undervalued RMB also has an effect on U.S. borrowers. When the United States runs a current account deficit with China, an equivalent amount of capital flows from China to the United States, as can be seen in the U.S. balance of payments accounts. This occurs because the Chinese central bank or private Chinese citizens are investing in U.S. assets, which allows more U.S. capital investment in plant and equipment to take place than would otherwise occur. Capital investment increases because the greater demand for U.S. assets puts downward pressure on U.S. interest rates, and firms are now willing to make investments that were previously unprofitable. This increases aggregate spending in the short run, all else equal, and also increases the size of the economy in the long run by increasing the capital stock. The effect on interest rates is likely to be greater during periods of robust economic growth, when investment demand is strong, than when the economy is weak. Private firms are not the only beneficiaries of the lower interest rates caused by the capital inflow (trade deficit) from China. Interest-sensitive household spending, on goods such as consumer durables and housing, is also higher than it would be if capital from China did not flow into the United States. In addition, a large proportion of the U.S. assets bought by the Chinese, particularly by the central bank, are U.S. Treasury securities, which fund U.S. federal budget deficits. According to the U.S. Treasury Department, China held about $1.3 trillion in U.S. Treasury securities as of May 2013, making it the largest foreign holder of such securities. The U.S. federal budget deficit increased sharply in FY2008 and FY2009, causing a sharp increase in the amount of Treasury securities that had to be sold. During this period, while the Obama Administration pushed China to appreciate its currency, it also encouraged China to continue to purchase U.S. securities, which China did. Some analysts contend that, although an appreciation of China's currency could help boost U.S. exports to China, it could also lessen China's need to buy U.S. Treasury securities, which could push up U.S. interest rates. In the unlikely worst case scenario, if China stopped buying Treasury securities at a time when the U.S. budget deficit is unusually high, it could make private investors reevaluate their views on the sustainability of current fiscal policy. In the medium run, according to economic theory, an undervalued RMB neither increases nor decreases aggregate demand in the United States. Rather, it leads to a compositional shift in U.S. production, away from U.S. exporters and import-competing firms toward the firms that benefit from Chinese capital flows. Thus, it might be expected to have no medium- or long-run effect on aggregate U.S. employment or unemployment. As evidence, one can consider that since the 1980s, the U.S. trade deficit has tended to rise when unemployment was falling (and the economy was growing) and fall when unemployment was rising (and the economy was slowing). For example, the U.S. current account deficit peaked at 6.0% of GDP in 2006, when the unemployment rate was 4.6%, and fell to 2.7% of GDP in 2009, when the unemployment rate was 9.3%. However, the gains and losses in employment and production caused by the trade deficit will not be dispersed evenly across regions and sectors of the economy: on balance, some areas will gain while others will lose. And by shifting the composition of U.S. output to a higher capital base, the size of the economy would be larger in the long run as a result of the capital inflow/trade deficit (although the returns from foreign-financed capital wpuld not flow to Americans). Although the compositional shift in output has no negative effect on aggregate U.S. output and employment in the long run, there may be adverse short-run consequences. If U.S. output in the trade sector falls more quickly than the increases in output of U.S. recipients of Chinese capital, aggregate U.S. spending and employment could temporarily fall. This is more likely to be a concern if the economy is already sluggish than if it is at full employment. Otherwise, it is likely that government macroeconomic policy adjustment and market forces can compensate for any decline of output in the trade sector by expanding other elements of aggregate demand. The U.S. trade deficit with China (or with the world as a whole) has not prevented the U.S. economy from registering high rates of growth in the past. A Yale University study estimated that a 25% appreciation of the RMB would initially decrease U.S. imports from China and lead to greater domestic production in the United States and increased exports to China. However, the study estimated that benefits to the U.S. economy would be offset by lower Chinese economic growth (because of falling exports), which would diminish its demand for imports, including those from the United States. In addition, the RMB appreciation would increase U.S. costs for imported products from China (decreasing real wealth and real wages), and cause higher U.S. short-term interest rates. As a result, the sum effect of the 25% RMB appreciation was estimated to a negative effect on U.S. aggregate demand and output and result in a loss of 57,100 U.S. jobs—less than one-tenth of 1% of total U.S. employment. Analysis by the IMF suggests that currency appreciation alone by China would yield limited benefits to the global economy (including the U.S. economy) unless it was accompanied by greater Chinese consumption and an expansion of the services sector. It estimated that a 20% RMB appreciation would boost U.S. economic growth by 0.05% to 0.07%, while a 20% RMB appreciation plus other reforms for rebalancing the Chinese economy would boost U.S. growth by over 0.15%. The same study also estimated that a 20% RMB appreciation alone could reduce Chinese economic growth by a range of 2.0% to 8.8%, while combining RMB appreciation with reforms for rebalancing could have a range of outcomes from boosting growth by 1% to reducing it by 2%. Chinese officials argue that their currency policy is not meant to favor exports over imports, but instead to foster economic stability through currency stability. The policy reflects the government's goals of using exports as a way of providing jobs to Chinese workers and to attract FDI in order to gain access to technology and know-how. The Chinese government has stated on a number of occasions that currency reform is a long-term goal which will be implemented gradually. Officials have strongly condemned international pressure to induce China to appreciate the currency, arguing that it interferes with China's "sovereignty" to implement its own domestic economic policies. In 2009, (then) Chinese Premier Wen Jiabao was reported by Chinese media as complaining that "some countries demand the yuan's appreciation, while practicing various trade protectionism against China. It's unfair and actually limits China's development." Despite the Chinese government's numerous pledges on currency reform, it has moved somewhat cautiously. Chinese officials view economic growth as critical to sustaining political stability, and thus appear very reluctant to implement policies that might disrupt the economy and cause widespread unemployment, which could cause worker unrest. In addition, Chinese officials reject assertions by some economists that China's currency policy undermines the global economy or that a sharp appreciation of the RMB is needed to boost global economic recovery. Instead, they contend, promoting rapid domestic growth is the most significant policy China can undertake to promote global economic recovery. They note that Chinese imports rose by 38.8% in 2010 (over the previous year) and by 23.9% in 2011, which contributed to global economic recovery in those years. They further note that export growth in 2012 and the first half of 2013 was significantly below historic rates (see Figure 10 ). In addition, they note, China's merchandise trade surplus fell each year from 2009 to 2011. In June 2013, Xinhua claimed that the yuan was nearing equilibrium against the dollar. If the RMB is undervalued vis-à-vis the dollar, then Chinese exports to the United States are likely less expensive than they would be if the currency were freely traded, providing a boost to China's export industries. Eliminating exchange rate risk through a managed peg also increases the attractiveness of China as a destination for foreign investment in export-oriented production facilities. However, there are a number of potentially negative aspects to China's export growth strategy and currency policy. Overdependence on exporting (and fixed investment relating to exports) and FDI inflows made China particularly vulnerable to the effects of the global economic slowdown. Analysis by the IMF estimated that fixed investment related to tradable goods plus net exports together accounted for over 60% of China's GDP growth from 2001 to 2008 (up from 40% from 1990 to 2000), which was significantly higher than in the G-7 countries (16%), the euro area (30%) and the rest of Asia (35%). An undervalued currency makes imports more expensive, hurting Chinese firms that import parts, machinery, and raw materials. Such a policy, in effect, benefits Chinese exporting firms (many of which are owned by foreign multinational corporations) at the expense of non-exporting Chinese firms. This may impede the most efficient allocation of resources in the Chinese economy. Resources that might go to other sectors, such as the service sector, are diverted to the export sector. If one considers an undervalued currency as a form of export subsidy, then China, in effect, is subsidizing American living standards by selling products that are less expensive than they would be under market conditions. This in effect lowers China's terms of trade—the level of imports that can be obtained through exports. Chinese citizens, on the other hand, pay more for tradable goods, not only because imported goods are more expensive because of the de facto tariff an undervalued currency entails, but also because domestic competition is restricted as well. Rather than use its trade surpluses to purchase goods and services from abroad, China is forced, because of its need to maintain its peg to the dollar, to put a large share of its foreign exchange holdings into U.S. debt securities, which earn a relatively low return. The use of a pegged system greatly limits the ability of the central government to use monetary policy to control inflation. If Chinese banks raised interest rates in an effort to control inflation, overseas investors might to try to shift funds to China (through illegal means) to take advantage of the higher Chinese rates. The Chinese government has had difficulty blocking such inflows of "hot money." Such inflows force the government to boost the money supply to buy up the foreign currency necessary to maintain the targeted peg. Expanding the money supply contributes to easy credit policies by the banks, which has contributed to overcapacity in a number of sectors, such as steel, and speculative asset bubbles, such as in real estate. In the past, the Chinese government has tried to use administrative controls, with limited results, to limit bank loans to sectors where overcapacity is believed to exist. In effect, a pegged currency induces the Chinese government to utilize inefficient and non-market financial policies for credit allocation, rather than a market-based system that would promote an efficient allocation of capital. Although a rebalancing of China's economy, including the adoption of a market-based currency, would likely entail significant adjustment costs, it also would likely produce long-term benefits to the Chinese economy. For example, it could: Boost China's term of trade by increasing the level of imports that can be purchased by its exports; Increase economic efficiency (and hence economic growth), by re-directing resources away from inefficient (and often subsidized) sectors of the economy to those that are more efficient and competitive; Lower prices for imported goods and services and expose more of the domestic economy to greater global competition, thus lowering prices for consumers and improving Chinese living standards; Improve the efficiency and competiveness of many Chinese domestic firms (including those that produce only for the domestic market) by lowering prices for imported inputs, raw materials, and machinery, thus boosting their output; Expand the ability of the government to use monetary policies to control inflation and to allocate capital according to its most efficient use through a market-based credit system; Help alleviate the large disparities of economic development between the coastal regions of China (as well as growing income disparities throughout China) that have been driven in part by China's export growth strategy and are viewed by many analysts as posing a potential risk to stability; Reduce or eliminate a major source of tension between China and many of its trading partners, some of whom view China's undervalued currency and its use of subsidies as beggar-thy-neighbor policies that promote economic development in China at the expense of growth in other countries. The great challenge for Chinese leaders, assuming that they are committed to greater economic reform and rebalancing the economy, would be to quickly generate new sources of economic growth and job opportunities in order to offset the decline of those sectors that would no longer be able to compete once preferential government policies (such as subsidies and an undervalued currency) are eliminated. However, some analysts contend that this rebalancing could prove difficult for China politically and could take several years to achieve. For example, according to Michael Pettis, reforming China's economic policies would have to involve political reforms because "eliminating the mechanisms by which Chinese policymakers can transfer income from households to manufacturers will reduce their control over the commanding heights of the economy, and it will sharply reduce the power and leverage the ruling party has over business and local governments." On the other hand, China's economy has consistently generated annual growth rates near 10% in recent decades, making adjustment much easier. If the Chinese were to allow their currency to float, it would be determined by private actors in the market based on the supply and demand for Chinese goods and assets relative to U.S. goods and assets. If the RMB appreciated as a result, this would boost U.S. exports and the output of U.S. producers who compete with the Chinese. The U.S. bilateral trade deficit would likely decline (but not necessarily disappear). At the same time, the Chinese central bank would no longer purchase U.S. assets to maintain the peg. U.S. borrowers, including the federal government, would now need to find new lenders to finance their borrowing, and interest rates in the United States would rise. This would reduce spending on interest-sensitive purchases, such as capital investment, housing (residential investment), and consumer durables. The reduction in investment spending would reduce the long-run size of the U.S. capital stock, and thereby the U.S. economy. In the present context of a large U.S. budget deficit, some analysts fear that a sudden decline in Chinese demand for U.S. assets (because China was no longer purchasing assets to influence the exchange rate) could lead to a drop in the value of the dollar that could potentially destabilize the U.S. economy. If the relative demand for Chinese goods and assets were to fall at some point in the future, the floating exchange rate would depreciate, and the effects would be reversed. Floating exchange rates fluctuate in value frequently and significantly. A move to a floating exchange rate is typically accompanied by the elimination of capital controls that limit a country's private citizens from freely purchasing and selling foreign currency. The Chinese government maintains capital controls (and arguably one of the major reasons China opposes a floating exchange rate) because it fears a large private capital outflow would result if such controls were removed. This might occur because Chinese citizens fear that their deposits in the potentially insolvent state banking system are unsafe. If the capital outflow were large enough, a banking crisis in China could result and could cause the floating exchange rate to depreciate rather than appreciate. If this occurred, the output of U.S. exporters and import-competing firms would be reduced below the prevailing level, and the U.S. bilateral trade deficit would likely expand. In other words, the United States would still borrow heavily from China, but it would now be private citizens buying U.S. assets instead of the Chinese central bank. China could attempt to float its exchange rate while maintaining its capital controls, at least temporarily. This solution would eliminate the possibility that the currency would depreciate because of a private capital outflow. While this would be unusual, it might be possible. It would likely make it more difficult to impose effective capital controls, however, since the fluctuating currency would offer a much greater profit incentive for evasion. Another possibility is for China to maintain the status quo. Even without adjustment to the nominal exchange rate, over time the real rate would adjust as inflation rates in the two countries diverged. The Chinese central bank acquires foreign reserves by printing yuan to finance its trade surplus. As the central bank exchanged newly printed yuan for U.S. assets, prices in China would rise along with the money supply until the real exchange rate was brought back into line with the market rate. This would cause the U.S. bilateral trade deficit to decline and expand the output of U.S. exporters and import-competing firms. This real exchange rate adjustment would only occur over time, however, and pressures on the U.S. trade sector would persist in the meantime. None of the solutions guarantee that the bilateral trade deficit would be eliminated. China is a country with a high saving rate, and the United States is a country with a low saving rate; it is not surprising that their overall trade balances would be in surplus and deficit, respectively. As the Appendix discusses, many economists believe that these trade imbalances will persist as long as underlying macroeconomic imbalances persist. At the bilateral level, it is not unusual for two countries to run persistently imbalanced trade, even with a floating exchange rate. If China can continue its combination of low-cost labor and rapid productivity gains, which have been reducing export prices in yuan terms, its exports to the United States are likely to continue to grow regardless of the exchange rate regime, as evidenced by the 21% appreciation of the RMB from 2005 to 2008, which did not lead to any reduction in the trade deficit over that period. Conclusion Congressional concerns over China's currency policy date back to at least 2003. Since that time, the RMB has appreciated significantly against the dollar: 34% on a nominal basis and 42% on a real basis through June 2013. China's current account surplus as a percent of GDP, in dollar terms and as a percent of GDP, has sharply declined significantly in recent years. In 2011, the IMF evaluated the RMB to be substantially undervalued, but in 2012 and 2013, the RMB was estimated to be moderately undervalued. These factors appear to have somewhat diminished the importance of China's currency policy as a priority trade issue for some in Congress. In addition, China has become viewed by some Members as one of several countries that are intervening to hold down the value of their currencies. For example, recent Japanese monetary policies to boost the economy have led some Members and U.S. business groups to accuse Japan of manipulating its currency. Finally in recent years, a number of other Chinese economic policies and practices have been identified by some Members as posing significant threats to U.S. economic interests. These include Chinese cyber-enabled theft of U.S. trade secrets and business confidential information, extensive economic losses incurred by U.S. intellectual property-intensive firms from Chinese infringement of U.S. intellectual property rights, and China's widespread use of industrial policies to subsidize priority domestic firms, while imposing trade and investment barriers to limit foreign market access in China. The lingering effects of the global economic slowdown (especially in Europe and the United States) have suppressed global demand for Chinese products. The World Bank, IMF, and other global economic institutions have warned China that the policies it has employed to promote high levels of gross fixed investment, financed largely by easy credit policies, are not sustainable and may ultimately seriously weaken China's financial sector by significantly increasing the level of non-performing loans. They have urged China to implement policies to make private consumption the main source of China's economic growth and to eliminate policies that prevent markets from determining the most efficient allocation of resources (such as capital) in the economy in order to ensure that healthy economic growth is sustained over the long term. Reform of the financial sector, including the adoption of a market-determined exchange rate system, would likely play a critical role in this process. Chinese officials have acknowledged the need to make such reforms and have announced a number of policies to that end. For example, during the July 2013 S&ED, Chinese officials stated that that they would continue to implement policies to boost private consumption, such as raising social security and employment spending by two percentage points of total fiscal spending by the end of 2015. The implementation of comprehensive economic reforms and a rebalancing of the Chinese economy, if achieved, would likely lead to a significant improvement in U.S.-China commercial relations. For example, as long as the Chinese government continues to maintain a managed currency peg, then the RMB would be assumed by many analysts to be undervalued, regardless of current economic conditions. If the RMB were allowed to be traded freely, without intervention by the Chinese government, then the exchange rate of the RMB against the dollar and other currencies would more likely be viewed as being determined by market forces and hence not undervalued. The issue of rebalancing economic growth by both the United States and China has been a central focus of the U.S.-China Strategic and Economic Dialogue (S&ED) talks over the past two years. A joint statement issued at the May 2011 S&ED meeting noted that Since the second meeting of the Strategic and Economic Dialogue in May 2010, the economic recoveries in the United States and China have strengthened due to continued forceful stimulus measures undertaken by both countries, contributing to an improving outlook for the global economy. The two countries have also made progress on their commitments to promote more sustainable and balanced growth. To secure these gains and address potential challenges to the global outlook, we pledge to enhance macroeconomic cooperation to ensure that the global recovery is durable and promotes steady job growth, and to firmly establish strong, sustainable, and balanced growth. The global financial crisis and subsequent GDP decline among many countries have resulted in new scrutiny by many economists of "global imbalances," namely the disparities in savings and investment levels among various countries (i.e., some countries save too little and some too much relative to their investment needs), and subsequent current account imbalances that have resulted (i.e., countries where domestic savings exceed investment run trade surpluses, and countries where domestic investment exceeds saving run current account deficits). China and the United States are not unique in having these imbalances—Japan, Germany, and other East Asian countries are other examples of high savers, while southern and eastern European countries are other examples of high borrowers. Nevertheless, the United States and China have come under particular scrutiny because of their relative overall size (they are the world's two largest economies) and the relative size of their saving, investment, and trade imbalances. Some analysts also claim that China's exchange rate policy is preventing other East Asian countries from adjusting, because those countries are unwilling to allow their currencies to appreciate and lose export market share to China unless the RMB appreciates too. Many economists contend such imbalances were a major cause of the current global economic slowdown. For example, high savers, such as China, loaned their money to low savers, such as the United States, which helped keep real U.S. interest rates low and contributed to the bubble in the U.S. housing market and subsequent financial crisis. Many of the high savings countries (especially those in Asia) heavily relied on exporting as a source of their economic growth and thus were significantly impacted when global demand for imports sharply fell. As a result, many economists have called for economic restructuring among many of the world's major economies, especially the United States and China. Fundamental restructuring of this sort would take time, and if not well coordinated, could deepen the global output gap in the short run. For example, if low saving countries attempt to increase their saving rate (e.g., by reducing their government budget deficits) at a time of high unemployment, and high saving countries do not simultaneously increase their consumption, then worldwide demand could decline and cause unemployment to rise further in the short run. This section provides an overview of some of the unique differences between the economies of the United States and China that have played a role in global imbalances and examines if there has been any rebalancing by the U.S. and Chinese economies in recent years. The level of U.S. gross savings is far below total U.S. investment, indicating that the United States must borrow capital abroad to meet its investment needs. By definition, domestic savings minus gross investment (from domestic and foreign sources) equals the current account balance. Nations that do not save enough to meet domestic investment needs run current account deficits and those that save more than they need for domestic investment run current account surpluses. In 2012, the ratio of U.S. gross domestic savings to gross investment was 77.3%, the lowest among the world's major economies. On the other hand, the ratio for China was 105.7% (see Table A-1 ). In nominal dollar terms, the United States had the world's largest current account deficit in 2012 at $475 billion, while China had the largest current account surplus at $192 billion (see Figure A-1 ). These balances were also significant as a share of GDP: -3.0% for the United States and 2.3% for China (see Figure A-2 ). Some "rebalancing" has taken place during and after the global recession. The U.S. current account deficit has declined from its peak 6.0% in 2006 because domestic investment spending has fallen and the private savings has risen. In addition, the U.S. federal budget deficit as a percent of GDP fell from 10.1% in FY2009 to 7.0% in FY2012, and is projected to decline to 4.0% in FY2013, according to the Congressional Budget Office (CBO). What remains to be seen is how much of this rebalancing is cyclical, and will be reversed when the U.S. economy returns to full employment, and how much of it is permanent. The IMF projects China's current account balance as a percent of GDP will increase over the next six years to 4.3% in 2018, but still significantly lower than its historical high of 10.1% in 2007. The U.S. current account deficit as a percent of GDP is projected by the IMF to grow to 3.5% of GDP in 2018, also much lower than its historic peak of 6.0% in 2006. Despite the rebalancing that has already taken place, some economists would not consider either country to have reached a position that is sustainable in the long run. Before the late 1990s, the United States had never had a current account deficit of 3% of GDP. And even with China's reduced current account surplus and the diminished U.S. current account deficit over the past few years, China's net holdings of foreign assets and the U.S. net foreign debt continue to grow. Likewise, the decline in China's current account surplus was caused by a more rapid decline in China's exports than imports during the worldwide economic downturn—when worldwide growth picks up again and reaches pre-crisis levels, that trend could reverse. Gross saving is the total level of domestic saving, including private, corporate, and government. Saving represents income that is not consumed. Physical investment spending on plant and equipment can be financed from domestic or foreign saving. Over the past several years, the United States has maintained one of the lowest gross saving rates (i.e., total national saving as a percent of GDP) among developed countries, while China has maintained one of the world's highest national saving rates. From 1990 to 2009, U.S. gross national saving as a percent of GDP declined from 13.5% to 8.4%, while China's rose from 37.8% to 52.3% (see Figure A-3 ). U.S. gross saving as a percent of GDP increased over the next three years, reaching 10.4% in 2012. Chinese gross savings levels have declined over the next three years, reaching 50.4% in 2012. As indicated in Figure A-4 , China's gross investment as a percent of GDP rose from 25.0% in 1990 to 44.9% in 2009—the highest of any major economy (in comparison, the U.S. rate was 12.2%—the lowest among the major economies). China's investment as a percent of GDP rose to 46.1% in 2012. China's private consumption as a percent of GDP dropped from 48.8% in 1990 to 35.4% in 2009—the lowest among any major economy (while the U.S. rate in 2009 was 70.5%, which was the highest among the major economies). Chinese private consumption as a percent of GDP was 35.7% in 2012 . Although private consumption has been a much smaller share of China's GDP than other countries, the growth rate of China's private consumption has been significant. From 2001 to 2012, Chinese private consumption grew at an average annual rate of 8.4%, which was much faster than the growth in real U.S. private consumption, but slower than the overall growth rate of the Chinese economy (see Figure A-5 ). Many analysts contend that, although Chinese labor productivity has risen rapidly over the past several years, workers' wages have not kept pace with those productivity gains, largely due to the lack of worker rights in China, especially for migrant workers who tend to seek work in labor-intensive, export oriented, manufacturing. Rather, it is argued, the gains from productivity have largely accrued to Chinese firms. In addition, because the Chinese government maintains tight controls on capital outflows, Chinese households are limited in terms of where they can invest their savings. Most choose to deposit their savings in a Chinese bank. However, bank interest rates are set by the central government, and oftentimes, the rates of return on savings deposits are below the rate of inflation (see Figure A-7 ). Chinese depositors faced negative real interest rates in 2004, 2007, 2008, 2010, and 2011. Many economists contend that this policy represents an effort by the central government to keep the cost of credit low for Chinese firms (in order to boost fixed investment), but that this comes at the expense of Chinese households whose savings deposits can actually lose value, thus forcing them to save more of their income to cover the costs of health care, retirement, and other large expenses. Some have concluded that Chinese controls on bank interest rates have dampened the level of household spending/consumption that would have been expected, given the rapid rate of China's economic growth. As indicated in Figure A-6 , China's personal disposable income as a percent of GDP declined from 56.5% in 2002 to 48.9% in 2009, indicating that Chinese households did not benefit as much from China's economic growth as other sectors of the economy. That rate fell to 48.5% in 2010, but increased to 49.4% in 2011 and to 51.6% in 2012. Many economists contend that the goal of rebalancing the Chinese economy toward greater reliance on personal consumption cannot be achieved until the central government eliminates distortive economic policies that favor firms over households. Once such policy relates to the government's control over much of the country's banking system. The sources of China's real GDP growth from 2006-2012 are shown in Figure A-8 . Gross fixed investment (some of which is linked to tradable sectors) was the largest contributor to its real GDP growth over much of this period. The sharp growth in fixed investment in 2009 appears to reflect the results of the Chinese government's $586 billion stimulus package and its monetary easing policy that encouraged banks to expand lending—a significant amount of which is believed to have gone to infrastructure projects. In 2009, changes to net exports in China were a drag on the Chinese economy, while in 2010 they provided a modest contribution to GDP growth. In 2012, private consumption was the largest contributor to China's GDP growth. The next few years could be a critical period for China's economic policymakers. A number of economists have questioned the quality of China's massive investment efforts over the past two years and the ability of local government to repay the loans they took out to fund major investment projects. Thus, the importance of fixed investment to China's economic growth over the next few years could decline. The Chinese government's 12 th Five Year Plan (2011-2015) states that rebalancing the economy, promoting consumer demand, boosting rural incomes, addressing income disparity (such as boosting wages), promoting the development of the services sector, and expanding social welfare programs (such as education, social security, and health care) will be major priorities. Such policies, if implemented, could provide a significant boost to consumer spending. Based on China's historical economic model, it will likely take several years for a significant rebalancing of the Chinese economy to occur. In addition, many economists have raised concerns that, as China's major trading partners, such as the United States and Europe, begin to experience more rapid economic growth, their demand for Chinese products will increase, which could discourage China's government from following through on economic reforms necessary to promote a rebalancing of the economy. | China's policy of intervening in currency markets to limit or halt the appreciation of its currency, the renminbi (RMB), against the U.S. dollar and other currencies has been an issue of concern for many in Congress over the past decade who view it as one of several distortive economic and trade policies that are used to convey an unfair competitive advantage to Chinese producers and exporters. They charge that China's currency policy is intended to make its exports significantly less expensive, and its imports more expensive, than would occur if the RMB were a freely-traded currency. They argue that the RMB is significantly undervalued against the dollar and that this has been a major contributor to the large annual U.S. trade deficits with China and a significant decline in U.S. manufacturing jobs in recent years. China began to peg the RMB to the dollar in 1994 at about 8.28 yuan (the base unit of the RMB) per dollar and kept the rate constant through July 2005, when, under pressure from its major trading partners, it moved to a managed peg system and began to allow the RMB to gradually appreciate over the next three years. In July 2008, China halted RMB appreciation because of the effects of the global economic crisis on China's exporters. It resumed RMB appreciation in June 2010. From July 2005 through June 2013, the RMB appreciated by 34% on a nominal basis against the dollar and by 42% on a real (inflation-adjusted) basis. Over the past few years, China's current account surplus has declined, and its accumulation of foreign exchange reserves has slowed—factors that have led some analysts to contend the RMB is not as undervalued against the dollar as it once was. The effects of China's currency policy on the U.S. economy are complex. If the RMB is undervalued (as some contend), then it might be viewed as an indirect export subsidy which artificially lowers the prices of Chinese products imported into the United States. Under this view, this benefits U.S. consumers and U.S. firms that use Chinese-made parts and components, but could negatively affect certain U.S. import-competing firms and their workers. An undervalued RMB might also have the effect of limiting the level of U.S. exports to China than might occur under a floating exchange rate system. The United States is also affected by China's large purchases of U.S. Treasury securities. China's intervention in currency markets causes it to accumulate large levels of foreign exchange reserves, especially U.S. dollars, which it then uses to purchase U.S. debt. Such purchases help the U.S. government fund its budget deficits and help keep U.S. interest rates low. These factors suggest that an appreciation of the RMB to the dollar benefits some U.S. economic sectors, but negatively affects others. The effects of the recent global financial crisis have refocused attention on the need to reduce global imbalances in savings, investment, and trade, especially with regard to China and the United States, in order to avoid future crises. Many economists contend that China should take greater steps to rebalance its economy by lessening its dependence on exports and fixed investment as the main drivers of its economic growth, while boosting the level of domestic consumer demand (which would increase Chinese imports). A market-based currency policy is seen as an important factor in achieving this goal. Currency bills aimed at addressing China's currency policy have been introduced in every session of Congress since 2003. The House approved a currency bill in the 111th Congress and the Senate passed one in the 112th Congress. Currency legislation has been proposed in the 113th Congress, including H.R. 1276 and S. 1114. In recent years, congressional concerns about undervalued currencies have moved beyond China to include those of several other countries as well. |
Most private equity and hedge funds are organized as partnerships. For tax purposes, a partnership is broadly defined to include two or more individuals who jointly engage in a for-profit business activity. They typically consist of general partners (who actively manage the partnership), and limited partners (who contribute capital). General partners may also contribute capital. According to a George W. Bush Administration official, tax considerations likely motivate the organization of private equity and hedge funds as partnerships. In general, partnerships do not pay the corporate income tax and, instead, pass all of their gains and losses on to the partners. The returns of these partnerships are generally taxed as capital gains. In addition, the tax rules for partnerships allow sufficient flexibility to accommodate many economic arrangements, such as special allocations of income or loss among the partners. General and limited partners are compensated when the investment yields a positive return. This income, as mentioned above, is not taxed at the partnership level; only the individual partners pay taxes, usually at the capital gains rate. In addition, the general partners typically receive additional compensation from the limited partners. Compensation structures may vary from fund to fund, but the standard pay formula is called "2 and 20." The "2" represents a fixed management fee (2%) that does not depend upon the performance of the fund. It is characterized as ordinary income for the general partner and is taxed at ordinary income tax rates. The "20" is a share of the profits from the assets under management (20%). This portion of the general partners' compensation is commonly referred to as the carried interest. Selecting this form of compensation aligns the interests of both the limited and general partners toward achieving a positive return on investment. Carried interest is characterized as a capital gain and taxed at the capital gains rate. Issues surrounding the characterization of carried interest are the focus of the remainder of this report. Central to the current debate concerning the tax treatment of carried interest is whether it is compensation for services, or an interest in the partnership's capital. Current law treats carried interest the same as all other profits derived from the partnership and thus characterizes carried interest as being derived from an interest in the partnership's capital. As a result, carried interest is taxed at capital gains rates, which have historically been lower than the rates on ordinary income. This rate differential is generally thought to motivate the current structure of compensation received by fund managers. If carried interests were treated as compensation for services provided by the general partners, then the realized gains would be characterized as ordinary income, taxed at generally higher rates, and subject to payroll taxes. In the United States, debate on the appropriate characterization of carried interest has been brought to the forefront by the President's 2010, 2011, and 2012 Budget Outlines, proposed legislation, and a series of congressional hearings on carried interest. The President's 2010, 2011, and 2012 Budget Outlines along with numerous bills in prior Congresses (House-passed H.R. 4213 and H.R. 1935 in the 111 th Congress) would make carried interest taxable as ordinary income, whereas a House-passed amendment in the 111 th Congress to H.R. 4213 , the American Jobs and Closing Tax Loopholes Act of 2010, would have treated a portion of carried interest as ordinary income. The former approach may mirror that taken in the 110 th Congress, H.R. 2834 , H.R. 3996 , and H.R. 6275 , in making carried interest taxable as ordinary income. The bills stated that carried interest "shall be treated as ordinary income for the performance of services" and thus taxed as ordinary income at rates up to 35%. H.R. 3996 was passed by the House of Representatives on November 9, 2007, and by the Senate on December 6, 2007, with an amendment that removed the carried interest provision, while H.R. 6275 was passed by the House of Representatives on June 25, 2008, and subsequently received by the Senate Finance Committee. In addition, the Senate Finance Committee and the House Ways and Means Committee held a series of hearings on carried interest during the last session. Debate concerning the characterization of carried interest is not unique to the United States. In fact, the United Kingdom's Treasury Select Committee has asked HM Revenue and Customs to explain a 2003 memorandum of understanding that allows general partners in private equity funds to characterize carried interest as investment income. In addition, Table 1 illustrates that European countries have not achieved a consensus view on the appropriate characterization of carried interest. Most analysts view carried interest as representing, at least partly, compensation for services provided by the general partner. In some instances this distinction is clear, but in others it is more opaque. Analysts generally base their characterization of carried interest upon the degree to which the general partners' own assets are at risk and differences in the profit interest of the general and limited partners. Some view carried interest as a type of performance-based compensation that should be characterized as ordinary income. That is, the general partner is being compensated for providing the service of generating a positive return on the investment. This argument would seem to have greater merit in cases where a "hurdle rate" must be reached prior to the award of a carried interest. Some also argue for a change in the characterization of carried interest based upon the economic principles of efficiency and equity. Tax systems are generally deemed more efficient when they tax similar activities in a like manner. Critics note that under the current characterization of carried interest, these performance fees are taxed less heavily than other forms of compensation, leading to distortions in employment, organizational form, and compensation decisions. As a result of these distortions, they maintain that the economy misallocates its scarce resources. They also argue that the current treatment of carried interest violates the principles of both horizontal and vertical equity. That is, individuals with the same income should owe the same in taxes regardless of the form of the income, and that those that earn more should pay more in taxes than those that earn less. Others view the current characterization of carried interest as appropriate, because of the general partners' contribution of "sweat equity" to the fund. That is, the general partners contribute their management skills to the partnership, in lieu of contributing capital. Once granted a carried interest, the general partner has an immediate ownership interest in the partnership, and thus is taxed on the proceeds of the partnership, based upon the character of the proceeds. Under this view, the limited partners agree to finance the carried interest through a reduction (relative to their capital investment) in their rights to the profits of the partnership. This view, however, highlights a general inconsistency in the tax code, from an economic perspective—the blurring of the returns from labor and capital. For example, imagine the case of a sole proprietor who turns an idea into a business. If the sole proprietor is later able to sell the business for a profit, the tax system will characterize the profit as a capital gain, though the provision of labor unquestionably contributed to the increased value of the business. In other cases, such as when nonqualifed stock options are exercised, the issue is more transparent, and the gain is characterized as compensation and taxed as ordinary income. Any subsequent gain or loss is characterized and taxed as a capital gain. Some have interpreted this "sweat equity" argument to represent an implicit loan to the general partners that should be taxed somewhere between that of pure capital and pure ordinary income. Under this option, the general partner would be viewed as receiving an interest-free loan from the limited partners equal to share of the partnership represented by the carried interest. The general partner would count the implicit interest from the loan as ordinary income. Subsequent profits from the carried interest would then be taxed as capital gains. Some view potential modifications to the treatment of carried interest as unadministrable. In testimony before the Senate Committee on Finance, Treasury Assistant Secretary for Tax Policy Eric Solomon stated that the current taxation of carried interest provides certainty for taxpayers and is administrable for the Internal Revenue Service. He cautioned against making significant changes in these rules, given the widespread reliance of partnerships on these rules. Others argued that the current characterization of carried interest contributes to innovation and adds economic value to the economy. They asserted that venture capitalists engage in risking time, money, and effort to assist the most compelling business models to improve the way that Americans live and work. Further, they argued that private equity allows companies to invest in long-term strategies that might otherwise be ignored by the managers of publicly traded companies forced to keep a close eye on quarterly earnings. | General partners in most private equity and hedge funds are compensated in two ways. First, to the extent that they contribute their capital in the funds, they share in the appreciation of the assets. Second, they charge the limited partners two kinds of annual fees: a percentage of total fund assets (usually in the 1% to 2% range), and a percentage of the fund's earnings (usually 15% to 25%, once specified benchmarks are met). The latter performance fee is called "carried interest" and is treated, or characterized, as capital gains under current tax rules. In the 112th Congress, the President's Budget Proposal would make carried interest taxable as ordinary income. In the 111th Congress, the House-passed American Jobs and Closing Tax Loopholes Act of 2010, H.R. 4213, would have treated a portion of carried interest as ordinary income, whereas the Tax Extenders Act of 2009, H.R. 4213, H.R. 1935, and the President's 2010 and 2011 Budget Proposals would have made carried interest taxable as ordinary income. In addition, in the 110th Congress, H.R. 6275 would have made carried interest taxable as ordinary income. Other legislation (H.R. 2834 and H.R. 3996) made similar proposals. This report provides background on the issues related to the debate concerning the characterization of carried interest. It will be updated as legislative developments warrant. |
The Obama Administration sent its special envoy on North Korea, Ambassador Stephen Bosworth, to Pyongyang on December 8-10, 2009. The Administration set two objectives for the mission: (1) to secure a North Korean commitment to resume participation in the six party nuclear negotiations, which North Korea had boycotted since April 2009; and (2) to secure a North Korean commitment to implement a September 2005 six party statement in which North Korea had pledged to work toward "denuclearization of the Korean peninsula." Bosworth failed to get specific commitments on either during his two days of negotiations. According to Bosworth, he and his North Korean counterparts reached "some common understandings on the need for and the role of the six party talks and the importance of implementation of the 2005 joint statement." A North Korean Foreign Ministry statement of December 11, 2009, also referred to "common understandings" regarding the six party talks and implementing the September 2005 statement. However, North Korea made no commitment to attend a six party meeting in the near future. Tony Namkung, an aide to Governor Bill Richardson of New Mexico who maintains close contacts with North Korea, believes that North Korea would accept a renewal of six party talks but not as a forum for actual negotiations but "an umbrella kind of organization" under which the United States and North Korea would negotiate bilaterally. Before the Bosworth mission and in its Foreign Ministry statement, North Korea indicated that it seeks a number of bilateral meetings with the United States before it would agree to participate in a six party meeting. The North Korean Foreign Ministry statement said that Bosworth and North Korean officials had a "long exhaustive and candid discussion" of a Korean peace agreement, normalization of diplomatic relations, economic and energy aid, and "denuclearization of the Korean peninsula." Moreover, the North Korean Foreign Ministry statement and other reports indicated that North Korean negotiators had emphasized the part of the September 2005 statement referring to opening negotiations on a Korean peace treaty to replace the 1953 Korean armistice agreement. The North Koreans reportedly told Bosworth that a peace treaty was more important than the establishment of U.S.-North Korean diplomatic relations and that a peace treaty was necessary to demonstrate that the United States had reversed its "hostile policies" toward North Korea. Jack Pritchard, Director of the Korean Economic Institute, was in Pyongyang a few days earlier than Bosworth; he testified that North Korean Foreign Ministry official, Lee Gun, stated that a peace agreement "is the only way to resolve everything" between North Korea and the United States. According to South Korea's Foreign Minister, North Korean negotiators told Bosworth that U.S. and United Nations sanctions against North Korea should end. North Korea's position on a Korean peace treaty (an old North Korean proposal going back to 1974) contrasted sharply in three respects with positions of the Obama Administration, which Bosworth reiterated and reportedly were contained in a letter from President Obama to North Korean leader, Kim Jong-il, delivered by Bosworth. First, as reportedly stated by Bosworth, the Obama Administration would engage in a negotiation of a peace treaty when North Korea "takes irreversible steps toward denuclearization." North Korea appears to seek the denuclearization issue merged into a U.S.-North Korean peace treaty negotiation. Second, Bosworth repeated the position of the Obama Administration (and the Bush Administration) that U.S. normalization of diplomatic relations with North Korea would be a main element of U.S. reciprocity in return for North Korean denuclearization. North Korea rejects diplomatic relations as a quid pro quo for denuclearization (a position that North Korea set out in January 2009). Third, North Korea's long-standing agenda for a peace treaty and its repeated definition of "denuclearization of the Korean peninsula" have focused on securing a major diminution of the U.S. military presence in South Korea and around the Korean peninsula (which North Korea defines as elimination of "the U.S. nuclear threat"). The Obama Administration, like the Bush Administration, never has expressed a willingness to negotiate on U.S. military forces as part of a denuclearization negotiation. Bosworth stated that he secured a North Korean commitment to discuss North Korea's uranium enrichment program in future nuclear negotiations. After seven years of denials, North Korea admitted in 2009 that it has such a program and boasted of its progress. However, Bosworth gave no indication that he raised the issue of North Korean nuclear proliferation activities with Iran and Syria. On August 4-5, 2009, former President Bill Clinton traveled to Pyongyang, North Korea's capital, met with North Korea's leader, Kim Jong-il, and secured the release of two American women, Laura Ling and Euna Lee, whom North Korean authorities had arrested in March 2009 on the North Korean-Chinese border. In June, a North Korean court had sentenced the two women to 12 years imprisonment at hard labor. The women, reporters for an online media company, had been developing stories on North Korean refugees who flee the country. An agreement for the release of the women between the Obama Administration and the North Korean government reportedly had been concluded prior to the Clinton trip. The Administration reportedly had used intermediaries and contacts between the State Department and North Korea's United Nations mission to negotiate the agreement. The North Korean media reported that President Clinton had issued a "sincere apology" for the actions of the women and had requested a pardon for them. The media also claimed that Clinton delivered a "verbal message" from President Obama to Kim Jong-il. Clinton and Kim had a three house meeting (confirmed by U.S. officials) on a "wide-ranging exchange of views on matters of common concern." North Korean Vice Foreign Minister, Kang Sok-ju, who negotiated the 1994 nuclear Agreed Framework with the Clinton Administration, attended the meeting. The White House denied that Clinton had issued an apology and had delivered a message from President Obama. However, most experts surmised that Clinton would have expressed the position of the Obama Administration on the North Korean nuclear issue and other security issues. President Clinton's mission came amidst deteriorating U.S.-North Korean relations as a result of a number of provocative acts by North Korea since March 2009 and the response of the Obama Administration to them in securing United Nations sanctions against North Korea. On May 25, 2009, North Korea announced that it had conducted a second test of a nuclear bomb. U.S. and foreign officials said afterwards that initial detected soundings indicated that a nuclear test had taken place. Most U.S. and foreign nuclear experts estimated the explosive power of the bomb at between four and five kilotons. By comparison, the first North Korean test of October 2006 had an explosive yield of less than one kiloton. North Korean statements indicated that this second test had achieved technical advances over the first test. A North Korean diplomat in Moscow predicted that there would be further tests. The nuclear test followed North Korea's announcement on April 14, 2009, that it was withdrawing from the six party talks on North Korea's nuclear programs. It cited as the reason for its decision a statement approved by the United Nations Security Council criticizing North Korea's test launch of a long-range Taepodong II missile on April 5, 2009. The Security Council statement, issued by the President of the Security Council, said that the missile test violated Security Resolution 1718 of October 2006, which banned tests of long-range North Korean missiles. The statement called on members of the United Nations to enforce sanctions against North Korea adopted in Resolution 1718. North Korea claimed that the missile test was a legitimate launching of a satellite into space. North Korea warned prior to the April 5 test that it would withdraw from the six party talks if the Security Council took any action against it over the missile test. North Korea staged boycotts of the six party talks on two previous occasions, in 2004-2005 and 2005-2006, each for nearly one year. North Korea's announcement of April 13, 2009, and subsequent statements, however, contained a more absolute rejection of the six party talks than was the case in the prior boycotts. The announcement said that North Korea "will never again take part in such talks." It also said that North Korea "will take steps to restore disabled nuclear facilities" and "revive nuclear facilities and reprocess used nuclear fuel rods." North Korea thus threatened to restore operation of its plutonium nuclear installations at Yongbyon that have been shut down since mid-2007 under agreements between North Korea and the Bush Administration for the disablement of the Yongbyon facilities. By early 2009, the disablement process was about 80% completed. Following the announcement, North Korea expelled from Yongbyon technicians and monitors from the United States and the International Atomic Energy Agency who had been there since 2007. The earliest revival of the Yongbyon facilities that North Korea could implement would be a restarting of the plutonium reprocessing plant, which takes nuclear fuel rods from North Korea's nuclear reactor at Yongbyon and converts them into nuclear weapons-grade plutonium. It was reported at the end of May 2009 that there were signs that the reprocessing plant was operating. Experts believe that North Korea could reprocess 8,000 fuel rods available from the reactor within four to six months—enough plutonium for one atomic bomb. (See CRS Report RL34256, North Korea's Nuclear Weapons: Technical Issues , for more information on North Korea's ability to restart the plutonium reprocessing plant.) U.S. officials and non-government nuclear experts have said that North Korea previously had reprocessed enough plutonium for five to eight atomic bombs. Reassembling the nuclear reactor and a nuclear fuel fabrication plant and restarting them would be a more difficult, time-consuming process, taking possibly up to a year, according to U.S. officials and nuclear experts. Once these facilities were operating, North Korea would be able to produce about six kilograms of plutonium per year, enough for one atomic bomb. In late May 2009, too, North Korea issued a threat to undertake the enriching of uranium, another process that can be used to produce atomic bombs. U.N. Resolution 1874 The Obama Administration responded to North Korea's nuclear test by seeking another U.N. Security Council resolution penalizing Pyongyang. On June 12, 2009, the U.N. Security Council approved Resolution 1874. It calls on U.N. member states to apply several sets of sanctions against North Korea. The major sanctions are: —A ban on financial transactions related to North Korea's trade in weapons of mass destruction (WMD) and WMD technology. North Korea's state trading companies are key vehicles for transferring WMD and WMD technology to other countries and for transmitting the foreign exchange earnings back to Pyongyang. The trading companies conduct these transactions through accounts maintained in banks in numerous countries around the world. In order to shut down these financial transactions, governments and banks in a number of countries will have to freeze these bank accounts. U.S. officials have said that the Obama Administration is emphasizing the ban on financial transactions in its discussions with other governments regarding Resolution 1874. In July 2009, Ambassador Philip Goldberg and Undersecretary of the Treasury Stuart Levey visited China, Malaysia, and Russia. Goldberg was appointed as a special envoy to coordinate sanctions against North Korea. They emphasized to Chinese, Malaysian, and Russian officials the need to restrict activities of North Korean trading companies. In line with the April 2009 Security Council statement and Resolution 1874, the Security Council designated for sanctions five North Korean trading companies, an Iran-based company, a North Korean bank, and North Korea's General Bureau of Atomic Energy. It also designated five North Korean officials, including the director of another North Korean trading company. The U.S. Treasury Department announced in late June 2009 sanctions on one of these North Korean trading companies, the Namchongang Trading Corporation, and the Iran-based Hong Kong Electronics. Treasury Department officials disclosed that the Department was targeting 17 North Korean trading companies and banks for U.S. and international sanctions. Apparently at the behest of the Chinese government, a Chinese firm reportedly halted construction of facilities for a joint copper mine with the [North] Korea Mining Development Trading Corporation, one of the North Korean companies sanctioned by the U.N. Security Council. —Search of sea-borne cargoes. U.N. member states are called upon to search ships that are suspected of carrying North Korea-related weapons or WMD technology if those ships are in their territorial waters or ports. If a suspect ship is on the high seas, U.N. member states are "called upon" to request the right to board and inspect. If the request is refused, Resolution 1874 obligates the flag state of the suspect ship to direct the vessel to a near-by port for inspection. The resolution authorizes the seizure of banned items. The resolution prohibits "bunkering services" such as refueling or servicing of a ship with suspected cargo. Enforcement of this provision lies in part with the U.S. Navy, but it also will require the cooperation of China and Southeast Asian states such as Singapore, Malaysia, and Indonesia. Many North Korean ships stop at Chinese ports. Ships bound for Burma, South Asia, or the Middle East must pass through the Singapore and Malacca straits connecting the Pacific and Indian Oceans. —Search of Air Cargo. In contrast to the detailed procedures set out in resolution 1874 for searching sea-borne cargo, the resolution is vague in how its provisions for searches of air cargo are to be implemented. Many experts believe that North Korea uses air traffic much more than sea traffic in order to transfer and exchange WMD, WMD technology, and WMD scientists and technicians. Many believe that the key to inspections of North Korea's air cargo is the air traffic between North Korea and Iran. North Korea and Iran have engaged in extensive collaboration in the development of ballistic missiles, and there are numerous reports since 2003 indicating collaboration in the development of nuclear warheads that could be mounted on missiles. The U.S.-based Institute for Foreign Policy Analysis estimated in 2009 that North Korea earns about $1.5 billion annually from sales of missiles to other countries. It appears that much of this comes from missile sales and collaboration with Iran in missile development; North Korea currently has only three major foreign customers for missiles: Iran, Syria, and possibly Burma. Iran and North Korea reportedly use the Pyongyang-Tehran air route for the transfer of missiles, WMD technology, and mutual visits of nuclear and missile officials, scientists, and technicians. North Korea and Iran reportedly emphasized air travel and traffic after 2002 in response to the Bush Administration's announcement of a Proliferation Security Initiative and the Spanish Navy's search of a North Korean ship bound for Yemen. Aircraft use Chinese air space and reportedly refuel at Chinese airports. China would have the prime responsibility for searches of aircraft on the Pyongyang-Tehran air route. Obama Administration officials indicated that Ambassador Goldberg raised the air traffic issue with Chinese officials during his visit to China in early July 2009, but they did not indicate how Chinese officials responded. Chinese officials have urged caution in searching possible North Korea-related cargos; they have stressed that there must be evidence of weapons and WMDs before undertaking searches. Three developments since August 2008 appear to have influenced the situation leading up to North Korea's provocative acts, and these continue to influence the Obama Administration in developing a strategy toward the North Korean nuclear issue. One is the failure of the Bush Administration, North Korea, and the other six party governments to complete implementation of the agreements reached between the Bush Administration and North Korea in 2007 and early 2008, particularly the failure to complete the agreed upon disablement of the Yongbyon facilities. A second was the stroke suffered by North Korean leader, Kim Jong-il, in August 2008, and the apparent subsequent emergence of a collective group of leaders including an influential element of the North Korean military. A third development was the issuance by North Korea after January 1, 2009, of a set of tough negotiating demands for future round of nuclear negotiations with the United States. The Bush Administration negotiated three agreements with North Korea between February 2007 and October 2008; two were issued in February and October 2007 as agreements of the parties to the six party talks over North Korea's nuclear programs (United States, North Korea, China, South Korea, Japan, and Russia). The third was negotiated in Singapore in April 2008 between the United States and North Korea. The Bush Administration and North Korea began a process of implementation on June 26, 2008. A six party meeting of July 10-12, 2008, set out a timetable to complete implementation by October 31, 2008. The main aim of the Bush Administration in these agreements was to secure the disablement of North Korea's plutonium installations at Yongbyon. The agreements, however, were not implemented fully when the Bush Administration left office in January 2009. This was due partly to the failure of the Bush Administration and North Korea to resolve a dispute over a verification system, especially the right of inspectors to take and examine samples of nuclear materials at Yongbyon. On June 26, 2008, the North Korean government and the Bush Administration took measures to implement the nuclear agreements that they had negotiated in 2007 into 2008. The agreements created two obligations each for North Korea and the Bush Administration to fulfill. North Korea was to allow a process of disablement of its plutonium nuclear facilities at Yongbyon, a site 60 miles from the capital of Pyongyang. The shutting down of Yongbyon was a key provision of the 1994 Agreed Framework negotiated by the Clinton Administration and North Korea. Yongbyon ceased to operate between 1994 and the end of 2002. In late 2002, the Bush Administration suspended U.S. obligations under the Agreed Framework because of U.S. intelligence estimates that North Korea was operating a secret nuclear weapons program based on highly enriched uranium. North Korea responded by re-starting the Yongbyon facilities. Between early 2003 and the summer of 2007, the Yongbyon reactor and the plutonium reprocessing plant produced enough weapons grade plutonium for the production of several atomic bombs. North Korea tested an atomic device in October 2006. The disablement process began in October 2007. The Bush Administration said in June 2008 that eight of eleven components of the disablement process had been completed. A major uncompleted task was the removal of spent plutonium fuel rods from the five megawatt reactor. According to informed U.S. sources, as of February 2009, about 6,100 of 8,000 spent fuel rods reportedly had been removed. North Korea's second obligation was to provide the United States and other members of the six party talks with a "complete and correct" declaration of nuclear programs. The declaration negotiated and reportedly finalized in Singapore and delivered to China on June 26, 2008, contains a declaration of the amount of plutonium that North Korea claims to possess. Reports asserted that North Korea declared 30.8 kilograms of plutonium. U.S. intelligence estimates reportedly conclude that North Korea has accumulated 50 to 60 kilograms of plutonium. However, other components of North Korea's nuclear programs reportedly are omitted from the declaration, apparently based on concessions the Bush Administration made to North Korea in the Singapore agreement. These include the number of atomic bombs North Korea possesses, information about the facilities where North Korea produces and tests atomic bombs, and the locations where North Korea stores plutonium and atomic bombs. The declaration also reportedly contains no information about North Korea's reported highly enriched uranium program or North Korea's reported nuclear collaboration activities with Iran and Syria. According to Bush Administration officials, the uranium enrichment and Syria issues are addressed in a "confidential minute." (They said nothing about Iran.) However, in the confidential minute, North Korea reportedly does not admit to uranium enrichment or proliferation activities with Syria. It merely "acknowledges" U.S. concerns that North Korea has engaged in these activities in the past. The United States' two obligations under the agreements were to remove North Korea from the U.S. Trading with the Enemy Act and from the U.S. list of state sponsors of terrorism. Removal from the Trading with the Enemy Act allows U.S. companies to import North Korean goods and sell non-strategic goods to North Korea. It opens up possibilities for U.S. companies to invest in North Korea. However, given North Korea's communist economic system and its suspicions of foreign intrusions, there appears to be little likelihood of any meaningful trade or investment relations developing between the United States and North Korea. Removal from the Trading with the Enemy Act could give North Korea in the future access to $31.7 million in North Korean assets in the United States that have been frozen since the Korean War. Removal from the U.S. list of state sponsors of terrorism will end the requirement that U.S. presidents oppose financial aid to North Korea from international financial agencies like the World Bank and the International Monetary Fund. An opportunity to secure such financial aid might have been a North Korean objective in seeking removal from the terrorism support list. North Korea may have had three additional motives for its pressure on the Bush Administration to remove it from the list of state sponsors of terrorism. One was to reduce U.S. support for Japan on the issue of Japanese citizens kidnapped by North Korea. The Clinton and Bush administrations previously had cited a resolution of the Japanese kidnapping issue as linked to removal of North Korea from the terrorism support list. A second motive apparently was to improve the prospects for normalization of diplomatic relations with the United States, which North Korea says it wants. A possible third motive may be to limit any U.S. incentive to examine the issue of North Korea's activities in the Middle East and deny to the United States a potential negotiating lever over North Korea's activities in the Middle East. Numerous reports indicate that North Korea's activities include providing training and weapons to Hezbollah and cooperation with the Iranian Revolutionary Guards in the development of both missiles and nuclear weapons. (See subsequent section on " Nuclear Collaboration with Iran and Syria ." See also CRS Report RL30613, North Korea: Terrorism List Removal The first U.S.-North Korean agreement, issued as a six party statement in February 2007, also set an important obligation to North Korea by the five other parties. The five parties were to provide North Korea with one million tons of heavy fuel oil or the energy equivalent thereof, corresponding with the disablement of Yongbyon. On June 26, 2008, North Korea submitted its declaration on nuclear programs to China, the chairman of the six party talks. Simultaneously, President Bush announced that he had removed North Korea from the Trading with the Enemy Act. The President has authority to renew annually Trading with the Enemy sanctions on North Korea or to lift those sanctions from North Korea. President Bush also announced that he had sent to Congress notification of his intent to remove North Korea from the list of state sponsors of terrorism after 45 days, on August 11, 2008. Under U.S. law, the President is required to notify Congress 45 days before removing a country from the list. The White House said that North Korea would be removed on August 11, 2008, unless Congress acted legislatively to block removal. However, the White House also said on June 26, 2008, that removal of North Korea was conditioned on North Korean acceptance of provisions for U.S. verification of the North Korean declaration of nuclear programs. On July 12, 2008, the six parties issued a press communique setting a target date of October 31, 2008, for completion of the disablement of Yongbyon and the completion of the delivery of heavy fuel oil and alternative energy assistance. The Bush Administration did not remove North Korea from the list of state sponsors of terrorism on August 11, 2008. In July, the Bush Administration presented North Korea with a draft protocol on verification of North Korea's nuclear programs. The draft protocol would have given U.S. and other six party inspectors the right to conduct inspections at sites throughout North Korea. North Korea rejected the U.S. proposal, arguing that inspections should cover only those facilities at Yongbyon that it had listed in its declaration of June 26, 2008. North Korea retaliated by halting the disablement process at Yongbyon and announcing that it would restart the plutonium reprocessing plant at Yongbyon. Neither the February 2007 nor the October 2007 six party nuclear agreements mentioned a system of country-wide inspections. There is no evidence that the Singapore agreement of April 2008 detailed any system of verification. However, following the U.S.-North Korean meeting at Singapore, the Bush Administration began to seek supplemental agreements with North Korea regarding the establishment of verification mechanisms to examine North Korea's declaration of its plutonium stockpile. In early May 2008, the Bush Administration and North Korea negotiated an accord for North Korea to turn over to the United States over 18,000 documents related to its plutonium program, dating back to 1986. U.S. experts are examining these documents and have disclosed no revealing information from them. The White House announcement of June 26, 2008, stated that removal of North Korea from the terrorism support list after 45 days would be carried out "only after the six parties reach agreement on acceptable verification principles and an acceptable verification protocol; the six parties have established an acceptable monitoring mechanism; and verification activities have begun." A six party meeting of July 10-12, 2008, reached agreement on verification principles, including "visits to facilities, review of documents, interviews with technical personnel." "Other measures" would have to be "unanimously agreed upon among the six parties." Verification would be carried out by experts of the six parties. The International Atomic Energy Agency would have only an advisory role. The Bush Administration reacted to North Korea's announcement of a restarting of the plutonium reprocessing by scaling back the scope of its verification proposals. Assistant Secretary of State Christopher Hill went to Pyongyang in early October 2008 and negotiated a verification deal, which would concentrate inspections only on Yongbyon. North Korea agreed and announced a resumption of disablement. The Bush Administration followed on October 11, 2008, with the announcement of Secretary of State Condoleezza Rice that North Korea was removed from the U.S. list of state sponsors of terrorism. The State Department's description of the verification agreement included the following points. Inspectors would have access only to the sites at Yongbyon described in North Korea's June 26, 2008 declaration. Access to non-declared sites would be by "mutual consent." The inspection organization would be composed of the five non-North Korean members of the six party talks—the United States, China, South Korea, Japan, and Russia. The organization would make decisions on the basis of unanimous consent. The terms of the verification agreement were contained in a U.S.-North Korean document and in "certain other understandings." The Bush Administration and the State Department gave few details on two other aspects of Hill's talks in Pyongyang and the verification agreement. One was the issue of inspectors being able to take samples of nuclear materials at the Yongbyon installations for laboratory analysis. A North Korean Foreign Ministry statement of November 11, 2008, and subsequent statements asserted that the written verification agreement said nothing about sampling and that North Korea only had to abide by the written agreement and nothing else. The State Department then acknowledged that Hill's discussion with North Koreans about sampling was only a verbal understanding. This issue was not resolved in the December 2008 six party meeting. The second aspect of Hill's talks was his meeting with North Korean Lt. General Lee Chan-bok. This was the first time that a North Korean military leader had participated in the nuclear talks. General Lee reportedly called for bilateral U.S.-North Korean military talks and may have linked U.S. acceptance of bilateral military talks to further progress on the nuclear issue. Hill and the State Department have been silent on the content of this meeting. At the six party meeting in December 2008, an attempt was made to draw up a compromise agreement on the sampling issue, but North Korea reportedly rejected a Chinese draft proposal. The sampling issue, too, resulted in a slowing of the disablement process and the delivery of heavy fuel oil to North Korea. Thus, by the time the Bush Administration left office in January 2009, the disablement process remained stalled at about 80% completion, and only about 80% of the heavy fuel oil and alternative energy aid had been delivered. One factor complicating U.S. dealings with North Korea is the uncertainty surrounding Kim Jong-il's health and the degree of control he still exerts in North Korea. In August 2008, North Korean leader, Kim Jong-il suffered a stroke that apparently was severe and incapacitated him. Kim reportedly has been suffering from several major ailments since 2000, including heart, liver, and kidney problems, and possibly diabetes. South Korean and Japanese media reports in July 2009, apparently based on Chinese sources, reported that Kim Jong-il had pancreatic cancer, one of the deadliest forms of cancer. A broadcast radio run by North Korean defectors in South Korea claimed in August that Kim Jong-il started receiving kidney dialysis in May 2009. Photographs and television footage of Kim Jong-il in April and June 2009 showed him to be frail and to have aged considerably. He showed signs of paralysis in an arm and leg. Assistant Secretary of Defense Michael Nacht stated before the House Armed Services Committee on July 15, 2009, that "the leader is very ill." However, during President Clinton's mission to Pyongyang in August 2009, Kim Jong-il seemed to be in charge of the dealings with Clinton during a three hour meeting. In the remainder of 2008 and throughout 2009, there have been reports that a small collective leadership group of Communist Party leaders and military commanders had taken over day-to-day decision making. Kim's brother-in-law, Chang Song-taek, reportedly was a key figure in this group, possibly in a leadership role. If Kim is partially incapacitated or should die, a collective leadership could remain for some time; none of Kim's three sons seems to be in a position within the leadership to succeed him immediately. Reports surfaced that Kim Jong-il had named his youngest son, Kim Jong-un, age 26, as a successor. In the aftermath of the stroke, the North Korean military took a more visible role in implementing policy and announcing policy positions and decisions. Assistant Secretary of State Christopher Hill negotiated with a North Korean General on the nuclear issue for the first time when he went to Pyongyang in October 2008. South Korean businessmen at the special economic zone of Kaesong inside North Korea found themselves dealing with North Korean military officials rather than civilian officials. A statement of April 18, 2009, by the North Korean military General Staff strongly suggested that the military leadership had played a lead role in the decision to withdraw from the six party talks and that, in the future, the military will control decisions on the nuclear program. In the post-stoke period, the North Korean regime began to restrict further access to North Korea by outsiders and placed new limits on private and quasi-private economic activities. New limits were imposed on Chinese traders operating in North Korea, the quasi-private markets selling food and consumer goods that had emerged in the late 1990s, and transportation between South Korea and the Kaesong economic zone. The regime shut down the U.S. food aid program in March 2009 and later added new restrictions on the United Nations World Food Program. After January 1, 2009, the North Korean Foreign Ministry and the military command issued a number of statements outlining a set of tough, negotiating positions for future nuclear talks with the United States (see section on Issues Facing the Obama Administration). The Obama Administration appears to face at least four sets of issues in dealing with North Korea on the nuclear question in the wake of North Korea's withdrawal from six party talks, its call for strictly bilateral talks with the United States, and its May 25, 2009, nuclear test. Two relate to the Administration's professed goal of getting North Korea back into a negotiating framework in the wake of Pyongyang's rejection of six party talks. Two others relate to U.S. goals and strategy if negotiations should resume. Getting North Korea back into a negotiating framework may require the Obama Administration to seek to bridge the gap between North Korea's rejection of six party talks and the Administration's position that talks, including bilateral talks, should remain within the six party framework. Administration officials have said that they are examining a different format for the six party forum. Two options appear available. One would be to agree that the six party forum would no longer have a role as a forum where actual negotiations take place. Instead, the role of the six party forum would be only to ratify U.S.-North Korean agreements. Second, the Obama Administration might have to promise to honor unilaterally U.S. commitments in U.S.-North Korean agreements and not make such commitments dependent on approval and support by other six parties, especially Japan and South Korea. (South Korea and Japan increasingly adopted tough positions against North Korea in six party meetings in 2008; this may have been factor in Pyongyang's decision to reject the six party forum.) This would be especially important regarding any financial commitments the Obama Administration might make in bilateral accords with North Korea. If these options should prove unfeasible, the Obama Administration might have to depend mainly on the option of increasing pressure on North Korea through U.N. sanctions in order to force Pyongyang to rescind its rejection of six party talks. Increasing pressure sufficient to bring the North Korean government to accept continued six party talks no doubt would require substantial cooperation from China in enforcing U.N. sanctions. It also likely would require a situation of growing pressure on North Korea's food situation. North Korea terminated South Korean food aid programs in 2008 and 2009, and it placed new limitations on the United Nations World Food Program in 2009. Reports in August 2009 indicate that North Korea faces growing food shortages in the coming months. Severe food shortages could threaten North Korea's elite and military with food shortages. North Korea's opening of a more conciliatory policy toward South Korea in July and August 2009 may be motivated by Pyongyang's concern over its food situation. A second possible issue is how the Obama Administration would deal with pressure from North Korea and possibly China to relax U.N. and U.S. sanctions if North Korea agreed to resume negotiations. North Korea especially might press for an end of U.N. and U.S. financial sanctions. Obama Administration officials have said that Pyongyang's agreement to resume talks will not be sufficient and that negotiations must show progress toward denuclearization of North Korea. Chinese pressure on the Administration to lift sanctions in return for a resumption of negotiations could be an especially difficult problem for the Administration. The Administration likely would find itself under increasingly pressure to define more specifically the conditions under which it would agree to lift sanctions and the sequencing of the lifting of sanctions. If negotiations should resume either within the six party framework or bilaterally, the Administration likely would face a daunting task in developing a strategy to deal with the negotiating positions which Pyongyang laid out in January and February 2009. These negotiating positions were laid out in official statements by the North Korean Foreign Ministry and, in a new development, statements by the North Korean military. They also came in statements that North Korean officials, including military officials, made to Selig Harrison of the Center for International Policy, who visited Pyongyang in mid-January 2009. Harrison has visited North Korea on numerous occasions since the early 1990s and has met with high-ranking North Korean officials. He on occasion has been somewhat of an interlocator between the U.S. government and North Korea. The negotiating positions taken by North Korea can be summarized as follows: —North Korea will not give up its nuclear weapons in return for normalization of diplomatic relations with the United States and economic aid from the United States. Normalization of relations must come before denuclearization as a step toward denuclearization. North Korean officials rejected Selig Harrison's proposal that North Korea turn over its plutonium stockpile to the International Atomic Energy Agency in return for U.S. diplomatic recognition and U.S. economic aid and trade credits. —North Korea wants to be recognized as a nuclear weapons state. North Korean officials asserted to Harrison that North Korea wants U.S. recognition of its status as a nuclear weapons state. North Korea has cited this goal repeatedly since 2007, which it appears to define as a situation in which the United States and other countries normalize relations with North Korea and provide economic and financial benefits while North Korea retains nuclear weapons. According to Harrison and U.S. nuclear expert, Sigfried Hecker, who visited North Korea in February 2009, North Korean officials, including military officials, indicated that a major objective of the nuclear program is to develop nuclear warheads that could be mounted on missiles. North Korea's view may be that developing nuclear warheads would force the United States, Japan, and other countries to "recognize" North Korea as a nuclear weapons state. Thus, a key purpose of the May 2009 nuclear test may have been to advance North Korean nuclear technology toward a capability to produce nuclear warheads. —North Korea no longer has a plutonium stockpile of 31 kilograms that it declared in June 2008 because North Korea has "weaponized" all of its plutonium. This implies a North Korea position that future negotiations on final denuclearization must deal only with North Korea's plutonium atomic weapons and not the plutonium stockpile. —Denuclearization must include the entire Korean peninsula and must include the elimination of the "U.S. nuclear threat" to North Korea. Pyongyang's apparent position that a final denuclearization negotiation must deal only with its atomic weapons appears to aim at giving North Korea more negotiating leverage to press its demand that the United States must agree to measures to eliminate the U.S. "nuclear threat." North Korea repeatedly has defined the "U.S. nuclear threat" to include the composition and major operations of U.S. military forces in South Korea and around the Korean peninsula and the U.S. "nuclear umbrella" over South Korea embodied in the U.S.-South Korean Mutual Defense Treaty. North Korean strategy seems aimed at proposing that a final denuclearization agreement with the United States constitute the document that regulates the future U.S. military presence in and around the Korean peninsula, thus superseding the U.S.-South Korean Mutual Defense Treaty. —Any system of verification and inspections must include inspections inside South Korea, including U.S. bases in South Korea. If North Korea holds to that position, negotiating an agreement on verification that would include sampling would pose additional difficulties and likely delays. Since 1993, North Korea has shown consistently a rejectionist attitude toward proposals of international inspections of its territory that would seek information about its nuclear programs. Pyongyang has been willing to allow only a limited monitoring role for the International Atomic Energy in monitoring agreements that limited operations at Yongbyon. The Obama Administration's ability to develop a strategy to deal with these likely North Korean positions may involve a difficult choice of U.S. objectives in negotiations. Administration officials, including Secretary of State Hillary Clinton, have stated on numerous occasions that the Administration does not want to negotiate over past, unfulfilled agreements that dealt with a shutting down of Yongbyon. Instead, U.S. officials have said that they seek a comprehensive package deal for the complete denuclearization of North Korea. Secretary Clinton stated at the ASEAN Regional Forum meeting in July 2009 that if negotiations produced "irreversible steps by North Korea to denuclearize," the United States would reciprocate with a "package of incentives" including "full normalization of relationships, a permanent peace regime [to replace the 1953 Korean War armistice] and significant energy and economic assistance." Such a negotiation could involve a range of difficult issues, which the Bush Administration decided to set aside in its negotiations with North Korea in 2008: North Korea's atomic weapons, its plutonium stockpile, a verification system (which the Bush Administration unsuccessfully attempted to negotiate after July 2008), North Korea's highly enriched uranium program (which North Korea admitted to for the first time in June 2009), and its proliferation activities with Iran and Syria. Moreover, Clinton's proposal omits any offer to negotiate over U.S. military forces in and around the Korean peninsula in response to North Korea's position that elimination of the "U.S. nuclear threat" embodied in U.S. forces must be the quid pro quo for complete denuclearization. If these apparent irreconcilable positions create a stalemate in negotiations, the Obama Administration would be faced with the issue of whether it would be willing to negotiate major military concessions to North Korea regarding the composition and operations of U.S. forces in South Korea and around the Korean peninsula. Past U.S. administrations have refused to negotiate with North Korea over U.S. troops. The roles of South Korea and Japan in any U.S.-North Korean negotiations over U.S. forces also would be an important consideration. If the Obama Administration should conclude that the successful negotiation of a comprehensive agreement to denuclearize North Korea is unrealizable, it may be pulled back toward a negotiation aimed at the limited goal of shutting down Yongbyon and thus containing the production of additional North Korean plutonium. China likely would support such a decision, given Beijing's longstanding urging of the Bush Administration to focus on shutting down the North Korean plutonium program and leaving other elements of North Korea's nuclear programs for future negotiations. In this scenario, the Obama Administration might set the goal of a complete dismantlement of the Yongbyon nuclear facilities rather than the more limited disablement of the facilities that the Bush Administration failed to achieve in 2008. North Korea's negotiating positions also suggest the demands and conditions that Pyongyang likely would lay out for an agreement of a dismantlement of Yongbyon. North Korea appears ready to call on the United States to agree to diplomatic relations in a dismantlement agreement. North Korea also is certain to demand that the United States agree to begin a second project to construct light water nuclear reactors inside North Korea; the 1994 Agreed Framework initiated the first light water reactor project, which was halted in 2002. North Korea also can be expected to insist that the actual physical dismantlement of Yongbyon would take place only when the construction of light water reactors is completed (a process that would take ten years or more, according to estimates by nuclear experts on the time required to construct a light water reactor). Another North Korean condition likely would be a continuation of heavy oil shipments until light water reactors are completed. North Korea also may raise another condition related to the Bush Administration's removal of Pyongyang from the U.S. list of state sponsors of terrorism. North Korean negotiators may assert that the Obama Administration must "complete" North Korea's removal through a second step of proposing and supporting financial aid to North Korea from the World Bank and/or the International Monetary Fund. The Bush Administration's removal of North Korea lifted the requirement in U.S. law that the President must oppose aid to North Korea from international financial agencies because of its inclusion on the terrorism-support list. In negotiating over the dismantlement of Yongbyon, two of North Korea's likely demands would appear to present particular problems for the Obama Administration. North Korea's likely call for diplomatic relations in a dismantlement agreement (and/or prior to final denuclearization) runs counter to the longstanding U.S. position, reiterated by Secretary of State Clinton during her July 2009 trip to East Asia, that the United States would normalize relations with North Korea only when North Korea's nuclear programs and weapons are eliminated. North Korea's repeated demand for light water nuclear reactors also would force the Obama Administration to choose whether to go back into another light water reactor project that likely would take ten years or longer, or, alternatively, propose a package of incentives to North Korea, including energy incentives, that would not include light water reactors. Most of North Korea's plutonium-based nuclear installations are located at Yongbyon, 60 miles from the North Korean capital of Pyongyang. They are the facilities covered by the 1994 U.S.-North Korean Agreed Framework and by the freeze and disablement provisions in Phases One and Two of the February 2007 Six Party Nuclear Agreement. The key installations are as follows: An atomic reactor, with a capacity of about 5 electrical megawatts that began operating by 1987. It is capable of expending enough reactor fuel to produce about 6 kilograms of plutonium annually—enough for the manufacture of a single atomic bomb annually. Satellite photographs reportedly show that the reactor has no attached power lines, which it would have if used for electric power generation. North Korea in 1989 shut down the reactor for about 70 days; U.S. intelligence agencies believe that North Korea removed fuel rods from the reactor at that time for reprocessing into plutonium suitable for nuclear weapons. In May 1994, North Korea shut down the reactor and removed about 8,000 fuel rods, which could be reprocessed into enough plutonium (25-30 kilograms) for 4-6 nuclear weapons. North Korea started operating the reactor again in February 2003, shut it down in April 2005, and said it had removed another 8,000 fuel rods. Under the February 2007 six party agreement, North Korea shut down the reactor in July 2007. As of late 2008, North Korea had completed eight of the eleven steps of the disablement of the reactor, including the removal of equipment from the reactor and the blowing up of reactor's cooling tower. In 2009, North Korea announced that it would resume nuclear weapons production. It claimed that it had restarted the plutonium reprocessing plant at Yongbyon. However, by August 2009, there was no visual evidence that North Korea had begun construction work to restore the five megawatt reactor, including reconstruction of the cooling tower. Two larger (estimated 50 megawatts and 200 electrical megawatts) reactors under construction at Yongbyon and Taechon since 1984. According to U.S. Ambassador Robert Gallucci, these plants, if completed, would be capable of producing enough spent fuel annually for 200 kilograms of plutonium, sufficient to manufacture nearly 30 atomic bombs per year. However, when North Korea re-opened the plutonium program in early 2003, reports indicate that construction on the larger reactors was not resumed. A plutonium reprocessing plant about 600 feet long and several stories high. The plant would separate weapons grade plutonium-239 from spent nuclear fuel rods for insertion into the structure of atomic bombs or warheads. U.S. intelligence agencies reportedly detected North Korean preparations to restart the plutonium reprocessing plant in February and March 2003. According to press reports, the CIA estimated in late 2003 that North Korea had reprocessed some of the 8,000 fuel rods. In January 2004, North Korean officials showed a U.S. nuclear expert, Dr. Sigfried Hecker, samples of what they claimed were plutonium oxalate powder and plutonium metal. Dr. Hecker later said in testimony before the Senate Foreign Relations Committee (January 21, 2004) that, without testing, he could not confirm whether the sample was metallic plutonium "but all observations I was able to make are consistent with the sample being plutonium metal." IAEA monitors in July 2007 stated that, in accord with the February 2007 six party agreement, the reprocessing plant was not in operation. Further disablement of it continued into early 2009. However, in conjunction with its April and May missiles and nuclear tests, North Korea announced that the reprocessing plant was in operation. Nuclear experts said that North Korea had available enough nuclear fuel rods from the operation of its nuclear reactor prior to the 2007 shutdown to reprocess plutonium from them sufficient for one atomic bomb. Satellite photographs reportedly also show that the five megawatt reactor has no attached power lines, which it would have if used for electric power generation. Persons interviewed for this study believe that North Korea developed the five megawatt reactor and the reprocessing plant with its own resources and technology. It is believed that Kim Jong-il, the son and successor of President Kim Il-sung who died in July 1994, directs the program, and that the military and the Ministry of Public Security implement it. North Korea reportedly has about 3,000 scientists and research personnel devoted to the Yongbyon program. Many have studied nuclear technology (though not necessarily nuclear weapons production) in the Soviet Union and China and reportedly Pakistan. After years of denials, North Korea on June 13, 2009, admitted that it had a nuclear program based on the development of highly enriched uranium (HEU). A North Korean Foreign Ministry statement declared: "Enough success has been made in developing uranium enrichment technology to provide nuclear fuel to allow the experimental procedure. The process of uranium enrichment will be commenced." In a statement to the U.N. Security Council on September 4, 2009, North Korea claimed progress in the HEU program: "Experimental uranium enrichment has successfully been conducted to enter into completion phase." HEU is another element that can be used to produce atomic weapons. The bomb dropped on Hiroshima in 1945 was an HEU bomb in contrast with the plutonium bomb that was dropped on Nagasaki. The process involves the operation of several thousand centrifuges, machines that separate weapons-grade U-235 from natural uranium. An infrastructure of 2,600 P1 centrifuges could produce about 20 kilograms of HEU per year, enough for two small (four kilotons) atomic bombs. One advantage for North Korea developing HEU is that a centrifuge-based infrastructure could be located completely underground while a plutonium reactor and reprocessing plant must operate above ground. U.S. intelligence agencies gained substantial information that North Korea was intent on initiating an HEU program in the late 1990s and early 2000s. This information involved two elements of the program: North Korea's imports and attempted imports of components for an HEU infrastructure and the technology and components supplied by Pakistan's nuclear czar, A.Q. Khan. However, U.S. intelligence agencies acknowledge that they have gained little information on progress the North Koreans may or may not have made in the actual construction of a HEU infrastructure. This created uncertainty after 2006 in how the Bush Administration should deal with the HEU issue in its negotiations and agreements with North Korea. The inception of the HEU program began with North Korea's contacts with Pakistan in the 1990s. Hwang Jang-yop, a Communist Party secretary who defected in 1997, has stated that North Korea and Pakistan agreed in the summer of 1996 to trade North Korean long-range missile technology for Pakistani HEU technology. Other information dates North Korea-Pakistan cooperation to 1993 when Pakistani President Benazir Bhutto visited North Korea. The core element of this collaboration was A.Q. Khan, who developed Pakistan's HEU program to produce atomic weapons, including nuclear warheads for missiles. He reportedly visited North Korea 13 times from 1993 to 2003. He negotiated an agreement with North Korea under which Pakistan would provide North Korea with HEU technology and components in exchange for North Korean assistance to Pakistan in the development of Pakistani missiles based on North Korea's Nodong missile. According to Pakistan's former President Pervaiz Musharraf, North Korean nuclear and missile scientists reportedly visited the Khan laboratories in Pakistan. Khan supplied North Korea with about 24 P1 and P2 centrifuges and blueprints and supporting equipment. Khan also had supplied Libya with designs for an HEU nuclear warhead and had offered similar designs to Iran and Iraq; the CIA reportedly concluded in 2004 that he probably had provided North Korea with the same warhead design. U.S. intelligence agencies also tracked North Korea's import of components which could be used in an HEU program. Initial imports began in 1998 and 1999 and accelerated in 2000 and afterwards. Major imports included 150 tons of aluminum tubes from Russia, equipment for uranium fuel and withdrawal systems, uranium hexafluoride from Pakistan, an industrial inverter from Japan that could be used in an HEU program, and three specialized power supply devices. In April 2003, a North Korean shipment of 200 tons of aluminum tubing, purchased in Germany, was seized at the Suez Canal. The Clinton Administration reportedly learned of an HEU program in 1998 or 1999, and a Department of Energy report of 1999 cited evidence of the program. In March 2000, President Clinton notified Congress that he was waiving certification that "North Korea is not seeking to develop or acquire the capability to enrich uranium." Reportedly, according to a CIA report to Congress, North Korea attempted in late 2001 to acquire "centrifuge-related materials in large quantities to support a uranium enrichment program." The CIA stated publicly in November 2002 that it had evidence that North Korea had begun constructing a centrifuge facility and North Korea could produce two atomic bombs annually through HEU beginning in 2005; other intelligence estimates reportedly projected a bomb producing capability between 2005 and 2007. U.S. intelligence agencies reportedly gained information in 2005 that North Korea was able to produce uranium hexafluoride, a gaseous material essential for the production of HEU. However, there were doubts expressed by some experts over whether North Korea was developing a genuine centrifuge infrastructure. These doubt increased into 2006, 2007, and 2008. U.S. intelligence agencies reportedly gained less information about North Korean imports of potential HEU-related materials and equipment. Administration officials stated in 2007 and 2008 that they did not know the locations of North Korea's uranium enrichment program or whether North Korea has assembled the infrastructure to produce uranium-based atomic bombs. They expressed "mid-confidence" that North Korea was trying to develop an HEU production infrastructure. Then, during the U.S.-North Korean negotiations of late 2007 and mid-2008, North Korea turned over to the United States a sample of the aluminum tubes it had acquired from Russia and 18,000 pages of documents related to its nuclear programs. U.S. scientists found traces of HEU on both of these. There reportedly was debate within the U.S. intelligence community about the sources of this HEU, but these findings influenced the attempt of the Bush Administration in July 2008 to inject proposals for a broad system of international inspections of North Korea into the recently negotiated U.S.-North Korean agreement for the disablement of Yongbyon. North Korea's use of the word "experimental" in its September 4, 2009, statement suggests North Korea may not have a full-scale centrifuge infrastructure. However, Pyongyang claims of an advancing HEU program likely will thrust the issue into any future nuclear negotiations. While U.S. intelligence officials have said that they do not know the locations of HEU facilities in North Korea, there have been a number of reports citing possible locations. Some of this information has come from defectors, some from Chinese sources. Locations cited from these sources include Mount Chonma, the city of Kusong, Hagap, and Pakchon. The most recent report came in February 2009; the source was a "senior" South Korean official. According to the official, South Korean and U.S. intelligence agencies had discovered underground facilities capable of producing small amounts of enriched uranium at Sowi-ri, north of Yongbyon. Knowledgeable individuals believe that the Soviet Union did not assist directly in the development of Yongbyon in the 1980s. The U.S.S.R. provided North Korea with a small research reactor in the 1960s, which also is at Yongbyon. However, North Korean nuclear scientists continued to receive training in the U.S.S.R. up to the demise of the Soviet Union in December 1991. East German and Russian nuclear and missile scientists reportedly were in North Korea throughout the 1990s. Since 1999, reports have appeared that U.S. intelligence agencies had information that Chinese enterprises were supplying important components and raw materials for North Korea's missile program. In April 2008, the Bush Administration disclosed that a facility at Al Kibar in northeast Syria bombed by Israel on September 6, 2007, was a plutonium nuclear reactor under construction with the apparent aim of producing nuclear fuel rods that could be converted into nuclear weapons-grade plutonium. For months after the Israeli bombing, press reports had cited information and evidence that the facility was a nuclear reactor and that North Korea was assisting Syria in its construction. This nuclear collaboration reportedly was ongoing since 1997. The Bush Administration released no information on the reactor and North Korean involvement in it until April 2008 in response to pressure from the House Foreign Affairs Committee and the House Intelligence Committee. U.S. intelligence officials on April 24, 2008, privately briefed members of committees on North Korea's role, and they provided a background news briefing to the media. (See CRS Report RL33487, Syria: Background and U.S. Relations .) U.S. officials presented several forms of evidence for North Korean involvement in the Syrian reactor. A U.S. photograph showed a top North Korean nuclear official visiting Syrian nuclear experts. U.S. intelligence officials released photographs of the outside and inside of the reactor showing marked similarities with the North Korean nuclear reactor at Yongbyon. The photos of the interior of the reactor reportedly showed North Koreans inside the reactor. A leading South Korean newspaper had reported that U.S. intelligence agencies had obtained a list of North Korean officials involved in the Syrian reactor project and that chief U.S. negotiator, Christopher Hill, had confronted North Korean nuclear negotiators with the list. At the time of the Bush Administration's disclosures, South Korean intelligence officials stated that they had information that the Israeli bombing had killed ten North Koreans. U.S. officials said that the Al Kibar reactor was nearly operational at the time of the Israeli bombing. However, non-government nuclear experts questioned that assertion, asserting that there was no evidence of a plutonium reprocessing plant and a facility to produce nuclear fuel for the reactor in Syria. One potential answer to the question of the absence of other reactor-related plutonium facilities in Syria came in reports later in 2008 that Iran also was involved in the Syrian reactor with North Korea and that a plutonium reprocessing plant could be located in Iran. The online service of the German news publication Der Spiegel cited "intelligence reports seen by Der Spiegel " that North Korean and Iranian scientists were working together at the reactor site at the time of the Israeli bombing. Some of the plutonium fuel rod production from the reactor was to have gone to Iran, which viewed the reactor as a "reserve site" to produce weapons-grade plutonium as a supplement to Iran's own highly enriched uranium program. A similar description of North Korean-Iranian cooperation in the Syrian reactor came in two reports from Washington in the Japanese newspaper Sankei Shimbun . The newspaper reported in July 2008 that according to "a source familiar with the Syrian nuclear issue," "a secret Iranian Revolutionary Guards base" in Iran would house a planned plutonium reprocessing facility designed to reprocess nuclear fuel rods from the Syrian reactor. Sankei Shimbun reported in September 2009 that North Korean nuclear technicians had visited Iran to provide technical support for a planned reprocessing installation. The newspaper reported from Washington in July 2008, citing "a source well-informed on the Syrian nuclear issue," that Iranian officials had visited the Syrian reactor in 2005 and 2006. The source named two Iranian visitors to the reactor: Ali Larijani, the chief of Iran's Supreme National Security Council and a delegation led by Mohsen Fakhrizadeh, a senior scientist of the Iranian Ministry of Defense. In March 2009, a Swiss newspaper report cited "a former German defense ministry official" that Iran had financed the construction of the Syrian nuclear reactor. Additional information pointing to North Korean-Iranian collaboration in plutonium nuclear development came from European and Israeli defense and government officials in 2007 and 2008. They stated that North Korea and Iran had concluded a new agreement for North Korea to share data from its October 2006 nuclear test with Iran. The London Daily Telegaph reported that according to a "senior European defense official," a sharing of the data would help Iran prepare for conducting an underground nuclear test in the future. A report of Iranian involvement in North Korea second nuclear test of May 25, 2009, came from Sankei Shimbun 's Washington correspondent, Takashi Arimoto, who cited "an intelligence source who specializes in the situation on the Korean peninsula" that a seven person Iranian delegation had observed the nuclear test and had high level meetings in Pyongyang. The delegation reportedly was made up of officials of the Iranian Revolutionary Guards and the Iranian Atomic Energy Organization. These reports describe a direct collaborative relationship between North Korea and Iran in developing nuclear weapons. Additionally, since the early 1990s, a body of reports has accumulated pointing to a significant collaborative North Korean-Iranian nuclear relationship inside Iran, with North Korea's principal interlocutor being the Iranian Revolutionary Guards (IRGC). Some of these reports cite the Central Intelligence Agency, Western intelligence sources and documents (some probably European), and foreign intelligence officials as sources of information. Other cited sources are European and German defense officials. High ranking Israeli government officials have been cited. A key Los Angeles Times feature on Iran's nuclear program cites a former Iranian intelligence official as a source for information about North Korean involvement. The Japanese newspaper, Sankei Shimbun , often cites sources in Washington, DC, familiar with North Korea. Specific events or factors in the alleged North Korean-Iranian nuclear collaboration often are described in multiple reports. Numerous reports have asserted that the IRGC occupies a leadership role in Iran's nuclear program. A State Department's 2007 Fact Sheet asserted that "the IRGC attempted, as recently as 2006, to procure sophisticated and costly equipment that could be used to support Iran's ballistic missile and nuclear program." Nuclear collaboration reportedly began at the same time North Korea negotiated with the IRGC for cooperation in developing and manufacturing Nodong missiles. The first reports, in 1993 and 1994, said that North Korea and Iran had signed an initial agreement for nuclear cooperation. An Economist Foreign Report cited "CIA sources" that Iran was helping to finance North Korea's nuclear program and that North Korea would supply Iran with nuclear technology and equipment. A report of the U.S. House of Representatives Republican Research Committee claimed that Iran would provide $500 million to North Korea for the joint development of nuclear weapons. The "CIA sources" cited by the Economist Foreign Report mentioned the development of enriched uranium as a goal of the new North Korean-Iranian agreements. The next reported stage in nuclear collaboration, in 2003 and afterwards, appears to have been connected to the reported joint advancement of the program to produce a model of North Korea's Nodong intermediate ballistic missile in Iran. Production of the Nodong in Iran was a main element of the reported North Korean-Iranian agreements of 1993. By 1997, North Korean missile experts were working in Iran with the IRGC to produce the Shahab 3 and Shahab 4 missiles, the Iranian name for the Nodong. Success in developing and testing the Shahab missile reportedly led to a North Korean-Iranian agreement, probably in 2003, to either initiate or accelerate work to develop nuclear warheads that could be fitted on the Shahab missile. Iran was reported to have offered shipments of oil and natural gas to North Korea to secure this joint development of nuclear warheads. The Los Angeles Times, in a major article on Iran's nuclear program, cited "people inside Iran and foreign intelligence officials" that North Koreans were seen at Iranian nuclear facilities in 2003 and that a large number of North Korean nuclear and missile specialists reportedly were in Iran. The Los Angeles Times feature cited "a foreign intelligence official and a former Iranian intelligence officer" that North Korean experts were assisting the Iranians in developing a nuclear warhead that could be fitted on the Shahab-4 missile. The German publication, Der Spiegel , quoted "western intelligence service circles" as describing Iran in 2005 as offering North Korea economic aid if Pyongyang "continues to cooperate actively in developing nuclear missiles for Tehran." The Asia Times and the German publication Taggespiegel , citing information from "German intelligence" and "western intelligence sources," reported that Iranian Revolutionary Guards secret facilities for nuclear research and development had received important equipment from North Korea. In 2006 and 2008, U.S. intelligence officials, the International Atomic Energy Agency, and other diplomatic sources disclosed that Iran was trying to modify the Shahab missile, especially the nose cone, so that it could carry a nuclear warhead. U.S. intelligence officials described this work as part of an Iranian Project 111—"a nuclear research effort that includes work on missile development." In March 2006, Reuters reported "an intelligence report given to Reuters by a non-U.S. diplomat" that described Iran's plans to develop nuclear warheads for the Shahab 3 missile. Two years later, the International Atomic Energy Agency confronted Iran at several 2008 meetings with documents and photographs showing Iranian work in redesigning the nose cone of the Shahab-3 missile in order for it to carry a nuclear warhead. Nuclear experts voiced concern that the North Koreans and Iranians could be using detailed designs for a sophisticated uranium-based nuclear warhead that had been developed by Pakistan's nuclear czar, A.Q. Khan, for the Pakistan Ghauri missile, another missile based on the Nodong missile. The National Council of Resistance of Iran is an exiled opposition group that in 2002 had revealed correctly the existence of secret Iranian nuclear facilities at Natanz and Irak. It issued a report in February 2008 that gave reputed details of North Korean-Iranian collaboration in nuclear warhead development. It alleged that the Iranian Defense Ministry has a secret facility at Khojir on the edge of Tehran, code-named B1-Nori-8500, that is engaged in the development of nuclear warheads for intermediate range ballistic missiles. North Korean specialists were at this facility, according to the National Council. Reportedly, commercial-satellite images showed a system of heavy security at the Khojir site that restricted access to the facilities. Reports in the Israeli press have described Israeli government concern over North Korean-Iranian collaboration. During the Bush Administration's negotiations with North Korea in early 2008 over the contents of the North Korean declaration of its nuclear programs, Israeli advisers to Prime Minister Ehud Olmert were reported to have pressed Bush Administration officials to insist that North Korea admit to its nuclear collaboration with Iran. Israeli President Shimon Peres was reported to have expressed concern over Iran-North Korean nuclear collaboration in a meeting with former U.S. Secretary of State Madeleine Albright on November 5, 2007. When Prime Minister Olmert visited Japan in February 2008, Japanese and Russian press reports cited an aide to the Prime Minister that Olmert would brief Japanese officials on North Korean-Iranian military cooperation, including Israeli information that North Korea had shared data with Iran from its October 2006 nuclear test. The Japanese newspaper Sankei Shimbun reported on March 2, 2009, that North Korean missiles experts had worked with Iranian counterparts in Iran's launch of a satellite on February 2, 2009. Iran's Safir 2 missile, reportedly based on the North Korean Taepodong missile, was launch vehicle for the February 2 satellite. Another form of North Korean-Iranian nuclear collaboration reportedly involved an Iranian project to develop underground bunkers and tunnels for elements of Iran's nuclear program. The project, estimated to have cost hundreds of millions of dollars, included the construction of 10,000 meters of underground halls for nuclear equipment connected by tunnels measuring hundreds of meters branching off from each hall. Specifications reportedly called for reinforced concrete tunnel ceilings, walls, and doors resistant to explosions and penetrating munitions. The IRGC implemented the project. North Korea reportedly participated in the design and construction of the bunkers and tunnels. In early 2005, Myong Lyu-do, a leading North Korean expert on underground facilities, traveled to Tehran to run the program of North Korean assistance. North Korea is believed to have extensive underground military installations inside North Korea. Its collaboration with the IRGC reportedly has involved extensive aid to Hezbollah in constructing underground military installations in Lebanon. (See CRS Report RL30613, North Korea: Terrorism List Removal ) The Japanese newspaper, Sankei Shimbun , reported two visits of high level Iranian officials to North Korea in February and May 2008. The reported cited "a [Washington] source related to the six party talks" that the Iranian delegation included officials of Iran's Atomic Energy Organization and National Security Council. A possible purpose of the visit, according to the source, was to ensure that North Korea would maintain secrecy about its nuclear collaboration with Iran in its negotiations with U.S. Assistant Secretary of State Christopher Hill. North Korea's missile program since the early 1990s has developed on four levels. The first three are types of missiles developed for North Korea's arsenal. North Korea is estimated to have more than 600 Scud missiles with a range of up to 300 miles. Newer versions tested in July 2006 are solid-fuel Scuds, which can be fired quickly, in contrast to liquid-fuel missiles. The range of the Scuds could cover all of South Korea. The second level is the development of intermediate range missiles, where North Korea also has made progress. North Korea is estimated to have deployed 200 and possibly over 300 intermediate-range Nodong missiles. The Nodongs have an estimated range of 900 miles, which could reach most of Japan. North Korea tested both Scuds and Nodongs in July 2009. North Korea reportedly has developed since 2003 a more accurate, longer-range intermediate ballistic missile. This new missile, dubbed the Taepodong X or the Musudan, appears to be based on the design of the Soviet SS-N-6 missile. It is believed to have a range of 1,500 to 2,400 miles, sufficient to reach Okinawa and Guam, the site of major U.S. military bases and thousands of U.S. military personnel and their families and Guamanian U.S. citizens. South Korea's Defense Ministry may have been referring to the Musudan when it states in a report of February 22, 2009, that North Korea had deployed a new medium-range missile with a range of at least 1,800 miles. Evaluations of North Korea's launches of several Scud and Nodong missiles on July 4, 2006, by intelligence agencies of the United States and other governments reportedly have concluded that North Korea has increased the accuracy of these missiles and that the launches displayed the ability of North Korea's command and control apparatus to coordinate multiple launchings of missiles at diverse targets. (For additional information, see CRS Report RS21473, North Korean Ballistic Missile Threat to the United States , by [author name scrubbed].) In contrast, North Korea has failed to develop a workable long-range missile that could reach Alaska, Hawaii, or the U.S. west coast. North Korea attempted a test of the Taepodong II on July 4, 2006, but the first stage of the missile crashed into the Sea of Japan after about 40 seconds. On April 5, 2009, North Korea attempted to test launch a three stage Taepodong II, claiming that the third stage apparently consisting of a satellite. This time, the first and second stages of the missile, dubbed the Unha-2, separated successfully, and the second stage landed more than 3,000 kilometers (1,980 miles) from the launch site in the Pacific Ocean. The third stage allegedly carrying the satellite either did not separate from the second stage, or if it did separate, it landed nearby in the Pacific Ocean. U.S. officials and most independent experts initially judged the test a failure, concluding that the 2009 test was a better performance than the July 2006 test but that North Korea had not mastered key elements of long-range missile technology. If the Unha-2 had been targeted at Anchorage, Alaska, the closest major U.S. target in the 50 U.S. states, the second and third stages would have fallen short by over 1,500 miles. However, subsequent evaluations pointed out that the missile tested in 2009 performed considerably better than the missile tested in 2006. In one lengthy assessment, MIT professor Theodore Postol and David Wright, a physicist at the Union of Concerned Scientists, wrote that the test represented a "significant advance" toward the development of a ballistic missile that could carry a warhead of 1,000 kilograms or more at least 7,000-7,500 and possibly as far as 10,000-10,500 kilometers. Such a range would reach as far as Alaska and Hawaii and possibly the U.S. west coast. Postol and Wright assessed that the main technological adances were the employment of the SS-N-6 as the second stage in the Unha and a duplicate of the Iranian Safir-2 launch vehicle as the third stage The fourth level of North Korea's missile program has been the export of missiles to other countries in the Middle East and South Asia and joint collaboration in the development of missiles with Iran and Pakistan. In the 1990s, North Korea exported Scud and Nodong missiles to Pakistan, Iran, Yemen, Syria, and reportedly Egypt. It entered into joint development programs with both Pakistan and Iran. The collaboration with Iran reportedly has continued in the development of more sophisticated versions of the Nodong (called the Shahab by Iran), the Musudan, and the Iranian Safir-2. Iranian delegations of missile experts and Iranian Revolutionary Guard officials reportedly attended the July 2006 and April 2009 test launches of the Taepong II long range missile. A CIA statement of August 18, 2003, reportedly estimated that North Korea had produced one or two simple fission-type nuclear weapons and had validated the designs without conducting yield-producing nuclear tests. The initial estimate of one or two nuclear weapons is derived primarily from North Korea's approximately 70-day shutdown of the five megawatt reactor in 1989, which would have given it the opportunity to remove nuclear fuel rods, from which plutonium is reprocessed. The U.S. Central Intelligence Agency (CIA) and the Defense Intelligence Agency (DIA) reportedly estimated in 1993 that North Korea extracted enough fuel rods for about 12 kilograms of plutonium—sufficient for one or two atomic bombs. The CIA and DIA apparently based their estimate on the 1989 shutdown of the five megawatt reactor. South Korean and Japanese intelligence estimates reportedly were higher: 16-24 kilograms (Japan) and 7-22 kilograms (South Korea). These estimates reportedly are based on the view that North Korea could have acquired a higher volume of plutonium from the 1989 reactor shutdown and the view of a higher possibility that North Korea removed fuel rods during the 1990 and 1991 reactor slowdowns. Russian Defense Ministry analyses in late 1993 reportedly came to a similar estimate of about 20 kilograms of plutonium, enough for two or three atomic bombs. General Leon LaPorte, former U.S. Commander in Korea, stated in an interview in April 2006 that North Korea possessed three to six nuclear weapons before the 1994 U.S.-North Korean Agreed Framework. Russian intelligence agencies also reportedly have learned of significant technological advances by North Korea toward nuclear weapons production. On March 10, 1992, the Russian newspaper Argumenty I Fakty (Arguments and Facts) published the text of a 1990 Soviet KGB report to the Soviet Central Committee on North Korea's nuclear program. It was published again by Izvestiya on June 24, 1994. The KGB report asserted that "According to available data, development of the first nuclear device has been completed at the DPRK nuclear research center in Yongbyon." The North Korean government, the report stated, had decided not to test the device in order to avoid international detection. Additionally, a number of reports and evidence point to at least a middle-range likelihood that North Korea may have smuggled plutonium from Russia. In June 1994, the head of Russia's Counterintelligence Service (successor to the KGB) said at a press conference that North Korea's attempts to smuggle "components of nuclear arms production" from Russia caused his agency "special anxiety." U.S. executive branch officials have expressed concern in background briefings over the possibility that North Korea has smuggled plutonium from Russia. One U.S. official, quoted in the Washington Times , July 5, 1994, asserted that "There is the possibility that things having gotten over the [Russia-North Korea] border without anybody being aware of it." The most specific claim came in the German news magazine Stern in March 1993, which cited Russian Counterintelligence Service reports that North Korea had smuggled 56 kilograms of plutonium (enough for 7-9 atomic bombs) from Russia. If, as it claims, North Korea reprocessed the 8,000 nuclear fuel rods in 2003 that it had moved from storage at the beginning of that year, North Korea gained an additional 25-30 kilograms of plutonium, according to Dr. Sigfried Hecker in his testimony before the Senate Foreign Relations Committee on January 21, 2004. Dr. Hecker, former director of the Los Alamos Laboratories, had visited North Korea's Yongbyon nuclear complex in January 2004 and since has visited several times. U.S. officials and nuclear experts have stated that this amount of plutonium would give North Korea the potential to produce between four to eight atomic bombs. Nuclear expert David Albright estimated in February 2007 that North Korea had a stockpile of reprocessed plutonium of 28-50 kilograms, enough for between 5 and 12 nuclear weapons. These estimates appear to be based on projections that a country like North Korea would need 6-8 kilograms of plutonium to produce one atomic bomb. The IAEA has had a standard that a non-nuclear state would need about eight kilograms of plutonium to produce an atomic bomb. As stated previously, Dr. Hecker has estimated that if North Korea restarts its plutonium reprocessing plant in 2009, it could reprocess quickly available nuclear fuel rods into enough plutonium to produce one nuclear bomb; and if North Korea restarts the nuclear reactor at Yongbyon, the Yongbyon complex could produce enough plutonium for one nuclear bomb annually. The question of whether North Korea produced additional nuclear weapons with the plutonium that it apparently acquired after 2003 may depend on the degree of success/failure of North Korea's nuclear test of October 2006 and whether North Korea is able to develop a nuclear warhead that could be fitted onto its missiles. Experts believe that any atomic bombs developed likely are similar to the plutonium bomb dropped by the United States on Nagasaki in August 1945. However, North Korea has few delivery systems that could deliver such a bomb to a U.S. or Japanese target. Thus, Pyongyang probably would not produce additional Nagasaki-type bombs but would retain sufficient weapons-grade plutonium until it could use it to produce a nuclear warhead. A key North Korean objective of the May 2009 nuclear test may have been to make technical progress toward development of a nuclear warhead. Statements by U.S. officials reflect an apparent uncertainty over whether North Korea has achieved a warheading capability, and they have not addressed publicly the reports of North Korean-Iranian collaboration in nuclear warhead development. 10/9/06—North Korea announced that it has carried out an underground nuclear test. 2/13/07—The six party governments negotiating over North Korea's nuclear programs announced an agreement for a freeze and disablement of North Korea's nuclear facilities accompanied by energy and diplomatic benefits to North Korea. 6/25/07—A diplomatic deadlock involving $24 million in frozen North Korean funds in a Macau bank, Banco Delta Asia, was ended when U.S.-initiated measures to unfreeze the money and transfer it to North Korea. 7/18/07—The International Atomic Energy Agency announced that nuclear facilities at Yongbyon are shut down in accordance with the freeze provisions of the February 2007 six party nuclear agreement. 10/3/07—The six parties issued a statement to implement the second phase of the February 2007 nuclear agreement, focusing on the disablement of Yongbyon, a North Korean declaration of its nuclear programs, and a U.S. promise to lift economic sanctions on North Korea and remove North Korea from the U.S. list of state sponsors of terrorism. 4/8/08—Assistant Secretary of State Christopher Hill and North Korea's Kim Kye-gwan negotiated an agreement reportedly limiting the information that North Korea would have to provide in a declaration of nuclear programs. 6/26/08—North Korea transmitted a declaration of nuclear programs to China, the chairman of the six party talks. President Bush announced a lifting of economic sanctions on North Korea and an intention to remove North Korea from the U.S. list of state sponsors of terrorism by August 11, 2008. 8/11/08—The Bush Administration announced that it would not remove North Korea from the list of state sponsors of terrorism because Pyongyang rejected U.S. proposals for a verification system of inspections inside North Korea. 10/3/08—Assistant Secretary of State Hill and North Korean officials negotiated an agreement in Pyongyang for a verification system. 4/14/09—North Korea announced that it was withdrawing from the six party talks, citing the statement of the U.N. Security Council criticizing its missile test of April 5, 2009. 5/25/09—North Korea conducted a second nuclear test of a device with an estimated explosive power of four to five kilotons. 6/12/09—The United Nations Security Council approved Resolution 1874, imposing sanctions on North Korea for its nuclear test. 9/04/09—North Korean leader Kim Jong-il pardoned and released two American reporters, held by North Korea since March 2009, after he met with former President Bill Clinton in Pyongyang. CRS Report RL31555, China and Proliferation of Weapons of Mass Destruction and Missiles: Policy Issues , by [author name scrubbed]. CRS Report RL31785, Foreign Assistance to North Korea , by [author name scrubbed]. CRS Report RL33567, Korea-U.S. Relations: Issues for Congress , by [author name scrubbed]. CRS Report RL31696, North Korea: Economic Sanctions , by [author name scrubbed]. CRS Report RS21473, North Korean Ballistic Missile Threat to the United States , by [author name scrubbed]. CRS Report RL33324, North Korean Counterfeiting of U.S. Currency , by [author name scrubbed]. CRS Report RL33709, North Korea's Nuclear Test: Motivations, Implications, and U.S. Options , by [author name scrubbed] and [author name scrubbed]. CRS Report RL34256, North Korea's Nuclear Weapons: Technical Issues , by Mary Beth Nikitin. | Since August 2003, negotiations over North Korea's nuclear weapons programs have involved six governments: the United States, North Korea, China, South Korea, Japan, and Russia. Since the talks began, North Korea has operated nuclear facilities at Yongbyon and apparently has produced weapons-grade plutonium estimated as sufficient for five to eight atomic weapons. North Korea tested a plutonium nuclear device in October 2006 and apparently a second device in May 2009. North Korea admitted in June 2009 that it has a program to enrich uranium; the United States had cited evidence of such a program since 2002. There also is substantial information that North Korea has engaged in collaborative programs with Iran and Syria aimed at producing nuclear weapons. On May 25, 2009, North Korea announced that it had conducted a second nuclear test. On April 14, 2009, North Korea terminated its participation in six party talks and said it would not be bound by agreements between it and the Bush Administration, ratified by the six parties, which would have disabled the Yongbyon facilities. North Korea also announced that it would reverse the ongoing disablement process under these agreements and restart the Yongbyon nuclear facilities. Three developments since August 2008 appear to have influenced the situation leading to North Korea's announcement: the failure to complete implementation of the Bush Administration-North Korean agreement, including the Yongbyon disablement, because of a dispute over whether inspectors could take samples of nuclear materials at Yongbyon; the stroke suffered by North Korean leader, Kim Jong-il, in August 2008; and the issuance by North Korea after January 1, 2009, of a tough set of negotiating positions, including an assertion that the United States must extend normal diplomatic relations prior to any final denuclearization agreement rather than in such an agreement; and that U.S. reciprocity for North Korean denuclearization must be an end of the "U.S. nuclear threat," meaning major reductions of and restrictions on U.S. military forces in and around the Korean peninsula. The Obama Administration reacted to the missile and nuclear tests by seeking United Nations sanctions against North Korea. It secured U.N. Security Council approval of Resolution 1874 in June 2009. The resolution calls on U.N. members to restrict financial transactions in their territories related to North Korean sales of weapons of mass destruction (WMD) to other countries. It also calls on U.N. members to prevent the use of their territories by North Korea for the shipment of WMD to other countries. In December 2009, the Administration sent a special envoy to North Korea in an attempt to secure North Korean agreement to return to the six party talks. North Korea gave a general positive statement regarding six party talks; but it raised other issues, including its proposal for negotiation of a U.S.-North Korean peace treaty, and appeared to seek a continuation of bilateral meetings with the United States. North Korea seemed to moderate its provocative policies in August 2009. It invited former President Bill Clinton to North Korea, where he secured the release of two female American reporters who were taken prisoner by the North Koreans along the China-North Korea border. It also released a South Korean worker at the Kaesong industrial complex in North Korea, whom the North Koreans had arrested in March 2009. A North Korean delegation came to Seoul for the funeral of former South Korean President Kim Dae-jung and met with President Lee Myung-bak. This raised the prospect of renewed U.S.-North Korean negotiations over the nuclear issue, but any future negotiations appear to face daunting obstacles. This report will be updated periodically. |
After several years of increases, the number of unaccompanied alien children (UAC) apprehended at the Southwest border by the Department of Homeland Security's (DHS's) Customs and Border Protection (CBP) peaked at 68,541 in FY2014. Some Members of Congress as well as the Obama Administration have characterized the issue as a humanitarian crisis. The reasons why they migrate to the United States are often multifaceted and difficult to measure analytically. The Congressional Research Service (CRS) has analyzed several out-migration-related factors, such as violent crime rates, economic conditions, rates of poverty, and the presence of transnational gangs. CRS also has analyzed in-migration-related factors, such as the search for economic opportunity, the desire to reunite with family members, and U.S. immigration policies. Some have suggested that the sizable increase in UAC flows in recent years results from a perception of relaxed U.S. immigration policies toward children under the Obama Administration. These critics also cite a 2008 law that treats UAC from contiguous countries differently than those from noncontiguous countries (see the section " Customs and Border Protection "). Unaccompanied alien children are defined in statute as children who: lack lawful immigration status in the United States; are under the age of 18; and are without a parent or legal guardian in the United States or without a parent or legal guardian in the United States who is available to provide care and physical custody. They most often arrive at U.S. ports of entry or are apprehended along the southwestern border with Mexico. Less frequently, they are apprehended in the interior of the country and determined to be juveniles and unaccompanied. Although most are age 14 or older, apprehensions of UAC under age 13 have increased. This report opens with an analysis of UAC apprehension data. It then discusses current policy on the treatment, care, and custody of the population and describes the responsibilities of each federal agency involved with the population. The report then discusses both administrative and congressional actions to deal with the UAC surge in FY2014 and action since then to address possible future surges. Since FY2011, UAC apprehensions increased each year through FY2014: from 16,067 in FY2011 to 24,481 in FY2012 to 38,759 in FY2013 and 68,541 in FY2014 ( Figure 1 ). At the close of FY2014, the Border Patrol had apprehended more UAC than in any of the previous six years and close to four times as many UAC as in FY2011. In FY2015, apprehensions numbered 39,970, a 42% drop from FY2014 apprehensions. At the close of FY2016 they stood at 59,692, roughly 20,000 more than in FY2015, and 9,000 less than the peak of FY2014. During the first two months of FY2017 (October and November, 2016), USBP apprehended 14,128 unaccompanied alien children. As a basis for comparison, apprehensions in the first two months of FY2015 and FY2016 numbered 5,143 and 10,588, respectively Nationals of Guatemala, Honduras, El Salvador, and Mexico account for the majority of unaccompanied alien children apprehended at the Mexico-U.S. border ( Figure 1 ). Flows of UAC from Mexico rose substantially in FY2009 and have fluctuated since then between roughly 11,000 and 17,000. In contrast, UAC from Guatemala, Honduras, and El Salvador increased sizably starting in FY2011 . In FY2009, Mexican UAC accounted for 82% of 19,668 UAC apprehensions, while the other three Central American countries accounted for 17%. By September 30, 2014, those proportions had almost reversed, with Mexican UAC comprising 23% of the 68,541 UAC apprehensions and UAC from the three Central American countries comprising 75%. In FY2015 and FY2016, the percentages of unaccompanied children originating from Mexico were 28% and 20%, respectively. The majority of UAC apprehensions have occurred within the Rio Grande and Tucson border sectors (62% and 11%, respectively, in FY2016). The proportions of UAC who were female or who were under the age of 13 also increased in FY2014, and ORR data on UAC referred to the agency indicate an increase in the female UAC proportion from 23% in FY2012 to 33% in FY2016. Apprehensions of family units (unaccompanied children with a related adult) increased from 14,855 in FY2013 to 68,445 in FY2014, declined to 39,838 in FY2015 and increased to 77,674 in FY2016. In the first two months of FY2017, family unit apprehensions totaled 28,691. Of these apprehended family units in FY2016 and FY2017, 95% originated from Guatemala, El Salvador, and Honduras. Two laws and a settlement most directly affect U.S. policy for the treatment and administrative processing of UAC: the Flores Settlement Agreement of 1997; the Homeland Security Act of 2002; and the Trafficking Victims Protection Reauthorization Act of 2008. During the 1980s, allegations of UAC mistreatment by the former Immigration and Naturalization Service (INS) caused a series of lawsuits against the government that eventually resulted in the Flores Settlement Agreement ( Flores Agreement ) in 1997. The Flores Agreement established a nationwide policy for the detention, treatment, and release of UAC and recognized the particular vulnerability of UAC as minors while detained without a parent or legal guardian present. It required that immigration officials detaining minors provide (1) food and drinking water, (2) medical assistance in emergencies, (3) toilets and sinks, (4) adequate temperature control and ventilation, (5) adequate supervision to protect minors from others, and (6) separation from unrelated adults whenever possible. For several years following the Flores Agreement , criticism continued over whether the INS had fully implemented the drafted regulations. Five years later, the Homeland Security Act of 2002 (HSA; P.L. 107-296 ) divided responsibilities for the processing and treatment of UAC between the newly created Department of Homeland Security (DHS) and the Department of Health and Human Services' (HHS's) Office of Refugee Resettlement (ORR). To DHS, the law assigned responsibility for the apprehension, transfer, and repatriation of UAC. To HHS, the law assigned responsibility for coordinating and implementing the care and placement of UAC in appropriate custody, reunifying UAC with their parents abroad if appropriate, maintaining and publishing a list of legal services available to UAC, and collecting statistical information on UAC, among other responsibilities. The HSA also established a statutory definition of UAC as unauthorized minors not accompanied by a parent or legal guardian. Despite these developments, criticism continued that the Flores Agreement had not been fully implemented. In response to ongoing concerns that UAC apprehended by the Border Patrol were not being adequately screened for reasons they should not be returned to their home country, Congress passed the William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008 (TVPRA, P.L. 110-457 ). The TVPRA directed the Secretary of DHS, in conjunction with other federal agencies, to develop policies and procedures to ensure that UAC in the United States are safely repatriated to their country of nationality or of last habitual residence. The section set forth special rules for UAC from contiguous countries (i.e., Mexico and Canada), allowing such children, under certain circumstances, to return to Mexico or Canada without additional penalties, and directing the Secretary of State to negotiate agreements with Mexico and Canada to manage the repatriation process. The TVPRA mandated that unaccompanied alien children from countries other than Mexico or Canada—along with UAC from those countries who are apprehended away from the border—are to be transferred to the care and custody of HHS and placed in formal removal proceedings. The TVPRA required that children from contiguous countries be screened within 48 hours of being apprehended to determine whether they should be returned to their country or transferred to HHS and placed in removal proceedings. Several DHS agencies handle the apprehension, processing, and repatriation of UAC, while HHS handles the care and custody of UAC. The Executive Office for Immigration Review (EOIR) in the U.S. Department of Justice conducts immigration removal proceedings. CBP apprehends, processes, and detains the majority of UAC arrested along U.S. borders. DHS's Immigration and Customs Enforcement (ICE) physically transports UAC from CBP to ORR custody. ORR is responsible for detaining and sheltering UAC who are from noncontiguous countries and those from contiguous countries (i.e., Canada and Mexico) who may be victims of trafficking or have an asylum claim, while they await an immigration hearing. DHS's U.S. Citizenship and Immigration Services (USCIS) is responsible for the initial adjudication of asylum applications filed by UAC. DOJ's EOIR conducts immigration proceedings that determine whether UAC may be allowed to remain in the United States or must be deported to their home countries. ICE is responsible for returning UAC who are ordered removed from the United States to their home countries. The following sections discuss the role of each of these federal agencies in more detail. The Office of Border Patrol (OBP) and the Office of Field Operations (OFO) are responsible for apprehending and processing UAC that come through a port of entry (POE) or are found at or near the border. UAC that are apprehended between POEs are transported to Border Patrol stations, and if they are apprehended at POEs, they are escorted to CBP secondary screening areas. In both cases, when CBP confirms a juvenile has entered the country illegally and unaccompanied, he or she is classified as a UAC and processed for immigration violations, and the appropriate consulate is notified that the juvenile is being detained by DHS. The Border Patrol apprehends the majority of UAC at or near the border. They also process UAC. With the exception of Mexican and Canadian UAC who meet the criteria discussed below, the Border Patrol has to turn UAC over to ICE for transport to ORR within 72 hours of determining that the children are UAC. Until 2008, the Border Patrol, as a matter of practice, returned Mexican UAC to Mexico. Under this practice, Mexican UAC were removed through the nearest POE and turned over to a Mexican official within 24 hours and during daylight. As mentioned, the TVPRA required the Secretary of Homeland Security, in conjunction with the Secretary of State, the Attorney General, and the Secretary of Health and Human Services, to develop policies and procedures to ensure that UAC are safely repatriated to their country of nationality or last habitual residence. Of particular significance, the TVPRA required CBP to follow certain criteria for UAC who are nationals or habitual residents from a contiguous country (i.e., Canada and Mexico). In these cases, CBP personnel must screen each UAC within 48 hours of apprehension to determine the following: the UAC has not been a victim of a severe form of trafficking in persons and there is no credible evidence that the minor is at risk should the minor be returned to his/her country of nationality or last habitual residence; the UAC does not have a possible claim to asylum; and the UAC is able to make an independent decision to voluntarily return to his/her country of nationality or last habitual residence. If CBP personnel determine the minor to be inadmissible under the Immigration and Nationality Act, they can permit the minor to withdraw his/her application for admission and the minor can voluntarily return to his/her country of nationality or last habitual residence. The TVPRA contains specific safeguards for the treatment of UAC while in the care and custody of CBP, and it provides guidance for CBP personnel on returning a minor to his/her country of nationality or last habitual residence. It also requires the Secretary of State to negotiate agreements with contiguous countries for the repatriation of their UAC. The agreements serve to protect children from trafficking and, at minimum, must include provisions that (1) ensure the handoff of the minor children to an appropriate government official; (2) prohibit returning UAC outside of "reasonable business hours"; and (3) require border personnel of the contiguous countries to be trained in the terms of the agreements. As mentioned, UAC apprehended by the Border Patrol are brought to a Border Patrol facility, where they are processed. In 2008, the agency issued a memorandum entitled "Hold Rooms and Short Term Custody." Since the issuance of this policy, non-governmental organizations (NGOs) have criticized the Border Patrol for failing to fully uphold provisions in current law and the Flores Agreement . Indeed, the DHS Office of Inspector General (OIG) issued a report in 2010 concluding that while CBP was in general compliance with the Flores Agreement , it needed to improve its handling of UAC. The 2010 OIG report, however, did not address whether CBP was in compliance with the TVPRA. As highlighted above, the TVPRA requires CBP personnel to screen UAC from contiguous countries for severe forms of trafficking in persons and for fear of persecution if they are returned to their country of nationality or last habitual residence. At least one NGO that conducted a two-year study on UAC asserted in its report that CBP does not adequately do this nor has it established related training for their Border Patrol agents. ICE is responsible for physically transferring UAC from CBP to ORR custody. ICE also may apprehend UAC in the U.S. interior during immigration enforcement actions. In addition, ICE represents the government in removal procedures before EOIR. Unaccompanied alien children who are not subject to TVPRA's special repatriation procedures for some children from Mexico or Canada (i.e., voluntary departure) may be placed in standard removal proceedings pursuant to INA Section 240. The TVPRA specifies that in standard removal proceedings, UAC are eligible for voluntary departure under INA Section 240B at no cost to the child. ICE is also responsible for the physical removal of all foreign nationals, including UAC who have final orders of removal or who have elected voluntary departure while in removal proceedings. To safeguard the welfare of all UAC, ICE has established policies for repatriating UAC, including returning UAC only during daylight hours; recording transfers by ensuring that receiving government officials or designees sign for custody; returning UAC through a port designated for repatriation; providing UAC the opportunity to communicate with a consular official prior to departure for the home country; and preserving the unity of families during removal. ICE notifies the country of every foreign national being removed from the United States. Implementing a removal order depends on whether the U.S. government can secure travel documents for the alien being removed from the country in question. As such, the United States depends on the willingness of foreign governments to accept the return of their nationals. Each country sets its own documentary requirements for repatriation of their nationals. While some allow ICE to use a valid passport to remove an alien (if the alien possesses one), others require ICE to obtain a travel document specifically for the repatriation. According to one report, the process of obtaining travel documents can become problematic, because countries often change their documentary requirements or raise objections to a juvenile's return. Once the foreign country has issued travel documents, ICE arranges the UAC's transport. If the return involves flying, ICE personnel accompany the UAC to his or her home country. ICE uses commercial airlines for most UAC removals. ICE provides two escort officers for each UAC. Mexican UAC are repatriated in accordance with Local Repatriation Agreements (LRA), which require that ICE notify the Mexican Consulate for each UAC repatriated. Additional specific requirements apply to each LRA (e.g., specific hours of repatriation). The Unaccompanied Alien Children Program in ORR/HHS provides for the custody and care of unaccompanied alien minors who have been apprehended by ICE or CBP or referred by other federal agencies. The TVPRA directed that HHS ensure that UAC "be promptly placed in the least restrictive setting that is in the best interest of the child." The HSA requires that ORR develop a plan to ensure the timely appointment of legal counsel for each UAC, ensure that the interests of the child are considered in decisions and actions relating to the care and custody of a UAC, and oversee the infrastructure and personnel of UAC residential facilities, among other responsibilities. ORR also screens each UAC to determine if the child has been a victim of a severe form of trafficking in persons, if there is credible evidence that the child would be at risk if he or she were returned to his/her country of nationality or last habitual residence, and if the child has a possible claim to asylum. ORR arranges to house the child either in one of its shelters or in foster care; or the UAC program reunites the child with a family member. According to ORR, the majority of the youth are cared for initially through a network of state-licensed, ORR-funded care providers that offer classroom education, mental and medical health services, case management, and socialization and recreation. ORR oversees different types of shelters to accommodate unaccompanied children with different circumstances, including nonsecure shelter care, secure care, and transitional foster care facilities. A juvenile may be held in a secure facility only if he or she is charged with criminal or delinquent actions, threatens or commits violence, displays unacceptably disruptive conduct in a shelter, presents an escape risk, is in danger and is detained for his/her own safety, or is part of an emergency or influx of minors that results in insufficient bed space at nonsecure facilities. The same care providers also facilitate the release of UAC to family members or other sponsors who are able to care for them. The Flores Agreement outlines the following preference ranking for sponsor types: (1) a parent; (2) a legal guardian; (3) an adult relative; (4) an adult individual or entity designated by the child's parent or legal guardian; (5) a licensed program willing to accept legal custody; or (6) an adult or entity approved by ORR. In making these placement determinations, ORR conducts a background investigation to ensure the identity of the adult assuming legal guardianship for the UAC and that the adult does not have a record of abusive behavior. ORR may consult with the consulate of the UAC's country of origin as well as interview the UAC to ensure he or she also agrees with the proposed placement. If such background checks reveal evidence of actual or potential abuse or trafficking, ORR may require a home study as an additional precaution. In addition, the parent or guardian is required to complete a Parent Reunification Packet to attest that they agree to take responsibility for the UAC and provide him/her with proper care. Figure 2 shows both annual UAC apprehensions and annual referrals of unaccompanied children to ORR since FY2008. As expected, a positive relationship exists between the two measures, but in recent years, as children from non-contiguous countries have dominated the share of all UAC apprehensions, the correspondence between apprehensions and referrals has increased. In FY2009, when unaccompanied children from the three Northern Triangle countries comprised 17% of all UAC apprehensions, the proportion of children referred to ORR was 34% of total apprehensions. In FY2016, when unaccompanied children from those countries dominated the flow with 80% of all UAC apprehensions, the proportion referred to ORR was 99%. ORR reports that most children served are reunified with family members. Between FY2008 and FY2010, the length of stay in ORR care averaged 61 days and total time in custody ranged from less than 1 day to 710 days. ORR reported that children spent about 34 days on average in the program as of January 2016. Removal proceedings continue even when UAC are placed with parents or other relatives. As noted above, not all UAC are referred to ORR; for instance, many UAC from contiguous countries voluntarily return home. The sizable increases in UAC referrals since FY2008 have challenged ORR to meet the demand for its services while maintaining related child welfare protocols and administrative standards. These challenges reached a crescendo in January 2016 when a Senate investigation indicated that in FY2014, some UAC who had originally been placed with distant relatives and parentally-approved guardians ended up being forced to work in oppressive conditions on an Ohio farm. The report outlined a range of what it characterized as serious deficiencies related to the safe placement of children with distant relatives and unrelated adults as well as post-placement follow-up. During the Senate Homeland Security Committee hearing that followed, HHS officials acknowledged limitations of their screening and post-placement follow-up procedures for such sponsors. They also reiterated the legal basis for the termination of UAC custody and HHS liability once custody of the unaccompanied minor was handed over to the sponsor. As mentioned, U.S. Citizenship and Immigration Services (USCIS) is responsible for the initial adjudication of asylum applications filed by UAC. If either CBP or ICE finds that the child is a UAC and transfers him/her to ORR custody, USCIS generally will take jurisdiction over any asylum application, even where evidence shows that the child reunited with a parent or legal guardian after CBP or ICE made the UAC determination. USCIS also has initial jurisdiction over asylum applications filed by UAC with pending claims in immigration court, with cases on appeal before the Board of Immigration Appeals, or with petitions under review with federal courts as of enactment of the TVPRA (December 23, 2008). UAC must appear at any hearings scheduled in immigration court, even after petitioning for asylum with USCIS. The Executive Office for Immigration Review (EOIR) within the U.S. Department of Justice is responsible for adjudicating immigration cases and conducting removal proceedings. Generally, during an immigration removal proceeding, the foreign national and the U.S. government present testimony so that the immigration judge can make a determination on whether the foreign national is removable or qualifies for some type of relief from removal (i.e., the alien is permitted to remain in the United States either permanently or temporarily). The TVPRA requires that HHS ensure, to the greatest extent possible, that UAC have access to legal counsel, and it also permits HHS to appoint independent child advocates for child trafficking victims and other vulnerable unaccompanied alien children. EOIR has specific policies for conducting removal hearings of UAC to ensure that UAC understand the nature of the proceedings, can effectively present evidence about their cases, and have appropriate assistance. The policy guidelines discuss possible adjustments to create "an atmosphere in which the child is better able to present a claim and to participate more fully in the proceedings." Under these guidelines, immigration judges should: establish special dockets for UAC that are separated from the general population; allow child-friendly courtroom modifications (e.g., judges not wearing robes, allowing the child to have a toy, permitting the child to testify from a seat rather than the witness stand, allowing more breaks during the proceedings); provide courtroom orientations to familiarize the child with the court; explain the proceedings at the outset; prepare the child to testify; employ child-sensitive questioning; and, strongly encourage the use of pro bono legal representation if the child is not represented. On July 9, 2014, in response to the UAC surge, EOIR issued new guidelines that prioritized unaccompanied children and non-detained families above other cases in the immigration courts and on the same level as detained aliens. On July 18, 2014, EOIR initiated a new case recording system that coincided with its announcement of its revised adjudication priorities. The new system allows EOIR to track legal outcomes of UAC with greater precision. CRS reviewed almost two years of EOIR data covering July 18, 2014 through June 28, 2016. Of the 69,540 UAC who were given Notices to Appear (NTA) by DHS over this period, 55,793 had at least one master calendar ("scheduling") hearing. Of the total cases scheduled, EOIR classified 31,091 as completed. Of the total completed cases, 12,977 resulted in removal orders, of which 11,528 (89%) were issued in absentia , meaning that the UAC had not shown up to the hearing. Of the other total completed cases that did not result in a removal order, 7,799 were terminated, 906 resulted in voluntary departure, 8,846 were administratively closed, and 477 resulted in other administrative outcomes ( Table 1 ). Outcomes varied considerably depending upon whether children received legal representation. Of the 11,781 children without legal representation, 10,394 (or 88.2%) were ordered removed. Of the 19,310 children with legal representation, 2,583 (or 13.4%) were ordered removed. Cases that did not result in a removal order concluded by children having their cases administratively closed or terminated. In 86 cases (0.3% of all initial case completions for this period), children received some form of immigration relief. Generally, the most usual forms of immigration relief for UAC include asylum, special immigrant juvenile status for abused, neglected, or abandoned children who are declared dependent by state juvenile courts and "T nonimmigrant status" for victims of trafficking. The Obama Administration and Congress have both taken action since 2014 to respond to the UAC surge. The Administration developed a working group to coordinate the efforts of the various agencies involved in responding to the issue, temporarily opened additional shelters and holding facilities to accommodate the large number of UAC apprehended at the border, initiated programs to address root causes of child migration in Central America, and requested funding from Congress to deal with the crisis. In turn, Congress considered supplemental appropriations for FY2014 and increased funding for UAC-related activities in ORR and DHS appropriations for subsequent fiscal years. In response to the UAC surge, the Obama Administration announced in June 2014 that it had developed a Unified Coordination Group comprised of representatives from key agencies and headed by the Administrator of the Federal Emergency Management Agency (FEMA), Craig Fugate. The FEMA administrator's role was to "lead and coordinate Federal response efforts to ensure that Federal agency authorities and the resources granted to the departments and agencies under Federal law … are unified in providing humanitarian relief to the affected children, including housing, care, medical treatment, and transportation." From the outset, CBP maintained primary responsibility for border security operations at and between ports of entry and, working with ICE, provided for the care of unaccompanied children in temporary DHS custody. DHS coordinated with the Departments of Health and Human Services, State, and Defense, as well as the General Services Administration and other agencies, to ensure a coordinated and prompt response within the United States in the short term, and in the longer term to work with migrant-sending countries to undertake reforms to address the causes behind the recent flows. In June 2014, DHS initiated a program to work with the Central American countries on a public education campaign to dissuade UAC from attempting to migrate illegally to the United States. To manage the influx of UAC, ORR used group homes operated by nonprofit organizations with experience providing UAC-oriented services (e.g., medical attention, education). HHS also coordinated with the Department of Defense (DOD), which temporarily made facilities available for UAC housing at Lackland Air Force Base in San Antonio, TX, and at Naval Base Ventura County in Oxnard, CA. Arrangements at both sites ended August 2014. To address the legal needs of large numbers of children entering the immigration court system, the Corporation for National and Community Service (CNCS), which administers AmeriCorps, partnered with EOIR to create "Justice AmeriCorps," a grant program that enrolled approximately 100 lawyers and paralegals as AmeriCorps members to provide UAC with legal representation during removal proceedings. DOJ's Office of Legal Access Programs established the Legal Orientation Program for Custodians of Unaccompanied Children (LOPC), the goals of which are "to improve the appearance rates of non-detained children at their immigration court hearings, and to protect children from mistreatment, exploitation, and trafficking by increasing access to legal and other services." In FY2014 the LOPC served over 12,000 custodians for children released from ORR custody. The LOPC operates a national call center that provides scheduling assistance and basic legal information to UAC custodians. Additional Administration initiatives include partnering with Central American governments to combat gang violence, strengthen citizen security, spur economic development, and support the reintegration and repatriation of returned citizens. The Administration also initiated a collaborative information campaign with Central American governments to inform would-be migrants on a variety of issues. As the UAC crisis unfolded in 2014, congressional attention initially focused on whether the various agencies responding to it had adequate funding. As the crisis began to wane, congressional attention shifted to mechanisms to prevent such a surge from reoccurring. In the Obama Administration's original FY2015 budget that was released in March 2014 for the agencies directly responsible for the UAC population (i.e., within ORR and DHS budgets), no funding increases were requested to help address the UAC surge. However, on May 30, 2014, the Office of Management and Budget updated its cost projections for addressing the growing UAC population and requested $2.28 billion for FY2015 for ORR's UAC program and $166 million for DHS for CBP overtime, contract services for care and support of UAC, and transportation costs. On July 8, 2014, the Administration requested a $3.7 billion supplemental appropriation, almost all of which was directly related to addressing the UAC surge, including $433 million for CBP, $1.1 billion for ICE, $1.8 billion for HHS, $64 million for the Department of Justice (DOJ), and $300 million for the Department of State (DOS). On July 23, 2014, Senator Mikulski introduced the Emergency Supplemental Act, 2014 ( S. 2648 ) which, among other provisions, would have provided supplemental funding of $1.2 billion to HHS's Administration for Children and Families' Refugee and Entrant Assistance Program; $320.5 million and $22.1 million, respectively, for CBP and CBP's air and marine operations; and $762.8 million to ICE for transportation and enforcement and removal costs. S. 2648 would have appropriated $124.5 million to DOJ for court activities related to UAC processing, and $300 million to DOS's and the U.S. Agency for International Development's (USAID's) unaccompanied alien-related activities, the same amount the Administration requested. Congress did not pass S. 2648 . In December 2014, the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ) provided nearly $1.6 billion for ORR's Refugee and Entrant Assistance Programs for FY2015, with the expectation that most of these funds would be directed toward the UAC program. In addition, P.L. 113-235 included a new provision allowing HHS to augment appropriations for the Refugee and Entrant Assistance account by up to 10% through transfers from other discretionary HHS funds. In March 2015, the Department of Homeland Security Appropriations Act, 2015 ( P.L. 114-4 ) provided $3.4 billion to ICE for detection, enforcement, and removal operations, including $23.7 million for the transport of unaccompanied children for CBP. The act required that DHS estimate FY2015 UAC apprehensions and the number of necessary agent or officer hours and related costs. It also provided for budgetary flexibility through the optional reprogramming of funds. In its FY2016 budget, the Obama Administration requested contingency funding as well as base funding for several agencies in the event of another surge of unaccompanied children. For ORR's Unaccompanied Children Program (within the Refugee and Entrant Assistance Program), the Administration requested $948 million for base funding (the same as FY2015) and $19 million for contingency funding. Congress met the base funding request but appropriated no monies for contingency funding. For FY2016 DHS funding, the Administration requested $203.2 million in base funding and $24.4 million in contingency funding for CBP for costs associated with the apprehension and care of unaccompanied children. The Administration requested $2.6 million in contingency funding for ICE to be used for transportation costs associated with UAC apprehensions if such apprehensions exceeded those in FY2015. Neither the Senate nor the House committee-reported FY2016 DHS appropriations bills would have funded these requests. For DOJ, the Administration requested an additional $50 million (two-year funding) for EOIR to process UAC. Congress provided CBP with $204.9 million in base funding but not the contingency funding requested. Congress provided ICE with $24.3 million in UAC transportation funding but not the contingency transportation request. For FY2017, within the Administration's $2.185 billion Refugee and Entrant Assistance request, the Administration requested $1,321 million for unaccompanied children that included $1,226 million in base funding and contingency funding which if triggered by larger than expected caseloads, would start at $95 million and expand to $400 million. For UAC operations within DHS, the Administration requested $13.2 million for ICE's Transportation and Removal Program, including $3 million in contingency funding; and $217.4 million for CBP, including $5.4 million in contingency funding. Congress, in turn, has passed two continuing resolutions (CRs) to fund ORR for FY2017. Congress first passed the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017, and the Zika Response and Preparedness Act ( P.L. 114-223 ), which funded ORR from October 1, 2016, through December 9, 2016, at the same level and under the same conditions as FY2016, less an across-the-board reduction of 0.496%. Under the terms of the CR, HHS retained its authority to augment this account by up to 10% using transfers from other HHS accounts. HHS reportedly used this authority to transfer $167 million into the account in November 2016, due to a surge in the UAC caseload. Prior to congressional consideration of a second CR, the Administration requested that any new CR include a provision providing a higher operating level for the Refugee and Entrant Assistance account. This stems from an increased caseload resulting from the growth in the number of unaccompanied children from Central American countries who have been apprehended at the U.S.-Mexico border. The Administration requested funding for the account at an annual rate of $3.874 billion, of which $2.823 billion would be used for unaccompanied children. However, the Administration separately noted that it might be possible to meet caseload demands at a lower level than requested, indicating that at a minimum this would require $500 million for the Refugee and Entrant Assistance account, of which $430 million would be used for unaccompanied children, as well as additional transfer authority in the event of higher than anticipated costs. More recently, Congress passed a second FY2017 CR, the Further Continuing and Security Assistance Appropriations Act, 2017 ( P.L. 114-254 ), which funds most federal agencies through April 28, 2017. The second FY2017 CR generally funds ORR programs at the same level and under the same conditions as in FY2016, minus an across-the-board reduction of 0.1901%. However, this CR also contains a special provision authorizing HHS to transfer additional funds into the Refugee and Entrant Assistance account to support the UAC program under certain circumstances. Specifically, the CR authorizes HHS to transfer $300 million to fund ORR programs dedicated to unaccompanied children as of February 1, 2017. After March 1, 2017, if the UAC caseload for FY2017 exceeds by 40% or more the UAC caseload for the comparable period in FY2016, the CR would appropriate an additional $200 million in new funding. In response to the UAC surge in the spring and summer of 2014, the Administration announced initiatives to unify efforts among federal agencies with UAC responsibilities and to address the situation with programs geared toward unaccompanied children from several Central American countries. Additionally, Congress increased funding for the HHS program responsible for the care of unaccompanied children, and permitted the Secretary of DHS to transfer funds from within a specific CBP and ICE account for the care and transportation of unaccompanied children, among other actions taken. Since FY2014, the Administration has continued to request additional funding for programs geared toward unaccompanied children, and Congress has appropriated for some but not all such requests. Apprehensions of unaccompanied children rose substantially between FY2011 and FY2014 before declining considerably in FY2015. However, the increased number of apprehensions in FY2016 and the most recent apprehension data for the first few months of FY2017 suggest that the flow of unaccompanied children to the United States has not abated. Once in the United States, the number of unaccompanied children who will ultimately qualify for asylum or other forms of immigration relief that may allow them to remain in the United States remains unclear. Many unaccompanied children have family members in the United States, many of whom may not be legally present. Such circumstances raise challenging policy questions that may pit what is in the "best interests of the child" against what is permissible under the Immigration and Nationality Act and other relevant laws. | In FY2014, the number of unaccompanied alien children (UAC, unaccompanied children) that were apprehended at the Southwest border while attempting to enter the United States without authorization reached a peak, straining the system put in place over the past decade to handle such cases. Prior to FY2014, UAC apprehensions were steadily increasing. For example, in FY2011, the U.S. Border Patrol (USBP) apprehended 16,067 unaccompanied children at the Southwest border, whereas in FY2014 more than 68,500 unaccompanied children were apprehended. In FY2015, UAC apprehensions declined 42% to 39,970. At the close of FY2016 they increased to 59,692, roughly 20,000 more than in FY2015, and 9,000 less than the peak of FY2014. During the first two months of FY2017 (October and November, 2016), USBP apprehended 14,128 unaccompanied children. Apprehensions in the first two months of FY2015 and FY2016 were 5,143 and 10,588, respectively. UAC are defined in statute as children who lack lawful immigration status in the United States, who are under the age of 18, and who either are without a parent or legal guardian in the United States or without a parent or legal guardian in the United States who is available to provide care and physical custody. Two statutes and a legal settlement directly affect U.S. policy for the treatment and administrative processing of UAC: the Trafficking Victims Protection Reauthorization Act of 2008 (P.L. 110-457); the Homeland Security Act of 2002 (P.L. 107-296); and the Flores Settlement Agreement of 1997. Agencies in the Department of Homeland Security (DHS) and the Department of Health and Human Services (HHS) share responsibility for the processing, treatment, and placement of UAC. DHS's Customs and Border Protection (CBP) apprehends and detains unaccompanied children arrested at the border. DHS's Immigration and Customs Enforcement (ICE) handles custody transfer and repatriation responsibilities, apprehends UAC in the interior of the country, and represents the government in removal proceedings. HHS's Office of Refugee Resettlement (ORR) coordinates and implements the care and placement of unaccompanied children in appropriate custody. Foreign nationals from El Salvador, Guatemala, Honduras, and Mexico accounted for almost all UAC cases in recent years, especially in FY2014. In FY2009, Mexico accounted for 82% of the 19,688 UAC apprehensions at the Southwest border, while the other three Central American countries accounted for 17%. In FY2014, the proportions had almost reversed, with Mexican nationals comprising 23% of UAC apprehensions and the three Central American countries comprising 77%. In FY2016, Mexican nationals made up 20% of all UAC apprehensions. To address the crisis at its peak in 2014, the Obama Administration developed a working group to coordinate the efforts of federal agencies involved. It also opened additional shelters and holding facilities to accommodate the large number of UAC apprehended at the border. In June 2014, the Administration announced plans to provide funding to the affected Central American countries for a variety of programs and security-related initiatives to mitigate the flow of unaccompanied migrant children. In July 2014, the Administration requested, and Congress debated but did not approve, $3.7 billion in FY2014 supplemental appropriations to address the crisis. For FY2015, Congress appropriated nearly $1.6 billion for the Refugee and Entrant Assistance Programs in ORR, most of which was directed toward the UAC program (P.L. 113-235). For DHS agencies, Congress appropriated $3.4 billion for detection, enforcement, and removal operations, including for the transport of unaccompanied children for CBP. The Department of Homeland Security Appropriations Act, FY2015 (P.L. 114-4) also allowed the Secretary of Homeland Security to reprogram funds within CBP and ICE and transfer such funds into the two agencies' "Salaries and Expenses" accounts for the care and transportation of unaccompanied children. The act also allowed for several DHS grants awarded to states along the Southwest border to be used by recipients for costs or reimbursement of costs related to providing humanitarian relief to unaccompanied children. Congress continued to provide base funding at comparable levels for FY2016, but did not appropriate funds for contingency funding that was requested by the Administration to address potential surges in UAC flows. Congress has passed two continuing resolutions to fund ORR for FY2017 (P.L. 114-223 and P.L. 114-254), both of which maintain funding at levels and conditions comparable to FY2016. For both resolutions, Congress has granted HHS the authority to transfer funds from other HHS budget accounts to address higher than anticipated caseloads. The second CR also contains a special "anomaly" provision authorizing HHS to transfer $300 million to fund ORR programs dedicated to unaccompanied children as of February 1, 2017. After March 1, 2017, if the UAC caseload for FY2017 exceeds by 40% the UAC caseload for the comparable FY2016 period, the CR will appropriate an additional $200 million in new funding. |
This report provides a brief overview of federal law with respect to six selected advertising issues: alcohol advertising, tobacco advertising, the Federal Trade Commission Act, advertising by mail, advertising by telephone, and commercial email (spam). There are numerous federal statutes regulating advertising that do not fit within any of these categories. As random examples, the Federal Food, Drug, and Cosmetic Act (FFDCA) requires disclosures in advertisements for prescription drugs; the Truth in Lending Act governs the advertising of consumer credit; and a federal criminal statute makes it illegal falsely to convey in an advertisement that a business is connected with a federal agency. The Federal Alcohol Administration Act makes it unlawful to engage in interstate or foreign commerce in distilled spirits, wine, or malt beverages, unless such products conform to regulations of the Bureau of Alcohol, Tobacco, Firearms, and Explosives, which is in the Department of the Justice. The act requires that these regulations, among other things, prohibit statements on labels and in advertisements "that are disparaging of a competitor's products or are false, misleading, obscene, or indecent." A 1988 amendment to the act requires that alcoholic beverages sold or distributed in the United States, or to members of the Armed Forces outside the United States, contain a specified health warning label. In 1995, the Supreme Court held unconstitutional a provision of the act that prohibited beer labels from displaying alcohol content unless state law requires such disclosure. The Court found the provision to violate the First Amendment, concluding that, although the government had a legitimate interest in curbing "strength wars" by beer brewers who might seek to compete for customers on the basis of alcohol content, the ban "cannot directly and materially advance" this "interest because of the overall irrationality of the Government's regulatory scheme." This irrationality was evidenced by the fact that the ban did not apply to beer advertisements, and that the statute required the disclosure of alcohol content on the labels of wines and spirits. Federal law does not prohibit the advertising of alcoholic beverages on radio or television, but, since 1936 for radio and 1948 for television, the industry voluntarily refrained from advertising hard liquor on radio or television. On November 7, 1996, however, the Distilled Spirits Council of the United States said that it would lift the ban, but that it had "drawn up 26 guidelines for the industry to follow—guidelines that will avoid a younger audience but also allow this industry to compete more effectively . . . ." The four major television networks announced at the time that they would not air liquor advertisements. Next, in December, 2001, NBC announced that it would accept liquor ads, but imposed 19 rules to govern them, including limiting them to after 9 p.m E.S.T., requiring that actors in them be at least 30 years old, and requiring the liquor companies to run social-responsibility messages on subjects like designated drivers and drinking moderately. Then, in March 2002, NBC announced that it would no longer accept liquor ads. In November 2007, however, WNBC-TV in New York started to run liquor ads. Advertising of tobacco products is restricted by the Federal Cigarette Labeling and Advertising Act, which requires specified warning labels on all cigarette packages distributed in the United States and on all cigarette advertisements within the United States. The warnings must be rotated quarterly in accordance with Federal Trade Commission regulations. The statute also prohibits advertising of cigarettes and little cigars on any medium of electronic communications subject to the jurisdiction of the Federal Communications Commission. This apparently would include radio, and broadcast, cable, and satellite television. In 1996, the Food and Drug Administration (FDA) adopted a final rule restricting the advertising of cigarettes and smokeless tobacco products. The purpose of the final rule "is to establish restrictions on the sale, distribution, and use of cigarettes and smokeless tobacco in order to reduce the number of children and adolescents who use these products . . . ." The rule did not go into effect, however, because a federal court ruled that the FDA lacked the statutory authority to restrict tobacco advertising. The Supreme Court later held that the FDA lacked the statutory authority to regulate tobacco products at all. The FDA final rule would have restricted tobacco advertising in several ways, such as by banning "outdoor advertising for cigarettes and smokeless tobacco, including billboards, posters, or placards . . . within 1,000 feet of the perimeter of any public playground or playground area in a public park, . . . elementary school or secondary school," and permitting other outdoor advertising, and advertising in newspapers, magazines, and periodicals, only in "black text on a white background." It would also have prohibited any manufacturer, distributor, or retailer from sponsoring "any athletic, musical, artistic or other social or cultural event, or any entry or team in any event, in the brand name . . . , logo, motto, selling message, recognizable color or pattern of colors, or any other indicia of product identification identical or similar to, or identifiable with, those used for any brand of cigarettes or smokeless tobacco." On November 23, 1998, attorneys general from 46 states, the District of Columbia, and the five U.S. territories signed an agreement with the major tobacco companies to settle all the lawsuits the states have brought to recover the public health costs of treating smokers. (The four other states—Mississippi, Texas, Florida, and Minnesota—had previously settled.) The settlement had to receive court approval in each state before it took effect, but it did, and it has. It limits tobacco advertising in various ways, including banning the use of cartoons, banning public transit advertising, and limiting billboard and retail-store advertising. Section 5 of the Federal Trade Commission Act is the basic federal statute prohibiting unfair or deceptive advertising. Subsection (a) of section 5 reads: Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful. A 1980 amendment to the FTC Act provides the following: "The Commission shall not have any authority to promulgate any rule in the children's advertising proceeding pending on May 28, 1980, or in any substantially similar proceeding on the basis of a determination by the Commission that such advertising constitutes an unfair act or practice in or affecting commerce." The rule that this amendment foreclosed would have banned television advertising, aimed at children, of foods containing added sugar; the FTC's theory behind the rule was that, because children are unable "to understand the selling purpose of, or otherwise comprehend or evaluate, commercials," such commercials may be unfair even if literally truthful. The 1980 statute allows such a rule only if it is "based upon acts or practices that are 'deceptive'" ; unfairness alone is not adequate. A 1994 amendment to the FTC Act provides that an act or practice is illegal only if it "causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumer or to competition." Section 12 of the act makes it unlawful to disseminate any false advertisement for "foods, drugs, devices, services, or cosmetics." The Federal Trade Commission Act does not provide for lawsuits by individual consumers. Rather, consumers may file complaints with the Federal Trade Commission (FTC), which may take legal action when it deems it appropriate. The Federal Trade Commission Act does not apply to banks, savings and loan institutions, Federal credit unions, common carriers (railroads and airlines), or "persons, partnerships, or corporations insofar as they are subject to the Packers and Stockyards Act of 1921 . . . ." All these entities, and their advertising, are regulated by federal agencies other than the FTC. A federal statute provides that a person who receives in the mail "any pandering advertisement which offers for sale matter which the addressee in his sole discretion believes to be erotically arousing or sexually provocative" may request the Postal Service to issue an order directing the sender to refrain from further mailings to the addressee, and the Postal Service must do so. If the Postal Service believes that a sender has violated such an order, it may request the Attorney General to apply to a federal court for an order directing compliance. This statute applies to any unwanted advertisement, regardless of content. Another section of the statute provides that any person may file with the Postal Service a statement "that he desires to receive no sexually oriented advertisements through the mails." The Postal Service shall make the list available, and "[n]o person shall mail or cause to be mailed any sexually oriented advertisement to any individual whose name and address has been on the list for more than 30 days." If the Postal Service believes that any person is violating this provision, it may request the Attorney General to commence a civil action against such person in a federal district court. Another section of the statute provides that unordered merchandise sent through the mails "may be treated as a gift by the recipient," and the sender may not bill for it. Various other federal statutes prohibit mail fraud and other deceptive mailing practices. In addition, the Federal Trade Commission has adopted a trade regulation rule entitled "Mail or Telephone Order Merchandise," which requires, among other things, that sellers who solicit buyers to order merchandise through the mails or by telephone ship such merchandise within the time the seller states or, if no time is stated, within 30 days after receipt of the order. Where a seller is unable to ship the merchandise within such time, it must offer the buyer the option to cancel the order and receive a prompt refund. In 1999, Congress enacted the Deceptive Mail Prevention and Enforcement Act, P.L. 106-168 , which contains restrictions and requires disclosures with respect to mailed sweepstakes promotions. The Telephone Consumer Protection Act of 1991 makes it illegal to, among other things, "initiate any telephone call to any residential telephone line using an artificial or prerecorded voice to deliver a message," or "use any telephone facsimile machine, computer, or other device to send an unsolicited advertisement to a telephone facsimile machine." Victims of these practices may file a complaint with the Federal Communications Commission and may sue and recover actual monetary damages or $500, whichever is greater, and the court may increase the award up to three times if it finds that the defendant acted willfully or knowingly. The Junk Fax Prevention Act of 2005, P.L. 109-21 , amended the Telephone Consumer Protection Act of 1991 to add the exception, previously promulgated by the FCC, that allows senders who have an established business relationship with a recipient to send unsolicited fax advertisements to that recipient. The 2005 statute also requires senders of fax advertisements to place a clear and conspicuous notice on the first page of every fax informing the recipient of how to opt out of future faxes. The Telemarketing and Consumer Fraud and Abuse Prevention Act, enacted in 1994, required the Federal Trade Commission to "prescribe rules prohibiting deceptive telemarketing acts or practices and other abusive telemarketing acts or practices." Such rules must include: (A) a requirement that telemarketers may not undertake a pattern of unsolicited telephone calls which the reasonable consumer would consider coercive or abusive of such consumer's right of privacy, (B) restrictions on the hours of the day and night when unsolicited telephone calls can be made to consumers, and (C) a requirement that a person engaged in telemarketing for the sale of goods or services shall promptly and clearly disclose to the person receiving the call that the purpose of the call is to sell goods or services and make such other disclosures as the Commission deems appropriate, including the nature and price of the goods and services. The FTC's Telemarketing Sales Rule, adopted pursuant to the Telemarketing and Consumer Fraud and Abuse Prevention Act, prohibits telemarketers from, among other things, calling a person's residence, without the person's prior consent, before 8:00 a.m. or after 9:00 p.m. It also prohibits initiating a call to a person who has previously stated that he or she does not wish to receive a call from the seller or charitable organization, or who has placed his or her telephone number on the "do-not-call" registry maintained by the FTC. On September 23, 2003, a federal district court in Oklahoma held that the FTC does not have the authority to promulgate a national do-not-call registry, but, in response, Congress enacted a law ( P.L. 108-82 (2003)) to ratify that it does. On September 25, 2003, a federal district court in Colorado enjoined implementation of the do-not-call registry on the ground that it violated the First Amendment because it applied only to commercial solicitors and not to other types of speech, such as charitable or political solicitations. The FTC appealed, however, and, on October 7, 2003, the court of appeals granted a stay of the lower court's order, allowing the do-not-call registry to remain in effect pending final resolution of the appeal on the merits. On February 17, 2004, the court of appeals reversed the district court's decision, finding that the do-not-call registry does not violate the First Amendment. The discrimination against commercial solicitors, the court of appeals found, was justified "based on findings that commercial telephone solicitation was significantly more problematic than charitable or political fundraising calls." The Federal Communications Commission also addresses the do-not-call issue; it requires persons who initiate a telephone solicitation to a residential phone number to institute procedures for "maintaining a list of persons who do not wish to receive telephone solicitations made by or on behalf of that person or entity." The Do-Not-Call Implementation Act, P.L. 108-10 (2003), requires the FCC, by September 7, 2003, to "issue a final rule it began on September 18, 2002, under the Telephone Consumer Protection Act (47 U.S.C. 227 et seq.) In issuing such rule, the Federal Communications Commission shall consult and coordinate with the Federal Trade Commission to maximize consistency with the rule promulgated by the Federal Trade Commission (16 CFR 310.4(b))." In addition, more than 20 states have enacted statutes to establish statewide do-not-call registries. The Telephone Disclosure and Dispute Resolution Act of 1992 requires the FTC to prescribe rules "to prohibit unfair and deceptive acts and practices in any advertisement [in any medium] for pay-per-call services." Such rules must require, among other things, that the person offering such services "clearly and conspicuously disclose in any advertisement the cost of the use of such telephone number," and "the odds of being able to receive [any] prize, award, service, or product [offered] at no cost or reduced cost." The CAN-SPAM Act of 2003, P.L. 108-187 , effective January 1, 2004, establishes civil or criminal penalties for various actions related to any "protected computer" (which as defined in section 3 of the statute effectively means any computer). These include accessing a protected computer without authorization and intentionally initiating the transmission of multiple commercial emails, transmitting multiple commercial emails with intent to deceive or mislead recipients, sending a commercial email with header information that is materially false or materially misleading, sending a commercial email that does not contain a functioning return email address or other Internet-based mechanism that a recipient may use to request not to receive future commercial emails from that sender, transmitting a commercial email more than 10 days after receipt of such a request, and initiating a sexually oriented commercial email to a recipient who has not given prior affirmative consent to its receipt, unless the email includes marks or notices prescribed by the Federal Trade Commission. On April 19, 2004, the FTC issued a final rule implementing the CAN-SPAM Act of 2003. It requires, effective May 19, 2004, that commercial electronic email that includes sexually oriented material must "exclude sexually oriented material from the subject heading . . . and include in the subject heading the phrase 'SEXUALLY-EXPLICIT:' in capital letters as the first nineteen (19) characters at the beginning of the subject line." The rule also requires— that the content of the message that is initially viewable by the recipient when the message is opened by any recipient and absent any further actions by the recipient, include only the following information: (i) the phrase "SEXUALLY-EXPLICIT:" in a clear and conspicuous manner; (ii) clear and conspicuous identification that the message is an advertisement or a solicitation; (iii) clear and conspicuous notice of the opportunity of a recipient to decline to receive further commercial electronic mail messages from the sender; (iv) a functioning return electronic mail address or other Internet-based mechanism, clearly and conspicuously displayed, that ... a recipient may use to submit ... a reply ... requesting not to receive future commercial electronic mail messages from the sender ...." | This report provides a brief overview of federal law with respect to six selected advertising issues: alcohol advertising, tobacco advertising, the Federal Trade Commission Act, advertising by mail (including junk mail), advertising by telephone, and commercial email (spam). There are numerous federal statutes regulating advertising that do not fit within any of these categories. As random examples, the Federal Food, Drug, and Cosmetic Act (FFDCA) requires disclosures in advertisements for prescription drugs; the Truth in Lending Act governs the advertising of consumer credit; and a federal criminal statute makes it illegal falsely to convey in an advertisement that a business is connected with a federal agency. |
Justice and Development Party. In November 2002, the Justice and Development Party (AKP), a party with Islamist roots, won 363 out of 550seats in parliament and formed the first single-party government in Turkey in over a decade. (1) Deputyparty leader Abdullah Gul became the first AKP prime minister. He ceded the position to partyleader Recep Tayyip Erdogan in March 2003, after parliament lifted a ban on Erdogan's politicalparticipation and he won a seat in parliament. (2) Gulthen became Deputy Prime Minister and ForeignMinister. Prime Minister Erdogan and the AKP appear to be securely in power and, with its parliamentarymajority, AKP has been able to pass its legislative program. Divisions within the AKP evident onMarch 1, 2003, when parliament rejected a government resolution to approve the deployment of U.S.forces to Turkey to open a northern front against Iraq, have faded. (3) Although AKP's parliamentarygroup is cumbersome, it is not ripe for fissures mainly because of the strength of Erdogan'spersonality and his popularity with the grass roots, and partly because Members enjoy the perquisitesof office. Erdogan's power and charisma are making AKP increasingly similar to traditional Turkishpersonality-dominated political parties. To avoid the short lives of a series of earlier Islamist political parties, the AKP claims thepopular center-right of the political spectrum. Erdogan rejects the Islamist label, preferring to callhimself and his party "conservative democrats." Some of his statements could be part of anAmerican debate regarding church-state relations. For example, he has said, "While attaching importance to religion as a social value, we do not think it right to conduct politics through religion, to attempt to transformgovernment ideologically by using religion.... Religion is a sacred and collective value.... It shouldnot be made a subject of political partisanship causing divisiveness ... to make religion an instrumentof politics and to adopt an exclusionary approach to politics in the name of religion harms not onlypolitical pluralism but also religion itself." (4) The priority that Erdogan and other party leaders give to beginning accession talks with the European Union (EU) aids the AKP's political repositioning. EU reforms and the values theyimpose would pull the entire country to the center and to Western values. For example, the EUrequires equal freedoms for all believers -- for Muslims who are not Sunni and not accepted asMuslim by the AKP's more passionate Islamists, for Christians, Jews, and others who heretoforehave not been treated equally in Turkey. (For more on reforms, see European Union below.) However, Erdogan's attempt to distance AKP from its Islamist roots is undermined when some party officials and Members of Parliament raise issues with religio-political overtones that generatefriction with the secular establishment in the military, political opposition, and elements in themedia. For their part, secularists create discord when acting preemptively to counter real orsuspected signs of encroaching Islamism. There have been many instances of such tension. Headscarves are a major issue. In Turkey, a head scarf can simply be a sign of religious piety or it can bean assertive expression of opposition to secularism. The wearing of head scarves is banned in publicbuildings, such as parliament and universities. The military is particularly sensitive to this matter. On April 23, 2003, armed forces' commanders declined to attend a reception because the Speaker'swife wears a head scarf, and they did not know if she would attend. (She did not.) In August 2003,Chief of Staff General Hilmi Ozkok pointedly did not invite any officials' wives to a reception. InOctober, President Ahmet Necdet Sezer invited wives of all his guests except those of AKP deputieswho might wear head scarves to a Republic Day reception. Even some ardent secularists criticizedthe President's action as divisive. Erdogan refuses to enter this fray, saying that he is waiting for asocial/national consensus to emerge on the issue. He was "saddened" by the President'sdiscrimination, but attended the reception briefly with most members of his cabinet to avoid furthertension. The European Court of Human Rights has ruled, once again on June 29, 2004, that Turkey'sban on wearing head scarves in state schools does not violate freedom of religion, but rathersafeguards the principle of secularism necessary for the protection of the democratic system. (5) There have been other controversies about AKP's supposed "Islamist agenda." Foreign Minster Gul sent a circular to embassies encouraging contact with Turkish non-governmental organizationsabroad, including the National View ( Milli Gorus ), which promotes an Islamic state in Turkey. AnAKP-dominated parliamentary committee voted to add 15,000 new positions in the Directorate ofReligious Affairs, which oversees mosques, reportedly horrifying AKP leaders and defyinggovernment promises to the International Monetary Fund (IMF) of public employment cuts. (6) TheFinance Minister said that no such appointments would be made. (7) Finally, on three occasions, thePrime Ministers (first Gul, then Erdogan) and Defense Minister Vecdi Gonul have expressedreservations about the expulsion of allegedly fundamentalist soldiers from the armed forces atmeetings of the Supreme Military Council (YAS), insisting that those expelled be afforded the rightto judicial review. (8) Of potentially long-term consequence for Turkey's secular identity is education. The most heated disputes involve the AKP's attempts, in October 2003 and May 2004, to have the governmentexert greater control over the Higher Education Board and to allow graduates of religious ( imamhatip ) vocational high schools equal access to universities as those of normal high schools. Opponents viewed the bills as an effort to boost attendance at religious schools or to enable imamhatip graduates to qualify for government positions. Secularists on the Board, in opposition parties,universities, and the Office of the Chief of the General Staff, argued that the initiative was aimed atundermining "the basic principles of the republic," and they denounced it. (9) The prominence of themilitary command in the debate raised concerns about the country's political stability and highlighteddifferences between civil-military relations in Turkey and the rest of Europe at a time when the AKPgovernment is seeking EU accession talks. Some questioned why AKP decided to raise the issueat this time since the military's sensitivities are well known. With municipal elections just over andnational elections years off, AKP's stated rationale of needing to reward grassroots wasunconvincing. President Sezer vetoed the bills, asserting that they were "incompatible with the spiritof the Constitution, which is based on the Ataturk (Mustafa Kemal, founder of the Turkish Republic)principles...." (10) Although it could have overriddenthe vetoes by passing an identical bill again, thegovernment withdrew the bills from consideration. It may resubmit the bill again. Aside from the education bills, Erdogan has generally been politically adroit considering that the Turkish armed forces are the constitutional guarantors of Turkey's secularism and have displacedcivilian governments several times in the past. For example, he acceded to Chief of Staff GeneralHilmi Ozkok's request that the National Security Council (MGK) be headed by a military figure forone more year before it passed to a civilian in August 2004 as required by EU-related reforms. (Formore on the MGK changes, see European Union , below.) Erdogan has benefitted from having themoderate, enlightened, discreet Ozkok as chief of staff. Ozkok consults privately with governmentofficials, voices his opinions at closed National Security Council meetings. At an April 2004 newsconference, he noted that the Turkish Armed Forces "should not be expected to adopt a standregarding every issue or to share everything with the public." (11) Ozkok supports Turkey's EUambitions as the fulfillment of Ataturk's vision of Turkey as a modern, European state, even if thismeans a diminished role for the armed forces and the continuation in office of what the militaryviews as an Islamist government. The imam hatip bill provoked the general to issue rare publiccriticism of a government action. In addition to the military, Erdogan and the AKP often clash with President Sezer, a popular former judge and ardent secularist, who wields his veto power liberally. (12) Sezer's vetoes havedelayed, but not prevented, passage of parts of the government program. He has been moresuccessful in blocking AKP's appointees to the government, many of whom he views asnon-supportive of the secular state. (13) However,the AKP reportedly has placed many of those deniedpresidential approval in government positions not requiring presidential action. March 28, 2004, Municipal Elections. (14) AKPwon 41.6% of the vote in the municipal elections -- a strong showing which exceeded the combinedtotal of 38% of the vote won by its next three rivals. Strikingly, AKP won 57 out of 81 mayoralraces, including 12 out of 15 races in major metropolitan areas. In other words, AKP confirmed itsdominance of the center-right, the most popular segment of the Turkish political spectrum. There are several reasons for AKP's victory: First, its success in sustaining the country's economic stability has created widespread optimism. Second, its steady pursuit of EU membershipis very popular because of people's expectations of economic advancement with accession. (15) Third,its national leaders, including the charismatic Erdogan who spoke in 55 cities, campaignedenergetically and throughout the country. Finally, AKP profited from generally tame, uncriticalmedia coverage of its tenure. AKP also courted its Islamist grassroots by choosing 80% of itsmayoral candidates from the National View movement. The party fielded almost no women mayoralcandidates ostensibly in order to avoid raising the visibility of the controversial head scarf issue. Women who wear head scarves ran for less prominent local assembly seats and won. AKP made noteworthy inroads into opposition Republican People's Party (CHP) strongholds on the Mediterranean and Aegean coasts and into the Kurdish Democratic People's Party (DEHAP)cities in the southeast. The retrogressive, poorly led, center-left CHP nationalistically opposes thegovernment's Cyprus policy and many of its other policies, but has not truly led opposition to them. It made no electoral headway by taking these positions, receiving 18.2% of the vote, down from19.4% in the 2002 national election. This "leftist" party failed to draw the working class and middleclass vote and is now said to be a party of fierce secularists, the upper middle class, and the Alevis,a heterodox sect mixing Turkish customs with Shi'a Islam whose secularism provides shelter fromdominant Sunni Islam. CHP leader Deniz Baykal has kept his position by outmaneuvering partydissidents, not by policy achievements. DEHAP had allied with four small leftist parties to fieldcandidates jointly as the Union of Democratic Forces, but together they polled fewer votes thanDEHAP alone had won in 2002. AKP won 37% of the vote in the southeast. In other words, AKP'sconservatism (or Islamism) trumped Kurdish nationalism. The combined votes of all of the so-called"left" parties fell from 30% in 2002 to 25% in 2004. Nonetheless, the election results failed to herald the demise of the opposition. The center-right True Path Party (DYP) and the far-right Nationalist Action Party (MHP) made comebacks,registering some gains and rising to 10.3% and 10.4% of the vote, respectively, primarily due to theirjingoistic dissent from AKP's compromises on Cyprus. Were this a national election, they wouldhave passed the threshold for entry into parliament. Turkey appears to have recovered from the severe recession of 2000-2001. It achieved economic targets for 2003 set by an International Monetary Fund (IMF)-monitored reform program,including a 5% (5.9%) Gross National Product (GNP) growth rate, an inflation rate of below 20%(18.4%), and a 6.5% budget surplus. The rate of inflation was the lowest in decades, exports grew30% to $48 billion, and interest rates dropped. Targets for 2004 -- a 5% growth rate, 12% rate ofinflation, and 6.5% budget surplus -- are expected to be met. The State Institute of Statistics hasannounced that the GNP growth rate for the first quarter of 2004 was 12.4%, while the rate ofinflation fell to 9.5%. (16) IMF reviews of Turkey'seconomic performance have been complimentary. Yet significant problems remain. Unemployment remains high at more than 12% andunderemployment is probably higher. Imports outstrip exports, despite export growth. The goal ofearning $4 billion in revenues from privatization of state enterprises was not met in 2003, with only$2.2 billion gained, and government expectations of $3 billion in revenues from privatization in 2004are probably unrealistic. In June 2004, the court halted the sale of the Turkish Oil RefineryCorporation (TUPRAS) to a Russian firm for about $1.3 billion. Earlier, the government hadcanceled the sale of the state tobacco monopoly after bids were deemed too low, while protractedpreparations for the sale of 51% of the state telecommunications monopoly (TURK TELECOM)have not been concluded. Moreover, corruption scandals involving the Uzan family, accused ofdefrauding Motorola of billions of dollars, probably have affected sales to Western investors. Despite the effects of privatization difficulties on revenues, the government increased pension payments and the minimum wage, prompting the IMF to seek and obtain offsetting budget cuts andincreases in tax revenues. The IMF continues to encourage Turkey to improve tax administrationto combat tax evasion and to undertake social security reforms, saying such measures would boostpolicy credibility and underpin the success of the reform program. (17) Current arrangements betweenTurkey and the IMF end in February 2005. Officials plan to sign a new three-year stand-byagreement to cover the period 2005-2007. Turkey remains economically vulnerable because its public debt consumed about 75% of gross domestic product (GDP) as of December 2003. Although the ratio of debt to GDP is diminishing,much of the debt is short-term and rolled over at fluctuating interest rates. (18) The need to pay downthe debt, especially the part carrying high interest rates, is the reason for IMF demands a 6.5% budgetsurplus. Turkey relies heavily on borrowing partly because of lack of alternative sources of capital. It has very low foreign direct investment -- only 0.15% of the world's foreign direct investmentinflows in 2002. (19) Foreign investors have beenwary of investing in Turkey because oftime-consuming bureaucratic procedures and problems with transparency and rule of law in businessrelationships. The average time between authorization and investment reportedly is two years. Turkey ranked 77 out of 133 countries on the 2003 Transparency International CorruptionPerceptions Index. (20) In June 2003, parliamentpassed a new foreign investment law to guaranteeequal rights for foreign investors and ease procedures for establishing companies. Investors probablywill monitor implementation of the law before rushing to invest in Turkey. In addition to thesemeasures, the government believes that economic stability resulting from the economic reformprogram and possible accession talks with the EU in 2005 should attract more investors. Kurdistan Workers Party. For a long time, terrorism in Turkey referred mainly to the Kurdistan Workers Party (PKK) and its successor groups. From 1984-1999, the Turkish armed forces fought a war against PKK insurgents (Turkish Kurds)who sought autonomy or independence. The PKK operated mainly in southeast Turkey, althoughit also attacked elsewhere in Turkey and Turkish targets in Europe. The PKK has appeared toflounder since its leader, Abdullah Ocalan, was captured and imprisoned in 1999. In April 2002, the PKK renamed itself the Kurdistan Freedom and Democracy Congress (KADEK), but retained many of the same leaders. In November 2003, KADEK dissolved itself andthe People's Congress of Kurdistan (KONGRA-GEL) was established. KONGRA-GEL claims tobe a purely political organization embracing the Kurds of Turkey, Iraq, Iran, and Syria. ItsConstitution calls for "a durable solution to the Kurdish Question" by "promoting democratic forces"and does not mention independence or autonomy. (21) As the PKK transformed itself into KADEK andKONGRA-GEL, its military wing, the People's Defense Forces, was termed "independent" and didnot dissolve or disarm. Turkish officials and media refer to PKK successor groups jointly with thePKK, e.g., PKK/KADEK or PKK/KONGRA-GEL. On November 14, 2003, the U.S. StateDepartment spokesman said, "The PKK/KADEK, under any alias, is a terrorist organization, and noname change or press release can alter that fact" and, on January 13, 2004, the Departmentdesignated KONGRA-GEL as a Foreign Terrorist Organization. The PKK/KADEK/KONGRA-GEL was relatively inactive as a terrorist group until recently, and its capabilities may be doubted. Although the State Departments and Turkish authorities allegethat about 4,000 PKK members have taken safe haven in northern Iraq, that number dates frombefore Ocalan's capture and, given the possible dispersal of followers since then, the real strengthof the group may be lower or different. (22) Moreover, KONGRA-GEL appeared to suffer a schism in2004 involving Ocalan's brother Osman and others, which may have distracted it from the fight. (23) Another sign of PKK decline may have been apparent in KONGRA-GEL/PKK's support for theUnion of Democratic Forces, which included the Kurdish party DEHAP and performed poorly inthe March 2004 municipal elections. KONGRA-GEL announced that it was ending a five-year unilateral cease-fire on June 1, 2004, and warned foreign investors and tourists against coming to Turkey. There has since been anupsurge in incidents in southeast Turkey, which Turkish officials attribute to the return of militantsfrom northern Iraq. Turkish Kurds in the southeast, benefitting from reforms such as Kurdishlanguage broadcasting and other language and cultural rights, do not want a return to war. Fourformer Turkish Kurdish parliamentarians released from prison in June called for the KONGRA-GELto continue the cease-fire -- an unusual public display of dissent. The PKK remnants may no longer pose a major threat to Turkey. They nonetheless remain an obsession of the Turkish military, which views a PKK with a possibly nonviolent, political agendaas the same as an active terrorist PKK. (24) Thisunchanging view of the PKK is the prism throughwhich much of Turkey's policy toward Iraq is formulated. (See also Iraq , below.) Radical Religious Terrorism. In November 2003, local Turkish terrorists reportedly connected to the Al Qaeda international network perpetrated foursuicide bombings in Istanbul: two targeting synagogues, one the British consulate, and one a localoffice of HSBC, an international bank based in London. Sixty-two people were killed, including theBritish consul, and more than 700 injured. Most of the victims were Turks. All of the suspects wereTurks, and several have been charged with trying to overthrow the constitutional order, i.e., withtreason. Soon after the bombings, Turkish government spokesmen alleged that the terrorists and their associates "appear to be close to Al Qaeda." (25) Some perpetrators reportedly were former membersof the Islamic Great Raiders Front (IBDA-C) and Hezbollah (not affiliated with the Lebanese groupof the same name), which are two domestic fundamentalist terror groups. (26) These operatives weresaid to have trained in Pakistan and Afghanistan in the 1990's, and to have fought in Bosnia andChechnya. (27) They returned to Turkey as"sleepers." (28) Several reportedly had met Al QaedaleaderAyman al Zawahiri, who may have ordered the attacks in Istanbul; one was said to have met Osamabin Laden. Prime Minister Erdogan stated that the attacks had been planned and organized abroad. (29) The attacks marked a significant increase in the operational capabilities of domestic terror groupsand in their financial resources, seeming to confirm assumptions of foreign assistance withintelligence, explosives, and finances. U.S. Ambassador to Turkey Eric Edelman observed that thesophistication of the attacks, the multiple attacks, and their coincidental timing were consistent withthe pattern of previous Al Qaeda attacks. (30) Otheroutside links may have been evident when severalsuspects were captured at the Iranian border and the Syrian government handed over 22 others,although only one of them was charged. A telephone caller to a Turkish news agency claimed jointresponsibility for all four bombings in the name of Al Qaeda and IBDA-C. A group calling itselfAbu Hafs al Masri Brigades, Al Qaeda, (taking the nom de guerre of Mohammed Atef, an Al Qaedaleader killed in Afghanistan in November 2001) made claims of responsibility to Arab media. (31) In June 2004, the government postponed the trial of 69 men charged in connection with the November 2003 bombings because the recently abolished state security courts had not yet beenreplaced. The indictment alleges that some defendants had direct contacts with Osama bin Laden,had trained at Al Qaeda camps in Afghanistan, and had received $150,000 from Al Qaeda to carryout the Istanbul bombings. Cell leaders were said to be still at large. (32) On March 9, 2004, suicide bombers killed two, including one attacker, and injured six others at a Masonic lodge in Istanbul. A statement in the name of Al Qaeda sent to a London-based Arabicnewspaper claimed responsibility. The indictment of the surviving bomber charged that he hadreceived training at a Lashkar e-Tayyiba (LT) camp in Kashmir and had subsequently fought inChechnya. LT may have ties to Al Qaeda. (33) Islamist radicals view the Masons, who have awell-established presence in Turkey, as supporters of the United States and Israel. In May, 25 Turks were arrested simultaneously in Bursa and Istanbul; nine of them were charged with plotting to set off a bomb at the June 28-29 NATO summit in Istanbul and withmembership in an illegal organization. A provincial governor claimed that the suspects included aleader and members of Ansar al Islam, a group linked to Al Qaeda, and described bomb-making andother equipment seized by police. Turkish television reported that some of those arrested hadparticipated in the insurgency in Iraq. (34) In June,four more Al Ansar suspects were detained inIstanbul also in possession of bomb-making materials and charged with belonging to an illegalorganization; two others were released. The idea of Islamist terrorism appears to pose a philosophical dilemma for the AKP. Prime Minister Erdogan has denied that there could be "Islamic terror" and challenged attributions of "qualities such as terrorism to our sacred religion...." (35) He declared that terror is an act of perversiondetached from all beliefs and that Islam "can never be associated with terrorism." (36) A well-knownTurkish commentator suggested that in order for the government to succeed against terroristorganizations, however, it had to identify the target by name and to focus on it resolutely. (37) Heimplied that the AKP could not crack down on Islamist terrorists if it could not recognize theirpossibility. The broad intent of the November 2003 Istanbul bombings was to kill Jews and strike at Britain, a U.S. ally and former regional colonial power. The attacks coincided with President Bush'sstate visit to the United Kingdom, which may or may not have been significant. Turkey also mayhave been the target because of its secular identity, close ties to the West, especially the UnitedStates, membership in NATO, and perceived good relations with Israel. Moreover, it is apredominantly Muslim state led by a party with Islamic roots, which has vowed loyalty to Turkey'ssecular identity and the goal of building a pro-Western democracy. Other. On June 24, 2004, two days before President Bush's arrival in Turkey for an official visit and the NATO summit, bombs exploded in Istanbul and Ankara, killing four and injuring more than 20.A small Marxist-Leninist group claimed responsibility and the police arrested three suspects. (38) The Al Qaeda-linked Abu Hafs al Masri Brigades claimed responsibility on an Islamist website for bombing two hotels and a liquefied natural gas pumping station in Istanbul on August 9, killingtwo and injuring nine. The Abu Hafs statement declared that the bombings were the first in a seriesto in response to the Europeans' "rejection" of Osama bin Laden's offer of a truce. A previouslyunheard of group, the Kurdistan Freedom Hawks, which Turkish authorities suspect is linked to thePKK/KONGRA-GEL, also claimed the act. (39) Thepolice are focusing on the Kurds. Turkey signed an association agreement with the European Community, the precursor to the European Union (EU) in 1963, submitted an application for membership in 1987, and began acustoms union with the EU in 1996. Turkey wants the EU summit in December 2004 to set a datefor accession (membership) talks. The EU reaffirmed Turkey's candidacy for membership in 1999,but Turkey must meet the EU's political and economic criteria for membership before accessiontalks can begin. (41) The Turkish parliament haspassed nine packages of reforms since October 2001-- five since the AKP took office -- to harmonize Turkish laws and Constitution with EUstandards. (42) Among other actions, new lawslegalize Kurdish broadcasting and education, abolishthe death penalty, enhance freedoms of speech and association, and hasten investigations ofallegations of torture and mistreatment of prisoners. A legislative package passed on August 8, 2003 was aimed at answering EU criticism of the lack of adequate civilian control over the military by introducing revolutionary changes incivilian-military relations. It limited the power of the National Security Council (MGK), theinfluential, military-dominated civilian-military government body which traditionally has madebinding security and foreign policy recommendations to the government. The new law downgradesthe MGK to an advisory board, allows a civilian to become its secretary general (although Erdoganagreed that a soldier would hold the position until August 2004), changes the frequency of meetingsfrom monthly to bimonthly, gives authority to follow up decisions to a civilian deputy primeminister, and subjects military expenditures to legislative oversight but not public disclosure. TheMGK budget was cut 60% for FY2004. Subsequent reforms legislated in May 2004 removedmilitary designees from the national broadcasting and higher education boards. If fully implemented,the reforms have the potential to transform Turkey's political system. Another EU priority has been improving the treatment of Turkish Kurds, who constitute about 20% of a population of 70 million. New laws are intended to improve cultural rights. Parliamentalso passed a Reassociation (or Rehabilitation) Law, a limited amnesty, reducing sentences of someprisoners and pardoning others. It did not apply to PKK leaders and expired on February 8, 2004. The PKK denounced the law and demanded a total amnesty. The government was not able toconvince many PKK members to take advantage of the law, and it appears to have benefitted alreadyimprisoned members of other domestic terror groups, such as Hezbollah, IBDA-C, and theRevolutionary People's Liberation Party-Front (DHKP-C), who made more applications for amnestythan did members of the PKK. On June 9, four former Kurdish Members of Parliament, mostprominently Leyla Zana, were released from prison after serving 10 years for membership in aseparatist organization (the PKK), pending appeal. Their case is a cause celebre in Europe and willbe retried in October. Foreign Minister Gul met the four shortly after their release. In November 2003, the European Commission issued its annual progress report assessing Turkey's compliance with the criteria for EU membership. (43) While recognizing significant progress,the report noted many shortcomings in meeting political criteria and in implementing reforms. Similarly the European Council (summit of leaders) in December 2003, called for "further sustainedefforts," to achieve independence of the judiciary, fuller exercise of freedoms of association,expression, and religion, alignment of civil-military relations with European practice, andimprovements in the "situation in the Southeast of the country and cultural rights." Prime MinisterErdogan tasked the Foreign Minister, Justice Minister, and Interior Minister to facilitateimplementation of reforms. A preliminary Council of Europe (COE) report, issued in March 2004, saluted Turkey's progress in human rights, while noting remaining deficiencies and making recommendations on howto address them. In June, the COE dropped Turkey from a list of countries monitored for democraticshortcomings. The COE had removed other EU candidates from monitoring before they beganaccession talks. Then, on April 1, the European Parliament (EP) approved a report which praisedthe "strong motivation and political will" demonstrated by the AKP government in passing"revolutionary" reforms. However, the EP said that reforms could only be judged on the basis ofhow they are put into practice, and repeated criticisms of the role of the military in politics anddeficiencies in human rights practices. The report suggested that Turkey may need a newconstitution to replace the current one which "carried the seal of the authoritarian regime of 1982,"i.e., a military government. (44) Erdogan has lobbied for Turkey's EU accession extensively in Europe. He emphasizes the beneficial effects that entry into the EU of a country that successfully reconciled Islamic culture withdemocracy could have on the EU image in the eyes of the world's 1.5 billion Muslims. Accordingto him, "it would prove that the EU is not a Christian club" (45) and that a compromise of civilizationsis preferable to a clash of civilizations. (46) It is not certain if Turkey will be able to adequately address deficiencies in its implementation of reforms or to overcome the qualms of many Europeans regarding its membership by December.The predominantly Christian member states already face problems integrating Muslim immigrants,and many Europeans blame Muslims for extremism, terrorism, and anti-Semitism. Many Europeansare grappling with issues of identity, and do not believe that Turkey can be European. They disagreewith the U.S. official argument that admitting Turkey might help to spread democracy andmoderation to other Muslim states. Some Europeans know that if populous Turkey enters the EU,it would be more populous than France and soon be larger than Germany, with the right to demandcommensurate clout in EU political bodies. This undoubtedly adds to their doubts. As a sign of thesensitivity of the issue, the European Commission has decided to formally consult all 25 membercountries before issuing its next progress report in October 2004. Although a settlement on Cyprus is not a criterion for EU membership, it is generally understood that Turkey will not be admitted to the EU unless there is a settlement. Without asettlement, Greece and (Greek) Cyprus, both EU members, probably will veto Turkey's accession. However, Greece supports the beginning of accession talks, and the (Greek) Cypriot government hasindicated that it will not veto accession talks if there is a consensus among all other members on theissue. The November 2003 EU progress report declared, "The absence of a settlement could becomea serious obstacle to Turkey's EU aspirations." European Commission President Romano Prodiobserved during his visit to Turkey in January 2004 that while Cyprus is not a precondition toTurkey's entry, "it is a political reality." (48) Cyprus has been divided between Greek and Turkish Cypriots since a 1974 Turkish invasion/intervention (some Turks prefer "peace operation"). Turkish Cypriots administer thenorthern part of the island; Greek Cypriots govern the southern part of the island and are theinternationally recognized government of Cyprus. The United Nations has made repeated efforts toreunify the island. In November 2002, U.N. Secretary General Kofi Annan presented a newsettlement plan and subsequently revised it several times based on comments from the parties. PrimeMinister Erdogan accepted the Annan Plan as the basis for further negotiations. Under pressure dueto his EU aspirations, Erdogan repeatedly asserted that the continuation of no solution on Cyprus isnot a solution, in contrast to former Turkish leaders who had argued that the issue had been settledin 1974. His government was able to make a joint reassessment of policy with the Turkish Cypriotsafter December 14, 2003, parliamentary elections in northern Cyprus brought pro-settlement forcesto power. Erdogan first secured the support of the National Security Council for a new initiative. On January 23, 2004, the Council reiterated "its political determination to rapidly reach a solutionthrough negotiations in line with the realities on the island with the Annan Plan as a reference." (49) On January 24, Erdogan informed Annan that Turkey was ready to resume negotiations with his planas a reference, with the goal of reaching an agreement and holding referenda to approve it beforeMay 1 (when Cyprus was scheduled to join the EU). Erdogan boldly said that if the two sides cannotfill in all the "blanks," then Turkey would allow Annan to fill them in if the Greek Cypriots acceptthat as well. Talks between Greek and Turkish Cypriot leaders on a Cyprus settlement resumed in mid-February. Predictably due to their hard line views, (Greek) Cypriot President TassosPapadopoulos and Turkish Cypriot leader Rauf Denktash failed to agree on revising Annan's plan. Denktash then bowed out of the talks, and Prime Minister Mehmet Ali Talat, who favors asettlement, negotiated for the Turkish Cypriots. The Greek and Turkish Prime Ministers joined theCypriots in consultations with the U.N. in Switzerland. On March 29, Annan presented a revisedplan. Turkey accepted it. The Plan was put to referenda on the island on April 24. The GreekCypriots decisively rejected it with 76% of the vote, while the Turkish Cypriots clearly accepted itwith 65% of their votes. Notwithstanding the outcome, Cyprus entered the EU on May 1, aspreviously scheduled. The Turkish government escaped blame for the failure, which shifted to theGreek Cypriot leadership. Many in the EU no longer view a Cyprus settlement as a precondition forcommencing accession negotiations with Turkey. Other issues have greater bearing on theirdetermination. The Turkish parliament's refusal on March 1, 2003, to authorize the deployment of U.S. forces to Turkey for the purpose of opening a northern front against Iraq jolted the settled U.S. view ofTurkey as a malleable strategic partner. (50) Although widely popular in Turkey as a statement ofnational independence and sign of democratic progress, the vote shook the AKP government whichscrambled to repair the damage to the bilateral relationship. The vote against the U.S. deployment has been attributed to many causes, including alleged U.S. arrogance in deploying ships to Turkish waters before the vote and insulting U.S. mediaportraits of Turkish officials as bazaar merchants bargaining for a higher price. Turkish officials alsohad earlier voiced many concerns about a possible war in Iraq: economic costs, a likely refugeeinflux, the demonstration effect of a possible independent Kurdish state in northern Iraq for TurkishKurdish separatists, possible Kurdish control over oil resources that could support independence, andharm to Turkey's ethnic kin, the Iraqi Turkomen. Many of Turkey's fears about an Iraq war were not realized. Economic costs were minor and transitory. Bilateral trade between Turkey and Iraq is on course to reach pre-war levels. The UnitedStates is purchasing humanitarian and military supplies from Turkish sources, and contracting withTurkish truckers to deliver them. Turkey's tourism and export sectors experienced temporary losses,but recovered quickly, and the IMF program was not derailed. There was no refugee crisis. IraqiKurds claim to have deferred their dream of independence in favor of participating in a federal Iraqistate. They did not take over oil facilities in the north, and are bargaining with other members of theIraqi government over autonomy, revenue-sharing, and other issues. Kurdish-Turkomen tensionshave not been uncontrollable. After the war began, U.S. officials cautioned Turkey against sending more forces into northernIraq, where about 5,000 Turkish troops have been posted for some time to act against PKK remnantsand safe havens. (51) Since then, there have beenproblems between the U.S. and Turkish militaries. On April 22, 2003, U.S. troops arrested Turkish soldiers dressed in civilian clothes who reportedlywere escorting a cargo of weapons hidden in an aid convoy. (52) Then, on July 4, 2003, U.S. troopscaptured 11 Turkish special forces soldiers and others at a Turkish liaison office in Sulaymaniyahin northern Iraq, covered their heads with sacks, and took them to Baghdad, where they were heldfor more than two days. U.S. spokesmen claimed that the action was prompted by reports that theTurks had been planning to assassinate the Kurdish governor of Kirkuk and to weaken the Kurds inthe north through support of the Turkomen. (53) The incident provoked such outrage in Turkey that the personal involvement of Prime Minister Erdogan and Vice President Cheney was needed to dampen it. After a joint military investigation,both sides officially expressed regret that the incident had occurred. (54) To mollify the Turks, U.S.officials reportedly agreed to force PKK guerrillas out of northern Iraq. (55) With their departure,Turkish forces were expected to leave northern Iraq. This U.S. promise has been repeated often, butnot fulfilled. So Turkish troops remain in the north. Bilateral military ties still have not recoveredfrom Sulaymaniyah. At the request of the United States, the Turkish government considered sending peacekeeping troops to Iraq. To convince a skeptical public, Foreign Minister Gul emphasized the peacekeeping,humanitarian, and developmental aspects of the mission. Chief of Staff General Ozkok supportedthe undertaking, noting, "possible instability in Iraq would be bad for Turkey." (56) U.S.-Turkishnegotiations about peacekeeping involved the command, location, and supply routes for Turkishtroops, but the PKK presence in northern Iraq sometimes seemed to be the main subject of the talks. U.S. officials repeated their commitment to deal with the PKK. Meanwhile, a poll in August 2003indicated that 65% of the Turkish public opposed sending troops to Iraq. (57) The August 19, 2003,bombing of the U.N. headquarters in Baghdad aided opponents of a Turkish deployment. U.S. officials did not press for a rapid decision by Ankara as openly as they had before March 1, but Secretary of State Powell and Undersecretary of Defense Wolfowitz lobbied the Turks. (58) TheAmericans reportedly wanted the presence of Muslim peacekeepers to diffuse charges that the UnitedStates is waging a war against Islam. Moreover, they viewed the addition of up to 10,000 Turkishtroops as a way to relieve U.S. forces. On October 7, the Turkish parliament approved a government motion to dispatch an unspecified number of troops to Iraq for one year by a vote of 358 to 183. The opposition CHPvoted as a block against the measure. The motion conveyed several messages: it stressed that Turkeywould take "all necessary measures to clear out PKK-KADEK elements in Iraq and prevent Iraq'sbecoming an asylum for terrorists in the future;" it stated that "protection of Iraqi territorial integrityand its national unity and establishment of a new democratic Iraq ... carry vital importance forTurkey;" and it said that in addition to its security and stability missions, the Turkish army would"improve humanitarian aid and the economic structure." (59) Neither the U.S. nor the Turkish government accurately assessed Iraqi opposition to a Turkish military presence in Iraq. (60) The Iraqi Kurds'antagonism was strongest as they feared that Ankaraintended to use the troops to undermine their autonomy. The Kurds argued that forces fromneighboring countries would bring their own political agenda which could have a destabilizingeffect. (61) The Shi'a also resisted, claiming that theTurkish soldiers would be occupiers, after all theTurks as the Ottoman Empire had controlled the territory that is now Iraq for 400 years, ordisparaging Turks because they are Sunni. Many Iraqis reiterated oft-voiced fears that Turkey seeksto control the oil-rich areas of Mosul and Kirkuk. The Iraqi Governing Council (IGC) reached aconsensus on a statement opposing Turkish troops, but U.S. authorities were said to have preventedits release. (62) As opposition grew in Iraq, it did the same in Turkey. Analysts wrote that Iraq was dangerous, and that Turkish casualties should not replace Americans. They claimed that the U.S. would not giveTurkey a role in determining Iraq's future, and doubted that thinly stretched U.S. forces in Iraq wouldkeep promises to act against the PKK. (63) Turkishofficials publicly sought to discount IGC views,but they were said to be discouraged by the IGC's attitude and by the lack of U.S. influence over theCouncil on the issue. Although U.S. officials in Washington had encouraged Turkey, CoalitionProvisional Authority (CPA) Administrator Paul Bremer suggested that Turkey should discuss itsdeployment with the IGC. Turkey maintained that its interlocutor was the United States. Events unfolded rapidly. On October 14, a suicide bombing at the Turkish Embassy in Baghdad wounded about 15. On October 16, U.N. Security Council Resolution 1511 authorized a"multinational force under unified command," answering questions about the internationallegitimacy of a possible Turkish troop deployment. (64) By the end of October, however, PrimeMinister Erdogan told his parliamentary group, "we are in favor of abandoning the dispatch of troopsinto Iraq under the prevailing circumstances." (65) Turkish officials openly criticized the United States. Foreign Minister Gul observed, "there is a question of incompetence here. At first, they were veryeager and did not want the matter to be delayed, but now they have their doubts. We, for our part,do not do business when there are doubts." (66) The decision not to deploy was announced in Ankara. On November 6, Foreign Minister Gul telephoned Secretary of State Powell to "review the issue of Turkey contributing units to Iraq in lightof the circumstances prevailing currently in Iraq" and said that his government would reconsider theproposal to send troops to Iraq. (67) Turks generallyfelt that the United States had treated themshabbily. Although the peacekeeping issue ended awkwardly, the AKP was spared the sight of and responsibility for body bags returning from Iraq. Since the deployment was unpopular, the party alsoescaped a resulting loss of popularity. The Turkish government has since worked to normalize relations with the Iraqi government by hosting its leaders, expediting aid shipments, and boosting trade. At the Madrid donors' conferencein October 2003, Turkey pledged $50 million in aid for Iraq over five years. Turkey provideselectricity, water, and fuel to Iraq. Nearly 1,000 Turkish businessmen are working in Iraq, andTurkey expects to export over $1.6 billion in goods to Iraq in 2004. However, this goal may bethreatened by terrorists who have kidnaped and murdered Turkish truck drivers in Iraq, demandingthat Turks demonstrate against the United States and stop doing business with U.S. forces. Inreaction, the Turkish trucking association called on its members to stop all deliveries to U.S. forcesin Iraq. The Turkish government is determined to continue to trade with Iraq and says that it is takingmeasures to minimize risks. Ankara granted a major concession to Washington when it approved (without recourse to parliament) a November 28, 2003, U.S. EUCOM request to use Incirlik Air Base for the rotation(transit) of tens of thousands of troops from Iraq between January and April 2004. Half of all U.S.troops rotated traveled via Incirlik. Others traveled through other countries. There still has been no U.S. military action against the PKK/KADEK/ KONGRA-GEL in northern Iraq. On April 29, 2004, U.S. Counterterrorism Coordinator Cofer Black amended earlierU.S. promises when he stated, "The most efficient and effective way to address this is using elementsof diplomacy, to get the community of nations to assist us in this, to use law enforcement, to usefinancial means.... And if we are unable to reach out objective using this spectrum of elements ofstatecraft, we will use military force when is appropriate." (68) On June 18, U.S. Ambassador to TurkeyEric Adelman said that he did not expect a U.S. military operation against the PKK in the nearfuture. (69) On July 9, Deputy Chief of Staff GeneralIlker Basbug observed, "It is clear that the UnitedStates has so far failed to ... live up to expectations." (70) He declared that Turkish troops would notwithdraw from northern Iraq until the PKK is eradicated. During their meeting at the White House on January 28, 2004, President Bush assured Prime Minister Erdogan, "The United States' ambition is for a peaceful country, a democratic Iraq that isterritorially intact," (71) but the two leadersreportedly did not discuss Iraq's governmental structure,Kirkuk, its oil revenues, or the Turkomen. (72) Hence, the Turks were not fully reassured about thefuture of Iraq and how the Administration will handle the Iraqi Kurds, and were troubled when thedraft Iraqi constitution's failed to give Turkomen equal status to Arabs and Kurds and granted theKurds a favorable position in the government. (73) Despite its concerns, Ankara supported the U.S.transfer of political sovereignty to Iraqis on June 28 and welcomed NATO's decision to train Iraq'ssecurity forces. Turkish officials state that the people of Iraq will decide on their form of government, but the Turks openly oppose a federation based on ethnic or religious identity -- "structures that may leadto divisions and breakups in the future." (74) Ambassador Osman Koruturk, Turkey's specialrepresentative to Iraq, said that Turkey would not oppose status granted to the Kurds in an Iraqiconstitution adopted in a future referendum provided that it respects Iraq's territorial integrity. Healso conveyed Turkey's "serious sensitivities" regarding Kirkuk. (75) Turkish arguments are usuallycouched in terms of concern for the Turkomen. Foreign Minister Gul warned against what he termed"faits accomplis and at changing the demographic situation" in the city, although it is not clear whatTurkey could do. (76) As one observed commented,the Kurds seek to enlarge the scope of "theirgeographic, political, and economic sovereignty in the federal structure to be established," whileAnkara seeks to limit it to minimize the harm it might cause to its national interest. (77) So tensionpersists. Ankara thus far has chosen a dialogue with Kurdish leaders and other Iraqi officials as theway to communicate its reservations and uneasiness and to achieve its preferred outcomes. After warming in the 1990s with defense cooperation and fast-growing trade, Turkish-Israeli relations are cooling for several reasons. The Oslo peace process had provided political cover forTurkey to improve relations with Israel in the 1990's; but that process is now all but dead. Meanwhile, the AKP government came to power seeking better relations with Arab and Muslimgovernments. Its attitude toward Israel was prominent in the months before the June 2004 meetingof the Organization of the Islamic Conference (OIC), a solidarity group of 57 countries and otherswith significant Muslim populations in Istanbul. The AKP wanted its policies to be perceived as inline with those of other Muslim countries. Those countries and a majority of Turks were upset byIsrael's actions against Palestinians, its construction of the security barrier in the West Bank, and itsproposed unilateral disengagement from Gaza. Moreover, distancing Turkey from Israel enabledAKP leaders to reassure their political base, which was probably disappointed by the party's failureto win acceptance of head scarves in state institutions and of imam hatip students in universities, oftheir loyalty. It should be noted, however, that criticism of Israel In Turkey is not limited toIslamists. The respected former Foreign Minister Ilter Turkmen, for example, has called forrethinking relations. (79) In a recent Turkish poll,75% of the respondents agreed that "it isunnecessary to cooperate with Israel." (80) At the same time that Turks are outraged by Israel's actions, they have a common interest with neighboring Iran and Syria in opposing a Kurdish state in northern Iraq. All three fear the potentialimpact that such a state could have on their own Kurdish populations. Damascus had produced achange in Ankara's views of it by expelling PKK leader Abdullah Ocalan in 1999, obviatingTurkey's need for Israel to pressure Syria to end its support of the PKK. Meanwhile, Iran iscementing ties with Turkey by conducting operations against the PKK in regions bordering Turkey.Turkey does not view Iran and its reported plans to develop weapons of mass destruction as a threat. Bilateral trade between Turkey and both countries is growing, and high level visits have beenexchanged. In January 2004, Syrian President Bashar al-Asad visited Turkey and, in July, PrimeMinister Erdogan visited Iran. The commonality Turkey has achieved with its neighbors contrasts with its increasing suspicions about Israel's intentions in northern Iraq. It has been suggested that Israel hopes for a"decentralized, weak, and non-threatening Iraq" which the Iraqi Kurds may help them achieve, whileTurkey seeks a strong, predominantly Arab, central government in Baghdad to constrain Kurdishnationalism. (81) Media reports have added toAnkara's distrust of Israeli actions. Most notably, arecent, controversial article by Seymour Hersh in the New Yorker claimed that Israelis are trainingKurdish militias in northern Iraq and running covert operations from there into Kurdish areas of Iranand Syria. (82) Turkish newspapers independentlycharged that Israeli Kurds are buying land fromArabs in northern Iraq with the assistance of Iraqi Kurdish groups and that the Israeli intelligenceagency, Mossad, is present in the region. The reports describe the alleged Israeli land purchases asa threat to Turkomen. (83) Israeli Foreign MinisterSilvan Shalom has said that Israeli businessmenactive in northern Iraq are not acting on behalf of the Israeli government, and stressed that Israel"will not do anything that could undermine Turkey's interests in northern Iraq." (84) The Israeligovernment specifically denied Hersh's report. Foreign Minister Gul publicly accepted the denial. Yet, official Israeli statements are not widely believed in Turkey -- 65% of the respondents in arecent poll asserted that they believe that Israel is supporting the PKK. (85) Turkey may be attempting to conform its foreign policies to those of major European Union members in order to get a date for accession talks. The EU, the largest foreign donor to thePalestinian Authority, is generally critical of Israeli conduct toward the Palestinians. Turkey'srapprochement with Syria and Iran may also appeal to Europeans concerned about instability alongTurkey's borders. Prime Minister Erdogan has taken the lead in criticizing Israel. He condemned Israel's assassination of Hamas leader Shaykh Ahmed Yassin in March 2004; On May 20, he labeled it"practically state terrorism." Turkish officials describe Yassin sympathetically as a "spiritual leader"and "invalid." On May 25, Erdogan asked a visiting Israeli minister, "How is what you are doingdifferent than what the terrorists are doing? They kill civilians, you also kill civilians." He addedthat Israel's actions do not promote peace, and renewed an oft-made offer to mediate between Israeland both the Palestinians and Syria. (86) On May31, Erdogan repeated his criticism of the"assassinations," arguing a government must uphold international law. (87) One day later, Foreign Minister Gul recalled Turkey's ambassador to Israel for consultations. Gul said, "We attach importance to our relations with Israel, but ... we are openly declaring that thepolicy pursued by the Israeli prime minister in the Middle East is wrong." Erdogan subsequentlydenounced what he called Israel's lack of sincerity in talking about evacuating Gaza, whilecontinuing operations there. (88) In an interview withan Israeli newspaper, Erdogan repeated hisaccusation that Israel is "killing people without any consideration -- children, women, the elderly-- razing their buildings ... and there is no way to describe such actions except as 'state terrorism.'" (89) Israelis were particularly offended when Erdogan later charged that "Israel is causing a rise inanti-Semitism in the world." (90) The Israeli government had been circumspect in reacting to the barrage of criticism from Turkey because it values relations with its sole friend in the region. However, the Foreign Ministryresponded on June 13, rejecting Erdogan's "statements and implications." It noted that "Israel is notfighting against stones but against the terror of suicide bombers...." It advised those wishing topromote the peace process to "display a balanced and realistic view of the situation in the area." (91) In June, the Israeli airline El Al cancelled dozens of flights to Turkey ostensibly because Turkish authorities refused requests concerning armed guards on flights and at the Istanbul airport. However, some interpreted the action as a warning to Ankara that 400,000 Israeli tourists, who spendmillions of dollars on vacation in Turkey, could be withheld if relations deteriorate further. (92) OnJune 21, Foreign Minister Shalom warned that Erdogan's remarks were liable to harm the "fabric"of Israeli-Turkish ties and that Israel would not be able to "restrain itself" over a long period of timein light of the recent developments in relations. (93) While levying accusations, Erdogan also noted that Turkey had "positive relations with Israel and will continue so." (94) Turkey's military,political, economic, and commercial ties with Israelcontinue. The recall of the ambassador was brief. Bilateral trade is about $1.7 billion a year, andboth countries want to expand it. The trade balance favors Turkey. (Neither is a major tradingpartner of the other.). Israel is upgrading Turkey's weapons systems, although no new contracts havebeen signed since early 2003. In March 2004, Israel signed a framework agreement to buy 50million cubic meters of water annually from Turkey for 20 years, but the Turkish government hasnot yet authorized Israeli companies to begin work on the project. Agreements signed for Israeliparticipation in the Southeast Anatolia Project (GAP) (95) region similarly have not been implementedbecause, Turkish officials say, of a lack of financial resources. In May, a Turkish company signedan agreement to construct three natural gas power stations in Israel for $800 million On July 14, Israel's Deputy Prime Minister Ehud Olmert visited Turkey to heal relations. He met with President Sezer, Foreign Minister Gul, State Minister Babacan and others, but not withPrime Minister Erdogan. The Prime Minister was on vacation -- which he interrupted to lunch withvisiting Syrian Prime Minister Muhammad Naji al-Itri on July 13. Gul noted that bilateral relationswere in the interests of both countries and "would continue strongly," while Olmert gavereassurances concerning Israel's interest in a unified Iraq, and maintained that "there is no officialor unofficial Israeli presence there, and no attempts are being made to set up a Kurdish state. Israelis opposed to this, and its position in this respect is identical to the U.S. position." (96) Gul reiteratedTurkey's long standing offer to contribute to the Arab-Israeli peace process, but said that he had noplans to visit Israel. Since the AKP came to power, neither Erdogan nor Gul has visited Israel. Erdogan has not met Prime Minister Sharon, although Gul has met Foreign Minister Shalom. Most analysts conclude that, despite difficulties in the relationship, Turkey is still strategically important to the United States. It remains geographically near to crisis areas in the Middle East, theCaucasus, Central Asia, and the Balkans. For over a decade, U.S. and allied planes flew out ofIncirlik Air Base in southeast Turkey to enforce a no-fly zone over northern Iraq. U.S. planes haveflown more than 8,000 flights out of Incirlik in support of Afghan operations. NATO is usingIncirlik to support the International Security Assistance Force (ISAF) in Afghanistan. And, althoughnot using Turkish air bases, U.S. planes flew more than 4,000 flights through Turkish airspace duringthe Iraq war. Since the war, the United States has used Turkish ports and overland routes to resupplycoalition forces in Iraq. Turkey is a source of water, gas, and other supplies for U.S. forces there. Turkey allows the use of Turkish bases, ports, and airports to assist in the reconstruction of Iraq. And, as noted above, thousands of U.S. troops are rotating from Iraq via Incirlik. On June 12, 2003,NATO defense ministers agreed to move NATO's southern air command headquarters from Naplesto Izmir, affirming NATO's growing interest in the east. Turkey's role as a transit route for energy resources from Caucasus and Central Asia is being realized with construction of the long-awaited Baku-Tblisi-Ceyhan oil pipeline and of a gas pipelinefrom Azerbaijan to Turkey, with both pipelines scheduled for completion in 2005. The oil pipelinefrom Iraq to Turkey is considered vital to the revival of Iraq's economy, although the segment in Iraqhas been sabotaged repeatedly. Turkey is closely cooperating with the United States in the war on terrorism. Arrests of Al Qaeda operatives have been made in Turkey as a result of close cooperation between Turkish andU.S. intelligence agencies. (97) After the November2003 bombings in Istanbul, Deputy Secretary ofState Richard Armitage told the Turks, "Our enemy is your enemy.... We are very much closer now,in the wake of this tragedy." (98) Turkey's large army is among the most experienced in the world in peacekeeping. Turkish forces have served in Somalia, Bosnia, Kosovo, Macedonia, East Timor, and led ISAF inAfghanistan from July 2002 to February 2003. (99) Turkey lost several soldiers in Afghanistan, andsome of its civilian workers were kidnaped there. After its period of command, Turkey reduced itsforces in Afghanistan and, as of June 15, 2004, only 161 Turkish soldiers remained there. InNovember 2003, respected former Foreign Minister Hikmet Cetin became NATO's Senior CivilianRepresentative in Afghanistan. In May 2004, Turkey dispatched three helicopters and 56 flight andmaintenance personnel to assist ISAF. Deputy Chief of Staff General Ilker Basbug said that Turkeymay command ISAF again from February to August 2005. Turkey also participates in the U.S.-initiated Southeast Europe Brigade (SEEBRIG), Black Sea Naval Group (BLACKSEAFOR), and provides NATO Partnership for Peace (PfP) training forcountries of the Balkans, Caucasus, and Central Asia. Finally, Turkey is an example of a predominantly Muslim, democratic country at a time when U.S. policy is to encourage democratization in the Muslim world. In this area, Turkish officials echothe U.S. agenda, sometimes with caveats. On May 28, 2003, Foreign Minister Gul delivered alandmark speech at the Organization of the Islamic Conference foreign ministers' meeting inTeheran. He called for the group to act with "a refreshed vision" in which good governance,transparency and accountability would reign, and fundamental rights and freedoms as well as genderequality are upheld. (100) In June 2004, PrimeMinister Erdogan attended the G-8 Summit in SeaIsland, Georgia, as a "democratic partner" for the formal launching of the Broader Middle East andNorth Africa Initiative. Turkish officials have cautioned that reforms should be generated from within societies, not imposed, that the agenda and pace of reform must be decided by each country to suit the needs andsensitivities of its society, that it is a gradual process, and that it cannot be thought of in isolationfrom international problems such as the Arab-Israeli conflict and Iraq. (101) Gul has noted that reformswould not come automatically even if the Arab-Israeli conflict were solved, and urged that they bestarted without delay. He argued that the Islamic world must address both issues. Gul hasacknowledged that Turkish reforms demonstrate that Islam and modernism can be integrated and thatTurkey could not prevent itself from being used as a model. (102) In contrast, Turkish secularists findinappropriate the idea that Turkey should be a model for Islamic countries. President Sezerreportedly lectured President Bush at the NATO summit in June 2004 that "Turkey is a country withpredominantly Muslim population, but it is not an Islamic country ... religion is separated from stateaffairs." (103) U.S. officials have accommodated Turkish language preferences and now refer to Turkey as an "example" or "symbol." President Bush declared that he admired "the example" Turkey "has set onhow to be a Muslim country and at the same time a country which embraces democracy and the ruleof law and freedom." (104) Some observers doubt the sincerity of AKP's commitment to democracy. They question whether behind the party's democratic rhetoric, in the actions of its Islamist elements discussedabove, and in legislation to reduce the power of the secularist military, the party has begun a processthat could transform Turkey into an Islamic republic. (105) Such a transformation, these observersassume, would be contrary to U.S. interests. Opposition to the war in Iraq and U.S. actions against Turkish soldiers at Sulaymaniyah helped to form an unfavorable image of the United States in Turkey. According to a Pew Research Centerpoll conducted in May 2003, 83% of Turks had a somewhat or very unfavorable view of the UnitedStates, while only 15% viewed it positively. A Pew poll in February 2004 indicated improved, butstill negative, perceptions of the United States: 63% of Turks with negative perceptions, compared to 30% with positive ones. (106) The Foundationfor Social, Economic, and Political Research inTurkey (TUSES) reported poll results in March 2004, which found that 52.6% of responding Turksviewed the United States as a danger to the rest of the world, while 86% viewed the U.S. militaryintervention in Iraq as unjustified. (107) Only 6%of the respondents in a Turkish Pollmark Researchpoll later in 2004 "desire to be close to the United States," 60% oppose the U.S. operation in Iraq,while 42% support the resistance and attacks against U.S. forces there. (108) Turkish far-rightnationalists and leftist secular nationalists promote antipathy toward U.S. policies. The Turkish government does not appear to be countering these sentiments. AKP leaders didnot argue that relations with the United States were so important that their repair warranted sendingTurkish peacekeepers to Iraq, among reasons for a possible deployment. While Turkish visitors tothe United States and op-ed articles by Turkish officials in U.S. newspapers inform Americanaudiences of the importance of the bilateral relationship, a survey of the Turkish press indicates thatthe same messages are not delivered at home. In fact, Foreign Minister Gul thanked those who haddemonstrated against President Bush during the NATO summit in June 2004 for helping to securethe release of three Turkish hostages in Iraq, thereby fulfilling a demand of abductors. (109) Theabsence of an AKP government response to anti-Americanism at home has led some to suggest thatWashington should question its sincerity. (110) U.S.-Turkish trade relations have not developed as planned since 2002. A U.S. initiative to create qualifying industrial zones (QIZs) in Turkey as an extension of the U.S.-Israel Free TradeAgreement has not been achieved. (111) Goodsin the zones were to be eligible for tariff-free andquota-free status. Legislation proposed in the 107th Congress would have excluded Turkish textilesand apparel products from the QIZ program, making 49% of Turkey's exports ineligible for theenhanced treatment. Turks were disappointed that the Administration was unwilling to challengechampions of U.S. textile manufacturing and demanded the inclusion of textiles in the QIZs.Administration officials repeatedly reminded their Turkish counterparts that global textile quotas areto be eliminated in January 2005. In April 2004, Turkish State Minister Kursad Tuzmen signaleda change in Turkey's view of QIZs accepting that they might be limited to high-tech products andthereby recognizing that insistence on textiles was impeding development of the QIZs. (112) A U.S.-Turkey Economic Partnership Commission under the co-chairmanship of the U.S. Undersecretary of State for Economic, Business, and Commercial Affairs and the TurkishUndersecretary of the Foreign Ministry has met twice. The U.S. team includes representatives fromTreasury, Commerce, U.S. Trade Representative, Export-Import Bank, Overseas Private InvestmentCorporation, and the Trade and Development Agency. Trade is one subject discussed by thecommission. After the September 11, 2001, attacks, Turkey received $20 million in Foreign Military Financing (FMF) from the Emergency Response Fund set up by P.L. 107-38 , September 18, 2001. On March 19, 2002, Vice President Cheney said that the Administration would provide Turkey with$200 million in Economic Support Funds (ESF) to help address the financial difficulties caused byTurkey's ongoing economic crises "that seriously affect Turkey's ability to contribute to current andfuture U.S. government policy objectives" and $28 million in FMF to help defray the costs ofassuming leadership of the ISAF in Afghanistan. (113) The funds were provided in the FY2002supplemental appropriations approved in P.L. 107-206 , August 2, 2002. For FY2003, the Administration requested $17.5 million in FMF and $2.8 million in International Military Education and Training Funds (IMET), which were appropriated in P.L. 108-7 ,February 20, 2003. As part of the Emergency Wartime Supplemental Appropriations Act, P.L.108-011 , April 16, 2003, Turkey was to receive $1 billion in ESF to support not more than $8.5billion in direct loans or loan guarantees. The Conference Report, H.Rept.108-76 , April 12, 2003,provided that the $1 billion remain available until September 30, 2005. However, the funds may notbe made available if the Secretary of State determines and reports that Turkey is not cooperating withthe United States in Operation Iraqi Freedom, including the facilitation of humanitarian assistanceto Iraq, or has unilaterally deployed troops into northern Iraq. The President will determine the termsand conditions for issuing the assistance, and should take into consideration budgetary and economicreforms undertaken by Turkey. Under the terms of a loan agreement signed by the United States andTurkey on September 22, 2003, the loan will mature in 10 years and have a four-year grace periodfor repayment. Funds may be disbursed in four equal installments over 18 months; none have beendisbursed so far. Minister of State Babacan has said that they are not needed, while Prime MinisterErdogan suggests that "the political condition" that Congress attached to the loan is the reason thatthe funds have not been drawn down. For FY2004, the Administration requested $50 million in FMF and $200 million in ESF. There were no economic or military assistance earmarks for Turkey in the Consolidated AppropriationsAct, P.L. 108-199 , January 23, 2004, and, in FY2004, Turkey will receive an estimated $40 millionin FMF, $99,410,000 in ESF, and $5 million in IMET. (114) For FY2005, the Administration has requested $50 million in ESF, $34 million in FMF, and $4 million in IMET. H.Rept. 108-599 , July 13, 2004, for H.R. 4818 , the ForeignOperations Appropriations Act for FY2005, passed on July 15, calls for a $50 million reduction inassistance for Turkey, noting that $1 billion appropriated in P.L. 108-011 remains unexpended. H.R.4818, Sec. 578 would prohibit use of funds made available to Turkey to lobby against H.Res. 193 , which would reaffirm support for the Genocide Convention (and mentionthe Armenian genocide). State Department spokesman Richard Boucher has said that theAdministration opposes the measure. House leaders have observed that the provision is not neededbecause law already prohibits use of U.S. aid for lobbying and said that they will insist that confereesdrop it. House Speaker Dennis Hastert, Majority Leader Tom DeLay, and Majority Whip Roy Bluntissued a statement declaring, "Turkey has been a reliable ally of the United States for decades, andthe deep foundation upon which our mutual economic and security relationship rests should not bedisrupted by this amendment." (115) | Prime Minister Recep Tayyip Erdogan and his Justice and Development Party (AKP) remain popular and have a firm hold on power in Turkey. The AKP is trying to recast itself from anIslamist-rooted party to a centrist "conservative democratic" party. Although some AKP actions fuelsecularist suspicions of a hidden Islamist agenda, the high priority that the party gives to attainingEuropean Union (EU) membership may mitigate fears about its intentions and support its centristambitions. The government remains focused on the economy. With the aid of the International MonetaryFund (IMF), it has undertaken major macroeconomic reforms, achieved solid growth, and reducedinflation. The IMF has reviewed the government's economic performance positively and is expectedto approve a new three-year stand-by agreement for 2005-2007. The government also has been challenged by terrorism and is dealing with both Kurdish terrorism, a radical religious terrorist threat with possible international links, and remnants of leftistterrorism. In order to obtain a date to begin accession talks with the European Union (EU), the Turkish parliament has passed many reforms to harmonize Turkey's laws and Constitution with EUstandards. The EU is expected to scrutinize implementation of the reforms carefully before settinga date for accession talks. The situation on Cyprus is not expected to affect EU decision-making. U.S.-Turkish relations were shaken on March 1, 2003, when the Turkish parliament rejected a resolution to allow the deployment of U.S. troops to Turkey to open a northern front against Iraq. Bilateral ties have been strained by other developments in Iraq. The Turkish parliament's October2003 decision to authorize the deployment of Turkish peacekeepers to Iraq helped to improve ties,even though the offer was not accepted. However, Turkey continues to be concerned about thesituation in Iraq and U.S. actions there, which fuel anti-Americanism. Turkey remains important to the United States. Turkish air bases were used in the Afghan war and its airspace in the Iraq war. Its ports, airbases, and roads are used to resupply coalition forcesand for reconstruction efforts in Iraq. U.S. troops rotate to and from Iraq via Turkey. Turkey willbe an important transit route for pipelines carrying energy resources from the Caucasus and CentralAsia to the West, and the often sabotaged oil pipeline from Iraq to Turkey could be helpful to Iraq'srecovery. Turkish and U.S. intelligence agencies are cooperating closely in the war on terrorism. Turkish peacekeepers have served in many hot spots in support of U.S. policies, and commandedthe International Security Assistance Force (ISAF) in Afghanistan. Finally, some U.S. officials andanalysts believe strongly that Turkey, as a predominantly Muslim, democratic country, could serveas an example to others. |
Taiwan, which officially calls itself the Republic of China (ROC), is an island democracy of 23 million people located across the Taiwan Strait from mainland China and north of the Philippines. Since January 1, 1979, the U.S. relationship with Taiwan has been unofficial, a consequence of the Carter Administration's decision to establish diplomatic relations with the People's Republic of China (PRC) and break formal diplomatic ties with self-ruled Taiwan, over which the PRC claims sovereignty. At the time, both the PRC and the ROC insisted that the United States could have diplomatic relations with only one of them. The Taiwan Relations Act (TRA, P.L. 96-8 ; 22 U.S.C. 3301 et seq.), enacted on April 10, 1979, provides a legal basis for the unofficial U.S.-Taiwan relationship. It also includes commitments related to Taiwan's security. Long-standing issues for U.S. policy, including for Congress, include how to balance support for Taiwan's democracy, prosperity, and security with the U.S. interest in peace and stability across the Taiwan Strait and the desire for constructive relations with the PRC, whose global influence continues to grow. Congress has shown a strong interest in executive branch implementation of the Taiwan Relations Act, including executive branch decisions related to arms sales to Taiwan, which are called for by the Taiwan Relations Act, and other security-related support for Taiwan. Over the decades since 1979, many Members have pressed the executive branch to ease self-imposed U.S. restrictions on contacts with Taiwan officials and representatives, which they consider to be inappropriate for a former treaty ally that has evolved to become a flourishing democracy, the United States' tenth-largest merchandise trading partner, and its second largest customer for Foreign Military Sales. Congress has also shown a strong interest in helping Taiwan break out of the international isolation imposed on it by the PRC, by, for example, supporting Taiwan's efforts to participate in international organizations. Before his inauguration, President Donald J. Trump had signaled that he might seek a closer relationship with Taiwan than his immediate predecessors. On December 2, 2016, then-President-elect Trump spoke by telephone with Taiwan's President Tsai Ing-wen, making him the first incoming or incumbent U.S. president known to speak with a Taiwan president during the era of unofficial relations. In a December 11, 2016, Fox News interview, President-elect Trump appeared to question the U.S. "one-China" policy, under which the United States recognizes the PRC as "the sole legal Government of China" and maintains only unofficial relations with Taiwan, while also honoring commitments in the Taiwan Relations Act. In a February 9, 2017, telephone call with PRC President Xi Jinping, however, President Trump recommitted the United States to its "one-China" policy. The United States has a strong interest in the relationship between Taiwan and the PRC. With the landslide victory of President Tsai and her traditionally China-skeptic Democratic Progressive Party (DPP) in Taiwan's January 2016 elections, Taiwan's relations with the PRC entered a new, less stable, era. Mindful of the views of her supporters, Tsai has declined to embrace the position that Taiwan and mainland China are both parts of "one China," although she has not refuted it either. The PRC has ratcheted up pressure on her to endorse the concept, which her predecessor from the Kuomintang (KMT) party, Ma Ying-jeou, had accepted with caveats. The PRC has suspended communications mechanisms across the Taiwan Strait, established diplomatic relations with three countries that previously recognized Taiwan, pressured host countries to force Taiwan's unofficial representative offices to change their names, blocked Taiwan's participation as an observer at international meetings, stepped up deployments of the PRC military near Taiwan, reduced the number of mainland Chinese tourists visiting Taiwan, demanded that other countries return Taiwan citizens accused of crimes to the PRC, rather than Taiwan, and, for the first time, tried a Taiwan activist on charges of attempted subversion of the PRC state. After Taiwan's most significant diplomatic partner, Panama, switched recognition to the PRC in June 2017, President Tsai declared, "Coercion and threats will not bring the two sides closer. Instead, they will drive our two peoples apart." She said that Taiwan "will never surrender to such intimidation." Taiwan was originally settled by Austronesian peoples (also called "aboriginals") about 6,000 years ago. Approximately 500,000 of their descendants live on Taiwan today. Dutch traders arrived in 1623 and established a settlement on the southwest coast. The Dutch East India Company administered most of Taiwan until 1661. The Spanish maintained settlements in northern Taiwan from 1626 to 1642. Migration from the Chinese mainland to Taiwan continued throughout. In 1661, Zheng Chenggong, also known as Koxinga, led a force of more than 25,000 men from the Chinese mainland to Taiwan. They expelled the Dutch and established a civil administration in opposition to China's Qing Dynasty rulers. Zheng died in 1662. His son continued the struggle against the Qing until his death in 1681. The Qing established control over Taiwan in 1683. In 1895, at the end of the First Sino-Japanese War (1894-1895), the Qing Dynasty ceded Taiwan to Japan in the Treaty of Shimonoseki. Taiwan remained a Japanese colony for 50 years, until the end of World War II. The Republic of China, which was founded on January 1, 1912 on mainland China and led by the Kuomintang Party (KMT), assumed control of Taiwan on October 25, 1945, also known as "Retrocession Day." In February 1947, residents of Taiwan staged an uprising against KMT rule. KMT forces put down the unrest by force, at the cost of as many as 28,000 lives, in what is now known as the February 28 or "2-28" Incident. In December 1949, after losing a civil war on mainland China to the forces of the Communist Party of China (CPC), the KMT moved the seat of the ROC across the Taiwan Strait to Taipei, Taiwan. An estimated 1.5 million to 2 million Chinese fled with the KMT to Taiwan. Families whose forebears arrived in Taiwan with the KMT in the 1940s are known in Taiwan today as "mainlanders." Ethnic Chinese whose forebears lived on the island before the arrival of the KMT are known as "Taiwanese." On Taiwan, the KMT administered decades of authoritarian one-party rule. In May 1948, while still based on mainland China, the ROC National Assembly adopted "Temporary Provisions Effective During the Period of National Mobilization for Suppression of the Communist Rebellion," suspending many of the freedoms outlined in the ROC constitution. The National Assembly imposed martial law on Taiwan on May 20, 1949. Martial law remained in effect for 38 years, until July 15, 1987, when President Chiang Ching-Kuo lifted it in the last year of his life. The move ended military censorship and the trial of citizens by military courts and opened the way for political liberalization. Taiwan legalized the formation of political parties in 1989 with passage of the Law on the Organization of Civic Groups. The DPP, founded in September 1986 with strong support from native Taiwanese, claims credit for a major role in "toppling the KMT's one-party dictatorship." The National Assembly formally cancelled the "Temporary Provisions" in 1991. Taiwan held its first direct election for the Legislative Yuan, Taiwan's parliament, in December 1992. It held its first presidential election in 1996. Chen Shui-bian of the DPP was Taiwan's first non-KMT president, serving two terms from 2000-2008. Ma Ying-jeou of the KMT served two terms from 2008 to 2016.Taiwan presidents are limited to two four-year terms. In January 2016 elections, the DPP won both the presidency and, for the first time, control of the legislature. The DPP describes itself as "the party of democracy, freedom, human rights, and a strong Taiwanese identity," the latter in contrast to the KMT, with its roots in mainland China. Long after the retreat to Taiwan, the KMT continued to vow to re-take mainland China. In 1971, however, United Nations General Assembly Resolution 2758 recognized the PRC's representatives as "the only legitimate representatives of China to the United Nations," and expelled "the representatives of Chiang Kai-shek," the ROC's then-President. (See " The United Nations and Its Specialized Agencies ," below.) Since canceling the related "Temporary Provisions" in 1991, the ROC government has claimed "effective jurisdiction" only over Taiwan, the archipelagos of Penghu, Kinmen (also known as Quemoy), and Mazu (also known as Matsu), and a number of smaller islands. ROC sovereignty claims also include disputed islands in the East China Sea and South China Sea. Nomenclature for Taiwan is highly contested. The government of Taiwan officially calls itself the Republic of China (ROC). To distinguish the ROC from the PRC, official government websites in Taiwan often use the name, "Republic of China (Taiwan)." Taiwan's ruling party, the Democratic Progressive Party, consider s the "Republic of China" name to have been imposed on Taiwan by the KMT , which assumed control of Taiwan in 1945, when the Japanese gave up their colonial rule of the island . A revision of the DPP' s Party Charter in 1991 called for the establishment of a "Republic of Taiwan." President Tsai, however, regularly uses the name, "Republic of China." The PRC maintains that the ROC ceased to exist when the PRC was established. Beijing refers to the government of Taiwan as the "Taiwan authorities," and to the President of Taiwan as "the leader of the Taiwan authorities." Beijing has effectively blocked Taiwan from using the ROC name internationally. In the World Trade Organization, Taiwan is the "Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu," also known as "Chinese Taipei." In many other international fora, Taiwan is "Chinese Taipei." U.S. executive branch policy is to use the name "Taiwan" instead of "Republic of China" or "Republic of China on Taiwan"; to refer to Taiwan as an "area" or "economy," rather than a "country"; and to refer to the "Taiwan authorities," rather than to the Taiwan "government." The U.S. Congress' most significant legislation related to Taiwan, the 1979 Taiwan Relations Act, refers to Taiwan's government as, "the governing authorities on Taiwan recognized by the United States as the Republic of China prior to January 1, 1979." Multiple pieces of legislation since then, however, have referred to Taiwan as the "Republic of China" or the "Republic of China on Taiwan." In recent years, legislation has increasingly referred to Taiwan simply as "Taiwan." The Legislative Branch is not subject to executive branch rules on how to refer to Taiwan. Taiwan's central government consists of the Office of the President and five government branches, known as "yuan." The president serves as head of state and commander of the armed forces. Descriptions of the five yuan follow. The Executive Yuan , headed by a premier appointed by the President, is Taiwan's cabinet. Members include the vice premier, ministers, chairpersons of commissions, and ministers without portfolio. T he Legislative Yuan is Taiwan's unicameral parliament, with 113 members, all elected for four-year-terms with no term limits. In the January 2016 election, the DPP won 68 seats, ending the KMT's previously unbroken control of the body. The KMT won 35 seats, the New Power Party five seats, the People's First Party (PFP) 3 seats, the Non-Partisan Solidarity Union (NPSU) 1 seat, and an independent candidate who caucuses with the DPP 1 seat. T he Judicial Yuan oversees Taiwan's judiciary. T he Examination Yuan administers Taiwan's civil service system, including standards for employment, salaries, and benefits. T he Control Yuan , which includes the National Audit Office, monitors government expenditures and investigates allegations of wrongdoing by public servants or agencies. An ongoing debate in Taiwan about constitutional reform includes discussion of whether Taiwan should abolish the Examination Yuan and the Control Yuan, whose functions are often portrayed as relatively narrow. Taiwan's top leaders are listed below, with their family names preceding their given names. President Tsai Ing-wen , 61, took office on May 20, 2016. In the January 2016 elections, she won 56% of the vote in a three-way race. Her inauguration marked the third transfer of presidential power from one party to another through a peaceful electoral process since Taiwan began holding direct presidential elections in 1996. She serves concurrently as chair of the DPP. President Tsai was born in 1956, trained as a lawyer in Taiwan, earned a master's degree in law from Cornell University in 1980 and a Ph.D. in law from the London School of Economics and Political Science in 1984, with a specialization in international trade law and competition law. She served as a law professor at universities in Taiwan from 1984 to 2000. Tsai began her public service career while still teaching law. From 1992 to 2000, she served as Chief Legal Advisor to Taiwan's negotiating team for its bid to join the General Agreement on Tariffs and Trade (GATT), the predecessor organization to the World Trade Organization (WTO). Taiwan gained WTO membership in 2002. From 1994 to 1998, she also served as Senior Advisor to Taiwan's Mainland Affairs Council, and from 1999 to 2000 as a Senior Advisor to President Lee Teng-hui's National Security Council. Transitioning to full-time government service, Tsai served as Chair of Taiwan's Mainland Affairs Council under President Chen Shui-bian from 2000 to 2004. Tsai joined the Democratic Progressive Party (DPP) in 2004 and won election to Taiwan's parliament, the Legislative Yuan, where she served from 2004 to 2006. She served as Vice Premier under President Chen from 2006-2007. Tsai first won election to be chair of the DPP from 2008 to 2012, and regained the chairmanship in 2014. She is Taiwan's first female president and also, according to her official biography, "the first female head of state in Asia who was not born into a political family." Her family ran an auto repair shop. Public support for Tsai appears to have fallen off sharply since her inauguration. In August 2017, the Taiwanese Public Opinion Foundation's monthly public opinion poll found 29.8% of respondents approved of her leadership, the lowest percentage of her time in office so far. Respondents were particularly critical of her handling of judicial reforms and a major infrastructure development project. Vice President Chen Chien-jen , 66, is a noted epidemiologist who received a Doctor of Science degree in epidemiology and human genetics from Johns Hopkins University in 1982. Vice President Chen's prior public service includes positions as Minister of the National Science Council (2006-2008), Minister of Health (2003-2005), a post he took over at the height of the 2003 Severe Acute Respiratory Syndrome (SARS) outbreak on the island, and Vice President of Academica Sinica, Taiwan's most prestigious research institution (2011-2016). In his official biography, Chen describes himself as a devout Catholic who has had audiences with Pope John Paul II, Pope Benedict XVI, and Pope Francis. Chen is a political independent. Premier Lai Ching-te (William Lai) , 57, tra ined as a physician and holds a master's degree in public health from Harvard University. Often described as a political rival of President Tsai, h e served 11 years as a DPP legislator and a subsequent seven years , from 2010 to 2017, as mayor of the city of Tainan before Tsai appointed him p remier on September 5, 2017. Questioned about the relationship between the two sides of the Taiwan Strait in his first appearance before the Legislative Yuan, Lai set off a political firestorm by stating , "We are a sovereign independent country. Our name is the Republic of China. The two sides of the Strait are not subordinate to each other. That is the real relationship at present." Lai is President Tsai's second premier . His predecessor, Lin Chuan, a political independent, resigned on September 4, 2017. Legislative Yuan S peaker Su Jia-chyuan , 60, is the first non-KMT member to serve as Speaker of Taiwan's parliament. He was previously the DPP's Secretary-General. Su served earlier in his career as Chairman of Taiwan's Council of Agriculture, Minister of the Interior, and as a legislator from Pingtung County for two terms, from 1992 to 1997. The United States terminated diplomatic relations with Taiwan on January 1, 1979, and established diplomatic relations with the PRC. At the time, both Taiwan and the PRC insisted that countries could only have relations with one of them, not both. Since the break in diplomatic relations, the United States has maintained a highly unusual relationship with Taiwan, one that is extensive and vibrant but also officially "unofficial" and low profile. With no precedent for such a relationship with a security partner and major trading partner, U.S. policymakers have long improvised rules for how the unofficial relationship with Taiwan should differ from the official relationships that the United States maintains with diplomatic partners. Those rules, which are not negotiated with Beijing, have evolved over time. In its management of Taiwan policy, the executive branch has sought to assure the PRC that the United States is upholding its commitments to the PRC and is not conferring "officiality" on the U.S.-Taiwan relationship. At the same time, it has sought to demonstrate to Taiwan and Taiwan's supporters in the United States that it is honoring the Taiwan Relations Act, which includes security commitments related to Taiwan. The executive branch has also sought to portray itself as responsive to calls from Members of Congress and others for the United States to accord Taiwan the dignity and respect that many believe Taiwan deserves for its democratic and economic achievements. A core goal of U.S. policy has been the preservation of peace and stability in the Taiwan Strait, seeing it as central to the security of Asia. To achieve that goal, the United States has long opposed unilateral changes in the status quo by either the PRC or Taiwan. Since 1998, U.S. officials have explicitly stated that the United States does not support Taiwan independence, though they do not say that the United States opposes it. A series of U.S. commitments related to Taiwan underpin the U.S.-Taiwan relationship. The executive branch's shorthand for those commitments, in the words of a senior Trump Administration official, is that the United States adheres to "our one-China policy that's based on the three joint communiqués with China, as well as the Taiwan Relations Act." The United States concluded joint communiqués with the PRC in 1972, 1978, and 1982, all with key provisions related to Taiwan. The first two communiqués paved the way for the establishment of diplomatic relations between the United States and China on January 1, 1979. As executive decrees, the three joint communiqués do not have the force of law. In a 1972 joint communiqué, known as the Shanghai Communiqué, the Nixon Administration declared that the United States "acknowledges that all Chinese on either side of the Taiwan Strait maintain there is but one China and that Taiwan is a part of China. The United States Government does not challenge that position." It added that the United States, "reaffirms its interest in a peaceful settlement of the Taiwan question by the Chinese themselves." In a 1978 joint communiqué on the establishment of U.S.-PRC diplomatic relations, the Carter Administration stated that the United States "recognizes the People's Republic of China as the sole legal Government of China." The Administration reserved the right to maintain unofficial relations with Taiwan by stating, "Within this context, the people of the United States will maintain cultural, commercial, and other unofficial relations with the people of Taiwan." Revising the language in the Shanghai Communiqué, the 1978 communiqué also states that, "The Government of the United States of America acknowledges the Chinese position that there is but one China and Taiwan is part of China." The 1982 joint communiqué begins with a summary of the 1978 joint communiqué, stating that in that document, the United States "recognized the Government of the People's Republic of China as the sole legal Government of China, and it acknowledged the Chinese position that there is but one China and Taiwan is part of China. Within that context, the two sides agreed that the people of the United States would continue to maintain cultural, commercial, and other unofficial relations with the people of Taiwan." The heart of the 1982 joint communiqué is commitments related to arms sales to Taiwan. The communiqué states that, "the United States Government understands and appreciates the Chinese policy of striving for a peaceful resolution of the Taiwan question." In that context, the communiqué states that the United States "does not seek to carry out a long-term policy of arms sales to Taiwan, that its arms sales to Taiwan will not exceed, either in qualitative or in quantitative terms, the level of those supplied in recent years since the establishment of diplomatic relations between the United States and China, and that it intends gradually to reduce its sale of arms to Taiwan, leading, over a period of time, to a final resolution." The PRC argues that by agreeing to the language in the three joint communiqués, the United States agreed that Taiwan is a part of China, a position that the PRC's government sees as being at the heart of the "one China" policy that it demands of its diplomatic partners. Many U.S. commentators, including prominent retired U.S. officials, assert that the United States acknowledged China's position that Taiwan is part of China, but did not commit to that being the U.S. position, leaving the U.S. position on Taiwan's status as part of China ambiguous. On April 10, 1979, 100 days after terminating diplomatic relations with Taiwan, President Carter signed into law the Taiwan Relations Act ( P.L. 96-8 , U.S.C. 3301 et seq.), including security commitments that Congress added to the Carter Administration's original draft of the legislation. Key provisions of the TRA include: Relations with Taiwan shall be carried out through the American Institute in Taiwan (AIT), a non-profit corporation. It is U.S. policy "to consider any effort to determine the future of Taiwan by other than peaceful means, including by boycotts or embargoes, a threat to the peace and security of the Western Pacific area and of grave concern to the United States." It is U.S. policy "to maintain the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan." The United States "will make available to Taiwan such defense articles and defense services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability." "The president is directed to inform the Congress promptly of any threat to the security or the social or economic system of the people on Taiwan and any danger to the interests of the United States arising therefrom. The President and the Congress shall determine, in accordance with constitutional processes, appropriate action by the United States in response to any such danger." "Whenever the laws of the United States refer or relate to foreign countries, nations, states, governments, or similar entities, such terms shall include and such laws shall apply with respect to Taiwan." The Taiwan Relations Act does not require the United States to come to Taiwan's defense in the case of a potential attack from China, but leaves open the possibility that the United States might do so, creating a policy often referred to as "strategic ambiguity." The policy is intended to deter the PRC from attacking Taiwan and to deter Taiwan from taking actions that might provoke a PRC attack. Executive Order (E.O.) 13014, issued by President Clinton on August 15, 1996, directs how the executive branch should implement the Taiwan Relations Act. Entitled "Maintaining Unofficial Relations with the People on Taiwan," the executive order's stated purpose is "to facilitate the maintenance of commercial, cultural and other relations between the people of the United States and the people on Taiwan without official representation or diplomatic relations ... ." E.O. 13014 superseded E.O. 12143, issued by President Carter on June 22, 1979, which had the same title and stated purpose. President Clinton's E.O. 13014 delegates to the Secretary of State all functions that the Taiwan Relations Act confers on the President, unless otherwise delegated to other agencies or reserved to the President in the order. The E.O. authorizes the Secretary of State to re-delegate his authority. In 1982, a month before the release of the third joint communiqué with the PRC, President Ronald Reagan communicated to Taiwan's then-President Chiang Ching-kuo what have come to be known as "the Six Assurances." The executive branch has never made public the text of the assurances relayed to President Chiang. Appearing before the House and Senate immediately after the issuance of the joint communiqué with China, however, a senior Reagan Administration official included in his prepared statements a set of assurances that corresponded to a version of "the Six Assurances" made public by Taiwan's Ministry of Foreign Affairs. As relayed to Congress, the assurances were: [In negotiations with the PRC,] " ... we did not agree to set a date certain for ending arms sales to Taiwan"; " ... [W]e see no mediation role for the United States" [between Taiwan and the PRC]; " ... [N]or will we attempt to exert pressure on Taiwan to enter into negotiations with the PRC"; " ... [T]here has been no change in our longstanding position on the issue of sovereignty over Taiwan"; "We have no plans to seek" [revisions to the Taiwan Relations Act; and] [the August 17 Communiqué,] "should not be read to imply that we have agreed to engage in prior consultations with Beijing on arms sales to Taiwan." Executive branch officials have generally only occasionally mentioned "the Six Assurances" in public statements. In September 2017, however, Acting Assistant Secretary of Defense for Asian and Pacific Security Affairs David Helvey provided a summary of U.S. policy that appeared to include the Six Assurances as a central element: "Our policy toward Taiwan is founded on the Taiwan Relations Act of 1979 and the three joint U.S.-China communiques, and is guided by the Six Assurances." Congress has long sought to elevate the profile of "the Six Assurances" in the U.S.-Taiwan relationship, with a focus on assurances that the United States did not agree to set an end date for arms sales to Taiwan or to engage in prior consultations with Beijing on arms sales to Taiwan. The first time a U.S. government body publicly issued a full written text for the Six Assurances was in the 114 th Congress, in H.Con.Res. 88 and S.Con.Res. 38 , both of which were passed by their respective chambers. The concurrent resolutions affirmed the TRA and the Six Assurances as "cornerstones of U.S.-Taiwan relations." On September 27, 1994, then-Assistant Secretary of State for East Asian and Pacific Affairs Winston Lord, testified to Congress on the results of a two-year-long Taiwan Policy Review. According to Lord's testimony, the review concluded that "it would be a serious mistake" to introduce "what China would undoubtedly perceive as officiality in our relations with Taiwan." Lord said that President Clinton had, however, decided to adjust the U.S. attitude toward Taiwan's participation in international organizations. Henceforth, Lord testified, "Recognizing Taiwan's important role in transnational issues, we will support its membership in organizations where statehood is not a prerequisite, and we will support opportunities for Taiwan's voice to be heard in organizations where its membership is not possible." That remains U.S. policy today. The Taiwan Policy Review also led to changes in the ways that U.S. and Taiwan officials engaged with each other, and in the name of Taiwan's representative office. For more information about the implications of the policy review for exchanges between U.S. and Taiwan officials, see " Interactions Between U.S. and Taiwan Officials ," below. On a visit to Shanghai in the PRC on June 30, 1998, President Bill Clinton told a roundtable of scholars that in his meetings with Chinese leaders, "I had a chance to reiterate our Taiwan policy, which is that we don't support independence for Taiwan, or 'two China's,' or 'one Taiwan, one China,' and we don't believe that Taiwan should be a member in any organization for which statehood is a requirement." President Clinton's statement came to be known as the U.S. "Three No's" policy on Taiwan. Nearly two decades later, it remains U.S. policy to state that the United States does not support Taiwan independence. Although PRC officials sometimes inaccurately quote U.S. officials as saying that the United States opposes Taiwan independence, U.S. policy is for officials to state only that the United States does not support it. It also remains U.S. policy to state that the United States does not believe Taiwan should be a member of any organization for which statehood is a requirement. Executive branch statements in recent years have tended not to repeat the second "no," that the U.S. does not support "two China's" or "one Taiwan, one China." In a September 13, 2017 update to the page on its website on U.S.-Taiwan Relations, the State Department summarizes U.S. policy in these terms: The United States and Taiwan enjoy a robust unofficial relationship. The 1979 U.S.-P.R.C. Joint Communiqué switched diplomatic recognition from Taipei to Beijing. In the Joint Communiqué, the United States recognized the Government of the People's Republic of China as the sole legal government of China, acknowledging the Chinese position that there is but one China and Taiwan is part of China. The Joint Communiqué also stated that the people of the United States will maintain cultural, commercial, and other unofficial relations with the people of Taiwan. The American Institute in Taiwan (AIT) is responsible for implementing U.S. policy toward Taiwan. The United States does not support Taiwan independence. Maintaining strong, unofficial relations with Taiwan is a major U.S. goal, in line with the U.S. desire to further peace and stability in Asia. The 1979 Taiwan Relations Act provides the legal basis for the unofficial relationship between the United States and Taiwan, and enshrines the U.S. commitment to assist Taiwan in maintaining its defensive capability. The United States insists on the peaceful resolution of cross-Strait differences, opposes unilateral changes to the status quo by either side, and encourages both sides to continue their constructive dialogue on the basis of dignity and respect. The Department of Defense's 2017 annual report to Congress on China's military summarizes U.S. policy in this way: The United States maintains a one China policy that is based on the three Joint Communiqués and the Taiwan Relations Act (TRA). The United States opposes any unilateral change to the status quo in the Taiwan Strait by either side and does not support Taiwan independence. The United States continues to support the peaceful resolution of cross-Strait issues in a manner, scope, and pace acceptable to both sides. Both before and after taking office, the Trump Administration has at times signaled that it might seek to re-evaluate long-standing U.S. policy toward the PRC and Taiwan. On December 2, 2016, President-Elect Trump spoke by telephone with Taiwan's President Tsai Ing-wen, making him the first incoming or incumbent U.S. president known to speak with a Taiwan president during the era of unofficial relations. In a December 11, 2016, Fox News interview, Trump stated, "I fully understand the one-China policy. But I don't know why we have to be bound by a one-China policy unless we make a deal with China having to do with other things, including trade." Shortly after taking office, in a February 9, 2017, telephone call with PRC President Xi Jinping, however, President Trump recommitted the United States to its "one-China" policy. According to a White House readout of the call, "President Trump agreed, at the request of President Xi, to honor our 'one China' policy." Trump and Xi held a presidential summit in Florida on April 6-7, 2017. Asked in an April 28, 2017, Reuters interview about the possibility of his speaking by telephone again with President Tsai, Trump said he "wouldn't want to be causing difficulty right now for [President Xi]" and would "want to speak to him first" before agreeing to speak again to President Tsai. Since President Trump's inauguration, officials and the media on Taiwan have expressed concerns that the Trump Administration may consider some sort of "grand bargain" with the PRC that could be at odds with Taiwan's interests. On March 8, 2017, Taiwan's Chinese-language Liberty Times , citing an anonymous Washington, DC-based scholar, reported that former Secretary of State and National Security Advisor Henry Kissinger, who engineered President Nixon's rapprochement with China in the early 1970s, was urging President Trump to stabilize U.S.-China relations by concluding a "fourth communiqué" with China. The report did not say what the contents of such a fourth communiqué might be, and whether it might include language on Taiwan. Taiwan's government was sufficiently concerned about the report to reach out to the Trump Administration with the message that, "such a development is inadvisable," according to Taiwan's Foreign Minister David Tawei Lee. At the Shangri La Dialogue in Singapore on June 3, 2017, Secretary of Defense Jim Mattis provided reassurance to Taiwan that the Trump Administration would continue to sell it arms, as called for in the Taiwan Relations Act. "The Department of Defense remains steadfastly committed to working with Taiwan and with its democratic government to provide in [sic] the defense articles necessary, consistent with the obligations set out in our Taiwan Relations Act," Mattis pledged. The Trump Administration notified Congress of a suite of arms sales to Taiwan on June 29, 2017. Mattis also promised in Singapore, " ... we will not use our allies and partners or our relationships with them, or the capability integral to their security as bargaining chips." In testimony before the House on June 14, 2017, Secretary of State Rex Tillerson reignited speculation about possible future shifts in U.S. policy toward Taiwan when he stated that the Trump Administration seeks "another 50 years of stability and no conflict with China in the Pacific region," and said, "Taiwan is a big element of that." His remarks were part of a longer statement: As we began our dialogue with Chinese leadership, with this new administration, as you know, there was some questioning of our commitment to one China early on. The president has reaffirmed that we are committed to the one-China policy. We are also completely committed to the Taiwan Relations Act, and fulfilling all of our commitments to them under that act. But we are also in a discussion with China, now, about what is our relationship going to be for the next 50 years. How do we enter another era of stability and absence of conflict? And Taiwan, clearly, to the Chinese, is a part of that discussion. So it is important, as we engage with them, that we are able to fulfill our commitments to Taiwan, which we have every intention of doing, and that—the question is, is the One China policy sustainable for the next 50 years? And those are the kinds of discussions we're having. They are extremely complex in many regards. But this is what we seek—is another 50 years of stability and no conflict with China in the Pacific region. Taiwan is a big element of that. North Korea is a big element of that. Their island building and militarization of islands is a significant element of that. All of these are in our discussion with them about how do we define this relationship for the next half century, to ensure we have a continued era of no conflict and stability. On October 16, 2017, in an apparent effort to reassure Taiwan ahead of President Trump's scheduled visit to Asia the next month, including a stop in Beijing, David Helvey, Acting Assistant Secretary of Defense for Asian and Pacific Security Affairs, recalled Secretary Mattis' earlier promise not to use allies and partners as "bargaining chips." In remarks to an audience from Taiwan and the United States, he stated, "This includes Taiwan: we will not pursue a grand bargain that trades U.S. interests in a secure and prosperous Taiwan." After terminating diplomatic relations with Taiwan in 1979, the United States could no longer conduct relations with Taiwan through embassies in each capital. The Taiwan Relations Act directed that U.S. relations with Taiwan be conducted instead by a newly-created, non-profit, private corporation incorporated under the laws of the District of Columbia. That entity is known as the American Institute in Taiwan (AIT). AIT comprises a Washington headquarters, based in Arlington, VA, a Taipei "main office," known as AIT/T, a "branch office" in Kaohsiung, known as AIT/K, and a "virtual branch office" in Taichung. It operates under contract with the Department of State. AIT Washington is overseen by a six-person board of trustees, led by a board chair. Day-to-day operations are led by a managing director. AIT Washington's responsibilities include liaising with Taiwan's representative office in the United States and with U.S. government agencies, supporting U.S.-Taiwan trade policy and the bilateral defense relationship, and conducting public diplomacy. AIT Taipei, with a staff of over 120 Americans, nearly 300 local staff, and a few dozen family members and contractors, performs functions similar to those of an embassy, including consular functions. A new $240-million office compound for AIT Taipei is scheduled for completion in the first quarter of 2018. AIT Kaohsiung has a staff of nearly 40, including over a dozen Americans. Prior to 2003, the U.S. government required that AIT employees not be U.S. government employees, so Foreign Service officers left government service temporarily to serve at AIT, while defense-related positions were filled by contractors, many of them retired military personnel. The Section 326 of the Foreign Relations Authorization Act for FY2003 ( P.L. 107-228 ) changed that, authorizing the Secretary of State and the head of any other department or agency of the United States to detail employees to work for AIT. The first active duty U.S. military personnel and Department of Defense civilians detailed to work at AIT Taipei arrived in 2005. Mindful of the fact that AIT Taipei is not an embassy, U.S. government personnel there have different titles than they would have in embassies. The head of AIT Taipei, the most senior U.S. representative in Taiwan, has the title of "Director," rather than "Ambassador," for example. The senior military representative at AIT Taipei is "Chief, Liaison Affairs Section," rather than "Defense Attaché." AIT is funded by a line item in appropriations legislation for the Department of State. The line item, designated in appropriations legislation as "Payment to the American Institute in Taiwan," is provided within the Administration of Foreign Affairs accounts that are funded in Title I of Department of State, Foreign Operations, and Related Programs appropriations acts. In FY2017, Congress authorized a $31,963,000 payment to AIT "for necessary expenses to carry out the Taiwan Relations Act" ( P.L. 115-31 ). For FY2018, the Trump Administration requested a $26,312,000 payment to AIT. This request would constitute a reduction of approximately 18% from the FY2017 enacted figure. The administration's budget request states that the request "supports AIT's core operations and the move into the newly constructed New Office Compound scheduled for completion and occupancy in the first quarter of FY2018. AIT will continue to meet cost savings measures by lengthening maintenance services, gain efficiencies through operational measures and limit core travel and training." H.R. 3354 , which passed the House on September 14, 2017, would authorize a payment of $30,557,000 to AIT for FY2018, representing a reduction of $1.4 million from the FY2017 enacted total. S. 1780 , which was placed on the Senate Legislative Calendar under General Orders on September 7, 2017, would authorize a payment of $31,963,000, maintaining AIT's FY2018 budget at the same level as in FY2017. Taiwan's principal representative office in the United States is the Taipei Economic and Cultural Representative Office (TECRO). TECRO oversees 12 subsidiary offices around the United States, known as Taipei Economic and Cultural Offices (TECOs). They are located in Atlanta, Boston, Chicago, Denver, Guam, Honolulu, Houston, Los Angeles, Miami, New York, San Francisco, and Seattle. The Taipei headquarters for the U.S. TECRO office is the Coordination Council for North American Affairs (CCNAA). Because of the unofficial nature of the U.S.-Taiwan relationship, TECRO and TECO officers do not hold the A-category visas that the United States issues to diplomats or foreign government officials, but rather E-category visas, intended for "treaty trader/treaty investor" applicants. Under a February 4, 2013 Agreement on Privileges, Exemptions, and Immunities between AIT and TECRO, however, TECRO employees enjoy privileges and immunities similar to those enjoyed by diplomats from countries with which the United States has official relations. Such immunities include full criminal immunity, meaning TECRO employees and their families may not be arrested or detained. TECRO employees had previously enjoyed immunity only for official acts. TECRO and TECO employees are also eligible for tax exemption privileges, similar to those for foreign missions. Those privileges include exemption from sales tax, occupancy tax, and other similar taxes at the point of sale. The Department of State's Diplomatic Motor Vehicles Office, which is located within the Office of Foreign Missions, provides a full range of motor vehicle services for foreign missions and their eligible members, including the issuance of driver's licenses and license plates. Prior to December 2014, TECRO and TECO employees were required to apply to state motor vehicle administrations for driver's licenses and license plates. Since December 2014, however, TECRO and TECO employees have been issued identity cards, personal tax exemption cards, driver's licenses, and license plates similar in appearance to those issued to diplomats, although they differ in certain respects. Whereas diplomats' identification cards and personal tax exemption cards are issued in the name of the State Department, for example, TECRO and TECO employees' cards are issued in the name of AIT, with issuance "approved by the U.S. Department of State." License plates issued to TECRO and TECO employees and their spouses look like those issued to diplomats, and are similarly "issued by and property of the United States Department of State," but have an "E" prefix, instead of the "D" prefix that appears on diplomatic license plates or the "S" prefix that appears on the license plates of diplomatic spouses, and do not bear the word "Diplomat." Neither TECRO nor any of the TECOs is permitted to fly the Republic of China flag. Taiwan military officers stationed at TECRO are not permitted to wear their uniforms. Twin Oaks is a 26-room mansion on 18.24 acres in northwest Washington, DC. The estate served as the residence of ROC Ambassadors to the United States from 1937 to 1978. The ROC rented the estate for the first decade, and then purchased it in 1947 from the family of the original owner. In December 1978, to prevent the property from being transferred to the PRC when the United States switched diplomatic recognition from the ROC to the PRC, the ROC sold the estate for a nominal fee to the Friends of Free China Association, a U.S. non-profit organization headed by then-Senator Barry Goldwater and lawyer Thomas Corcoran. Taiwan's representative office in the United States bought the estate back from the non-profit in 1982. Congress helped Taiwan maintain ownership of the estate after the United States terminated diplomatic relations with Taiwan. Its most consequential action was to include in the Taiwan Relations Act the following provision: For all purposes under the laws of the United States, including actions in any court in the United States, recognition of the People's Republic of China shall not affect in any way the ownership of or other rights or interests in properties, tangible and intangible, and other things of value, owned or held on or prior to December 31, 1978, or thereafter acquired or earned by the governing authorities on Taiwan. The provision was crafted with Twin Oaks and its furnishings in mind. According to the memoir of David Dean, former chairman and director of AIT, "Beijing objected strenuously. The State Department, concerned that all of its property in China would not be returned, told Beijing that it had the option to challenge this clause of the TRA in the Supreme Court and, that if it did so, the State Department would support the PRC's claim." Dean reports, however, that China chose not mount a legal challenge. Although Taiwan's representative office in the United States has owned Twin Oaks since 1982, the State Department has not allowed Taiwan to use the estate as a residence for its representatives since de-recognition. In 2011, however, the Obama Administration authorized Taiwan to resume using Twin Oaks for its annual reception marking the October 10 ("Double Ten") anniversary of the uprising that brought down the Qing Dynasty and led, on January 1, 1912, to the founding of the Republic of China. Double Ten receptions have been held at Twin Oaks every year since 2011. State Department guidance bars all executive branch employees from attending events at Twin Oaks. Legislative Branch employees are not covered by that guidance. Some Members of Congress regularly attend the Double Ten reception and other functions at Twin Oaks. So, too, do AIT personnel, including the AIT Chairman and Managing Director. In the decades since U.S. de-recognition of Taiwan, the State Department has issued guidelines for executive branch personnel on how to handle interactions with Taiwan, including restrictions on venues for meetings and requirements that senior U.S. government personnel from certain agencies receive written permission from the State Department before traveling to Taiwan. The guidelines, which are updated periodically, are intended to distinguish the unofficial U.S.-Taiwan relationship from the official relationships that the United States maintains with diplomatic partners. State Department guidelines issued in 2013 state that, "Taiwan representatives should be treated with courtesy and respect, within the framework of our unofficial relations with the island." The most recent guidelines on contacts with Taiwan were issued during the Obama Administration. The Trump Administration has not so far updated them. The guidance does not apply to legislative branch personnel, including Members of Congress. State Department guidance does not bar executive branch officials at any level from visiting Taiwan, but does state that Department of State and Department of Defense officials above the rank of Office Director and uniformed military personnel above the level of 06 (Colonel or Navy Captain) must obtain written permission from the State Department's Office of Taiwan Coordination before undertaking official travel to Taiwan. For personal travel, executive branch officials at or above the level of Assistant Secretary or three-star flag officers must obtain clearance from the Office of Taiwan Coordination. All executive branch officials are also required to use regular passports, rather than diplomatic or official passports, for travel to Taiwan, "in keeping with the absence of diplomatic relations between the United States and Taiwan." On the subject of meetings with Taiwan visitors and representatives in Washington, DC, State Department guidance dating from 2011 is that such meetings may take place in most U.S. government offices, but not in the State Department, the White House, or the Eisenhower Executive Office Building. Updated 2015 guidance provides for exceptions, including in the case of meetings of international groups of which Taiwan is a member. Because Taiwan is a member of the Global Coalition to Counter the Islamic State of Iraq and Syria (ISIS), for example, Taiwan's representative in Washington, DC, attends meetings of the coalition at the State Department. (See " Participation in the Global Coalition to Counter ISIS ," below.) In 2015, during Taiwan's presidential election campaign, then-candidates Tsai Ing-wen and Eric Chu were both granted meetings in the State Department and the Eisenhower Executive Office Building. Congress has long sought to ease executive branch restrictions on interactions between U.S. and Taiwan officials. In the 115 th Congress, pending House and Senate versions of a Taiwan Travel Act ( H.R. 535 and S. 1051 ) both include a finding that since the 1979 enactment of the Taiwan Relations Act, U.S.-Taiwan relations "have suffered from insufficient high-level communication due to self-imposed restrictions that the United States maintains on high-level visits to Taiwan." They also include almost identical non-binding provisions stating, in the case of H.R. 535 , that, It should be the policy of the United States to—(1) allow officials at all levels of the United States Government, including cabinet-level national security officials, general officers, and other executive branch officials, to travel to Taiwan to meet their Taiwanese counterparts; (2) allow high-level officials of Taiwan to enter the United States, under conditions that demonstrate appropriate respect for the dignity of such officials, and to meet with officials of the United States, including officials from the Department of State and the Department of Defense and other cabinet agencies; and (3) encourage the Taipei Economic and Cultural Representative Office, and any other instrumentality established by Taiwan, to conduct business in the United States, including activities which involve participation by Members of Congress, officials of Federal, State, or local governments of the United States, or any high-level official of Taiwan. S. 1051 would also authorize officials at all levels of the U.S. government to travel to Taiwan and require the Secretary of State to submit reports every 180 days on travel by U.S. executive branch officials to Taiwan. U.S. guidance on Cabinet-level travel to Taiwan continues to be based on the outcome of a Taiwan Policy Review undertaken by the Clinton Administration in 1994. That review yielded a policy of permitting senior executive branch officials in "economic and technical areas" to visit Taiwan, with visits by Cabinet-level officials in such areas "not ruled out." By implication, the policy has discouraged, though not barred, visits by Cabinet-level officials in other than economic and technical areas. Six Cabinet-level executive branch officials have visited Taiwan since the United States terminated diplomatic relations on January 1, 1979, all of them in economic or technical posts. The first was then-United States Trade Representative Carla Hills, who visited in 1992, at the end of the George H.W. Bush Administration. Following the 1994 Taiwan Policy Review, the Clinton Administration sent four Cabinet-level officials to Taiwan. No Cabinet-level officials visited Taiwan in the George W. Bush Administration. One Cabinet-level official, U.S. Environmental Protection Agency (EPA) Administrator Gina McCarthy, visited Taiwan during the Barack Obama Administration, in 2014. She was the only Cabinet-level official to visit Taiwan in the last 17 years. The 1994 Taiwan Policy Review determined that Taiwan's "top leadership" could make "normal transits" of the United States, but should be "forbid[den]" from making non-transit visits to the United States or carrying out "public activities" on U.S. soil. That remains executive branch policy. "Top leaders" has generally been defined to include Taiwan's President, Vice President, and Premier. The term originally also included Vice Premiers, but since 2016, the State Department has not included them in the category of "top leaders" restricted to transit visits. President Tsai has so far made three overseas trips that have involved transit layovers in the United States. Following long-standing U.S. protocol, she did not meet with executive branch officials during her transit visits, but was accompanied by the AIT Chairman or, in one case, the Managing Director. Grace Choi, the State Department spokesperson for East Asian and Pacific Affairs, described Tsai's October 2017 transit of Hawaii and a planned November 2017 transit of Guam as "private and unofficial" and said they were based on long-standing U.S. practice consistent with "our unofficial relations with Taiwan." According to Reuters, Choi said the transits were approved out of consideration for the "safety and convenience of the traveler." Taiwan presidents often meet in person and speak by telephone with some Members of Congress during their transit visits and also meet with local officials and members of the local Taiwanese-American community. On her transit visit to Houston in January 2017, during which she stayed one night in the city, President Tsai met with Senator Ted Cruz, Representative Blake Farenthold, Representative Al Green, and Texas Governor Greg Abbott. She also visited the House Museum of Fine Arts and two Taiwan business facilities in the area, and was honored at a dinner for 600 Taiwanese-Americans. In March 2017, Taiwan's Foreign Minister David Lee cited President Tsai's transit visits as evidence of her successful management of Taiwan-U.S. relations. "By maintaining mutual trust she has earned the affirmation of Washington," Lee told Taiwan's parliament. "She has made transit stops this year and last year in four American cities, receiving high-level security privileges and forging closer contact with important U.S. officials each time." The State Department has maintained an effective bar on Taiwan's foreign ministers visiting Washington, DC. Former AIT Chairman Richard C. Bush explains that, "The rationale is that the foreign minister is Taiwan's leading diplomatic official, and diplomacy is by definition official for purposes of U.S. policy." In the era of unofficial relations, the United States has only twice permitted a Taiwan Minister of Defense to visit the United States, both times in the George W. Bush Administration. The first time was in March 2002, when the Bush Administration granted Defense Minister Tang Yiau-ming permission to attend the first U.S.-Taiwan Defense Industry Conference in St. Petersburg, Florida. The second time was in September 2008, when the Bush Administration granted Defense Minister Chen Chao-min permission to attend the seventh conference in the series, on Amelia Island, Florida. From 1954 until 1979, the United States and Taiwan, under the name Republic of China, were parties to a Treaty of Mutual Defense under which, Each Party recognizes that an armed attack in the West Pacific Area directed against the territories of either of the Parties would be dangerous to its own peace and safety and declares that it would meet the common danger in accordance with its constitutional processes. When President Carter announced that the United States had decided to establish diplomatic relations with the PRC on January 1, 1979, he also announced that the United States would be giving one year's notice of its intention to terminate its defense treaty with Taiwan and would be withdrawing its military personnel from Taiwan. President Carter withdrew all U.S. military personnel from Taiwan by April 30, 1979. The defense treaty was terminated on January 1, 1980, at the expiry of the one-year notice period. Based on provisions in the 1979 Taiwan Relations Act, however, the United States has remained involved in supporting Taiwan's military. Initially, support was focused on arms sales; the Taiwan Relations Act states that " ... the United States will make available to Taiwan such defense articles and defense services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability." Starting in 1997, after the Taiwan Strait crisis of 1995-1996 (see box below), the security relationship broadened to include dialogues, training and military education opportunities for Taiwan military personnel, and assessments of Taiwan's military capabilities, defense bureaucracy, and procurement procedures. In 2017, Acting Assistant Secretary of Defense for Asian and Pacific Security Affairs David Helvey described the United States as "especially focused on assisting Taiwan with the non-hardware aspects of military capability." He mentioned an effort to help Taiwan "overhaul" its reserve forces to make them "more agile and effective." He noted an effort "to develop improved joint doctrine, part of a larger effort to increase jointness and service interoperability in the Taiwan military." Helvey also noted an emphasis on "asymmetric warfare," including an initiative "to increase the ability of Taiwan's ground forces to operate in a more decentralized fashion, with less reliance on higher-level command-and-control." In a similar vein, Helvey said the United States is helping Taiwan with its non-commissioned officer (NCO) corps, "with an aim toward greater decentralization, with greater initiative at the NCO level." U.S. government officials characterize U.S. security assistance to Taiwan as contributing to peace and stability in Asia by giving Taiwan the confidence to engage with mainland China and by deterring potential PRC coercion and aggression against Taiwan. In congressional testimony in 2011, then-Acting Assistant Secretary of Defense for Asian and Pacific Security Affairs Peter Lavoy explained the U.S. position this way: The preservation of stability in the Taiwan Strait is fundamental to our interests of promoting peace and prosperity in the Asia-Pacific writ large. A Taiwan that is strong, confident, and free from threats or intimidation, in our view, is best postured to discuss and adhere to whatever future arrangements the two sides of the Taiwan Strait may peaceably agree upon. In contrast, a Taiwan that is vulnerable, isolated, and under threat would not be in a position to discuss its future with the mainland and might invite the very aggression we would seek to deter, jeopardizing both our interests in regional peace and prosperity, and the interests of the people on Taiwan. The most senior, regularly-scheduled U.S.-Taiwan bilateral military discussion is the Monterey Talks, an annual strategic discussion between the U.S. Office of the Secretary of Defense and Taiwan's Ministry of National Defense and senior civilian leaders. From 1997 to 2014, the talks were held in Monterey, CA. In 2015, they moved to the Pentagon in Washington, DC. In 2017, they were held in Hawaii. At the 2017 talks, the U.S. delegation reportedly included National Security Council Senior Director for Asian Affairs Matthew Pottinger and Acting Assistant Secretary of Defense David Helvey. The Taiwan delegation was reportedly led by a Deputy Secretary-General of Taiwan's National Security Council and included a Vice Minister of National Defense. Other dialogues include the Defense Review Talks, the General Officer Steering Group (GOSG), and discussions involving the U.S. Pacific Command and U.S. Pacific forces. In his 2017 remarks, DOD's Helvey noted, "We have additional, ad-hoc meetings that occur regularly, and we conduct robust, service-level exchanges that focus on personnel, training, maintenance, tactics, professionalization, and other topics." In the 114 th Congress, the National Defense Authorization Act (NDAA) for Fiscal Year 2017 ( P.L. 114-328 ) included a non-binding provision (Section 1284) stating that the Secretary of Defense should carry out a program of exchanges between the United States and Taiwan of senior military officers and civilian officials. Senior military officials were defined as general or flag officers on active duty, and senior Department of Defense officials were defined as civilians at the level of Assistant Secretary of Defense or above. As noted above (see " Interactions Between U.S. and Taiwan Officials "), the executive branch does not bar travel to Taiwan by senior defense officials and officers, but does require Department of Defense officials above the rank of Office Director and uniformed military personnel above the level of 06 (Colonel or Navy Captain) to obtain written permission the State Department's Office of Taiwan Coordination before undertaking official travel to Taiwan. In the 115 th Congress, Sec. 1270D of the Senate amendment to the NDAA for FY2018 ( H.R. 2810 ) would require the Secretary of Defense to submit a report by April 1, 2018 with a list of actions taken to implement, and future plans to implement, the recommendations in Sec. 1284 of the NDAA for FY2017, related to military exchanges, or reasons why no actions have been taken or no future plans made to implement the recommendations. The House version of H.R. 2810 contains no analogous provision. The U.S. Pacific Command sends several dozen observers each year to Taiwan's Han Guang military exercises. Taiwan F-16 pilots train at Luke Air Force Base in Arizona on F-16 Fighting Falcon aircraft. In August 2017, however, a visiting Taiwan legislator noted that Luke Force Base is being converted to F-35 flight operations. It is not clear where F-16 training for Taiwan pilots will happen in the future. Approximately 400 Taiwan military officers study each year at U.S. military academies and other institutions. Section 1270E of the House version of the National Defense Authorization Act (NDAA) for FY2018 ( H.R. 2810 ) and Section 12709(b) of the Senate amendment to H.R. 2810 would require the Secretary of Defense to submit a report to Congress assessing the feasibility and advisability of the U.S. Navy making port calls to Taiwan, and of the United States receiving port calls by the ROC navy in Hawaii, Guam, "and other appropriate locations." The Senate amendment would include an additional binding provision directing the Secretary of Defense to "reestablish regular ports of call" in Taiwan and to permit the U.S. Pacific Command to receive port calls from the Taiwan Navy. The latter provision also appears in S. 1620 , the Taiwan Security Act of 2017, introduced by Senators Cotton and Gardner on July 24, 2017. In 2016, both Senator Ted Cruz and Representative Randy Forbes, the then-Chairman of the House Armed Services Committee's Seapower and Projection Forces Subcommittee, called for the United States to consider port calls to Taiwan after the PRC cancelled a port call to Hong Kong by the USS John C. Stennis . Forbes issued a statement saying that, "China has repeatedly politicized the long-standing use of Hong Kong for carrier port visits, inconveniencing the families of thousands of U.S. sailors and continuing a pattern of unnecessary and disruptive behavior." He added, "As Beijing's direct control of Hong Kong intensifies, the U.S. Navy should strongly consider shifting its carrier port calls to more stable and welcoming locations." Forbes mentioned Taiwan as a possible option. Writing as a private citizen, former State Department official Randall Schriver argued the case for U.S. port calls to Taiwan in a subsequent 2016 article. They would, he said, "send reassurance to the people of Taiwan at a time when Beijing is increasing pressure on our democratic friend." They would familiarize the U.S. Navy with Taiwan ports, thus serving to "enhance our operational readiness in meaningful ways related to a known contingency for which our own law obligates us to prepare." In addition, he argued, "Unlike PRC-controlled Hong Kong, Taiwan would always be there if we were in distress—as they were when two U.S. F/A-18s were forced to make an emergency landing at Tainan Air Base in Taiwan in April 2015." The White House announced on October 27 that it intended to nominate Schriver for the position of Assistant Secretary of Defense for Asian and Pacific Affairs. Taiwan's Ministry of National Defense welcomed the port calls language when it first appeared in the Senate's NDAA bill, S. 1519 (115 th Congress), saying, "The move shows that the U.S. values military exchanges with Taiwan. The ministry welcomes any form of partnership that would enhance Taiwan's national defense and bring stability to the region." Critics of the proposal for port visits with Taiwan see them as inconsistent with the unofficial nature of U.S.-Taiwan relations. In addition, some note that China considers Taiwan to be sovereign Chinese territory and could seek to interdict or harass a U.S. warship seeking to enter the 12-nautical mile territorial sea around Taiwan. According to James Moriarty, Chairman of the American Institute in Taiwan, the non-profit corporation through which the United States conducts relations with Taiwan, "To state the obvious, it would be very difficult and perhaps dangerous for U.S. naval ships to go into a port in Taiwan." Spokespeople for both the PRC's Ministry of National Defense and its Foreign Ministry strongly criticized the proposal for port calls. A PRC Ministry of National Defense spokesperson stated: We are always firmly opposed to any form of official contact and military interaction between Taiwan and the U.S. We urge the American side to abide by its commitment to the Chinese side with regard to the Taiwan issue, and stop military contacts with Taiwan, so as not to cause damage to the relations between the two militaries and the two countries as well as to the peace and stability across the Taiwan Strait. A PRC Foreign Ministry spokesperson stated: We are strongly concerned about and firmly opposed to the bill approved by the Senate Armed Services Committee. We have lodged solemn representations with the U.S. side about its erroneous actions on Taiwan-related issues. I have to stress once again that the Taiwan question bears on China's sovereignty and territorial integrity, and belongs to China's domestic affairs. Taiwan-related contents in the aforementioned bill severely violate the three joint communiqués between China and the U.S., and constitute interference in China's domestic affairs. China by no means accepts that. We urge the US to honor its commitment on the Taiwan question, immediately stop military contact and arms sales to Taiwan, and avoid causing damage to the bilateral relationship and bilateral cooperation in a broader range of areas. U.S. legal experts have questioned whether Congress has the authority to direct the Department of Defense to carry out port calls in Taiwan. Hofstra University School of Law Professor Julian Ku writes, "As a constitutional matter, the power to direct and deploy U.S military assets is held exclusively by the President under his Article II Commander-in-Chief powers." Congress has shown interest in inviting Taiwan to participate in U.S.-hosted multilateral military training activities. In the 115 th Congress, the Senate amendment to the National Defense Authorization Act (NDAA) for FY2018 ( H.R. 2810 ), would include a discretionary "sense of Congress" statement supporting inviting Taiwan "to participate in multilateral training activities hosted by the United States." It would also include binding language directing the Secretary of Defense to invite Taiwan's military to participate in a "Red Flag" exercise at either Eielson Air Force Base in Alaska or Nellis Air Force Base in Nevada. The House version of the bill contains no analogous provisions. The pending Taiwan Security Act of 2017 ( S. 1620 ) would require the Secretary of Defense to invite the Taiwan military to participate in the 2018 Rim of the Pacific Exercise (RIMPAC) as well as a "Red Flag" exercise at Eielson Air Force Base or Nellis Air Force Base. Nellis Air Force Base describes "Red Flag" as "the U.S. Air Force's premier air-to-air combat training exercise" and says, "Participants often include both United States and allied nations' combat air forces." Eielson Air Force Base in Alaska describes RED FLAG-Alaska as "a series of Pacific Air Forces commander-directed field training exercises." The U.S. Navy describes RIMPAC as "the world's largest international maritime exercise." It is held every other year in Hawaii and Southern California. In 2016, the exercise drew participants from 26 nations, including the PRC. Among the questions related to a possible invitation to Taiwan to participate in any of these activities is how such an invitation might affect the willingness of allies and coalition partners to continue their participation. Most nations currently avoid interaction with the Taiwan military because of concerns about being seen to be violating "one China" pledges made to the PRC and thus undermining their broader relationships with the PRC. Other questions include to what degree, if at all, learning to operate in a multilateral environment will help Taiwan with its core mission of island defense, in which it is unlikely to be operating in concert with partners other than the United States. Since 1979, all administrations have notified Congress of Foreign Military Sales (FMS) to Taiwan, presenting the sales as consistent with U.S. law and policy as expressed in the Taiwan Relations Act. Taiwan is the largest customer for FMS programs in Asia and the United States' second largest FMS partner globally. Over its eight years in office (2009-2017), the Obama Administration notified Congress of more than $14 billion in Foreign Military Sales to Taiwan and licensed another $6.2 billion in Direct Commercial Sales (DCS). Taiwan describes the $20 billion in total arms sales to Taiwan over the seven years from 2009 through 2015 as "the largest amount [of arms sales] in any comparable period following the enactment" of the Taiwan Relations Act in 1979. Among the advanced military systems Taiwan has acquired from the United States in the era of unofficial relations are: AH-64E Apache Attack Helicopters; Patriot-3 missiles; F-16 A/B aircraft, with subsequent upgrades to the latest F-16V configuration; tactical data links; and a long-range surveillance radar system, the AN/FPS-115 PAVE Phased Array Warning System (PAVE PAWS). Constructed by Raytheon Corporation on a mountaintop in Hsinchu County in the north of Taiwan, the PAVE PAWS system allows Taiwan to monitor aerial activities within a range of 3,000 miles, including Chinese missile and Air Force flight activity. The system was commissioned into service in 2013. Sec. 2(b)(5) of the Taiwan Relations Act states that it is the policy of the United States "to provide Taiwan with arms of a defensive character." Sec. 3(a) and (b) state: (a) ...[T]he United States will make available to Taiwan such defense articles and defense services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability. (b) The President and the Congress shall determine the nature and quantity of such defense articles and services based solely upon their judgment of the needs of Taiwan, in accordance with procedures established by law. Such determination of Taiwan's defense needs shall include review by United States military authorities in connection with recommendations to the President and the Congress. Former AIT Chairman Richard Bush, who served as a congressional staffer early in his career, suggests that Sec. 3(a) is not as strong a statement as commonly assumed. Bush writes, "In U.S. legislative practice, if Congress wishes to require an action by the executive, it uses the word 'shall.' To say that 'the United States will make available to Taiwan such defense articles and defense services' represents less a mandate for action than it does a statement of intention." With regard to Sec. 3(b), Bush highlights the inclusion of the phrase, "in accordance with procedures established by law." The phrase, Bush explains, is a reference to the Arms Export Control Act, "which requires that the Executive Branch inform Congress of arms sales very late in the process ... and even then only for transfers above a certain value." Bush asserts that, "By including this phrase, Congress was taking itself out of [the decision-making process], and giving the Executive Branch substantial discretion regarding what Taiwan's needs were and what specific weapon systems to provide." The Reagan Administration's Six Assurances to Taiwan, provided in 1982, include two additional provisions related to arms sales to Taiwan. They are that in the 1982 negotiations with the PRC over the third U.S.-China joint communiqué on arms sales, " ... we did not agree to set a date certain for ending arms sales to Taiwan," and the communiqué, ''should not be read to imply that we have agreed to engage in prior consultations with Beijing on arms sales to Taiwan." The latter assurances, though presented to Congress in past tense, have been widely interpreted as a proscription on setting deadlines for ending arms sales and on consultation with Beijing about Taiwan arms sales. The 1982 U.S.-PRC joint communiqué itself states that the United States "does not seek to carry out a long-term policy of arms sales to Taiwan, that its arms sales to Taiwan will not exceed, either in qualitative or in quantitative terms, the level of those supplied in recent years since the establishment of diplomatic relations between the United States and China, and that it intends gradually to reduce its sale of arms to Taiwan, leading, over a period of time, to a final resolution." Testifying before Congress about this third communiqué, a senior Reagan Administration official emphasized that, " ... our future actions concerning arms sales to Taiwan are premised on the continuation of China's peaceful policy toward a resolution of its differences with Taiwan." On June 29, 2017, the Trump Administration notified Congress of seven proposed Foreign Military Sales (FMS) programs for Taiwan, with a total value of $1.36 billion. The day before, on June 28, 2017, the State Department took the unusual step of notifying Congress of an additional proposed Direct Commercial Sale (DCS) to Taiwan with a value of $68.8 million. State Department Spokesperson Heather Nauert combined the value of the FMS programs and the DCS program in announcing that the Trump Administration had notified Congress of $1.42 billion of arms sales to Taiwan. She said, "There is continuity here; the United States has been doing defense sales with Taiwan for 50 years or so, so nothing has changed." Of the seven proposed FMS programs notified, the largest is a $400 million operations and maintenance follow-on package for Taiwan's Surveillance Radar Program (SRP). Other notifications cover joint stand-off weapons (JSOW), high-speed anti-radiation missiles (HARMs), MK-48 heavy-weight torpedoes, MK-54 light-weight torpedoes, upgrades to existing torpedoes, air-to-ground missiles, and an anti-warfare systems upgrade to four ex-KIDD class destroyers. The proposed DCS program notified is for the MK-41 Vertical Launching System. See Appendix B for a full list of all FMS programs notified to Congress from 2000 to 2017. The TRA is silent on the question of how the President and Congress should determine the timing of arms sales to Taiwan. From 1983 to 2001, the United States and Taiwan held annual Arms Sales Talks in Washington, DC, at which a Taiwan Ministry of National Defense delegation presented its requests for defense articles and services and the U.S. government provided formal responses. The talks attracted intense interest from both the Taiwan media and the PRC government. The Washington Post described annual meeting as a "contentious, once-a-year showdown over arms sales to Taiwan." The George W. Bush Administration ended the annual talks after the April 2001 meeting, moving to meetings on an "as-needed" basis. The executive branch notified Congress of proposed major arms sales to Taiwan at least once a year from 2001 to 2008, with the exception of 2006. In three separate years, 2001, 2002, and 2007, it notified Congress of arms sales to Taiwan on four separate occasions over the course of the year. In October 2008, however, the George W. Bush Administration adopted a new approach to arms sales notifications with six notifications of arms sales programs sent to Congress on a single day. A critical 2012 report from the U.S.-Taiwan Business Council and the Project 2049 Institute, an Arlington, VA-based research institute, alleges that the goal of this bundling of arms sales notifications was "to reduce the potential retaliation from China and subsequent consequences for U.S.-China relations, as well as a way to game the calendar in a manner that positioned the sales at the least-worst time." Since 2008, the executive branch has routinely chosen to notify Congress of multiple proposed FMS programs for Taiwan on a single date, with sometimes extended gaps between notifications. The Obama Administration presided over a gap of over four years between notifications of major arms sales to Taiwan, lasting from September 21, 2011 to December 19, 2015. With its seven-program notification in June 2017, the Trump Administration is the third administration to bundle arms sales to Taiwan. The House version of the National Defense Authorization Act for FY2018 ( H.R. 2810 ), the Senate amendment to H.R. 2810 , and the pending Taiwan Security Act ( S. 1620 ) all seek more frequent transfers of defense articles and services to Taiwan, while H.R. 2810 also calls for a "timely review" of arms requests from Taiwan. The Senate amendment calls for "regular transfers" of arms to Taiwan. H.R. 2810 would also include a "sense of Congress" statement calling for the Secretary of Defense to undertake "a case-by-case review" of Taiwan's requests for arms sales "consistent with the standard processes and procedures in an effort to normalize the arms sales process with Taiwan"; submit a report to Congress no later than 120 days after each letter of request received from Taiwan, reporting on the status of the request; and brief congressional committees every six months on the status of any arms sales requests from Taiwan. S. 1620 , would require the United States to "conduct regular transfers of defense articles to Taiwan" and would revive annual sales talks "to ensure the regular transfer of defense articles." Tensions have sometimes surfaced among the executive branch, Congress, and Taiwan military planners over assessments of Taiwan's defense needs. Taiwan has often sought to acquire small numbers of expensive, highly sophisticated military platforms with long timelines for delivery, such as F-16C/D fighters in an earlier era, and the F-35 Joint Strike Fighter today. The executive branch's view is that Taiwan faces a growing threat from the PRC and must move urgently to ensure that it has a credible deterrent capability now. Speaking in October 2017, DOD's Helvey argued that, "The ways of traditional defense procurement that focus on high price-tag, high-end systems, with large scale production, and imports are not fully suited to island defense." While acknowledging that Taiwan may continue to need "high-end major defense systems," he urged Taiwan to focus "on acquiring, maintaining, and training on affordable, timely, and cutting edge systems that are integrated into a multi-domain defense." Helvey also counseled Taiwan, "Don't discount older and simpler capabilities," such as sea and surf-zone mines that "offer significant obstacles to an invading force." He urged Taiwan to seek "to network the old with the new so that they complement one another." Helvey challenged Taiwan, for example, to leverage its technological and innovation strength to explore such questions as, "How can mines be mobile, layered in defensive belts and intelligent" and "What devices can be built that disrupt the electronic communications of an attacker or that counter the effects of jamming?" Taiwan's goal, he said, should be to maintain a "resilient deterrent" that is "networked, survivable, and adaptive." Taiwan's 2017 Quadrennial Defense Review lists "acquisition of advanced weapon systems" as the third priority for defense spending, after defense research and development and indigenous production of weapons and equipment. The Review specifically mentions plans "to acquire new fighters capable of vertical or short takeoff and landing (V/STOL) and having stealth characteristics," an apparent reference to the United States' F-35 strike fighter. In an April 27, 2017, interview with Reuters, President Tsai explicitly raised the possibility that Taiwan may request to buy the F-35 from the United States. "We don't rule out any items that would be meaningful to our defense and our defense strategy and the F-35 is one such item," she told the news agency. The F-35 is currently projected to cost between $95 million and $123 million per plane, depending on the model. President Tsai has also backed an ambitious indigenous defense submarine (IDS) program and indigenous fighter-trainer program for which Taiwan hopes to receive technical support from the United States. In the 115 th Congress, Sec. 1270B of the Senate amendment to the National Defense Authorization Act for FY2018 ( H.R. 2810 ) would direct that, "The Secretary of Defense shall implement a program of technical assistance and consultation to support the efforts of Taiwan to develop indigenous warfare capabilities, including vehicles and sea mines, for its military forces." In his September 2017 remarks, the Department of Defense's Helvey sounded a note of caution about U.S. support for Taiwan's development of indigenous warfare capabilities. He stated that "the U.S. government does not own much of the technology Taiwan seeks for its domestic industry." That may be particularly true for the IDS program, given that the United States manufactures only nuclear-powered submarines, whereas Taiwan's plans involve diesel-electric submarines. Because of the technology Taiwan is seeking, Helvey suggested that any support from the United States may need to be in the form of Direct Commercial Sales (DCS). In a DCS framework, Taiwan would work directly with U.S. defense contractors, rather than with the U.S. government, as in the Foreign Military Sales (FMS) framework in which Taiwan has traditionally operated for the bulk of its arms purchases. In the FMS framework, Helvey explained, "the Department of Defense and its contractors absorb a great deal of the cost and risk involved in developing and producing new weapon systems, including from delays, cost-overruns, and quality assurance or performance problems." He noted that, "As Taiwan transitions toward indigenous manufacturing aided by direct commercial sales, the risks of developing new weapons systems will shift to the buyer, and that is something Taiwan will have to reconcile." Helvey also cautioned that Taiwan "will need to ensure compliance with U.S. standards and requirements for safeguarding sensitive defense technologies," which may require Taiwan "to establish new regulatory mechanisms." Section 1206 of the Foreign Relations Authorization Act for FY2003, P.L. 107-228 , requires that Taiwan be treated as if it were a Major Non-NATO Ally (MNNA) for the purpose of transfers of defense articles or services under the Arms Control Export Act, the Foreign Assistance Act of 1961, or any other provision of law. According to the Defense Security Cooperation Agency, MNNA status makes Taiwan eligible for stockpiling of U.S. defense articles; purchase of depleted uranium anti-tank rounds; with a reciprocity agreement, exemption from indirect costs, administrative charges, and billeting costs for training; and use of any allocated foreign military financing programs (FMFP) funding for commercial leasing of defense articles. In directing the President and Congress to determine "the nature and quality" of defense articles and services sold to Taiwan "based solely upon their judgment of the needs of Taiwan," the Taiwan Relations Act appears to proscribe consideration of the potential impact of such sales on U.S.-China relations. Taiwan's supporters have sometimes alleged that in declining to sell Taiwan certain advanced defense articles, such as F-16C/D combat aircraft, the executive branch has allowed concerns about the PRC's potential reaction to influence its decisions about what items to sell Taiwan, in violation of the act. Arms sales to Taiwan typically draw strong protests from the PRC. Beijing sees them as a violation of the August 1982 U.S.-China joint communiqué, which stated that the United States intended "gradually to reduce its sale of arms to Taiwan, leading, over a period of time, to a final resolution." The PRC also argues that arms sales make Taiwan less willing to negotiate a resolution to the cross-strait standoff. After the Trump Administration's June 29, 2017 notification to Congress of arms sales to Taiwan, China's Foreign Ministry spokesperson said that China had "lodged representations" with the U.S. government in both Beijing and Washington, DC. He continued: The Chinese side pointed out that Taiwan is an inalienable part of China. By selling arms to Taiwan, the US has severely violated international law, basic norms governing international relations and the three China-US joint communiqués, and jeopardized China's sovereignty and security interests. The Chinese side firmly opposes that. The Chinese side stressed that the Chinese government and people will never waver in their will and determination to defend national sovereignty and territorial integrity, and fend against external interference. We strongly urge the US side to honor its solemn commitments in the three China-US joint communiqués, cancel its arms sales plan, and stop its military contact with Taiwan, so as not to cause further damage to China-US relations and bilateral cooperation in major areas. According to AIT Chairman James Moriarty, the United States seeks "to help find new ways for Taiwan to earn the dignity and respect that its contributions to global challenges merit and that befit its democratic status." One avenue for such efforts has been the Global Cooperation and Training Framework (GCTF), created in June 2015 through a memorandum of understanding between AIT and TECRO, and continued under the Trump Administration. As of late July 2017, the initiative had held eight workshops in Taiwan on such topics as public health, energy efficiency, women's empowerment, e-commerce, and humanitarian assistance and disaster relief, with participation from more than 100 officials and experts from around the Asia-Pacific. Moriarty stated in April 2017 that with the GCTF, the United States seeks ".... to provide more than technical expertise. Our goal is to create networks and build bridges between Taiwan, Southeast Asia and South Asia, the Pacific, the Caribbean, and beyond." The United States has also helped facilitate contributions from Taiwan to address international crises. In 2014, after the World Health Organization (WHO) rebuffed Taiwan's efforts to donate $1 million via the United Nations Foundation to support the WHO's response to the Ebola virus in West Africa, the United States assisted Taiwan in finding other ways to contribute to the global Ebola response. According to a U.S. State Department report to Congress, "Taiwan coordinated with the United States to deliver 100,000 sets of personal protective equipment to the Pan-American Development Foundation to support preparedness across Latin America and the Caribbean, as well as a $1 million USD contribution to the U.S. CDC Foundation's initiatives to fight Ebola in Liberia, Sierra Leone, and Guinea." Taiwan says its contribution to the Pan –American Development Foundation was valued at $125,000. (See also " World Health Assembly/World Health Organization ," below.) U.S. trade data indicate that in 2016, Taiwan was the United States' 10 th -largest merchandise trading partner (at $65.4 billion), 14 th -largest export market (at $26.0 billion) and 13 th -largest source of imports (at $39.3 billion). From 2000 to 2016, U.S. exports to Taiwan grew by 8.3%, while imports fell by 4.9%. In comparison, U.S. global exports and imports during this period rose by 86.3% and 79.9%, respectively. The United States is Taiwan's second-largest trading partner after the PRC. U.S. data may understate the importance of Taiwan to the U.S. economy because of the role of global supply chains. For example, many of the consumer electronic products developed by Apple Inc. (such as iPads and iPhones) are assembled in mainland China by Taiwan-owned firms. Taiwan has moved a significant level of its labor-intensive manufacturing overseas, especially to mainland China. This is reflected in Taiwan's data on export orders received by its firms from abroad. That data indicate that the percentage of export orders produced abroad rose from 13.3% in 2000 to 54.2% in 2016; and for information and communications technology products (such as computers), this figure rose from 24.9% to 93.4%. Taiwan government data indicate that Taiwan manufacturing firms received export orders from the United States worth $127.6 billion in 2016, a figure more than three times larger than official U.S. data for U.S. imports from Taiwan in 2015. From 2000 to 2016, U.S. orders to Taiwan firms increased by 160.4%. The United States is the largest source of Taiwan's export orders, accounting for 28.7% of total in 2016. (Mainland China and Hong Kong together accounted for 24.1%.) This indicates that U.S.-Taiwan commercial ties are significantly greater and more complex than reflected in standard bilateral trade data. The stock of U.S. FDI in Taiwan through 2016 was $16.2 billion and the stock of Taiwanese FDI in the United States was $7.2 billion, on a historical-cost basis. Many U.S. business groups have indicated optimism over Taiwan's economic prospects, but have raised concerns over certain aspects of Taiwan's business climate. In a 2017 survey by the American Chamber of Commerce (AmCham) in Taipei, 67% of respondents said their business operations were "very profitable" in 2016 and 56% said they expected strong profits in 2017. However, 49% of respondents indicated they were positive about their business prospects over the next five years, down from 60% who felt that way in 2015. Respondents indicated that the top five issues affecting their business operations in Taiwan were government bureaucracy, cross-Strait relations, lack of clarity in labor laws, inconsistent regulatory interpretation, and political turmoil in Taiwan. The U.S. Trade Representative's (USTR) 2017 National Trade Estimates of Foreign Trade Barriers noted Taiwan's sanitary and phytosanitary restrictions on agricultural products, especially in regards to beef and pork. Taiwan maintains import bans on certain beef products and a total ban on imported pork containing the leanness-enhancing drug, ractopamine. The USTR's 2017 Special 301 on intellectual property rights (IPR) protection cited Taiwan as one of four U.S. trading partners that had recently strengthened their trade secrets law, but also identified it as one of 12 trading partners of concern regarding government use of unlicensed software, and one of 16 trading partners of concern related to their policies on pharmaceutical innovation and market access. AmCham Taipei's 2017 White Paper indicated that of the 80 issues discussed by the Chamber's committees in the 2016 White Paper, none had been fully resolved by the Taiwan government, although "favorable progress" was made in banking, infrastructure, pharmaceutical IPR protection, public health, real estate, sustainable development, and tobacco. AmCham Taipei recommended ways to boost U.S.-Taiwan commercial ties, including the negotiation of a U.S.-Taiwan "fair trade agreement" and bilateral investment agreement, conducting more two-way high-level visits, and making revisions to the U.S. tax system with regard to the tax treatment of overseas Americans. In 1994, the United States and Taiwan concluded a Trade and Investment Framework Agreement (TIFA). TIFA talks, usually held on an annual basis, serve as a high level forum to discuss major trade and investment disputes and expanded commercial ties. Topics include market access, IPR protection, labor and environmental issues, and trade capacity building. In the past, the USTR has indicated that talks under TIFA could potentially lead to discussions focused on reaching a free trade agreement (FTA). Taiwan's decision in 2007 to ban beef and pork and imports containing ractopamine led the United States to suspend the TIFA talks for nearly six years. They were resumed in March 2013 after Taiwan agreed to allow some beef imports containing ractopamine, based on a maximum residue limit (MRL), although it did not do so for pork. At the 2016 TIFA talks, the USTR stated that it had "pressed Taiwan for expeditious resolution of agricultural trade issues, including removal of longstanding and unwarranted barriers to U.S. beef and pork, which is necessary for any deepening of our trade relationship." USTR also noted further progress in IP protection and enforcement. The two sides pledged to continue efforts to boost Taiwan's market access for medical devices and to improve procedural fairness and transparency in trade and investment. In the 115 th Congress, H.Res. 271 would call on the USTR to begin negotiations with Taiwan for a bilateral trade agreement. Previous congressional proposals for an FTA with Taiwan include H.R. 419 (113 th Congress); H.R. 2918 (112 th Congress); H.Con.Res. 276 (111 th Congress); H.Con.Res. 137 and S.Con.Res. 60 (110 th Congress); and H.Con.Res. 342 , H.Con.Res. 346 , and S.Con.Res. 84 S (109 th Congress). In October 2012, the United States designated Taiwan as a member of the U.S. Visa Waiver Program (VWP). The VWP, administered by the Department of Homeland Security in consultation with the Department of State, allows Taiwan passport holders to visit the United States for business or tourism purposes for up to 90 days without a visa. Under the terms of the program, Taiwan extends reciprocal privileges to Americans visiting Taiwan. The Department of Homeland Security describes the program as "a comprehensive security partnership with many of America's closest allies." Of the 38 VWP members, Taiwan is the only one that does not have diplomatic relations with the United States. According to AIT Taipei, in 2015, more than 440,000 Taiwan passport-holders visited the United States and spent a collective $1.8 billion. The United States has long had a strong interest in peace and stability in the Taiwan Strait, heightened by U.S. security commitments related to Taiwan contained in the Taiwan Relations Act. After eight years of relative stability in cross-Strait relations during the two presidential terms of the KMT's Ma Ying-jeou, from May 2008 to May 2016, tensions are on the rise under President Tsai. The main point of disagreement between the two sides is the long-standing issue of Taiwan's sovereignty, and specifically Beijing's insistence that President Tsai commit to the notion that Taiwan and mainland China are parts of "one China," and President Tsai's unwillingness to make such a commitment. Beijing has progressively increased pressure on President Tsai, starting before she took office, including by seeking to further isolate Taiwan internationally. The PRC views the issue of Taiwan as unfinished business from the 1945-1949 civil war between the Communist Party of China and the KMT, or Nationalist, forces under the leadership of Chiang Kai-shek. The PRC position is that the PRC government that the CPC established on October 1, 1949, replaced the KMT-led Republic of China, with no change in territory, meaning that the PRC includes Taiwan. In the PRC view, the government on Taiwan is no more than "a local authority in Chinese territory." The PRC has long threatened to use force, if necessary, to bring about Taiwan's unification with mainland China. The PRC insists that the basis for peace across the Taiwan Strait is Taiwan's acceptance of a "one-China principle" that the PRC defines as "there is only one China in the world, Taiwan is a part of China and China's sovereignty and territorial integrity is not to be separated." (For its diplomatic partners, the PRC adds two additional conditions, that partners recognize the PRC as "the sole legitimate government representing the whole of China" and agree not to maintain diplomatic relations with Taiwan. ) During the 2008-2016 Ma Ying-jeou Administration on Taiwan, the PRC and Taiwan reached an uneasy accommodation on the PRC's "one-China" demand by pledging their adherence to what the two sides called the "1992 Consensus." The term referred to an agreement reportedly reached during meetings in November 1992 between two semi-official organizations, the PRC's Association for Relations Across the Taiwan Strait (ARATS) and Taiwan's Straits Exchange Foundation (SEF). In those meetings, the two organizations reportedly agreed to state orally that "both sides of the Taiwan Strait adhere to the one-China principle," with the understanding that each side had "its own interpretation" of what the "one-China principle" meant. Under the "1992 Consensus" formula, Beijing and Taipei held 11 rounds of quasi-official high-level talks and signed 23 cross-Strait economic and functional agreements. In November 2015, PRC President Xi and then-Taiwan President Ma engaged in a first-ever meeting between the leaders of the ROC and the PRC, though the two men agreed to meet not as "presidents," but as "leaders" of Taiwan and mainland China. Both the PRC and Taiwan's KMT have called on President Tsai to affirm the "1992 Consensus." The PRC has also said she could use her own words to commit to what the PRC considers to be the core meaning of the consensus, namely that, "both the Mainland and Taiwan belong to one and the same China and that cross-Strait relations are not state-to-state relations." Tsai has so far declined to do so. In 1979, soon after Deng Xiaoping emerged as the PRC's top leader, the PRC unveiled a Taiwan policy that emphasized the goal of "peaceful reunification" and proposed a concept of "one country, two systems" for mainland China and Taiwan after the proposed reunification. The most recent PRC White Paper on Taiwan, "The One-China Principle and the Taiwan Issue," published in 2000, presents the "one-country, two systems" proposal in this way: After reunification, the policy of "one country, two systems" will be practiced, with the main body of China (Chinese mainland) continuing with its socialist system, and Taiwan maintaining its capitalist system for a longer period of time to come. After reunification, Taiwan will enjoy a high degree of autonomy, and the Central Government will not send troops or administrative personnel to be stationed in Taiwan. In 2001, the People's Daily, the newspaper of the Communist Party of China's Central Committee, explained the "high degree of autonomy" promised to Taiwan in this way. After reunification, Taiwan will become a special administrative region. Different from the other provinces or regions of China, it will have its own administrative and legislative powers, an independent judiciary and the right of adjudication on the island. It may conclude commercial and cultural agreements with foreign countries and enjoy certain rights in foreign affairs. It will run its own party, political, military, economic, financial and cultural affairs. It may keep its military forces and the central government will not dispatch troops or administrative personnel to the island. On the other hand, representatives of the government of the special administrative region and those from different circles of Taiwan may be appointed to senior posts in the central government and participate in the running of national affairs. Although the PRC first proposed the "one country, two systems" notion with Taiwan in mind, it has since implemented the approach in two other jurisdictions: Hong Kong, a former British colony that returned to Chinese sovereignty as a Special Administrative Region (SAR) of the PRC in 1997, and Macao, a former Portuguese colony that returned to Chinese sovereignty as an SAR of the PRC in 1999. Many observers believe that through its intervention in political and judicial matters in Hong Kong since 1997, the PRC has undermined whatever appeal the "one country, two systems" might once have had for Taiwan. The 2000 PRC White Paper states that, "the Chinese Government acknowledges the differences" between Taiwan and the two former colonies, and "is prepared to apply a looser form of the 'one country, two systems' policy in Taiwan than that in Hong Kong and Macao," with "looser" undefined. In March 2005, the PRC's legislature, the National People's Congress, passed an Anti-Secession Law codifying PRC policy toward Taiwan, including the threat of use of force. Article 2 reiterates the PRC's one-China principle, namely that, "There is only one China in the world. Both the mainland and Taiwan belong to one China. China's sovereignty and territorial integrity brook no division." Articles 5 and 7 focus on the prospect of "peaceful reunification." Article 5 commits the PRC to work "with maximum sincerity to achieve a peaceful reunification," and states that, "After the country is reunified peacefully, Taiwan may practice systems different from those on the mainland and enjoy a high degree of autonomy." Article 7 states that, "The state stands for the achievement of peaceful reunification through consultations and negotiations on an equal footing between the two sides of the Taiwan Straits." It authorizes consultation and negotiation on such issues as "officially ending the state of hostility between the two sides," "the political status of the Taiwan authorities," and an international profile for Taiwan "that is compatible with its status." In the meantime, Article 6 directs the state to promote people-to-people and other exchanges, closer economic ties, and law enforcement cooperation between mainland China and Taiwan in order "to maintain peace and stability in the Taiwan Straits and promote cross-Straits relations." International attention to the Anti-Secession Law has focused on Articles 8 and 9, which outline conditions for the use of force—described as "non-peaceful means"—to bring about unification. Article 8 In the event that the "Taiwan independence" secessionist forces should act under any name or by any means to cause the fact of Taiwan's secession from China, or that major incidents entailing Taiwan's secession from China should occur, or that possibilities for a peaceful reunification should be completely exhausted, the state shall employ non-peaceful means and other necessary measures to protect China's sovereignty and territorial integrity. The State Council and the Central Military Commission shall decide on and execute the non-peaceful means and other necessary measures as provided for in the preceding paragraph and shall promptly report to the Standing Committee of the National People's Congress. Article 9 In the event of employing and executing non-peaceful means and other necessary measures as provided for in this Law, the state shall exert its utmost to protect the lives, property and other legitimate rights and interests of Taiwan civilians and foreign nationals in Taiwan, and to minimize losses. At the same time, the state shall protect the rights and interests of the Taiwan compatriots in other parts of China in accordance with law. The legislation does not define "secession," or "major incidents entailing Taiwan's secession." Nor does it offer any guidelines as to how the PRC might evaluate whether "possibilities for a peaceful reunification" are "completely exhausted." The U.S. Department of Defense observes of Article 8 that, "The ambiguity of these 'redlines' preserves China's flexibility." PRC commentators do not appear to expect President Tsai to declare Taiwan independent of mainland China. They allege, however, that she seeks to separate Taiwan from mainland China through a gradual process of "soft independence" or "cultural independence" involving efforts to downplay Taiwan's Chinese identity, a program the PRC calls "de-sinicization," and to emphasize instead the island's distinct identity as a product of multiple cultural influences, including aboriginal, Dutch colonial, Japanese colonial, and Chinese. In April 2017, a spokesperson for the PRC's Taiwan Affairs Office charged that the Tsai Administration had not only failed to accept the 1992 Consensus, but also "indulged and supported a series of activities aimed at 'de-sinicization' and 'Taiwan independence.' It has also obstructed cross-strait exchanges and sought to turn people from both sides against each other." In his October 18, 2017 report to the Communist Party of China's 19 th Congress, Communist Party General Secretary and PRC President Xi Jinping declared, "Resolving the Taiwan question to realize China's complete reunification is the shared aspiration of all Chinese people, and is in the fundamental interests of the Chinese nation." Xi re-stated the PRC's commitment to the principles of "peaceful reunification" and "one country, two systems." In a clear reference to Taiwan's ruling DPP, Xi also reiterated the PRC's preconditions for a return to dialogue with Taiwan. So long as they "[r]ecognize the historical fact of the 1992 Consensus and that the two sides belong to one China," Xi said, "no political party or group in Taiwan will have difficulty conducting exchanges with the mainland." Reaching out to residents of Taiwan, Xi stated, " ... we respect the current social system and way of life in Taiwan and are ready to share the development opportunities on the mainland with our Taiwan compatriots first." He promised that "over time" the PRC would allow people from Taiwan to "enjoy the same treatment as local people when they pursue their studies, start businesses, seek jobs, or live on the mainland.... " Projecting a harder line, Xi stated, "We have the resolve, the confidence, and the ability to defeat separatist attempts for 'Taiwan independence' in any form." Repeating an applause line from his August 1, 2017 speech marking the 90 th anniversary of the People's Liberation Army, Xi added, "We will never allow anyone, any organization, or any political party, at any time or in any form, to separate any part of Chinese territory from China." President Tsai's Democratic Progressive Party embraces a strong Taiwanese identity. The Party has long been associated with support for Taiwan's status as a sovereign country separate from mainland China. In an October 1991 revision to its party platform, the DPP called for "establishment of a sovereign, independent Republic of Taiwan," through referendum. In its 1999 Resolution on Taiwan's Future, the DPP declared, "Taiwan is a sovereign, independent country. Any change to the independent status quo must be decided by all the residents of Taiwan through referendum." It also stated, "Taiwan does not belong to the People's Republic of China. The 'one-China principle' and 'one country, two systems' unilaterally advocated by China absolutely do not apply to Taiwan." Mindful of concerns in Washington, DC, and elsewhere that her party's history of support for independence might contribute to a sharp deterioration in cross-Strait relations, Tsai spoke cautiously about Taiwan's status on the campaign trail, and has continued that caution as president. She has neither endorsed nor refuted the "1992 Consensus" or the idea that Taiwan and mainland China are parts of "one China." As president, she has offered language that some in Taiwan hoped the PRC might interpret as a partial endorsement of the "one China" principle, had it wanted a face-saving way to continue negotiations with the DPP government. The PRC chose not to interpret Tsai's statements in that light. After taking office in May 2016, Tsai also appointed three members of Taiwan's main opposition party, the KMT, and an independent to powerful, high-profile positions in her government, part of an apparent effort to build bridges to the KMT and to Beijing. Responding to Beijing's calls for her to endorse the "1992 Consensus," Tsai said in her May 20, 2016, inauguration speech that she respected the "historical fact" that institutions from the mainland and Taiwan had met in 1992 and "arrived at various joint acknowledgements and understandings." She also said that the two sides had "accumulated outcomes" from twenty-plus years of interactions starting in 1992, and that both sides should "collectively cherish and sustain them." By offering a starting date of 1992, Tsai appeared to leave open the possibility that the "1992 Consensus" might be among the outcomes to be cherished. Tsai added that her government would "conduct cross-Strait affairs in accordance with the Republic of China Constitution, the Act Governing Relations Between the People of Taiwan Area and the Mainland Area, and other relevant legislation," referencing documents that treat mainland China and Taiwan as parts of a single China. In the next paragraph of her speech, however, Tsai challenged the PRC interpretation of two key issues, the nature of the "political foundation" for the cross-Strait relationship, and the core content of the "1992 Consensus." The PRC maintains that the "political foundation" for relations is "adhering to the 1992 Consensus and opposing 'Taiwan independence,'" and it states that the core meaning of the "1992 Consensus" is that "both the Mainland and Taiwan belong to one and the same China and that cross-Straits relations are not state-to-state relations." By contrast, Tsai said: By existing political foundations, I refer to a number of key elements. The first element is the fact of the 1992 talks between the two institutions representing each side across the Strait (SEF & ARATS), when there was joint acknowledgement of setting aside differences to seek common ground. This is a historical fact. The second element is the existing Republic of China constitutional order. The third element pertains to the outcomes of over twenty years of negotiations and interactions across the Strait. And the fourth relates to the democratic principle and prevalent will of the people of Taiwan. Notably, Tsai suggested that the "joint acknowledgement" from 1992 was not that mainland China and Taiwan were parts of "one China," but rather that the two sides would be "setting aside differences to seek common ground." Responding to Tsai's Inaugural Address, the head of the Communist Party of China Central Committee's Taiwan Work Office, who doubles as head of the PRC's Taiwan Affairs Office (TAO), asserted that Tsai had not satisfied Beijing with her remarks. ...[S]he was ambiguous about the fundamental issue, the nature of cross-Strait relations, an issue that is of utmost concern to people on both sides of the Taiwan Straits. She did not explicitly recognize the 1992 Consensus and its core implications, and made no concrete proposal for ensuring the peaceful and stable growth of cross-Straits relations. Hence, this is an incomplete test answer. In her next major speech to tackle the cross-Strait relationship, her October 10, 2016, speech marking the ROC's 105 th National Day, Tsai stated her desire "to establish a consistent, predictable and sustainable cross-Strait relationship, and to maintain both Taiwan's democracy and the status quo of peace across the Taiwan Strait." Tsai called for the two sides to "sit down and talk as soon as possible." She stated, though, that Taiwan "will not bow to pressure." By defining the status quo as "peace," Tsai again challenged a PRC definition of a key concept. The PRC argues that the "1992 Consensus" is "an important part of the status quo of cross-Strait ties." In her year-end press conference in 2016, Tsai acknowledged the worsening of relations between the mainland and Taiwan. ...[I]n the past few months, it has been the general feeling of the Taiwanese people that the rational and calm position that both sides have worked hard to maintain has seen certain changes. Step by step, Beijing is going back to the old path of dividing, coercing, and even threatening and intimidating Taiwan. We hope this does not reflect a policy choice by Beijing, but must say that such conduct has hurt the feelings of the Taiwanese people and destabilized cross-strait relations. In June 2017, after Panama broke diplomatic relations with Taiwan and established them with the PRC, Tsai accused Beijing of challenging the status quo of peace and stability. I also want to use this opportunity to declare to Beijing: Taiwan has already upheld our responsibility for maintaining cross-strait peace and stability. In contrast, China's actions have challenged the cross-strait status quo. This is unacceptable to the people of Taiwan. And we will not sit idle as our national interests are repeatedly threatened and challenged. Coercion and threats will not bring the two sides closer. Instead, they will drive our two peoples apart. On behalf of the 23 million people of Taiwan, I declare that we will never surrender to such intimidation. In her National Day remarks on October 10, 2017, President Tsai adopted a less confrontational tone. "We remain committed to maintaining peace and stability both in the Taiwan Strait and across the region," she said. "Meanwhile, we will continue to safeguard Taiwan's freedom, democracy, and way of life, as well as ensure the Taiwanese people's right to decide our own future." She called on leaders on both sides of the Taiwan Strait to "search for new modes of cross-Strait interactions with determination and patience." Taiwan's Kuomintang (KMT) was founded in mainland China in 1912, in the first year of the Chinese republic that succeeded the Qing Dynasty. Under its leader Chiang Kai-shek, it ruled mainland China from the 1920s until 1949, when the KMT forces lost a civil war to the Chinese Communist Party and Chiang ordered an evacuation to Taiwan. The KMT had ruled Taiwan since 1945, when Japan gave up its colonial rule of the island after its defeat in World War II. On Taiwan, the KMT maintained one-party rule until 1987. It retained power for the first dozen years after the introduction of democracy, losing the presidency for the first time in 2000. It regained the presidency from 2008 to 2016. The KMT's control of Taiwan's legislature was unbroken until 2016, when the party suffered a major defeat both the presidential and legislative elections. The KMT is now seeking to regroup under the leadership of former ROC Vice President Wu Den-yih, a "Taiwanese" whose family lived on the island before the arrival of the KMT. Wu was elected KMT Chairman in May 2017 and took office on August 20, 2017. The KMT has long embraced the idea that Taiwan and mainland China are both parts of a single country, though the party has insisted that the country is the Republic of China, not the PRC of the Communist Party of China. The cross-Strait policy of the most recent President from the KMT, Ma Ying-jeou, who served from 2008 to 2016, was to maintain a status quo that he defined as "no unification, no independence and no use of force." He also supported promotion of "peaceful cross-Strait development on the basis of the 1992 consensus, where by each side acknowledges the existence of 'one China,' but maintains its own interpretation of what that means." The KMT today criticizes President Tsai for declining to endorse the "1992 Consensus" and thus, the KMT argues, drawing Taiwan into unnecessary confrontation with the PRC. In two sets of remarks in October 2017, AIT Chairman James Moriarty acknowledged that, "the current cross-Strait relationship suffers from a lack of trust and communication." He said that, "The United States will continue to urge both sides to engage in constructive dialogue and to demonstrate patience, flexibility, and creativity in finding ways to engage with each other, in order to avoid miscalculation and resolve their differences." Moriarty also offered rare explicit U.S. endorsement of President Tsai's approach to the cross-Strait relationship. "My interactions with President Tsai have reaffirmed my conviction that she is a responsible, pragmatic leader," Moriarty said. "The United States appreciates her determination to maintain stable cross-Strait ties in the face of increasing pressure from the PRC on a number of fronts." Re-stating long-standing U.S. policy, Moriarty added that, "The United States will continue to insist on the peaceful resolution of differences between the PRC and Taiwan in a manner that is acceptable to the people on both sides of the Strait. There should be no unilateral attempts by either side to change the status quo." In June 2016, the PRC announced that it had suspended "communication mechanisms" with Taiwan because of President Tsai's "failure to recognize the 1992 Consensus." The suspension officially applies to communication between the official bodies on each side tasked with cross-Strait relations—the PRC's Taiwan Affairs Office (TAO) and Taiwan's Mainland Affairs Council (MAC)—as well as communication between two semi-official organizations—the PRC's Association for Relations Across the Taiwan Strait (ARATS) and Taiwan's Straits Exchange Foundation (SEF). Although communication between the leaders of the TAO and MAC has been suspended, low-level working level communications between agencies on each side of the Taiwan Strait, ranging from tourism authorities to the police, appear to continue. The PRC also continues to engage with members of Taiwan's opposition KMT party, which embraces the "1992 Consensus," and to participate in cross-Strait exchanges such as the annual Shanghai-Taipei Forum. Other actions Beijing has taken to pressure President Tsai to embrace "one China" include the following. On June 12, 2017, Beijing established diplomatic relations with Panama, which had been one of Taiwan's most significant diplomatic allies. Panama's switch of recognition to Beijing followed that of Sao Tome and Principe, in December 2016, and the Gambia, in March 2016. Twenty countries continue to maintain diplomatic relations with Taiwan, including the Holy See. (See " Diplomatic Partners ," below.) The PRC has pressured several countries in which Taiwan has unofficial trade offices to require that those trade offices drop "Republic of China" or "Taiwan" from their names, and use the city name "Taipei" instead. (See " Taiwan Representative Offices Abroad ," below.) In May 2017, Beijing blocked an invitation to Taiwan to attend the annual meeting of the World Health Assembly (WHA), the governing body of the World Health Organization, as an observer. Taiwan had attended WHA meetings from 2009 to 2016. (See " World Health Assembly/World Health Organization " below.) In December 2016, under pressure from Beijing, the International Civil Aviation Organization declined to invite Taiwan to its triennial meeting as a guest of its president. A Taiwan representative attended in 2013. (See " International Civil Aviation Organization (ICAO) " below.) Also in May 2017, delegates from the PRC forced the ejection of a Taiwan delegation from an Intersessional Meeting in Perth, Australia of participants in the Kimberley Process, a partnership between governments and the diamond industry to control rough diamond production and trade. A "participants and observers" page on the Kimberley Process website lists the names of countries and the European Union. A note at the bottom of the page states, "The rough diamond-trading entity of Chinese Taipei has also met the minimum requirements" of the Kimberley Process Certification Scheme. PRC military aircraft and warships are increasingly operating close to Taiwan, at times entering Taiwan's Air Defense Identification Zone (ADIZ). The PRC's Liaoning aircraft carrier has sailed through the Taiwan Strait twice in 2017. Its only previous passage through the Taiwan Strait was in 2013. Asked in September 2017 about People's Liberation Army aircraft circumnavigating Taiwan, a PRC Ministry of National Defense spokesperson stated that "the relevant air force training is part of the annual training plan of the PLA air force, and similar trainings will continue in the future." He added, "for those people who feel worried, I want to say, there is no need to fear or worry as long as one does not seek 'Taiwan independence.'" The number of tourists from mainland China visiting Taiwan has declined since President Tsai took office. According to the Taiwan Tourism Bureau, the number of mainland China-based visitors to Taiwan in 2016 fell 16% over 2015, to 3.5 million. In 2017, compared to the same month a year earlier, mainland tourism declined 30% in January, 50% in February, 45% in March, 43% in April, 38% in May, and 30% in June, and 21% in July. The PRC has not acknowledged ordering tourists to stay away, but its state media has highlighted the reported negative impact of lower mainland tourist numbers on the Taiwan tourism industry and linked the phenomenon to President Tsai's policies. The PRC's state news agency, Xinhua, noted in May 2017 that, "The lull [in tourism from mainland China] follows the election of Taiwan's new leader Tsai Ing-wen, who assumed office last May. Tsai has refused to adhere to the 1992 Consensus, angering people on both sides of the Strait." In multiple cases over the last year, the PRC has insisted that Taiwanese suspected of fraud and other wrongdoing in foreign countries be repatriated to the PRC, rather than Taiwan. Some foreign countries, including Cambodia, Indonesia, Kenya, and Vietnam, have complied. On September 11, 2017, a PRC court tried a Taiwan citizen, activist Lee Ming-che, on charges of "subversion of state power," the first time anyone from Taiwan is known to have faced such charges. Represented by a court-appointed lawyer after being denied the right to appoint his own, Lee pled guilty to the subversion charge and is awaiting sentencing. He reportedly told the court, "I regarded biased and malicious reports about the Chinese mainland by media in the West and Taiwan as reality, and had no clear knowledge of the mainland's development." According to the PRC's Xinhua News Agency, the indictment against Lee charged that he and a mainland Chinese co-conspirator "attempted to overturn state power and the socialist system through unscrupulous distortion of the facts and by fanning public hostility against the government and its system," using instant messaging services. The case has created a political firestorm in Taiwan. Lee, who was employed by Wenshan Community College in Taipei, was first detained in the PRC's Hunan Province in March 2017. Taiwan's Premier, William Lai, has called for Lee's quick release and return to Taiwan. The PRC (including Hong Kong) is Taiwan's largest merchandise export market, accounting for 40% of its global exports in 2016. Due to slowing economic growth in mainland China, however, Taiwan's exports to the PRC (including Hong Kong) fell by 12.3% in 2015 and by 0.2% in 2016. Many analysts believe mainland China to be Taiwan's largest destination for foreign direct investment (FDI), although the exact level remains unknown. According to Taiwan's Mainland Affairs Council, approved Taiwan FDI flows to mainland China in 2016 were $9.1 billion and the stock of Taiwanese FDI in mainland China from 1991 to 2016 totaled $164.6 billion. The administration of President Ma Ying-jeou (2008-2016) sought to boost commercial ties with mainland China. President Ma sought to help Taiwan firms take advantage of the opportunities arising from the PRC's large and rapidly growing economy. One consideration for Ma appears to have been the hope that with expanded Taiwan-mainland China commercial ties, the PRC might lessen its opposition to Taiwan's attempts to negotiate free trade agreements (FTAs) with other economies. After taking office in 2008, Ma lifted restrictions on direct trade, transportation, and postal links. He also negotiated an Economic Cooperation Framework Agreement (ECFA) with the PRC, described as a plan to significantly liberalize trade and investment barriers over time. ECFA, agreed to in June 2010, identified four follow-on agreements for negotiation: trade in goods, trade in services, investment, and dispute settlement. Following the signing of the ECFA, the PRC appeared to lessen its opposition to Taiwan seeking trade agreements with other countries, referred to as "economic cooperation agreements." Taiwan concluded such agreements with New Zealand and Singapore in 2013. Cross-Strait trade relations soured in the spring of 2014, however, when the Legislative Yuan's consideration of a cross-straits Trade in Services Agreement (TiSA) led to widespread protests, known as the "Sunflower Movement," and forced the government to suspend a vote on TiSA, and subsequently to suspend discussions on a trade in goods agreement between the two sides. Opposition to the TiSA appears to have been driven in part by anxiety over Taiwan's increased dependence on mainland China's economy, as well as concerns that growing economic integration threatened the competitiveness of many Taiwan industries. President Tsai's May 2016 inaugural address indicated her intention to lessen Taiwan's economic dependence on mainland China through a number of domestic and foreign economic initiatives. The new administration will pursue a new economic model for sustainable development based on the core values of innovation, employment and equitable distribution. The first step of reform is to strengthen the vitality and autonomy of our economy, reinforce Taiwan's global and regional connections, and actively participate in multilateral and bilateral economic cooperation as well as free trade negotiations including the TPP [Trans-Pacific Partnership] and RCEP [Regional Comprehensive Economic Partnership]. We will also promote a "New Southbound Policy" in order to elevate the scope and diversity of our external economy, and to bid farewell to our past overreliance on a single market. Democracy in Taiwan has evolved rapidly since then-President Chiang Ching-kuo lifted martial law in 1987. U.S. officials regularly laud Taiwan's democratic achievements. AIT Chairman James Moriarty, speaking in July 2017, stated that, "Taiwan stands as a beacon of democracy in Asia, offering a compelling example not only for Asia, but for the world." The U.S.-Taiwan relationship is sustained, in part, he said, by "the mutual respect for democracy, human rights, and civil liberties." In September 2017, Principal Deputy Assistant Secretary of Defense for Asian and Pacific Security Affairs David Helvey described Taiwan as, "a model for the region and the world with its market economy and its vibrant, prosperous, free, and orderly democratic society." He stated that "shared values are an essential, core component of the U.S.-Taiwan relationship." The Taiwan entry in the State Department's Country Reports on Human Rights Practices for 2016 states that Taiwan's authorities "generally respected" freedom of speech and press. The report noted that, "An independent press, an effective judiciary, and a functioning democratic political system combined to promote freedom of speech and press." Discussing January 2016 presidential and legislative elections, the State Department report stated that, "Observers regarded the elections as free and fair, although there were allegations of vote buying by candidates and supporters of both major political parties." As a result of those elections, Taiwan now has its first female president and women make up a record 38% of the legislature, the Legislative Yuan. Among the female legislators is Taiwan's first immigrant lawmaker, who was born in Cambodia. In the State Department's 2017 Trafficking in Persons Report, Taiwan maintained its Tier One status for the eighth consecutive year. The rating means that the State Department judges Taiwan to be fully meeting the Trafficking Victims Protection Act's minimum standards for the elimination of trafficking. The report credited Taiwan with "serious and sustained efforts," but noted that "in many cases judges sentenced traffickers to lenient penalties not proportionate to the crimes, weakening deterrence and undercutting efforts of police and prosecutors." Freedom House, which describes itself as "an independent watchdog organization dedicated to the expansion of freedom and democracy around the world," rated Taiwan "free" in its "Freedom in the World 2017" rankings. It was one of 87 polities in the world that Freedom House rated "free." The organization gave Taiwan an aggregate score of 91 points for political rights and civil liberties, with 100 being "most free" and 0 "least free." The organization judged China to be "not free," with an aggregate score of 15. In its entry on Taiwan, Freedom House stated, Taiwan's vibrant and competitive democratic system has allowed three peaceful transfers of power between rival parties since 2000, and protections for civil liberties are generally robust. Ongoing concerns include Chinese efforts to influence policymaking and some sectors of the economy, foreign migrant workers' vulnerability to exploitation, and disputes over the land and housing rights of both ordinary citizens and Taiwan's indigenous people. Taiwan has evolved to become a highly developed, dynamic, and globally competitive economy. In 2016, Taiwan's gross domestic product (GDP) on a purchasing power parity (PPP) basis was $1.1 trillion, making it the world's 21 st -largest economy. Its per capita GDP on a PPP basis, a common measurement of living standards, was $48,100, 15% greater than Japan's and about 73% of the U.S. level. In 2016, Taiwan was the world's 19 th -largest trading economy. The World Economic Forum (WEF), a Switzerland-based non-profit organization, in 2016 ranked Taiwan as the 14 th most competitive economy out of 138 economies surveyed, based on an assessment of institutions, policies, and factors that determine the level of productivity of an economy and, in turn, its prosperity. A 2017 survey by the Importers and Exporters Association of Taipei (IEAT) assessed Taiwan to have the 16 th most competitive trading economy out of 54 major countries surveyed, down from ninth in the 2011 survey. (The United States ranked first.) Taiwan's GDP growth has been relatively slow in recent years, rising by 0.7% in 2015 and 1.5% in 2016. The Economist Intelligence Unit (EIU) projects Taiwan's real GDP will grow by 2.2% in 2017 (see Figure 2 ). Taiwan's economy depends on international trade. Taiwan's exports of goods and services in 2016 totaled $331 billion, equivalent to 63% of its nominal GDP. In 2015, Taiwan's global merchandise exports and imports fell by 10.6% and 16.6%, respectively, and each barely changed in 2016. However, during the first seven months of 2017, Taiwan's exports and imports grew by 12.5% and 14.9% respectively (see Figure 3 ). Taiwan faces a number of economic challenges, including declining competitiveness for many industries, inability to participate in various regional trade agreements, stagnant wages, and lack of job opportunities for some college graduates. While the island-wide rate of unemployment in Taiwan is relatively low at 3.8% (as of July 2017), the rate for those aged 20-24 is 13%. Many young Taiwan professionals have sought better-paying positions elsewhere, including in mainland China. The Taiwan government reports that more than 720,000 Taiwan citizens are working outside the island, 58% of them in mainland China. Nearly three-quarters of those workers have college degrees or higher. Taiwan's share of global merchandise exports fell from a peak of 2.5% in 1993 to 1.6% in 2016. Taiwan officials attribute this trend in part to the proliferation of bilateral and regional trade agreements (RTAs), especially among other major Asia-Pacific economies. Taiwan is currently not a party to these RTAs, in large part because Beijing pressures other countries not to sign trade deals with Taiwan. Taiwanese officials have expressed concern that Taiwan's exclusion from RTAs could harm the long-term competitiveness of many Taiwan industries, which could reduce trade flows and diminish economic growth. Taiwan has reportedly sought free trade agreements (FTAs) and/or bilateral investment agreements (BIAs) with several countries, including the United States, Japan, the United Kingdom, the European Union, and Australia. The January 2017 U.S. withdrawal from the TPP appears to have complicated Taiwan's strategy for joining the TPP. Taiwan had sought U.S. support for its eventual membership. A key Taiwan government initiative aimed at boosting domestic innovation, economic growth, and job creation is the "five plus two" innovative industries program. The first five industries are the "Internet of Things," smart machinery, biotechnology and pharmaceuticals, green energy technology, and national defense. The "plus two" industries are high-value agriculture and the circular economy (dealing with recycling and re-use of resources). In addition, Taiwan's Executive Yuan in May 2017 approved an eight-year $58 billion "Forward-Looking Infrastructure Development Program" focused largely on investments in railways, aquatic environments, green energy, digital technology, and urban and rural facilities. Externally, Taiwan's government has launched a New Southbound Policy, aimed at reducing economic dependence on the PRC and "developing comprehensive, mutually beneficial relations with countries in the Association of Southeast Asian Nations and South Asia, Australia and New Zealand" through economic and trade collaboration, people-to-people exchanges, resource sharing, and regional connectivity. Challenges for the program include pressure from the PRC on Southeast Asia countries not to cooperate with Taiwan, and Taiwan's lack of representative offices in two target countries for the New Southbound Policy, Cambodia and Laos. Still, Taiwan's strategy to diversify its economic ties may have led to positive results in the case of foreign tourism in Taiwan. In 2016, the number of mainland Chinese tourists to Taiwan fell by 16.2% over the previous year, but an increase in tourists from elsewhere, mainly from Asia, helped boost the overall level of inbound tourists to Taiwan by 2.4%. Taiwan maintains full diplomatic relations with 20 states. During President Ma's administration (2008-2016), the PRC and the ROC suspended efforts to persuade each other's diplomatic partners to switch their allegiance, a practice sometimes known as "dollar diplomacy." In March 2016, two months before President Tsai took office, Beijing announced that it was re-establishing diplomatic relations with The Gambia, a former diplomatic partner of Taiwan. Although The Gambia broke relations with Taipei in 2013, China had previously deferred the country's request to establish relations with Beijing in an apparent gesture of goodwill toward President Ma. Since President Tsai took office in May 2016, two more countries that previously recognized Taiwan have switched diplomatic recognition to Beijing, Sao Tome and Principe, in December 2016, and Panama, in June 2017. In the Tsai Administration, analysts are closely monitoring the status of engagement between the Holy See and the PRC. The two have long explored the possibility of establishing diplomatic relations, but have never been able to resolve differences over China's religious policy. The Holy See is a particularly important partner for Taiwan because of the Catholic Church's influence across Latin America, and because the Holy See is Taiwan's only diplomatic partner in Europe. As of September 2016, Taiwan boasted 94 unofficial representative offices in 58 countries, including 12 offices in the United States (including Guam). Taiwan also maintains a mission at the World Trade Organization's headquarters in Geneva, known as the "Permanent Mission of the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu to the World Trade Organization." Taiwan hosted 69 embassies and representative offices from countries around the world, as well as the European Union. In January 2017, Japan, which is Taiwan's third largest trading partner, changed the name of its representative office in Taiwan from "Interchange Association, Japan" to the "Japan-Taiwan Exchange Association." The PRC criticized the new name for including the word "Taiwan." Since President Tsai entered office, the PRC has pressured several countries in which Taiwan has unofficial representative offices to require that those offices drop "Republic of China" or "Taiwan" from their names, and use the city name "Taipei" instead. Nigeria ordered a name change for Taiwan's representative office in January 2017, Dubai in May 2017, Ecuador in June 2017, and Bahrain in July 2017. (The "Trade Office of Taiwan to the Kingdom of Bahrain," for example, is now "Trade Office of Taipei to the Kingdom of Bahrain.") Under PRC pressure, Nigeria also ordered Taiwan's unofficial office to cut its staff and move out of the capital, Abuja, and ordered Taiwan's top representative to leave the country. Nigerian armed police sealed off the Abuja office on June 30. Taiwan still uses the "Republic of China (Taiwan)" name in Jordan, where its office is "Commercial Office of the Republic of China (Taiwan), Amman," and in Papua New Guinea, where its office is the "Trade Mission of the Republic of China (on Taiwan) in Papua New Guinea." On September 22, 2017, Taiwan's Executive Yuan announced that Premier Lai Ching-te had "approved a blanket suspension of bilateral trade between Taiwan and North Korea." A spokesperson said the move was "in response to the grave threat to national security and the international order posed by North Korea's recent moves," a reference to North Korea's nuclear and missile tests in violation of U.N. Security Council resolutions. Taiwan is not a member of the United Nations, so is not technically required to implement U.N. Security Council resolutions on North Korea. In his October 12, 2017 remarks, AIT Chairman Moriarty said, "We thank Taiwan for its recent decision to go beyond the requirements of the UN sanctions," by banning all trade with North Korea. Taiwan, Moriarty said, "has set a valuable example for the international community.... " In 2016, Taiwan reported goods imports of $12.2 million from North Korea, and goods exports of $507,000 to North Korea. In the first six months of 2017, Taiwan imported $1.2 million in goods from North Korea, and exported $26,600. Taiwan is one 73 partners in the Global Coalition to Counter the Islamic State of Iraq and Syria (ISIS), and one of eight partners in Asia. President Obama announced the coalition's formation on September 10, 2014. Taiwan's participation was facilitated by the fact that the coalition is not a United Nations body and the PRC is not a coalition partner. Coalition meetings provide Taiwan officials with rare opportunities to sit at tables with senior officials of dozens of countries, most prominently the United States. At a March 22, 2017, meeting of the ministers of the coalition at the U.S. State Department, for example, Taiwan's Representative in the United States, Stanley Kao, was able to interact U.S. Secretary of State Rex Tillerson, as well as a prime minister, five deputy prime ministers, some four dozen foreign ministers, and the European Union's High Representative for Foreign Affairs and Security Policy. In 2015, as a member of the coalition, Taiwan donated 350 pre-fabricated houses for use by displaced families in northern Iraq, "delivered promptly in collaboration with the U.S." AIT Chairman James Moriarty announced in October 2017 that AIT is working with Taiwan "to finalize an additional contribution to support humanitarian survey and ordnance clearance operations in liberated cities" in Iraq and Syria. At Beijing's insistence, the United Nations and its affiliated organizations all bar Taiwan from membership. Taiwan is a full member of such bodies as the World Trade Organization (WTO), the Asian Development Bank (ADB), and the Asia-Pacific Economic Cooperation (APEC) forum, but as an economy or a separate customs territory, not a state, and not under the name "Taiwan." In the WTO, Taiwan is the "Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu," also known as "Chinese Taipei." Taiwan was a founding member of the ADB, as the Republic of China, but when the PRC joined the organization in 1986, Taiwan was forced to accept a name change to "Taipei, China." In APEC, which Taiwan joined at the same time as the PRC, Taiwan is "Chinese Taipei." Since the 1994 Taiwan Policy Review, U.S. policy has been to support Taiwan's membership in international organizations for which statehood is not a requirement for membership, and to encourage "meaningful participation" for Taiwan in organizations for which statehood is a requirement for membership. The United States has been active in supporting Taiwan's participation in myriad international organizations, sometimes in a role mandated by Congress. Frequently, however, the PRC exercises an effective veto over Taiwan's participation. Congress has passed multiple pieces of legislation pressuring the executive branch to implement that policy with respect to specific international organizations, including the World Health Assembly (WHA), the governing body of the World Health Organization ( P.L. 107-10 , P.L. 107-158 , P.L. 108-28 , and P.L. 108-235 ); the International Civil Aviation Organization (ICAO) ( P.L. 113-17 ); and the International Criminal Police Organization (INTERPOL) ( P.L. 114-139 ). Taiwan lost its United Nations membership, in the name of the Republic of China, in 1971, at the 26 th Session of the U.N. General Assembly. Resolution 2758 recognized that "the representatives of the Government of the People's Republic of China are the only lawful representatives of China to the United Nations" and decided "to expel forthwith the representatives of Chiang Kai-shek from the place which they unlawfully occupy at the United Nations and in all the organizations related to it." The United Nations and U.N. specialized agencies, a category defined as "autonomous organizations working with the United Nations," have long interpreted the language of Resolution 2758 as barring Taiwan from membership in the United Nations and U.N. specialized agencies. In Taiwan, however, the meaning of Resolution 2758 remains contested. Some note that the resolution established the PRC as "the only legal representatives of China to the United Nations," but did not state that Taiwan was part of the PRC. Some note that the resolution expelled "the representatives of Chiang Kai-shek," but did not explicitly expel representatives of "the Republic of China" or "Taiwan." In a September 2017 article, Taiwan's Foreign Minister, David Ta-wei Lee, wrote that, "It is important to remember that, while it seated the People's Republic of China (PRC) in the UN, this resolution did not address the issue of representation of Taiwan and its people in the organization; much less did it give the PRC the right to represent the people of Taiwan." Between 1993 and 2006, Taiwan sought annually to regain membership in the United Nations, first under the name "Republic of China," and then in 2007 under the name "Taiwan." Taiwan's diplomatic allies submitted repeated requests for a review of Resolution 2758, but never succeeded in having the issue included on the General Assembly's agenda. In March 2008, outgoing Taiwan President Chen Shui-bian of the DPP sought to put the issue before Taiwan voters, presenting them with two referendum questions supporting efforts to rejoin or join the United Nations. The referenda were declared void due to low voter participation. The 2007 U.N. bid and the 2008 referenda elicited statements of opposition to Taiwan's U.N. membership from both then-U.N. Secretary General Ban Ki Moon and from the United States. Ban, in a letter to a diplomatic partner of Taiwan, reportedly stated that the U.N. considers "Taiwan for all purposes to be an integral part of the People's Republic of China." In June 2007, a State Department spokesperson said the United States was opposed to "any initiative that appears designed to change Taiwan's status unilaterally" and that, "consistent with our one China policy, we do not support Taiwan's membership in international organizations that require statehood, including the United Nations." Dennis Wilder, National Security Council Senior Director for Asia in the President George W. Bush Administration, stated, "Membership in the United Nations requires statehood. Taiwan, or the Republic of China, is not at this point a state in the international community." In his September 2017 article, Taiwan Foreign Minister Lee noted that restrictions on Taiwan's participation in the U.N. extend beyond government representatives to affect Taiwan non-governmental organizations and journalists, as well: For years, representatives from Taiwan's many nongovernmental organizations involved in indigenous, labor, environmental and women's rights have been barred from attending meetings and conferences held at the UN's New York headquarters and at the Palais des Nations in Geneva simply because they hail from Taiwan. Similarly, to the outrage of the international press community, Taiwanese journalists are not allowed to cover UN meetings in person. He called for the international community to support Taiwan's "aspirations and our right to fair treatment by the U.N.," adding, "At the very least, stop turning us away at the door." The World Health Organization is a United Nations specialized agency that is "the directing and coordinating authority on international health within the United Nations system." The PRC replaced Taiwan in the World Health Organization (WHO) in 1972, under the terms of World Health Assembly resolution WHA25.1, whose language echoed that of U.N. General Assembly Resolution 2758 (XXVI). Within the WHO, Taiwan is now referred to as "the Taiwan Province of China." An internal 2010 WHO memorandum leaked in 2011 to the Taiwan media states that the WHO Secretariat considers itself to have an obligation "of refraining from actions which could constitute or be interpreted as recognition of a separate status of Taiwanese authorities and institutions from China." The memorandum instructs that, "Information related to the Taiwan Province of China must be listed or shown as falling under China and not separately as if they referred to a State." After its expulsion from the WHO, Taiwan first sought observer status in the World Health Assembly (WHA), the governing body of the WHO, in 1997. It attended its first WHA as an observer, under the name "Chinese Taipei," in 2009, at the start of the Ma Ying-jeou Administration. The WHO Director-General issued an invitation to Taiwan's health minister to attend the WHA as an observer each year of the Ma Administration, from 2009 to 2016, although the invitation required PRC approval. In 2017, as part of an apparent effort to pressure President Tsai to commit to the principle that Taiwan is part of "one China," the PRC blocked the WHO from issuing Taiwan an invitation to attend the 70 th WHA meeting as an observer. In his address to the WHA, then-U.S. Secretary of Health and Human Services Tom Price, M.D. expressed U.S. "disappointment" at the development. ...[W]e must express the United States' disappointment that, contrary to the custom of the past eight years, an invitation was not extended to Taiwan to observe this year's Assembly. The United States remains committed that Taiwan should not be excluded from WHO. P.L. 108-235 requires the Secretary of State to submit a report to Congress by April 1 each year "describing the United States plan to endorse and obtain observer status for Taiwan" at that year's WHA, including "an account of the efforts the Secretary of State has made, following the last meeting of the World Health Assembly, to encourage WHO member states to promote Taiwan's bid to obtain observer status." In the 115 th Congress, H.R. 3320 (Yoho) would amend the reporting requirement in P.L. 108-235 to add a mandate for, "An account of the changes and improvements the Secretary of State has made to the United States plan to endorse and obtain observer status for Taiwan at the World Health Assembly, following any annual meetings of the World Health Assembly at which Taiwan did not obtain observer status." According to the 2017 edition of the State Department report to Congress, the United States seeks not only "to secure Taiwan's regular Observer status in the WHA," but also "to support the participation of Taiwan in WHO's technical activities and its health safety and security work.... " Highlights of the 2017 report include the following statements: "The United States believes that Taiwan should be referred to as 'Taiwan' or 'Chinese Taipei' in both internal and external WHO communications..... The United States objects to the usage of the names 'Taiwan, Province of China,' 'Taiwan, China,' and other closely related nomenclature in WHO/WHA internal documents as well as in all other international organizations in which Taiwan participates." "The United States is concerned about restrictions the WHO appears to be imposing on Taiwan's meaningful participation in WHO technical bodies where the work is directly relevant to the 23 million residents of the island and to populations in the surrounding region." The report notes that in 2016, Taiwan requested invitations to attend 13 WHO technical meetings and received invitations to six. The report notes Taiwan's interest in working with five specific bodies and frameworks, and states that the United States "is actively working to support Taiwan's participation" in the International Food Safety Authorities Network (INFOSAN) "as an important next step in meaningful technical participation that would benefit the entire region." Like the World Health Organization, the International Civil Aviation Organization (ICAO) is a United Nations specialized agency. It "sets international rules on air navigation, the investigation of air accidents, and aerial border-crossing procedures." With the acquiescence of the PRC, in 2013 the then-President of the Council invited Taiwan to participate as his guest in the 38 th ICAO Assembly in Montreal. Cross-Strait relations were in a period of relative stability at the time. That year, too, Congress passed and the President signed P.L. 113-17 , requiring the Secretary of State to develop a strategy for Taiwan to obtain observer status at the Assembly in September 2013, and at "other related meetings, activities, and mechanisms thereafter." On January 1, 2014, ICAO elected a new Council President. In 2015, it appointed a new Secretary General, Dr. Fang Liu, a Chinese national. In May 2016, President Tsai took office in Taiwan. The PRC prevented the issuance of any invitation to Taiwan to participate in the 39 th ICAO Session Assembly, which took place September 27-October 7, 2016, in Montreal. Arguing for Taiwan's participation in ICAO, Stanley Kao, Taiwan's representative to the United States, wrote in a 2016 column that Taiwan's Taoyuan International Airport is among the busiest in the world, and yet Taiwan's Civil Aeronautics Administration "has had to resort to various informal channels to keep up with the development of ICAO's regulations and standards and overcome the difficulties associated with a lack of transparency in order to maintain adequate safety levels and service standards in the Taipei FIR [Flight Information Region]." APEC is a forum of Asia-Pacific economies that seeks "to build a dynamic and harmonious Asia-Pacific community by championing free and open trade and investment, [and] promoting and accelerating regional economic integration," among other goals. With the help of the George H.W. Bush Administration, Taiwan joined as a full member economy at the same time as the PRC, in November 1991. Taiwan's president is barred from attending APEC's annual economic leaders' meeting, however. Taiwan presidents have named special envoys to attend on their behalf, but the envoys have been effectively subject to PRC approval. The PRC rejected Taiwan's emissaries in 2001 and 2005, forcing Taiwan to miss the 2001 meeting and find an alternative special envoy in 2005. For the 2016 leaders' meeting, which took place in Lima, Peru on November 20, 2016, President Tsai named People First Party Chairman James Soong as her special envoy. Soong and China's President Xi met briefly at the meeting, a development that Taiwan Presidential Office spokesperson Alex Huang described as "a positive thing." Huang added, "We always welcome any interaction that would help both sides understand each other without political pre-conditions." The 2017 APEC Economic Leaders' Week is scheduled for November 6-11, 2017 in Da Nang, Vietnam. The Republic of China held membership in INTERPOL from 1923 until 1984, when China joined and insisted that the ROC delegation change its name and be demoted to a sub-bureau of China, a designation currently held by the Chinese Special Administrative Regions of Hong Kong and Macao. Rather than accept those conditions, Taiwan exited the organization. Beijing will host the 86 th INTERPOL General Assembly from September 25 to 29, 2017. INTERPOL's President, Meng Hongwei, is a PRC national who previously served as China's Vice Minister of Public Security. He was elected in November 2016 to a four-year term. P.L. 114-139 directed the Secretary of State to "develop a strategy to obtain observer status for Taiwan in INTERPOL and at other related meetings, activities, and mechanisms thereafter" and to "instruct INTERPOL Washington to officially request observer status for Taiwan in INTERPOL and to actively urge INTERPOL member states to support such observer status and participation for Taiwan." In a report required by the act, the Department of State said that, "For the sake of the international community's safety, the United States will continue to advocate strongly for Taiwan's meaningful engagement and participation in the activities of INTERPOL." The report noted that, Because Taiwan is not a member of INTERPOL, Taiwan has been unable to access pertinent INTERPOL law enforcement databases through INTERPOL's "I-24/7" secure communications system, including databases on wanted persons and information on stolen and lost travel documents. Although there is an indirect arrangement by which Taiwan's police agency can exchange information with the INTERPOL General Secretariat, this arrangement has proved to be insufficient, as the information received is often incomplete and untimely, leaving Taiwan and the rest of the world vulnerable to criminal activity. In the 2017 edition of its annual report on Congress on "Military and Security Developments Involving the People's Republic of China," the Department of Defense (DOD) states that the PRC's military, the People's Liberation Army (PLA), "continues to prepare for contingencies in the Taiwan Strait to deter and, if necessary, compel Taiwan to abandon moves toward independence, or to unify Taiwan with the mainland by force, while simultaneously deterring, delaying, or denying any third-party intervention on Taiwan's behalf." The DOD report outlines four possible courses of military action for the PRC against Taiwan: 1) blockades of maritime and air traffic to force Taiwan's capitulation; 2) a limited campaign of "disruptive, punitive, or lethal military actions" intended to "induce fear in Taiwan and to degrade the Taiwan population's confidence in their leaders"; 3) missile attacks and precision air strikes "to degrade Taiwan's defenses, neutralize Taiwan's leadership, or break the Taiwan people's resolve"; and 4) an amphibious invasion, which DOD says would entail "significant political and military risk" for the PRC. In its own 2017 Quadrennial Defense Review, Taiwan's Ministry of National Defense (MND) judges that, "The PLA now possesses the capability to impose a blockade on Taiwan and conduct multi-dimensional operations to seize our offshore islands." DOD notes that the balance of power across the Taiwan Strait continues to shift in the PRC's favor. In DOD's words, Taiwan faces the challenge of "declining defensive advantages." China's multi-decade military modernization effort has eroded or negated many of Taiwan's historical advantages in deterring PLA aggression, such as the PLA's inability to project sufficient power across the Taiwan Strait, the Taiwan military's technological superiority, and the inherent geographic advantages of island defense. Although Taiwan is taking important steps to build its war reserve stocks, grow its defense-industrial base, improve joint operations and crisis response capabilities, and strengthen its officer and noncommissioned officer corps, these improvements only partially address Taiwan's declining defensive advantages. The DOD report raises additional concerns about Taiwan's planned shift to an all-volunteer force by 2019, noting that, "The transition has led to additional personnel costs needed to attract and retain personnel under the volunteer system, diverting funds from foreign and indigenous acquisition programs, as well as near-term training and readiness." In its 2017 Quadrennial Defense Review, Taiwan's MND itself identifies challenges it faces as including "constrain[t]s in defense financial resources and manpower, difficulty in acquiring advanced weapons systems, increasing threats to cyber security, decreasing defense awareness in the public, and increasing incidents of complex emergencies," such as typhoons and earthquakes. On the issue of public awareness, the Review notes, "Due to ongoing economic, social, and cultural exchanges across the Taiwan Strait, many of our fellow citizens have gradually lost awareness that the two sides of the Strait remain military adversaries, and that the risk of war still exists." Ongoing PRC military reforms may reduce the likelihood of military action against Taiwan in the near term, according to two National Defense University China experts. They note that, " ... in the near term the PLA is likely to face a degree of organization disruption as new lines of authority are clarified, new leaders take their positions, and rank-and-file personnel seek to understand where they stand in the new organizational chart and what their roles will be." The result, the experts write, is that, " ... the PLA will be focused inward for the next few years, reducing its ability to fight a major war." Over the longer-term, however, if the reforms succeed in improving China's ability to conduct joint operations in multiple domains, the experts predict that, "The result could be a better-trained joint force that will pose an even greater threat to Taiwan's security." In 2016, the PRC's official defense budget of $144.3 billion was approximately 14 times that of Taiwan, at $10.5 billion. For 2018, Taiwan's Ministry of National Defense has proposed a defense budget of $10.79 billion, an increase of 1.9% over 2017. The figure represents 2.03% of Taiwan's 2016 nominal Gross Domestic Product (GDP) of $529.6 billion, and could fall below 2% of Taiwan's nominal GDP for 2017. The budget proposal marks a retreat from a pledge Taiwan's government made in March to increase defense spending to 3% of GDP. It also follows many years of stagnant or declining spending as a share of government spending and of GDP. The U.S. executive branch and congress have been united in urging Taiwan to spend more on defense. Speaking in October 2017, the Department of Defense's David Helvey stated that Taiwan's defense budget "has not kept pace" with Taiwan's changing security environment. "It needs to be increased and increased now," he said. Also speaking in October 2017, AIT Chairman Moriarty said Taiwan must address the issue of its defense budget "with real urgency." Moriarty observed that, "Taiwan is spending significantly less on defense as a percentage of GDP than others that face similarly sophisticated threats, such as Israel, South Korea, and Ukraine." Taiwan, he said, "can and must do better." In the House version of H.R. 2810 , the National Defense Authorization Act for FY2018, Section 1268(4) would state that it is the sense of Congress that "Taiwan should significantly increase its defense budget to maintain a sufficient self-defense capability." Before President Tsai took office, some commentators speculated that her party's strong Taiwan identity and ambivalent attitude toward the mainland-originated Republic of China might lead her to reevaluate Taiwan's relationship to maritime features claimed in the name of the Republic of China. In her May 20, 2016, inauguration speech, Tsai signaled no change in Taiwan's sovereignty claims. I was elected President in accordance with the Constitution of the Republic of China, thus it is my responsibility to safeguard the sovereignty and territory of the Republic of China; regarding problems arising in the East China Sea and South China Sea, we propose setting aside disputes so as to enable joint development. In the East China Sea, Taiwan claims sovereignty over five uninhabited islets and three reefs that Taiwan calls collectively the Diaoyutai Islets. The PRC and Japan also claim sovereignty over the features, which the PRC calls the Diaoyu Islands and Japan calls the Senkaku Islands. Japan administers them. Tensions between the PRC and Japan over the islets have remained high since September 2012, when Japan bought three of the islets from their private owners, a move that Taiwan and the PRC characterized as "nationalizing" the islets. In August 2012, Taiwan's then-President Ma Ying-jeou proposed an "East China Sea Peace Initiative." The initiative called for Japan, the PRC, and Taiwan "to replace confrontation with dialogue, shelve territorial disputes through negotiation, formulate a Code of Conduct in the East China Sea and engage in joint development of resources." Taiwan officials credited the spirit of the initiative for Taiwan and Japan's success in negotiating a fisheries agreement in 2013, ensuring the right of Taiwan and Japanese fishermen to fish in the waters around the islets. The agreement also established a bilateral fishing commission. The "nine-dash line" on PRC maps, laying an ambiguous claim to most of the South China Sea, is derived from an "eleven-dash line" that first appeared on ROC maps between 1946 and 1948. Both dashed lines encompass four island groups in the South China Sea: the Paracels (known in Chinese as the Xisha ), Spratlys ( Nansha ), Pratas ( Dongsha ), and Macclesfield Bank and Scarborough Shoal ( Zhongsha ). Both Taiwan and the PRC officially claim sovereignty over all four island groups. Taiwan physically occupies Taiping Island, also known as Itu Aba, the largest naturally formed feature in the Spratly island chain. Taiwan maintains a Coast Guard unit on Taiping Island, conducts regular drills there, and has built an airstrip. Taiping Island is also claimed by the PRC, the Philippines, and Vietnam. In July 2016, an arbitral tribunal constituted under the United Nations Convention on the Law of the Sea (UNCLOS) ruled that none of the geographic features in the Spratly island chain, including Taiping Island, was entitled to a 200- nautical mile Exclusive Economic Zone or to a Continental Shelf under UNCLOS. As recently as August 2017, Secretary of State Rex Tillerson joined his counterparts from Australia and Japan in issuing a joint statement that "noted the significance of the UNCLOS dispute settlement regime and the Tribunal's decision in discussions among parties in their efforts to peacefully resolve their disputes in the SCS [South China Sea]." Taiwan, however, continues to reject the ruling. A statement released by Taiwan's Presidential Office immediately after the ruling was issued argued The arbitral tribunal did not formally invite the ROC to participate in its proceedings, nor did it solicit the ROC's views. The decisions of the tribunal which impinge on the interests of the ROC, especially with regard to the status of Taiping Island, have seriously undermined the rights of the ROC over the South China Sea Islands and their relevant waters. The ROC government does not accept any decisions that undermine the rights of the ROC, and declares that they have no legally binding force on the ROC. Taiwan has not been a party to talks between the Association of Southeast Asian Nations (ASEAN) and the PRC aimed at forging a Code of Conduct for the South China Sea, an exclusion Taiwan blames on "China's relentless effort to suppress it internationally." In August 2017 remarks, however, President Tsai pledged that, "Despite our exclusion from South China Sea regional dialogue, Taiwan will nevertheless continue to safeguard freedom of navigation and overflight in the area." In the National Defense Authorization Act for FY2016 ( P.L. 114-92 ), Congress included Taiwan in the South China Sea Initiative, the purpose of which was described as, "increasing maritime security and maritime domain awareness of foreign countries along the South China Sea." The initiative targeted the countries of Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. The legislation also authorized payment of "incremental expenses" for training of personnel from Brunei, Singapore, and Taiwan. The 115 th Congress has passed one bill relating to Taiwan. The Consolidated Appropriation Act, 2017 ( P.L. 115-31 ) provides $31,963,000 to carry out the Taiwan Relations Act ( P.L. 96-8 ). Multiple bills are pending. The House and Senate versions of the National Defense Authorization Act for FY2018 ( H.R. 2810 ) would include provisions related to the executive branch's handling of arms sales requests from Taiwan, reciprocal port calls, and, in the case of the Senate amendment to H.R. 2810 , high-level military exchanges, Taiwan's participation in multilateral military exercises, and U.S. support to Taiwan to develop indigenous undersea warfare capabilities. S. 1620 (Cotton) would also include provisions related to high-level military exchanges, reciprocal port calls, and Taiwan's participation in multilateral military exercises. H.R. 2621 (Thornberry) would express the sense of Congress that the United States should continue to support humanitarian and disaster relief assistance to Taiwan. Among other bills, The Taiwan Travel Act ( S. 1051 (Rubio) and its companion, H.R. 535 (Chabot)) would include a sense of Congress provision stating that high-ranking U.S. and Taiwanese government officials should travel to each other's countries for meetings. S. 1051 would include an addition provision requiring the Secretary of State to provide a report to Congress on executive branch travel to Taiwan. H.R. 3320 (Yoho) would amend the requirements in P.L. 108-235 for an annual report describing the U.S. plan to endorse and obtain observer status for Taiwan at the annual meeting of the World Health Assembly. H.Res. 271 (Yoho) would encourage the United States Trade Representative to commence negotiations for a bilateral free trade agreement. Appendix A. The Six Assurances Appearing before the House and Senate to explain the August 17, 1982, U.S.-PRC joint communiqué, then-Assistant Secretary of State John H. Holdridge wove into his prepared statement a set of assurances that corresponded to what Taiwan's Ministry of Foreign Affairs said were assurances the Reagan Administration had offered privately to Taiwan's president a month earlier. A portion of Holdridge's testimony is reproduced below. CRS has used bold text to highlight the statements in the testimony that later became known as the "The Six Assurances." Excerpt of Testimony of John H. Holdridge, Assistant Secretary, Bureau of East Asian and Pacific Affairs, Department of State, before the Senate Committee on Foreign Relations , August 17, 1982 "Turning to the [August 17, 1982 U.S.-PRC joint communiqué] itself, let me recapitulate and emphasize a few key features, and then I will be happy to take your questions..... Fourth, we did not agree to set a date certain for ending arms sales to Taiwan , and the statements of future U.S. arms sales policy embodied in the communiqué do not provide either a timeframe for the reduction of U.S. arms sales or for their termination. The U.S. statements are fully consistent with the Taiwan Relations Act and we will continue to make appropriate arms sales to Taiwan based on our assessments of their defense needs. "... As to our position on the resolution of the Taiwan problem, we have consistently held that it is a matter to be worked out by the Chinese themselves. Our sole and abiding concern is that any resolution be peaceful. It follows that we see no mediation role for the United States nor will we attempt to exert pressure on Taiwan to enter into negotiations with the PRC . "I would also like to call your attention to the fact that there has been no change in our longstanding position on the issue of sovereignty over Taiwan . The communiqué, paragraph 1, in its opening paragraph simply cites that portion of the joint communiqué on the establishment of diplomatic relations between the United States and the PRC in which the United States acknowledged the Chinese position on this issue; that is, that there is but one China, and Taiwan is a part of China. " It has been reported in the press that the Chinese at one point suggested that the Taiwan Relations Act be revised. We have no plans to seek any such revisions. "Finally, in paragraph 9 the two sides agree to maintain contact and hold appropriate consultations on bilateral and international issues of common interest. This should be read within the context of paragraphs 8 and 9, which deal with the two sides' desire to advance their bilateral and strategic relations. It should not be read to imply that we have agreed to engage in prior consultations with Beijing on arms sales to Taiwan. "We hope and expect that this communiqué and the step forward which it represents in the resolution of United States-Chinese differences on this issue will enhance the confidence of the people of Taiwan, whose well-being and prosperity continue to be of the utmost importance to us..... " Appendix B. Major Arms Sales to Taiwan | Taiwan, which officially calls itself the Republic of China (ROC), is an island democracy of 23 million people located across the Taiwan Strait from mainland China. It is the United States' tenth-largest trading partner. Since January 1, 1979, the U.S. relationship with Taiwan has been unofficial, a consequence of the Carter Administration's decision to establish diplomatic relations with the People's Republic of China (PRC) and break formal diplomatic ties with self-ruled Taiwan, over which the PRC claims sovereignty. The Taiwan Relations Act (TRA, P.L. 96-8; 22 U.S.C. 3301 et seq.), enacted on April 10, 1979, provides a legal basis for the unofficial U.S.-Taiwan relationship. It also includes commitments related to Taiwan's security. The PRC considers unofficiality in the U.S.-Taiwan relationship to be the basis for the U.S.-PRC relationship. Some Members of Congress have urged the executive branch to re-visit rules intended to distinguish the unofficial U.S.-Taiwan relationship from official U.S. relationships with diplomatic partners, in order to accord Taiwan greater dignity and respect. The PRC continues to threaten the use of force to bring about Taiwan's unification with mainland China. Beijing codified that threat in 2005, in the form of an Anti-Secession Law. The United States terminated its Treaty of Mutual Defense with Taiwan as of January 1, 1980, but on the basis of the Taiwan Relations Act, it has remained involved in supporting Taiwan's military. Initially, support was focused on arms sales, which Taiwan Relations Act calls for "to enable Taiwan to maintain a sufficient self-defense capability." Starting in 1997, the security relationship broadened to include dialogues, training and military education opportunities for Taiwan military personnel, and support for other "non-hardware aspects of military capability." After eight years of relative stability in the cross-Strait relationship during the administration of former Taiwan President Ma Ying-jeou (2008-2016), tensions between Taiwan and the PRC leadership have risen under current President Tsai Ing-wen of Taiwan's Democratic Progressive Party (DPP). The main point of disagreement is the long-standing issue of Taiwan's sovereignty. Beijing insists that President Tsai commit to the notion that Taiwan and mainland China are parts of "one China." President Tsai has been unwilling to make such a commitment. Since President Tsai's election in January 2016, Beijing has progressively increased pressure on her government. Among other moves, it has established diplomatic relations with three countries that previously recognized Taiwan, pressured host countries to force Taiwan's unofficial representative offices to change their names, blocked Taiwan's participation as an observer at international meetings, stepped up deployments of the PRC military near Taiwan, reduced the number of mainland Chinese tourists visiting Taiwan, demanded that other countries return Taiwan citizens accused of crimes to the PRC, rather than Taiwan, and, for the first time, tried a Taiwan activist on charges of attempted subversion of the PRC state. Questions for Congress include whether the U.S. government should seek to support Taiwan in the face of mounting pressure from the PRC, and if so, how to balance such support with the U.S. interest in peace and stability across the Taiwan Strait and the desire for constructive relations with the PRC The 115th Congress passed FY2017 appropriations legislation (P.L. 115-31) to fund the American Institute in Taiwan, through which the United States conducts relations with Taiwan. FY2018 appropriations legislation (H.R. 3354 and S. 1780) is pending. Other pending legislation includes the National Defense Authorization Act for FY2018 (H.R. 2810 and S. 1519), the Taiwan Security Act of 2017 (S. 1620), the Strengthening Security in the Indo-Asia-Pacific Act (H.R. 2621), the Taiwan Travel Act (S. 1051 and H.R. 535), a bill "To direct the Secretary of State to regain observer status for Taiwan in the World Health Organization" (H.R. 3320), and a resolution calling for negotiations to enter into a bilateral trade agreement with Taiwan (H.Res. 271). |
The United States has accused the Democratic People's Republic of Korea (DPRK or North Korea) of counterfeiting U.S. $100 Federal Reserve notes (Supernotes) and passing them off in various countries. There is considerable doubt, however, that the DPRK is capable of creating Supernotes of the quality found. The existing evidence is considered to be "intelligence" and not disclosed. However, considerable overt links have been uncovered tying Pyongyang to the counterfeiting operation. It is thought that the alleged counterfeiting activity in the DPRK is government sponsored (not criminal activity). What has been confirmed is that the DPRK has passed off such bills in various countries and that the counterfeit bills circulate both within North Korea and around its border with China. In June 2009, press reports claimed that the DPRK produced counterfeit U.S. bills even after 2007. Even if counterfeit bill production has been halted, genuine Supernotes are expected to remain in circulation for the foreseeable future making it possible for the DPRK to continue to use any existing stocks of counterfeit Supernotes. The purpose of this report is to provide a summary of what is known from open sources on the DPRK's alleged counterfeiting of U.S. currency, examine North Korean motives and methods, and discuss U.S. interests and policy options. Although Pyongyang denies complicity in any counterfeiting operation, estimates are that at least $45 million in such Supernotes of North Korean origin are in circulation and that the country has earned from $15 to $25 million per year over several years from counterfeiting. South Korean intelligence has corroborated information on past production of forged currency—at least until 1998—and several U.S. court indictments indicate that certain individuals have been accused of distributing such forged currency. In 2009, the State Department reported that counterfeit $100 U.S. notes (Supernotes) continue to turn up in various countries, including in the United States, although it is not clear whether these notes are new or from existing stocks Counterfeiting is considered to be one of several illicit activities by the DPRK apparently done to generate foreign exchange that is used to support the ruling regime, purchase imports, and finance government activities abroad. For the United States the allegedly large-scale counterfeiting of U.S. currency by the DPRK is a direct challenge to U.S. interests. Any counterfeiting, whether done by North Korea or not, could undermine confidence in the U.S. dollar and, if done extensively enough, potentially damage the U.S. economy. It also is a direct attack on a protected asset of the United States and a violation of U.S. and other laws. If being done by the DPRK government, it violates accepted international norms and is a direct affront to the United States. It also could affect the willingness of financial institutions in certain areas to accept legitimate U.S. currency. Currency dealers in Asia already impose surcharges on suspected types of U.S. bank notes when exchanging them for other currencies. U.S. policy toward the alleged counterfeiting is split between law enforcement efforts and political and diplomatic pressures. On the law enforcement side, individuals have been indicted, and in September 2005, the U.S. Treasury named Banco Delta Asia (BDA), bank in the Chinese territory of Macao, as a primary money laundering concern under the Patriot Act, Section 311. This financial sanction was designed to curb the suspected counterfeiting by preventing the DPRK from laundering proceeds from its illicit activities through BDA. This triggered a financial chain reaction under which banks, not only from the United States but from other nations, declined to deal with even some legitimate North Korea traders. The BDA action froze $25 million in North Korean accounts and caused financial institutions in other countries also to close many of their North Korean accounts, even those for legitimate business. For the year following the financial restrictions, they were Pyongyang's main complaint and the reason it gave for boycotting the Six-Party Talks on denuclearization. Even after returning to the talks in December 2006, Pyongyang refused to discuss denuclearization officially until the Banco Delta financial sanctions were lifted. On February 13, 2007, as a sideline to a new Six-Party agreement, the United States assured North Korea that it would settle the BDA issue. It took until June, however, for the $25 million to be transferred through the New York Federal Reserve Bank to a bank in Russia. North Korea confirmed its receipt on June 25, 2007. At the time, Pyongyang promised that it would punish the counterfeiters and destroy their equipment. Following the BDA case, law enforcement efforts at the national level have become entwined with diplomatic efforts and pressures to resolve the issue of the North Korean nuclear weapons and potential ballistic missiles. After the DPRK's second nuclear test on May 25, 2009, and several firings of potential ballistic missiles, the United States reportedly has been considering using DPRK counterfeiting of U.S. currency as the basis for additional financial sanctions. The counterfeiting, to the extent that the DPRK government is involved, affects U.S. national security in a broader sense. North Korea is a Stalinist regime with serious human rights and other problems. It is led by a communist dictator with a taste for luxury imports and need to subsidize his inner circle of supporters and broader ranks of party cadres. Yet the North Korean economy scarcely produces enough to feed its population and incurs a billion-dollar trade deficit each year. Proceeds from counterfeiting could be used to maintain the regime's power or contribute to instability in East Asia. Because counterfeiting is a form of clandestine criminal activity, those involved attempt to keep it out of the public eye and undetected to the maximum extent possible. Hence, open source information on the scope and scale of DPRK counterfeiting and distribution operations is largely incomplete. Also, since the DPRK is a relatively closed society, information on any production of counterfeit U.S. currency there—other than that received from defectors—is likely to be the product of intelligence sources and methods. Hence, it is unlikely that such information would be made public for fear of compromising ongoing intelligence gathering operations. On the other hand, involvement of DPRK citizens and officials in the distribution of so called "Supernotes" is more readily demonstrated once criminal investigations have been completed, arrests have been made, indictments issued, and convictions and/or confessions obtained. Indeed, a number of such indictments have been issued, and presumably a number of ongoing investigations remain in the pipeline. U.S. officials appear to be increasingly sensitive to a need to support public allegations with the weight of de facto legal evidence. The DPRK government appears to have two major goals: to maintain the ruling regime and to be recognized as belonging to the club of nuclear, space, and newly industrializing economic countries. Both of these goals require funds. North Korea also needs to raise approximately $1 billion per year to finance its merchandise trade deficit. The DPRK imports more than it exports and must generate enough foreign exchange to cover the difference through some means—either legal or illegal. Legal means include borrowing, foreign investments, foreign aid, remittances from overseas Koreans, selling military equipment not reflected in trade data, and by selling services abroad. Illegal methods include the counterfeiting of hard currency, illegal sales of military equipment or technology, sales of illegal drugs or counterfeit cigarettes and pharmaceuticals, or by shipping illegal cargo between third countries. The country also can dip into its meager foreign exchange reserves. Allegations of counterfeiting by North Korea fits into a pattern of illicit activities linked to Pyongyang. These include production and trafficking in counterfeit cigarettes and counterfeit pharmaceuticals (for example "USA" manufactured Viagra). However, according to a 2009 report by the State Department, drug trafficking by the DPRK appears to be down considerably with no instances of drug trafficking suggestive of state-directed trafficking for six years, but there still is insufficient evidence to say for certain that state-sponsored trafficking has stopped. However, reports of non-narcotics-related acts of criminality suggest that 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. Reports continue from the press, industry, and law enforcement agencies of DPRK links to large-scale counterfeit cigarette trafficking in the North Korean Export Processing Zone at Rajiin. According to the State Department, however, it is unclear the extent to which DPRK authorities are complicit in this illegal activity, although it is all but certain that they are aware of it. The State Department also reported that counterfeit $100 U.S. notes (Supernotes) continue to turn up in various countries, including in the United States. There are reports, for example, of supernote seizures in San Francisco, and a very large supernote seizure in Pusan, South Korea. Supernotes are uniquely associated with the DPRK, but it is not clear if recent seizures are of notes which have been circulating for some time, or if they are recently issued new notes. According to the State Department, there also has been substantial evidence that North Korean governmental entities and officials have been involved in the laundering of the proceeds of narcotics trafficking and other illicit activities and that they have been engaged in other illegal activities, including activities related to counterfeiting, through a number of front companies. DPRK production and trafficking of "Supernotes" have been addressed in 2006 by National Intelligence Director John Negroponte in testimony before Congress. He stated that North Korea "produces and smuggles abroad counterfeit U.S. currency as well as narcotics and other contraband." In a Senate Committee on Government Affairs hearing in 2003, William Bach, the Director of the Office of African, Asian and European Affairs in the Bureau for International Narcotics and Law Enforcement Affairs of the U.S. Department of State, stated: The U.S. Secret Service Counterfeit Division is aware of numerous cases of counterfeiting with North Korean connections. Typical of such cases was one reported in Macao in 1994, when North Korean trading company executives, who carried diplomatic passports, were arrested for depositing $250,000 in counterfeit notes in a Macao bank. There are numerous other counterfeiting incidents with links to Macao banks, North Korea, and North Korean diplomats. 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 1950's, the production of which reportedly continued into the 1960s. South Korean media reports cite a 1998 South Korean National Intelligence Service (NIS) Report to the effect that North Korea forges and circulates 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 thirteen occasions since 1994. Press reports of February 2, 2006 cite the account by a Uri Party Member of South Korea's Parliament of a closed briefing by South Korea's National Intelligence Service to members of Korea's National Assembly to the effect that North Koreans were arrested abroad for counterfeiting offenses in the 1990s but that the Service had no evidence of the North making bogus currency after 1998. Informed South Korean sources have confirmed the above stated content of the briefing, but insist that the NIS lack of hard evidence of DPRK Supernote production after 1998 should not necessarily be construed to mean that such activity has ceased. Post-1998 South Korean media reports note that South Korean authorities have continued to seize bogus U.S. currency—including 1,400 counterfeit U.S. $100 bills in April 2005, but that they have not traced the source. Subsequent press reports state that the United States has provided South Korea with examples of DPRK source counterfeit 2001 & 2003 series $100 notes. Moreover, the U.S. has reportedly determined that at least $140,000 worth of counterfeit notes seized by South Korean police in April 2005 was manufactured in the DPRK as part of a batch produced in 2001, and distributed by Pyongyang. On June 13, 2003, South Korea, the United States and Japan held a North Korea policy coordination group meeting and announced an agreement that reportedly stated, "The three countries' delegations express concern about the illegal activities of organizations in North Korea, including drug smuggling and money counterfeiting." Moreover, media reports on January 20, 2006, stated that Chinese investigators have independently confirmed allegations of DPRK counterfeiting. Arrests and indictments point to DPRK trafficking in bogus U.S. currency. In August 2005, federal law enforcement authorities completed two undercover operations in New Jersey and in California which 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, and counterfeit brand cigarettes and pharmaceuticals were seized as well. One of the indictments issued in the above cited cases identifies Chao Tung Wu, a Taiwanese in custody for dealing in counterfeit bills, and alleges that he told undercover agents that the government of a nation—identified in the indictment as "country 2"—was producing counterfeit notes. Country two has been widely cited in the media as being North Korea. Another law enforcement operation led to the arrest in Northern Ireland of Sean Garland, a leading member of an Irish Republican Army faction on charges of circulating more than $1 million of Supernotes (believed to be DPRK government produced) in Britain and Eastern Europe. A request for his extradition to the United States ensued in mid-October 2005. As recently as March 2006, counterfeit Supernotes were reportedly seized by police in Hong Kong from a Chinese-American man in transit from Macau. In April 2006, a Korean reporter claimed in an article in a South Korean newspaper that obtaining fake $100 bills that likely were manufactured in North Korea was a "piece of cake" in the Chinese town of Dandong just across the DPRK's northern border. According to the reporter, counterfeit bills similar to real currency fetch about 40% of their face value. Carefully manufactured $100 Supernotes go for $60 to $70 each. North Koreans refer to the counterfeit dollars as "kattalio" and the business of dealing in them as "the kattalio game." After the Banco Delta financial sanctions, the article stated that Pyongyang proclaimed that anyone involved in illegal drugs or fake notes would be severely punished. In March 2006, two men convicted of such activities were publicly executed. Since the Banco Delta sanctions, the number of counterfeit notes circulated through North Korea reportedly has dropped. However, it may be that the number of counterfeit notes circulating within North Korea has increased since imposition of the Banco Delta sanctions. In July 2007, a South Korean newspaper reported that $100 Supernotes were circulating among North Korean merchants at a value of $70 each. The reason for using the counterfeits given by the merchants was that the largest denomination of the DPRK won was 5,000 which implied that it took about 600 bills for a $1,000 transaction. So they used counterfeit bills as a medium of exchange. At the time, inflation also was causing the purchasing power of the won to depreciate rapidly. The DPRK has consistently denied allegations of state involvement in criminal activity, specifically in any counterfeiting activity, and it has vowed to resist U.S. Pressure over the matter. A January 24, 2006 commentaries carried by the state-run Korean Central News Agency reported that Pyongyang "does not allow such things as bad treatment of the people, counterfeiting, and drug trafficking." In what may be an indication of DPRK willingness to curb any illicit counterfeiting activity, the DPRK Foreign Ministry announced on February 9, 2006, that "there is no evidence proving (North Korea's) issue of counterfeit notes or money laundering" but that the country "will as ever actively join the international actions against money laundering.... It is the consistent policy of the (North Korean) government to oppose all sorts of illegal acts in the financial field." The Foreign Ministry spokesman went on to say that the DPRK has "perfect legal and institutional mechanisms to combat such illegal acts as counterfeiting notes and money laundering, and any illegal acts are liable to severe punishment." Some observers also doubt that the DPRK has the technology or resources needed to produce the high-quality bills. They have pointed to the successive versions of the Supernotes found and the high cost of equipment and supplies. One has concluded that the Supernotes are an illegal printing of the genuine note. Assuming that production of bogus U.S. currency is actually taking place in North Korea, some suggest that this does not necessarily mean that such activity is being done under government sponsorship, direction, or supervision. They argue that counterfeiting is a criminal phenomenon that is widespread throughout the world, and it is rarely, if ever, state-sponsored. Others say that there may be merit to such arguments, but North Korea could be an exception to any such norms. North Korean defectors have pointed to government sponsorship of counterfeiting, but their testimonies have not been corroborated. It can be said that it is widely acknowledged that the Pyongyang regime engages—or has engaged—in a broad range of other crime for profit activity. Hence, inhibitions against counterfeiting may not be strong. The sophisticated type of equipment reportedly required for the production of Supernotes is generally tightly controlled and generally restricted for sale to governments. Finally, North Korea is a closed authoritarian regime, and, as such, it is unlikely that any counterfeiting activity—which requires centralized production—would not be government sponsored, or at some point, come under government control. For the United States the North Korean counterfeiting of U.S. currency combined with secondary effects has a direct bearing on U.S. interests. Counterfeiting of one nation's currency by another generally is considered to be an act of economic warfare—a direct attack on the U.S. financial system. There is a large difference between criminal counterfeiting by private parties and that done or sanctioned by a nation. The counterfeiting, itself, might undermine confidence in the U.S. dollar and, if done extensively enough, potentially damage the U.S. economy. If the extent of counterfeiting were in the range of $15 million to $25 million per year, however, this would represent a relatively small amount compared with the total U.S. supply of currency or the amount circulating abroad. As of February 2006, currency in circulation—that is, U.S. coins and paper currency in the hands of the public—totaled about $780 billion. Since 1994, the value of currency in circulation has risen at the rate of 6.5% per year, mostly stemming from foreign demand. The U.S. Federal Reserve estimates that between one-half and two-thirds of the value of currency in circulation is held outside the United States. In the United States, most domestic transactions (by value) are done either electronically or by checks, not cash. As of December 2008, 73% of the value of currency in circulation consisted of $100 notes ($625 billion), the denomination allegedly counterfeited by the DPRK. Counterfeiting also can reduce the confidence by foreigners in the dollar. The dollar has become the predominant medium of exchange in international transactions. Such degraded confidence in the dollar usually can be manifested either by a surcharge on certain denominations when converting dollars to foreign exchange or in certain denominations of the dollar not being accepted at all. Currently, this affects Americans and other holders of dollar currency who rely on cash for transactions rather than credit cards, checks, or bank transfers. If the counterfeiting were to become extensive enough, however, it might depress the overall exchange value of the dollar. Even though the suspected amount of counterfeiting by the DPRK is relatively small when compared with all U.S. currency in circulation, its importance to Pyongyang and the ruling communist party could be significant. It apparently helps fund travel abroad, meet "slush fund" purchases of foreign goods, and subsidize the lifestyles of the privileged class in Pyongyang. Even though the macroeconomic effect of a counterfeiting operation generating around $15 million to $25 million per year is minor, counterfeiting, itself, is a violation of U.S. law. The Treasury, including the Secret Service, and the Federal Reserve have primary responsibilities for addressing the counterfeiting of U.S. currency. The Federal Reserve's role is to distribute and ensure the physical integrity, including the authenticity, of U.S. currency. The Secretary of the Treasury is responsible for issuing and protecting U.S. currency. The Bureau of Engraving and Printing produces the currency. It has announced that one of its priorities for FY2007 is to redesign the $100 note. The Secret Service conducts investigations of counterfeiting activities, provides counterfeit-detection training, and is responsible for anticounterfeiting efforts abroad. So far, the United States had taken a two-pronged (but overlapping) approach toward North Korea's alleged counterfeiting activities: law enforcement and political/security pressures. The law-enforcement prong involves prosecuting or sanctioning individuals and/or institutions involved in the distribution of the bogus currency. There have been several criminal prosecutions of persons in which counterfeit currency thought to have come from North Korea has been involved. This includes seeking extradition for Sean Garland, former President of the Workers' Party of Ireland, who is accused of conspiring with others, including elements of the government of North Korea, to establish a counterfeiting operation involving production of almost perfect copies of U.S. dollars and large U.S. sting operations, named Royal Charm and Smoking Dragon, that reportedly netted some $4 million in Supernotes believed to be of North Korean origin. Illicit narcotics, and counterfeit brand cigarettes and pharmaceuticals were seized as well. On September 15, 2005, the U.S. Treasury imposed USA PATRIOT Act Section 311 designations against Banco Delta Asia (BDA) in Macau. In the action, Treasury stated that the bank was a "primary money laundering concern" because, among other findings, sources indicated that "senior officials in Banco Delta Asia are working with DPRK officials to accept large deposits of cash, including counterfeit U.S. currency, and agreeing to place that currency into circulation." On September 20, 2005, the Financial Crimes Enforcement Network of Treasury imposed special measures against Banco Delta Asia that prohibited U.S. institutions or agencies from opening or maintaining correspondent accounts on behalf of BDA and required covered financial institutions to exercise due diligence to ensure that no correspondent account is being used indirectly to provide services to BDA. The U.S. action against Banco Delta Asia caused an avalanche of responses both in financial and political circles. It caused such a run on accounts at the bank that the government of Macau had to take over BDA's operations and place a temporary halt on withdrawals. According to press reports, the Macau government shut down all North Korea-related accounts including those belonging to 9 DPRK banks and 23 DPRK trading companies. These reportedly included accounts from the core organs of the North Korean Regime. When details of the accounts reached Kim Jong-Il, he reportedly was surprised to find that some accounts had been kept secret from him and some account-holders either did not exist or had already died. The financial effects of the BDA action were larger than expected. The crackdown also spread around the region, with Chinese, Japanese, Vietnamese, Thai, and Singaporean banks making life much tougher for North Korean account holders. In Macau, the North Korean trading firm used by Pyongyang as a de facto consulate rolled up its operations as the Macau government placed Banco Delta Asia into receivership. Not only did the action deprive major DPRK companies of an international financial base and cut into the secret personal accounts of the Pyongyang leadership, but it appears to have obstructed some legitimate North Korean trade. DPRK banks and traders reportedly are having difficulty finding other lenders to conduct their overseas business. Banks from other nations (such as the United Overseas Bank of Singapore and the Korea Exchange Bank of South Korea) have moved to sever contacts with North Korea, fearing that they, too, could face U.S. legal action. On March 7, 2006, North Korea's Li Gun (head of the North America division of North Korea's Foreign Ministry) met with Assistant U.S. Treasury Secretary Daniel Glaser at the United Nations in New York as part of a back channel for communicating with each other. The U.S. side spent about 20 minutes explaining its actions against Banco Delta Asia and what it expected from the DPRK. The DPRK reportedly suggested several actions to resolve the issue and for it to return to the six-party talks (including the lifting of the financial sanctions on Banco Delta Asia, forming a joint U.S.-North Korean task force to examine the counterfeiting concerns, giving North Korea access to the U.S. banking system, and providing North Korea with technical help on identifying counterfeit bills). Separately, the U.S. ambassador in Seoul indicated that Washington wanted Pyongyang to prove that tools used to counterfeit U.S. currency had been destroyed as evidence that North Korea had abandoned such illegal activities. In December 2006, North Korea agreed to return to the six-party talks, but during the talks Pyongyang refused to discuss denuclearization officially until the Banco Delta financial sanctions were lifted. Pyongyang, however, did send the president of the Foreign Trade Bank of North Korea (Oh Gwang-chul) along with other financial experts to meet with Deputy Assistant Treasury Secretary Daniel Glaser in the first meeting of a working group on U.S. financial sanctions that met alongside six-party talks. A second meeting was held in January 2007. In these talks, the U.S. side reportedly stated that the BDA issue could be resolved early if North Korea punished the counterfeiters and destroyed their equipment. This was viewed by some as an easing of the U.S. position as it linked the BDA action to the six-party talks and opened the possibility for resolving the BDA issue in order for the talks to go forward. The Bush Administration had held that the U.S. financial sanctions against Banco Delta for collaboration with North Korean criminal activities were a separate issue from the nuclear negotiations. On February 13, 2007, a new six-party agreement on North Korea's nuclear program and energy needs was concluded. In announcing this Agreement, Assistant Secretary of State Hill pledged to settle with North Korea within 30 days the issue of U.S. financial sanctions against the Banco Delta bank and the freezing of North Korean accounts of $25 million in Banco Delta. After several failed attempts to transfer the $25 million, the DPRK recovered its funds in June 2007 when the New York Federal Reserve Bank agreed to transfer them through its facilities to a bank in Russia. (The transfer through the Federal Reserve Bank arguably made the funds no longer illicit.) This allowed the DPRK to proceed with its commitments under the February 13 agreement. Since Portugal has returned Macao to China, Beijing had supervisory responsibility over Banco Delta Asia. China has been attempting to modernize its banking system, and for one of its banks to be accused of money laundering clearly did Beijing no good. This has placed pressure on China to ensure that Banco Delta Asia and other banks are clean. Immediately after the Banco Delta action, major Chinese banks dealing with foreign exchange reportedly refrained from transactions with North Korean-related firms. China conducted a three-month investigation of the accusations against Banco Delta Asia that, according to South Korean diplomatic sources, confirmed the suspicions. However, a confidential audit of the BDA by Ernst & Young ordered by Macanese banking regulators reportedly found no evidence that the bank knowingly laundered counterfeit U.S. currency on behalf of North Korea. China reportedly tried to convince North Korea, however, that it needed to take steps in the matter. Traditionally, North Koreans have used Chinese banks for many of their international transactions, and some surmise that Kim Jong-il's trip to southern China in January 2006 may have included an attempt to move some North Korean accounts to a financial institution there. The U.S. Treasury has said that some reports suggest that North Korean agencies had transferred assets to banks in China. Others note that Austrian banks had not refrained from making transactions with North Korea. The political/security prong attempts to stop the alleged counterfeiting activity by changing the cost-benefit calculus of decision makers in Pyongyang. The strategy is to increase costs and reduce benefits in order to induce decision makers to halt the activity. The inducements used are aimed primarily at raising costs and include the Illicit Activities Initiative, the Proliferation Security Initiative, diplomatic pressures, as well as possible military threats and other policy related measures. The Illicit Activities Initiative, coordinated by the U.S. Department of State, is aimed precisely at North Korea's alleged counterfeiting and other illicit activities. It was developed in cooperation with other nations, but was downplayed as a diplomatic solution to the North Korean nuclear issue was pursued during the waning years of the G.W. Bush administration. The initiative reportedly now is located in the Korea Desk at the State Department. The Proliferation Security Initiative (PSI) is part of the larger counter proliferation effort worldwide and aimed at more countries and groups than just North Korea—but the DPRK does receive a particular focus. The PSI activity has received support from more than 60 countries and more formal participation from 11 countries, particularly Japan, Australia, the United Kingdom, France, Germany, Italy, and Spain. Under the PSI, participating countries cooperate to prevent transfers of weapons of mass destruction-related items to or from nation states and non state actors of proliferation concern. It does this through intelligence sharing, diplomatic efforts, law enforcement, and interdiction. Following the DPRK's second nuclear test, South Korea announced that it was joining the PSI. Pyongyang considered this to be equivalent to a "declaration of war" and indicated that it no longer is bound to the Korean War armistice and will militarily respond to any foreign attempt to inspect its ships. The U.N. resolution being considered in June 2009 reportedly contains provisions for tightening provisions for searching ships (under specific conditions) suspected of carrying banned nuclear or missile cargo. Policymakers reportedly are divided on the ultimate goal of squeezing North Korea on its alleged illicit activities. A group of policymakers (sometimes referred to as the "hawks") favoring regime change seeks ultimately to induce a crisis within the DPRK that would lead to the downfall of Kim Jong-il. One way to achieve this is to cut off the money the DPRK generates from counterfeiting, selling illicit drugs, and exporting missiles. A second group of policymakers more in favor of engagement, seeks to resolve the North Korean problem mainly by negotiations. Its goal is to change the "bad behavior" of the DPRK by bringing the country into the circle of peaceful nations and inducing it to act in accord with international standards. Each group backs initiatives to curb Pyongyang's alleged counterfeiting, but each sees the measures in a different light. The position of the United States is that counterfeiting is an illegal activity that cannot be allowed to continue. The South Korean government also has taken a firm position on the counterfeiting issue. It has clearly communicated to North Korea that such illicit activities are not acceptable and that Pyongyang should unequivocally turn away from such illicit behavior once and for all. Seoul reportedly has tried in vain to reach a compromise with the United States to consider Pyongyang's counterfeiting activities illegal conduct by individual North Korean firms and not by the government of the DPRK. One observer stated that the bigger question being asked by China and South Korea is why is the United States has been chasing after North Korea's "loose change" when the country is making plutonium, the real currency of state power? The response by other nations to the alleged counterfeiting by the DPRK is intertwined with other strategic and political interests. In the case of South Korea, President Lee Myung-bak has taken a much harder line toward the DPRK in contrast to the previous administration that was seeking some compromise with the United States on the degree of financial and other pressure to exert on Pyongyang. The basic interests of the United States lie in stopping the proliferation of weapons of mass destruction and in denuclearization, but financial sanctions can be pursued independently of those by the United Nations or by other countries. As was seen in the Banco Delta Asia case, financial sanctions can have far reaching affects and can reach into the heart of Pyongyang. Japan also seeks to defuse tensions with the DPRK, but Japan has cooperated with the United States in both the Proliferation Security and Illicit Activities Initiatives. In talks in February 2006 on normalization of relations with Pyongyang, Japan announced that it intended to take up North Korea's illicit activities, including counterfeiting, in order to strengthen policy coordination with the United States and the European Union. The current strategy of the Obama Administration is to protect U.S. interests, to coordinate policy and sanctions toward the DPRK with Japan, South Korea, China, and Russia, to work through the United Nations, and to proceed with unilateral action if necessary. The United States is prepared to engage North Korea in bilateral talks under the Six-Party Talk umbrella if the DPRK is willing to engage in serious negotiations over its denuclearization. If the Obama Administration imposes new financial sanctions on the DPRK, they are likely to use counterfeiting of currency as one rationale for the sanctions. The role of Congress in the counterfeiting issue is intertwined with the larger nuclear and proliferation issues. Congress plays a role in oversight of Obama Administration actions, in holding hearings to clarify U.S. policy, or using the congressional pulpit to send messages to North Korea. The United States has suggested to the DPRK that it join the Asia-Pacific Group on Money Laundering (APG), a 30-member group (including the United States, Japan, and South Korea) launched in 1997 as a sub-organization of the Organization of Economic Cooperation and Development. It is aimed at preventing illegal financial activities in the Asia-Pacific region and would subsequently require the disclosure of all of the DPRK's illicit financial activities. North Korea experts believe, however, that it will not be easy for the North to join the 30-member group. The BDA action (combined with UN sanctions prohibiting exports of luxury goods to the DPRK) seemed to generate results because they harmed the North Korean elites, including Kim Jon-Il, directly. Policies aimed at an economic collapse in North Korea, however, appear to be off the table at this time—partly because China seems willing to provide just enough food and fuel to prevent one from occurring because it does not want to deal with the flood of immigrants and economic and political effects that would follow should such a collapse occur. How the broader strategic considerations will govern future responses to the problem of North Korean counterfeiting of U.S. currency and other crime-for-profit-activity is now unclear. What is clear is that the BDA sanctions made Pyongyang more willing to meet and talk seriously with the United States and other of the six-party countries and they provided real evidence to Pyongyang that flaunting international laws and norms can cause serious negative consequences for its inner circle of elites. In U.S. discussions with the DPRK on the normalization of relations, ceasing any counterfeiting of U.S. currency would seem to be sine qua non . The implications for U.S. policy of the BDA action go beyond the problems with the DPRK. The Patriot Act has provided the United States with a powerful tool to disrupt the financial underpinnings of unsavory regimes or hostile groups. The use of this tool is still under development, and it is not clear whether it should be employed as an end in itself or as a tactical weapon that is part of a larger strategic plan with ample coordination between the Departments of the Treasury, State, and Defense. U.S. law enforcement actions against foreign banks and their operations, moreover, have far reaching consequences for an industry that often prefers to be secretive and has operational interests that often compete with each other. Banks must provide service to customers of all kinds and take a loss on counterfeit currency found that is surrendered to government authorities. At the same time they may be asked to cooperate in enforcing laws that may hurt their customers or reduce their earnings. BDA-type actions (which can be seen as sending mixed signals or which are followed by about-face changes in policy) also give rise to the question of what effect they might have on U.S. leverage with the banking community and on cooperation from banks on other international problems. At issue here is whether in the future, foreign banks will be as willing to take measures that will be unpopular with their customers given the risk that the United States may at some point reverse course because national security interests or diplomatic exigencies hold sway? | The United States has accused the Democratic People's Republic of Korea (DPRK or North Korea) of counterfeiting U.S. $100 Federal Reserve notes (Supernotes) and passing them off in various countries, although there is some doubt by observers and other governments that the DPRK is capable of creating Supernotes of the quality found. What has been confirmed is that the DPRK has passed off such bills in various countries and that the counterfeit bills circulate both within North Korea and around its border with China. Defectors from North Korea also have provided information on Pyongyang's counterfeiting operation, although those statements have not been corroborated. Whether the DPRK is responsible for the actual production or not, trafficking in counterfeit has been one of several illicit activities by North Korea apparently done to generate foreign exchange that is used to purchase imports or finance government activities abroad. Although Pyongyang denies complicity in any counterfeiting operation, at least $45 million in such Supernotes thought to be of North Korean origin have been detected in circulation, and estimates are that the country has earned from $15 to $25 million per year over several years from counterfeiting. The illegal nature of any counterfeiting activity makes open-source information on the scope and scale of DPRK counterfeiting and distribution operations incomplete. South Korean intelligence has corroborated information on North Korean production of forged currency prior to 1998, and certain individuals have been indicted in U.S. courts for distributing such forged currency. Media reports in January 2006 state that Chinese investigators had independently confirmed allegations of DPRK counterfeiting. In June 2009, press reports claimed that the DPRK produced counterfeit U.S. bills even after 2007. For the United States, the alleged North Korean counterfeiting represents a direct attack on a protected U.S. national asset and may provide a rationale to impose financial sanctions on the DPRK. The earnings from counterfeiting and related activities also could be important to Pyongyang's finances. Profits from any counterfeiting also may be laundered through banks or other financial institutions. U.S. policy toward the alleged counterfeiting is split between law enforcement efforts and political and diplomatic pressures. On the law enforcement side, individuals have been indicted and the Banco Delta Asia (BDA) bank in Macao (a territory of China) was named as a primary money laundering concern under the Patriot Act. In June 2007, the BDA issue was resolved and the Six-Party Talks resumed. At the time, Pyongyang promised that it would punish the counterfeiters and destroy their equipment. The law enforcement effort has become entwined with diplomatic efforts and pressures to resolve the North Korean nuclear and missile issues. Following North Korea's second nuclear test and several missile launches in May 2009, the United States reportedly has been considering further financial sanctions on the DPRK based partly on its alleged counterfeiting. |
In response to the slow pace of improvement in the labor market after the 2007-2009 recession ended, some Members of the 112 th Congress and the Administration proposed additional fiscal stimulus or job creation legislation. These bills followed several policy steps taken while the recession was in effect. Attention most recently had focused on the significant increase in taxes and decrease in spending scheduled to occur at the end of 2012, popularly referred to as the "fiscal cliff." Economic projections had suggested that these policies would reduce spending and dramatically slow growth in 2013, most likely leading to a recession in the first part of 2013. Proposals were made to extend some expiring tax cuts ( H.R. 8 , S. 3412 , S. 3413 ) and to change the manner in which spending cuts (sequestration) are to be achieved in the Budget Control Act of 2011 ( P.L. 112-25 ). The American Taxpayer Relief Act ( H.R. 8 ), enacted at the beginning of January 2013, eliminated somewhat over half of the fiscal restraint as defined by the Congressional Budget Office, largely through extension of expiring tax cuts enacted in 2001-2003, but also including an extension of extended unemployment benefits and a two-month delay in budget cuts (sequestration). The remaining provisions that were not addressed, including an increase in the payroll tax and a cut in spending, would contract the economy, probably between one and two percentage points, compared with the growth that would have occurred without fiscal constraint. In December 2013, Congress passed H.J.Res. 59 , the Bipartisan Budget Act, which increased spending caps for discretionary appropriations. It also delayed a cut in physicians payments under Medicare (commonly known as the "doc fix") for three months. The agreement had offsetting revenue gains and spending cuts, so that the overall proposal should have little stimulus effect. No action has been taken on the other temporary provisions in H.R. 8 expiring at the end of 2013, including the extension of unemployment benefits, the expiration of a number of temporary tax benefits, or a longer-term doc fix. These provisions together with the sequestration accounted for over a quarter of the original fiscal cliff. Approximately 1.3 million individuals will lose their extended unemployment benefits at the end of December. This report briefly reviews the situation in the labor market, expands on the above-mentioned policy steps taken to date, and analyzes policy issues that typically arise during consideration of stimulus legislation. Three policy issues are examined: whether to take additional measures to increase jobs (or avoid contractionary measures), what measures might be most effective, and how job creation proposals should be financed. From December 2007 to June 2009, the economy experienced the longest and deepest recession since the Great Depression. At the onset of the so-called Great Recession, the unemployment rate was 5.0%. It more than doubled, peaking at 10.1% in October 2009, before starting to slowly decline. This marked the first time that unemployment topped 10% since the 1981-1982 recession. The 2007-2009 recession also was characterized by the biggest percentage point increase in the unemployment rate of any postwar recession. Since the third quarter of 2009, economic output has grown, but not quickly enough to reduce the unemployment rate to normal levels. The labor market remained weak in 2010, with the unemployment rate averaging 9.6% for the year. Although the rate fell during 2011, it nonetheless was a still high 8.9% for the year. The labor market continued to slowly improve in 2012. In the fourth quarter of 2012, the unemployment rate fell to just under 8.0% for the first time since January 2009. The December unemployment rate was 7.8%. The rate fell slowly during 2013, falling to 7.4% by mid-year, rising slightly in October and eventually reaching 7% by November. The duration of unemployment remains long by postwar standards. Four years after the recession's end, unemployment remains high, and long-term unemployment continues at historically high levels. Of the 10.9 million workers unemployed in November 2013, two of every five (4.1 million) had not held a job in over six months. The rise in unemployment during the Great Recession was driven by a steep decline in employment. The number of employees on nonfarm employer payrolls plummeted by more than 7 million between December 2007 and June 2009. Job losses have subsequently decreased. Employment at private- and public-sector employers rose by more than 3 million between June 2009 and October 2012, the latest month for which data were available at the time this report was prepared. Within the June 2009-October 2012 period, total employment increased substantially from March to May 2010 because the federal government hired temporary workers to assist it in conducting the decennial census. After May 2010, employment fell as the temporary workers were let go upon completion of the 2010 census. Private-sector employment began increasing in March 2010, according to data from the U.S. Bureau of Labor Statistics' monthly survey of employers in the nonfarm sector of the economy. From October 2010 through July 2012, job gains in the private sector more than offset losses in the public sector—chiefly at state and local governments. The public sector did not begin contributing to the net increase in nonfarm payroll employment until the second half of 2012. In the last year, from November 2012 to November 2013, employment growth has been in the private sector, while employment in the public sector fell. A "hands off" policy approach would counsel for patience. In this view, a decrease in unemployment is inevitable. Every recession since World War II except the 1980 recession was followed by a period of sustained job creation. Historical experience confirms that strong economic growth is the most important factor for reducing unemployment after a recession. Nevertheless, because the unemployment rate is so high, even if the economy grew at a healthy pace, it would take several years for the unemployment rate to reach its pre-recession level. For example, after the unemployment rate peaked at 10.8% in November and December 1982, it had fallen less than three percentage points one year later; it took about six years for the rate to fall by half. This gradual decline from a recession-elevated level happened when economic growth averaged an unusually high rate of 4.5% annually. During the current recovery, the rate of economic growth has been much slower. In addition, the recession came at a time when concerns were already growing about a long-term debt that was unsustainable in the future. Concerns about this debt had led to spending caps that produced part of the fiscal cliff. Further stimulus might help the economy to return more quickly to full employment but would exacerbate the debt problem. Another argument in favor of patience is that the government has already taken extraordinary steps to stabilize the economy through the creation of the TARP, the Fed's unconventional policy actions, and fiscal stimulus in 2008 and 2009, the latter of which contained significant outlays through 2011. (These programs will be discussed in greater detail in the following section, entitled " Policy Steps Taken Through 2013 .") Proponents of this approach are likely to argue that stimulus faces diminishing returns and, with these policies already in place, it is unlikely that further policy steps could sharply hasten the anticipated decline in unemployment. A more interventionist policy approach could be justified on at least three grounds. First, the loss in output caused by high unemployment is very costly in economic and non-economic terms in the short run. If policy steps to reduce unemployment can be taken at relatively low costs, then the cost-benefit tradeoff would be favorable. An ongoing major policy debate, discussed later in the report, examines how costly financing these additional policy steps would be at a time of large budget deficits The second rationale depends on whether high unemployment has any permanent effects. Mainstream economic theory suggests that the business cycle has no lasting effect on the natural rate of unemployment —busts and booms temporarily move the unemployment rate up and down, but it always gravitates back toward its long-term equilibrium rate. In this view, policy steps could hasten the return to the natural rate, but market forces would eventually have caused unemployment to return to the same long-run level on its own. In other words, policy steps would result in temporary (but not permanent) improvements in well-being. Some economists have offered a competing theory called "hysteresis." In this view, bouts of high unemployment can lead to permanent increases in the natural rate of unemployment, so that unemployment never falls as low in the subsequent recovery as it had been at the previous peak. Hysteresis could result from workers losing some of their skills in long bouts of unemployment that reduce their subsequent employability. If hysteresis effects are significant, then policy steps that successfully reduce unemployment sooner than later could avoid some permanent loss in economic well-being. Third, a more interventionist approach might be pursued in case the economic recovery stalls. Fear has periodically been expressed that the economy could experience a so-called "double-dip" recession, meaning a return to economic contraction in the near term. By historical standards double dips are rare. In the 20 th century, there were two cases where the economy emerged from a recession, only to be quickly followed by another recession (beginning in 1920 and 1981). In 1981, a large tightening of monetary policy is seen as playing a key role in the economy's return to recession. For the current expansion to similarly be knocked off course, some new "shock" to the economy would likely be needed. Arguably, the economic crisis now engulfing Europe could provide such a large shock. The "fiscal cliff" (i.e., implementation of tax increases and spending decreases scheduled to occur in early 2013) was also projected to cause a recession, although much of the fiscal cliff remains. The fiscal cliff was hands-off in terms of the law but not in terms of economic policy, as the combination of tax increases and spending cuts is projected to be 5% of output. Similarly, the provisions expiring in 2013, if no action is taken, will have contractionary effects (although small compared with those in the original fiscal cliff). Another scenario is that the economy neither re-enters recession nor experiences its usual steady return to full employment and normal growth rates. Instead, it experiences long-term stagnation, sometimes referred to as a deflationary or liquidity trap, where overall spending does not grow quickly enough to significantly reduce the slack in the economy. Evidence in favor of this scenario is the weakness of the expansion to date and the fact that businesses and consumers are "deleveraging" (increasing saving, and in some cases selling assets, to reduce debt). Slower growth could also arise from the remaining elements of the fiscal cliff that have not been extended. Although the United States has not experienced such stagnation in the post-World War II period, Japan's experience since its equity and real estate bubbles burst in the early 1990s illustrates that this scenario is possible in a modern economy. From 1980 to 1991, gross domestic product (GDP) growth in Japan averaged 3.8%. Since 1991, GDP growth has never exceeded 2.9% in a year. From a low starting point, Japan's unemployment rate rose each year from 1991 to 2002. From 1995 to 2009, Japan experienced 10 years of deflation (falling prices) and low inflation in the other years, which indicates that Japan's slow growth was in part due to inadequate aggregate demand. Although the central bank reduced overnight interest rates to low nominal levels and budget deficits were large (5.6% of GDP on average from 1993 to 2009), Japan was not able to break out of its deflationary trap. Some economists believe that Japan's deflationary trap was prolonged by the government's sporadic attempts to withdraw fiscal and monetary stimulus prematurely. Balance sheet growth was withdrawn in 2006 when inflation was still below 1% and economic growth was about 2%; prices and output began shrinking again following the 2008 financial crisis. In addition to inadequate stimulus, many economists believe Japan's liquidity trap was prolonged by its failure to address problems in its financial system after its financial crash. Numerous policy actions have already been taken to contain damages spilling over from housing and financial markets to the broader economy. These policies include traditional monetary and fiscal policy as well as federal interventions into the financial sector. In February 2008, shortly after the recession began, an economic stimulus package of approximately $150 billion was adopted. A provision that was considered (but not included) in the Economic Stimulus Act of 2008 ( P.L. 110-185 ) was a 26-week extension of unemployment benefits. The extension was eventually enacted. A number of financial-sector interventions also were undertaken before and after financial market conditions worsened significantly in September 2008. In October 2008, legislation was enacted granting the Treasury Department authority to purchase up to $700 billion in assets through TARP ( P.L. 110-343 ). A number of programs were created under TARP, including programs to inject capital into banks, aid automakers and troubled financial firms, provide funds to private investors to purchase troubled assets, and modify mortgages. Other policies enacted in response to the financial crisis were an FDIC guarantee of debt issued by banks, a Treasury guarantee of money market mutual funds, and Treasury support of the government-sponsored enterprises (GSEs). As the recession deepened, congressional leaders and President Obama proposed much larger stimulus packages early in 2009. The American Recovery and Reinvestment Act of 2009 (ARRA), signed into law on February 17, 2009 ( P.L. 111-5 ), was a $787 billion package with $286 billion in tax cuts and the remainder in spending. The wide-ranging act included infrastructure spending, revenue sharing with the states, middle class tax cuts, business tax cuts, unemployment benefits, and food stamps. The Congressional Budget Office (CBO) projected that the largest budgetary effects of P.L. 111-5 would occur in FY2010 (equaling 2.2% of GDP, compared with 1.3% in 2009). Some of the stimulus spending was expected to occur in FY2011 as well; CBO projected that P.L. 111-5 could increase the deficit by 0.7% of GDP in FY2011. On February 24, the Senate adopted S.Amdt. 3310 to H.R. 2847 (Hiring Incentives to Restore Employment), which contained payroll tax credits equal to the employer's share of OASDI (payroll taxes of 6.2% that finance Social Security) for hiring those who have been unemployed for at least 60 days and a $1,000 income tax credit for employers after these employees had been retained for 52 weeks. This provision was the principal one in the package based on its cost of $13 billion, with $7.6 billion for the payroll tax relief and $5.3 billion for the retention credit; the costs for the credit occurred in 2010 and 2011. Other provisions included an option to convert tax credit bonds to Build America Bonds ($2.5 billion), an extension in the small business expensing provision through 2010 ($35 million), and an extension of the highway bill that provided transfers between the general funds and trust funds. S.Amdt. 3310 also contained offsets related to foreign tax compliance (a gain of $8.7 billion) and a further two-year delay in the worldwide interest allocation for the foreign tax credit ($7.9 billion). The House subsequently passed the bill as amended. It was signed by the President on March 18, 2010 ( P.L. 111-147 ). The Small Business Jobs Act of 2010 ( H.R. 5297 ) was signed into law on September 27, 2010 ( P.L. 111-240 ). It created a "Small Business Lending Fund" that allowed Treasury to purchase up to $30 billion of preferred stock in small banks, along with some limited tax cuts (e.g., a one-year extension of bonus depreciation through 2010). In December 2010, the President signed into law ( P.L. 111-312 ) a package that reinstated an estate tax until the end of 2012 and extended all other parts of the 2001 and 2003 ("Bush") tax cuts until the end of 2012. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act also extended through the end of 2011 the alternative minimum tax relief and various other expiring tax provisions, and it extended and expanded bonus depreciation while also extending emergency unemployment benefits through 2011. In addition, the act cut the employee portion of the payroll tax by 2 percentage points until the end of 2011. Relative to current law, CBO estimated that the legislation would increase the deficit by a total of $797 billion in 2011 and 2012. Aside from the payroll tax cut, the other provisions of the legislation could be considered to prevent policy from becoming contractionary in 2011 (by allowing the deficit to decrease through the expiration of existing policy), rather than generating additional fiscal stimulus. This section traces out the proposals in the 112 th Congress beginning with the President's September 2011 proposals, then the proposals in late 2011 and early 2012 in the Congress, and concluding with the fiscal cliff revisions enacted in early January 2013. President Obama proposed a new set of tax cut and spending programs on September 8, 2011. The proposed package totaled $447 billion, with slightly over half in tax cuts. This package was considerably larger than the 2008 stimulus but smaller than the 2009 stimulus. At the President's request, the American Jobs Act was subsequently introduced in the House ( H.R. 12 ) and Senate ( S. 1549 ). Since then, other measures were introduced that contained parts of the President's proposal, including the Fix America's Schools Today Act ( H.R. 2948 / S. 1597 ), Teachers and First Responders Back to Work Act ( S. 1723 ), and Rebuild America Jobs Act ( S. 1769 ). The largest single provision in the American Jobs Act would have cut the employee's share of the Social Security payroll tax by 50% for 2012. At a cost of $175 billion, it was 39% of the total. The bill also would have provided tax cuts, largely employment incentives, to employers. One provision would cut the employer payroll tax in half for the first $5 million in wages, a proposal targeting small business. Another provision would eliminate the payroll tax for growth in employer payrolls, up to $50 million. These two provisions together would have cost $65 billion, slightly less than 15% of the total. An additional $5 billion would have been spent on extending the 100% expensing (which allows firms to deduct the cost of equipment immediately rather than depreciating it) through 2012 (where 50% expensing is currently allowed). The bill also had a $4,000 tax credit for hiring the long-term unemployed ($8 billion) and tax credits from $5,600 to $9,600 for hiring unemployed veterans (at a negligible cost). The effectiveness of these types of tax incentives is discussed in the following section. The plan contained $140 billion of spending, including grants to states to retain teachers and first responders ($35 billion), modernizing schools ($30 billion), spending on surface transportation ($50 billion), an infrastructure bank ($10 billion), and rehabilitation of vacant property ($15 billion). The plan also included $49 billion for unemployment insurance expansion and reform (e.g., allowing benefits for job sharing) and $5 billion for worker training. With the payroll tax cut slated to expire at the end of 2011, several proposals related to it and other issues were proposed in November and December. H.R. 3630 , the House Republican proposal, passed on December 13, 2011. It would have extended the 2 percentage point employee-side tax cut ($124 billion in FY2012-FY2013) and the 100% expensing for depreciation (bonus depreciation) through 2011. It also would have allowed an alternative minimum tax offset as an option instead of expensing and included extensions for unemployment compensation and welfare. In addition, the bill would have extended the "doc fix" (a provision to delay a scheduled decrease in Medicare payments to doctors). Revenue losses and spending cuts would have been more than offset by extending the freeze on federal employee pay and increasing their retirement contributions, by additional limits to discretionary spending, by revisions in Medicare (including spending changes and requiring high-income individuals to contribute more), by restrictions on unemployment benefits and welfare payments, and by eliminating some health provisions. The offsets would have been spread out into the future. Other provisions in the bill would have eliminated certain changes in corporate estimated tax payments and pertained to abuses and tax administration (e.g., requiring a Social Security number for children to claim the child credit). The Senate did not adopt H.R. 3630 as passed by the House. On December 17, 2011, the Senate adopted an amended version that extended the payroll tax by two months. The House on December 20 proposed a conference. On December 23, the Temporary Payroll Tax Cut Continuation Act of 2011 ( H.R. 3765 ) was introduced in and passed by the House. It included the two-month extension among other provisions. That same day the Senate passed the bill and the President signed it into law ( P.L. 112-78 ). On February 16, 2012, the conference announced a compromise for H.R. 3630 that extended the payroll tax cut and unemployment benefits as well as providing for the "doc fix" through 2012. The cost of the bill was offset by spectrum auctions, an increase in pension contributions for new federal employees, and some reductions in health spending. On February 22, 2012, the House and Senate enacted the Middle Class Tax Relief and Job Creation Measure Act of 2012 into law ( P.L. 112-96 ). As a result of prior legislative decisions, a number of tax increases and spending cuts would have taken take place at the end of 2012 or start of 2013, absent congressional action. The Congressional Budget Office (CBO) and other forecasters predicted dramatic reductions in the rate of economic growth, compared with what would be otherwise expected, due to reductions in the budget deficit. CBO, for example, projected a reduction in growth of 3.9% and an expected recession in 2013. Out of a projected fiscal restraint of $607 billion in FY2013, CBO estimated that $502 billion (83%) was policy related and the remainder is due to economic changes. Of the policy-related items, 80% was tax increases, primarily the expiration of the 2001, 2003, and part of the 2009 tax cuts and the alternative minimum tax (AMT) "patch" (44% of the policy-related cliff). The AMT patch largely prevents the AMT exemption, which has not been indexed for inflation, from falling significantly. Other tax provisions included expiration of the temporary two-percentage-point reduction in the employees' Social Security payroll tax (19%); the expiration of other tax cuts, including depreciation and the "extenders" (13%); and taxes scheduled to come into effect as a part of health reform (4%). Spending reductions include the automatic largely across-the-board spending cuts under the Budget Control Act (13%); the expiration of extended unemployment insurance benefits (5%); and the "doc fix" that will lower Medicare payments (2%). Legislative proposals largely focused on expiring tax provisions. Most of these provisions would have expired at the end of 2012, although the AMT patch and most extenders expired at the end of 2011. The proposals include the following: H.R. 8 and S. 3413 , the Republican tax proposal, that would extend the 2001 and 2003 tax cuts for a year and the AMT patch for two years; S. 3412 , the Democratic tax proposal, that would extend the 2001and 2003 tax cuts, except for high income individuals, and the parts of the 2009 tax cuts that expire at the end of 2012, along with a one-year AMT patch; and S. 3521 , approved by the Senate, that would extend the AMT for two years, most of the "extenders" for a year, and provisions allowing increased expensing of small business for a year. (For additional information, see CRS Report R42622, An Overview and Comparison of Proposals to Extend the "Bush Tax Cuts": S. 3412, S. 3413, H.R. 8 , by [author name scrubbed], and CRS Report R42485, An Overview of Tax Provisions Expiring in 2012 , by [author name scrubbed].) Other legislative proposals have addressed the spending cuts mandated by the Budget Control Act (BCA). They include H.R. 5652 , which was agreed to by the House in May 2012. It would cancel the sequester of about $98 billion in discretionary defense, discretionary non-defense, and mandatory defense FY2013 funding scheduled to occur on January 2, 2013; reduce the BCA's FY2013 cap on discretionary budget authority; and cut other mandatory non-defense programs. (For additional information, see CRS Report R42675, The Budget Control Act of 2011: Budgetary Effects of Proposals to Replace the FY2013 Sequester , by [author name scrubbed].) At the end of the 112 th Congress, in early January, the American Taxpayer Relief Act ( P.L. 112-240 ) eliminated fiscal cliff provisions for FY2013 accounting for $329 billion, 54% of the overall fiscal cliff and two-thirds of the policy-related fiscal cliff. H.R. 8 permanently extended the 2001 and 2003 income tax cuts, except for high-income taxpayers and the $5 million exemption for the estate taxes (but with a higher rate). It extended the 2009 cuts through 2017. It extended unemployment insurance benefits, the doc fix, and bonus depreciation and the "extenders" through 2013. It delayed the automatic spending cuts for two months. Elements of the fiscal cliff that will continue to reduce the deficit in 2013 compared with 2012, and potentially exert a contractionary effect, are the payroll tax reduction, which expired, some individual income tax cuts for high-income individuals, tax increases enacted in health reform, the remaining budget cuts, and non-policy-related effects. The remaining fiscal cliff provisions (primarily the payroll tax increase that was around $100 billion and the budget cuts of around $50 billion, and possibly non-policy related provisions) should reduce growth by one to two percentage points. Congress was unable to agree on a budget resolution and the expiration of temporary spending measures on October 1, led to a partial shutdown of the government through October 17. Although estimates varied, forecasters suggested that the shutdown could have caused a 0.5 percentage point reduction in the growth rate in the fourth quarter. Its effects on unemployment in October, which appeared to increase the unemployment rate by 0.2 percentage points in October, were likely largely transitory. The Bipartisan Budget Act of 2013 allowed an increase in the discretionary spending caps for FY2013 and FY2014, expected to increase spending by $48 billion. It included offsetting effects and should have a negligible effect on the economy. Thus far, no action has been taken on the temporary provisions that expire at the end of 2013: the extended unemployment insurance benefits, the doc fix, bonus depreciation, and the extenders. The Senate is expected to consider extending unemployment insurance benefits in January, but its outcome is uncertain. The standard tax extenders have generally been extended historically, although sometimes retroactively. On an annual basis, unemployment benefits cost about $40 billion, the doc fix about $20 billion and the normal tax extenders about $30 billion. (Bonus depreciation, which has been a separate temporary program during the recession, would be larger if it were enacted permanently.) Most estimates suggest that, per dollar, the stimulus effect of unemployment benefits is much larger than the other expiring provisions. Loss of a dollar of unemployment benefits is expected to decrease output by $1.50, while the effect for the doc fix is $0.50 and the effect for the tax provisions is $0.20. The Fed has used both conventional and unconventional tools to stimulate the economy. By December 2008, it had reduced short-term interest rates to near zero in a series of steps. It also pursued "quantitative easing," which can be defined as actions to further stimulate the economy through growth in the Fed's balance sheet once the federal funds rate has reached the "zero bound." In 2008, it introduced a number of emergency lending facilities, providing direct assistance to the financial system that would eventually surpass $1 trillion (those facilities have since expired). From the spring of 2009 to the spring of 2010, the Fed completed purchases of $1.25 billion of mortgage-backed securities, $175 billion in GSE debt, and $300 billion of long-term Treasury debt. On November 3, 2010, the Fed announced that it would further increase the size of its balance sheet by purchasing an additional $600 billion of Treasury securities at a pace of about $75 billion per month. The Fed has continued to pursue low interest rates and quantitative easing, announcing a $40 billion purchase in September 2012. The Fed has continued its policies of purchasing Treasury securities and mortgage backed securities as well as low interest rates through 2013; in December 2013, it announced that it would continue, but slow the pace of purchases and maintain lower interest rates. Both monetary and fiscal policy can be used to stimulate the economy. Fiscal policy options include direct spending by the government; transfers to state and local governments (for either infrastructure spending, Medicaid, or other purposes); direct transfers to individuals (such as unemployment compensation); tax cuts for individuals; and tax incentives aimed at businesses, including jobs tax credits. Job credits for hiring the long-term unemployed have been discussed recently. Jobs subsidies differ from policies aimed at increasing aggregate demand, in that they are intended to be supply-side subsidies. That is, the initial effect is not aimed at inducing spending that will then encourage firms to expand output and hire workers (although it may do so), but is aimed at reducing the cost of hiring workers, so as to induce more hires. The first section below discusses traditional fiscal policies; the second discusses incentives aimed at jobs. The objective of traditional fiscal stimulus is to increase total spending (aggregate demand) either through direct spending on programs or by providing funds to others that will spend (through transfer payments, tax cuts, and aid to state and local governments). The issues surrounding these fiscal instruments are the same as those relating to the previous stimulus, except that it is later in the business cycle and there is a greater possibility that the provisions may come later than is desirable. Moreover, growing concerns about the magnitude of the debt and deficit may make such policies less viable. Economists judge the effectiveness of fiscal stimulus based on how much it increases aggregate demand. The size of the proposal and financing are the most important determinants of its effect on aggregate demand. Generally, proposals that are small relative to GDP are unlikely to have a large impact on GDP. As discussed below, standard macroeconomic theory indicates that only deficit-financed proposals would have a significant and positive effect on aggregate demand. Many economists view fiscal policy as less effective than monetary policy in an open economy. With a goal of increasing aggregate demand, fiscal expansion can cause a series of reactions that provide offsetting decreases in demand. When fiscal expansion raises the deficit and drives up interest rates, capital is attracted from abroad. The purchase of U.S. dollars by foreigners to buy U.S. assets drives up the price of the dollar, causing export demand to decline. This reduction in the demand for exports offsets in part (perhaps in large part) the initial increase in demand induced by the stimulus. The more mobile international capital flows are, the larger the offsetting effect. There are currently questions among economists, however, about how much more stimulus can potentially be delivered through monetary policy now that the Fed has lowered interest rates to zero and undertaken quantitative easing. Fiscal stimulus can involve tax cuts, government spending increases, or a combination of both. Tax cuts may be less effective at stimulating overall spending than spending increases because some of the tax cut may be saved, and not spent. Some argue that tax cuts that are aimed at higher-income individuals are more likely to be saved. Transfer payments have a similar effect on aggregated demand as tax cuts, but tend to be received by lower-income individuals who are more likely to spend them. Evidence generally suggests that tax subsidies for business tax cuts are not very effective. CBO, for example, has suggested the following multipliers (the dollar increase in real output for each dollar of stimulus) for various policy options: income tax cuts range between 0.1 and 0.4, payroll tax cuts range between 0.3 and 1.2, expensing for investment spending ranges between 0.2 and 1.0, transfers to state and local governments range between 0.4 and 1.1, expanded unemployment benefits range between 0.7 and 1.9, and infrastructure ranges between 0.5 and 1.2. These multipliers are estimated for the cumulative effect on GDP over five years, and CBO notes that some of the proposals would have a faster effect than others. Relative multipliers for one year indicated by Mark Zandi, a private forecaster for Moody's Analytics for elements of the fiscal cliff, are as follows: extension of unemployment benefits at 1.5, automatic spending cuts under the Budget Control Act at 1.1, Bush tax cuts for those below $250,000 and the payroll tax at 0.9, Bush tax cuts for those above $250,000 and the AMT at 0.5, and taxes imposed under health care, depreciation, "extenders" and doc fix at 0.2. These multipliers indicate that increased unemployment benefits have the largest effects, followed by spending, and tax cuts and payments to high income individuals and businesses the smallest effects. The challenge for spending programs is that there may be a lag time for planning and administration before the money is spent (although this issue does not apply in the case of the fiscal cliff where changes would prevent cuts from taking place). Some analysts suggest that aid to state and local governments may be spent more quickly because these governments are likely to cut back on spending in downturns due to balanced budget requirements, and the aid may forestall these cuts. The receipt of tax cuts can also be delayed, if they are delivered through changes to withholding or through a delayed refund. If a stimulus is considered or enacted as the economy is beginning to recover, its benefits may be limited given these lags. Subsidies to business investment are, like other policies, aimed at increasing aggregate demand (through increased investment spending). Although a temporary subsidy should be the most effective investment stimulus in theory, evidence from prior investment subsidies suggests that such subsidies are not very effective. The lack of effectiveness may occur in part because businesses with losses cannot take advantage of the provision and in part because firms may already have excess capacity. In other words, businesses may not respond to the incentive because there is lack of demand for their products. The small business investment subsidies suffer from the same problems confronting business subsidies for investment in general. The extension of the expensing provision for small business, however, has mixed effects because firms in the phase-out range have a marginal disincentive to invest. In any case, the potential effect on spending is limited by the fact that these provisions have relatively small effects on revenue. Some argue the employment tax credits are different from traditional fiscal policies in that their objective is to directly increase employment through a subsidy to labor costs. A general subsidy to labor (such as a forgiveness of the employer's share of payroll taxes) would significantly reduce tax revenue. (In the short run, a forgiveness of the employee's share of payroll taxes would be similar to an individual income tax cut while forgiveness of the employer's share would be similar to a job credit.) The tax code has for some time contained permanent tax credits targeted at certain types of workers, and the target groups were expanded somewhat in 2009. These credits are applicable to newly hired workers from the targeted groups but without requiring an increase in a firm's total employment. As noted above, an employment credit was included in P.L. 111-147 . A similar provision might be considered for long-term unemployed individuals. A proposal that has been circulating for some time, and that might be considered as a small business hiring incentive, is an incremental jobs tax credit. This type of credit would provide benefits for hiring employees in excess of a base amount. The United States had one historical experience with this type of credit in 1977 and 1978 (the New Jobs Tax Credit). Two proponents of this policy, Bartik and Bishop, have argued that the proposal will be successful in creating a significant number of jobs. Their estimates were done by assuming a labor demand elasticity of 0.3, which indicates that a 10% reduction in the cost of labor would increase employment by 3%. Their estimates, however, did not rest on a study of the 1977-1978 credit, but rather they predicted the effect on jobs based on the average labor demand elasticity. Note that this estimate is a general demand elasticity, and might not necessarily be as high during a recession, when business is slack. Studies that examined the 1977-1978 credit found mixed results. Bishop studied the construction, retailing, and wholesaling industries, accounting for the effect of the jobs credit, and found that the credit was responsible for 150,000 to 600,000 of the 1 million increase in employment during that period. Perloff and Wachter compared firms who knew about the credit with those who did not and found employment growth to be greater among the former group, although they caution that this is not a random selection and there may be characteristics about firms with more knowledge that could independently affect growth. Overall, they seem to conclude that the credit did not work very well because many firms were not aware of it, and many firms did not have enough employment growth. Tannenwald surveyed Wisconsin and New England firms. He found that the effect was smaller than predicted. He indicated that most estimates of the labor demand response to a change in wages indicate that a 10% change in wages led to labor demand increases of 2%. These estimates are general estimates, not associated with a downturn. He found an increase of only 0.4%, less than a quarter of the projected effects. The major reason was the lack of product demand. For example, one quote from his survey was, "Orders determine levels of hiring, not tax gimmicks." The main reservation about a jobs tax credit is that it might not be effective in those industries that are experiencing slack demand, causing the labor demand elasticity, already low in normal times, to approach a very low level. While an incremental credit can have a larger "bang for the buck" by only providing subsidies for additional hiring, it is also much more complicated and the incremental feature can possibly be avoided (for example, firms may hire their contractors temporarily). The 1977-1978 credit was made incremental in Congress (presumably to increase bang for the buck), but an incremental subsidy was opposed by the Carter Administration because of complexity and unfairness. Sunley discusses a variety of distortions that arise from an incremental credit, depending on the design, such as hiring part-time workers instead of full-time, reducing overtime, and firing and replacing workers. Also, it automatically favors firms that are growing anyway, which leads to geographic differentials. Although policy measures can be financed by cutting other spending, raising other taxes, or increasing the budget deficit, fiscal stimulus is normally deficit financed. It is theoretically possible to design a stimulus package that would be deficit neutral by choosing a mix of stimulus proposals with high multipliers and offsets with low multipliers, but such a stimulus would be smaller than a deficit financed proposal. The choice of financing affects both the macroeconomic impact and the cost-benefit tradeoff of the policy proposal. Economic theory indicates that a deficit-financed policy proposal would have the maximum impact on employment in the short term. In a deep recession, total spending (aggregate demand) in the economy is inadequate to fully employ labor and capital resources. In other words, lack of aggregate demand is the main cause of high unemployment. Increasing the budget deficit can increase total spending in the economy and bring some of those idle resources back into use. Deficit-neutral proposals would tend to neutralize the effects of job creation provisions on total spending in the economy by cutting other spending or lowering the spending of those whose taxes are raised. Deficit-neutral proposals could even be mildly contractionary. For example, if taxes are cut and financed by a spending reduction, the increase in consumption of recipients would not fully offset the contractionary effects of the decrease in government spending to the extent that the recipient saves part of the tax cut. Deficit-neutral policies might be designed to lower the cost of labor, but without any increase in demand for their products, employers may be unresponsive to incentives to increase their labor force. In the context of a large output gap, the short-term economic cost of increasing the budget deficit may be quite low. The main economic costs of increasing the deficit come from its tendency to "crowd out" private investment spending or increase the trade deficit. Deficits crowd out private investment spending because their financing requires scarce private saving. Increasing the demands on this private saving raises interest rates, making private investment spending less attractive. In the current context, investment spending has been greatly reduced by the recession, so there is less chance of it being crowded out by the larger deficit in the short run. Unusually low Treasury bond rates are evidence that the crowding out factor is not significant at present. Deficits and domestic private investment spending can also be financed through foreign capital flows, however. An increase in net foreign capital inflows must be matched by an equal increase in the trade deficit. With perfect capital mobility, the stimulus to total spending caused by the larger deficit could be entirely offset by the decline in total spending resulting from a larger trade deficit. Since the trade deficit has fallen significantly since the beginning of 2007, this drawback to increasing the deficit may also be less important at present. While an economic argument can be made that increasing the deficit could have short-term benefits, that argument may presuppose that the increase in the deficit would be reversed when economic conditions return to normal. Political constraints may make that difficult, and could lead one to conclude that the short-term benefits of higher deficits would be outweighed by the long-term costs—namely, that if deficits are not reduced or are increased when unemployment falls, the negative effects on investment spending and the trade deficit would become greater. Indeed, any proposal to increase the deficit can be viewed in the broader context of an overall deficit that since 2009 has been larger relative to the size of the economy than all but a handful of previous wartime years. Current deficits are not sustainable in the long run in the sense that deficits of that size would cause the national debt to continually rise relative to output. A deficit of this size cannot be maintained indefinitely without eventually resulting in a fiscal crisis where investors refuse to continue financing it because they no longer believe that the government would be capable of servicing it. While there is no sign of investor unwillingness to hold federal debt at the present (since borrowing rates are so low), it is also difficult to predict at what point investors would refuse to hold more debt. Essentially, investors are willing to hold federal debt as long as they believe that the government will eventually reduce the deficit to the point where it becomes sustainable. Policy changes that increase the deficit place the deficit further from sustainability. | The longest and deepest recession since the Great Depression ended as expansion began in June 2009. Although output started growing in the third quarter of 2009, the labor market was weak in 2010, with the unemployment rate averaging 9.6% for the year. Despite showing improvement in 2011, the unemployment rate averaged a still high 8.9% for the year. The labor market continued to improve slowly, reaching 8% for the first time since January 2009. The rate fell slowly in 2013, reaching 7% by November, but still above the pre-recession rate of 5%. Several policy steps were taken after the economy entered the Great Recession. They include stimulus bills in 2008 (P.L. 110-185) and 2009 (P.L. 111-5), an unprecedented expansion in direct assistance to the financial sector by the Federal Reserve, and the Troubled Asset Relief Program (TARP; P.L. 110-343). In December 2010, after the recession had ended, P.L. 111-312 extended the 2001 and 2003 "Bush" income tax cuts through 2012 as well as other expiring tax provisions and emergency unemployment benefits through 2011. The Tax Relief, Unemployment Reauthorization, and Job Creation Act also cut the payroll tax by two percentage points through 2011. The payroll tax cut was extended into early 2012 as part of the Temporary Payroll Tax Cut Continuation Act (P.L. 112-78) and again through 2012 as part of the Middle Class Tax Relief and Job Creation Act (P.L. 112-96), which also extended emergency unemployment benefits. In 2012, attention focused on the significant increase in taxes and decrease in spending popularly referred to as the "fiscal cliff." Economic projections had suggested that these policies would have dramatically slowed growth and perhaps lead to a recession in the first part of 2013. The American Taxpayer Relief Act (P.L. 112-240) eliminated somewhat more than half the fiscal cliff, but fiscal policy remained contractionary for 2013 as compared with 2012 and was projected to cause growth to slow by one to two percentage points compared to what otherwise would have been the case. Some provisions of that legislation expire at the end of 2013. The Bipartisan Budget Act of 2013 allowed for higher spending limits, but had offsetting provisions with a negligible effect on the economy and did not extend most expiring tax and spending programs, including extended unemployment benefits. These provisions cause further contractionary fiscal policy effects. This report addresses three policy issues: whether to take additional measures to increase jobs (or avoid contractionary policies), what measures might be most effective, and how job creation proposals should be financed. Most proposals that have been discussed in the past as part of a potential additional macroeconomic jobs bill are traditional fiscal stimulus policies. Their objective is to increase total spending in the economy (aggregate demand) either through direct government spending on programs or by providing funds to others that they will spend (through tax cuts, transfer payments, and aid to state and local governments). Proposals for employment tax credits are different from traditional fiscal policies in that their objective is to directly increase employment through a subsidy to labor costs. To be effective, fiscal stimulus is generally deficit financed. Although a stimulus measure could be paid for by cutting other spending or raising other taxes, these financing options will offset the stimulative effects on aggregate demand. It is possible to choose a deficit-neutral package of tax and spending changes that would stimulate aggregate demand if some types of measures induce more spending per dollar of cost than others, but such an effect would likely not be very large. The choice of financing affects both the macroeconomic impact and the cost-benefit tradeoff of the policy proposal. If such an effective stimulus package could be designed, it would have the advantage of not exacerbating the challenges of a growing debt. |
Qatar, a small peninsular state bordering Saudi Arabia in the Persian Gulf (see Figure 1 ), declared its independence on September 3, 1971. It is a constitutional monarchy governed by the Al Thani family, and the constitution reflects the previously contested principle that successors to the throne will follow the hereditary line of the emir's male offspring. The Emir of Qatar, Tamim bin Hamad bin Khalifa Al Thani, began his rule in June 2013 when his father, Shaykh Hamad bin Khalifah, abdicated, marking the first voluntary and planned transition of power in Qatar since its independence. Shaykh Hamad raised the global profile and influence of the small, energy-rich country after replacing his own father in a palace coup in 1995. Emir Tamim's mother, Shaykha Mohza, is active in leading education, health, and women's initiatives. Of the country's approximately 2.1 million people, roughly 15% are citizens; the rest are foreign residents and temporary laborers. Qatar's small native population is not publicly restive, and members of the fluid expatriate population of more than 1.7 million have no political rights. Public debate on some issues has been encouraged, although recent U.S. State Department human rights reports have noted Qatar's ban on political parties and restrictions on freedom of speech, press, assembly, association, and religion for citizens and noncitizens alike. In practice, the emir's personal authority as Qatar's constitutional monarch is tempered only by the need to maintain basic consensus within the Al Thani family and among other influential interest groups. Most experts regard the Al Thani family as having some significant, if manageable, internal rivalries. Religious conservatives have considerable social influence, and Qatar's military and security forces answer to the emir. Elections for a Central Municipal Council were held in May 2011, and planned national Advisory Council elections were again delayed in mid-2013 in conjunction with the leadership transition (see below). A broad shift in government leadership accompanied the 2013 transition and suggests that changes were managed in order to accommodate the interests of others than the emir and his immediate family. The emir appoints members of his extended family and other leading figures to a governing Council of Ministers, which serves as the national cabinet (see Table 1 below). Emir Tamim has inherited the duties of leading a nation that transformed under his father's tenure from a weak satellite of Saudi Arabia into an ambitious, independent regional power with large financial resources and considerable global influence relative to the country's small population. In his initial public statements and actions, the new emir suggested that elements of both continuity and change would characterize Qatar's official policies under his leadership. Upon taking office, he said: ...we are people who are committed to our principles and values. We do not live on the sidelines of life and we do not go adrift without a destination. We are not subservient waiting for guidance from anyone. This independent pattern of behavior has become factual in Qatar and people who deal with us. We are people with visions. ...we respect all sincere and active political trends in the region but we are not supportive of a trend against another. We are Muslims and Arab; we respect the diversity of religious schools of thoughts and respect all religions in our country and abroad. As Arabs, we reject dividing the Arab communities based on sectarianism or doctrine because this affects social and economic immunity and prevents its modernization and development on the basis of citizenship regardless of religious sects or thoughts. At a December 2013 event in London, Qatari Foreign Minister Khaled al Attiyah said, "We have the same policy but it may be that our approach has changed." The United States opened its embassy in Doha in 1973, but U.S. relations with Qatar did not blossom until after the 1991 Persian Gulf War. In the late 1980s, the United States and Qatar engaged in a prolonged diplomatic dispute regarding Qatar's black market procurement of U.S.-made Stinger anti-aircraft missiles. The dispute froze planned economic and military cooperation, and Congress approved a ban on arms sales to Qatar (§566(d), P.L. 100-461 ) until the months leading up to the 1991 Gulf War, when Qatar allowed coalition forces to operate from Qatari territory and agreed to destroy the missiles in question. In January 1991, Qatari armored forces helped coalition troops repel an Iraqi attack on the Saudi Arabian town of Kafji, on the coastal road leading south from Kuwait into Saudi Arabia's oil-rich Eastern Province. In June 1992, Qatar signed a defense cooperation agreement with the United States, opening a period of close coordination in military affairs that has continued to the present. The United States promptly recognized the assumption of power by Shaykh Hamad in June 1995 and welcomed Qatar's defense cooperation, as well as Shaykh Hamad's modest political, economic, and educational reform efforts. President Obama congratulated Emir Tamim upon his accession to the throne in June 2013, and Qatari-U.S. relations remain close, amid some differences over regional security questions. Qatari-U.S. defense relations have expanded to include cooperative defense exercises, equipment pre-positioning, and base access agreements. U.S. concerns regarding alleged material support for terrorist groups by some Qataris, including reported past support by a prominent member of the royal family, have been balanced over time by Qatar's counterterrorism efforts and its broader, long-term commitment to host and support U.S. military forces active in Iraq, Afghanistan, and the rest of the CENTCOM area of responsibility. In December 2013, U.S. Secretary of Defense Chuck Hagel visited Doha, met with Emir Tamim, and signed a new 10-year defense cooperation agreement, followed in July 2014 by agreements for $11 billion in advanced arms sales. Qatari officials are quick to point out their commitment to the general goal of regional peace and their support for U.S. military operations, even as they maintain ties to Hamas and others critical of Arab-Israeli peace negotiations. In June 2009, U.S. Ambassador to Qatar Joseph LeBaron explained Qatar's policy in the following terms: "I think of it as Qatar occupying a space in the middle of the ideological spectrum in the Islamic world, with the goal of having doors open to it across that ideological spectrum. They have the resources to accomplish that vision, and that's rare." By all accounts, Qatar's balancing strategy toward its relationship with the United States and regional powers such as Iran and Saudi Arabia is likely to persist, which may continue to place Doha and Washington on opposing sides of some important issues even amid close cooperation on others. The United States has provided limited counterterrorism assistance to Qatar to support the development of its domestic security forces, and the Export-Import Bank has provided over $2 billion in loan guarantees to support various natural gas development projects in Qatar since 1996. The Obama Administration has phased out U.S. foreign assistance and has not requested military construction funds for facilities in Qatar since FY2012. Qatar donated $100 million to victims of Hurricane Katrina in the U.S. Gulf states, and Qatari state entities and private individuals continue to make large investments in the United States. Several prominent U.S. universities have established satellite campuses in Doha at Qatar's Education City, where Qatari, American, and other students pursue undergraduate and graduate coursework across a broad range of subjects. In Congress, legislative action related to Qatar remains relatively limited with the exception of appropriations and authorization legislation that affects U.S. defense programs and congressional review of proposed foreign military sales to the Qatari military. Qatar's foreign and domestic policies are monitored by congressional foreign affairs, defense, and intelligence committees, while Qatar's resource wealth and associated economic clout fuels congressional interest in U.S.-Qatari trade and investment ties. In the 113 th Congress, H.Res. 297 would congratulate Emir Tamim "on his ascension to the throne"; express "thanks and appreciation" to Sheikh Hamad bin Khalifa Al Thani; and recognize "the continued friendship between the United States and the people of the State of Qatar." H.Res. 682 would call on the United States government and U.S. corporations to prioritize the rights of migrant workers in dealing with Qatar, and would call on the government of Qatar to take added steps to protect and improve laborers' rights, particularly in light of preparations for the 2022 Federation Internationale de Football Association (FIFA) World Cup. A Congressional Caucus on Qatari-American Economic Strategic Defense, Cultural and Educational Partnership remains active. With its small territory and narrow population base, Qatar relies to a large degree on external cooperation and support for its security. With 11,800 personnel, Qatar's armed forces are the second smallest in the Middle East, and in 2014, the government instituted mandatory short-term military training and service and long-term reserve service requirements for Qatari males aged 18 to 35. A series of major proposed U.S. arms sales to Qatar since 2012 has marked a shift in Qatar's defense planning toward the future use of advanced U.S. attack and transport helicopters and other weapons systems, including items for air defense and missile defense (see Table 2 below). Secretary Hagel visited Doha in July 2014 and announced the sale of more than $11 billion in weapons and air defense systems previously notified to Congress. The sale of Patriot missile batteries, Apache attack helicopters, and Javelin anti-tank missiles marks the highest value sale of U.S. weaponry to date in 2014. Qatar's purchase of U.S. weapons systems, including U.S. air and missile defense systems, corresponds to trends that have seen increased interest in such systems from other governments in the region, ostensibly to defend against potential missile attacks from Iran. France has provided approximately 80% of Qatar's existing arms inventory, including its fighter aircraft. Some reports suggest that in 2013, Qatar delayed a final decision about purchasing new fighter aircraft in order to consider revised proposals from potential U.S. suppliers. Qatar invested over $1 billion to construct the large Al Udeid air base southwest of Doha during the 1990s; it had only a small air force of its own at the time. The U.S. Army Corps of Engineers also awarded over $100 million dollars in Military Construction Air Force (MCAF) contracts for the construction of U.S. storage, housing, service, command, and communication facilities. Qatar's financing and construction of some of the state-of-the-art air force base at Al Udeid and its granting of permission for the construction of U.S.-funded infrastructure facilitated gradually deeper cooperation with U.S. military forces. The Al Udeid airbase now serves as a logistics, command, and basing hub for the U.S. Central Command (CENTCOM) area of operations. Nearby Camp As Sayliyah houses significant U.S. military equipment pre-positioning and command facilities. Both Qatar and the United States have invested in the construction and expansion of these facilities since the mid-1990s, and they form the main hub of the CENTCOM air and ground logistical network in the region. Operations in Iraq and Afghanistan put U.S. and partner-nation facilities in Qatar to greater use in recent years. These facilities may require further investment to meet current and potential future needs, including needs associated with ongoing U.S. and coalition military operations against the Islamic State and other extremist groups in Iraq and Syria. From FY2003 to FY2011, Congress appropriated and authorized more than $457 million for U.S. military construction activities in Qatar. The Administration's FY2013 through FY2015 Military Construction requests have not included funding for Qatar-based projects. U.S.-Qatari counterterrorism cooperation has improved since the 1990s when, according to the 9/11 Commission Report and former U.S. government officials, Qatari royal family member and later Interior Minister Shaykh Abdullah bin Khalid Al Thani provided support to Al Qaeda figures, including the suspected mastermind of the September 11 attacks, Khalid Shaykh Mohammed. The U.S. State Department has characterized Qatar's counterterrorism support since September 11, 2001, as "significant." Hamas political chief Khaled Meshaal continues to operate from Doha after decamping there from Damascus in 2012. U.S officials are aware of the presence of Hamas leaders, Taliban members, and designated Al Qaeda and Islamic State financiers in Qatar. Qatari officials in public and in private meetings deny supporting extremist groups, and in general terms the Qatari government continues to pursue a foreign policy based on strategic ambiguity and openness to engagement with all actors (including violent armed extremist groups). Emir Tamim said on September 17, "What is happening in Iraq and Syria is extremism and such organizations are partly financed from abroad, but Qatar has never supported and will never support terrorist organizations." Qatar's air force participated in coalition military operations against Islamic State targets in Syria in September 2014. The U.S. government has not publicly accused the Qatari state of providing material support to terrorist organizations, but recent U.S. government statements allege that private Qatari citizens and individuals based in Qatar provide such support. In March and October 2014, U.S. Treasury Under Secretary David Cohen for Terrorism and Financial Intelligence referred to Qatar as a "permissive" terrorist financing jurisdiction in public remarks, but stated that Qatar "in other respects has been a constructive partner in countering terrorism." In June 2014, the new U.S. Ambassador to Qatar Dana Shell Smith said that the United States government has "an active and productive dialogue with Qatar in the areas of counterterrorism," adding that "we are working with Qatar to improve the capacity of its counterterrorist financing regime and disrupt illicit cash flows, including through the provision of training." In her confirmation hearing, Ambassador Shell Smith responded to a question about the status of U.S. efforts to convince Qataris to refrain from supporting extremist groups in Syria by saying, "I haven't heard from anymore that we're ready to just declare, you know, everything is wonderful and perfect, but we do feel that we are making progress in our shared understanding of which groups are constitute moderate opposition and who is worthy of our support." During 2012, the Middle East and North Africa Financial Action Task Force (MENAFATF) completed a required review of Qatar after determining that "Qatar had improved its anti-money laundering/combating the financing of terrorism regime and was either 'Compliant or Largely Compliant' with all of the Task Force's recommendations." The Qatari central bank operates a financial intelligence unit (FIU) that monitors activity in Qatar's banking system and serves as a liaison office to similar units in the United States and around the world. U.S. government reporting identifies areas where U.S. officials believe that Qatari state controls on financial activities could be improved in order to better combat terrorist financing. According to the latest State Department counterterrorism reporting, in 2013: Qatar's monitoring of private individuals' and charitable associations' contributions to foreign entities remained inconsistent. Qatari-based terrorist fundraisers, whether acting as individuals or as representatives of other groups, were a significant terrorist financing risk and may have supported terrorist groups in countries such as Syria. ...The Government of Qatar routinely engages with international interlocutors on terrorist financing and has taken some steps to improve oversight of foreign charities that receive contributions from Qatari institutions and to work with the banking sector to identify suspicious transactions. …Despite a strong legal framework, judicial enforcement and effective implementation of Qatar's anti-money laundering/counterterrorist the financing of terrorism (AML/CFT) law are lacking. Qatar's lack of outreach and enforcement activities to ensure terrorist financing-related transactions are not occurring and the lack of referrals by the financial intelligence unit of cases are significant gaps. The State Department's 2014 Narcotics Control Strategy Report annex entry on Qatar recommends: Qatar should continue its efforts to effectively implement AML/CFT regulations and procedures, and should ensure sufficient resources and training are provided to develop the necessary institutional capacity. Qatar should continue to work to increase the rate of investigations and prosecutions by building capacity within its law enforcement authorities. Qatar also should pursue outreach and enforcement activities to ensure terrorist financing-related STR [suspicious transaction] reporting occurs, and ensure the UNSCRs 1267 and 1373 freezing regime is effectively implemented. Qatar should mandate the declaration of cross-border movements of bulk cash or negotiable instruments. In September 2014, the U.S. government designated a senior Islamic State (IS/ISIL) organization leader who helped raise funds for the group in the Gulf region, including a reported $2 million payment from an unidentified "Qatar-based ISIL financial facilitator." In December 2013, the U.S. government designated Abdelrahman bin Umayr al Nuaymi, a Qatari national and human rights activist, as a Specially Designated Global Terrorist (SDGT) for allegedly acting as an Al Qaeda financier. Nuaymi is the president of the leadership council of the Switzerland-based Al Karama Foundation. U.S.-designated Al Qaeda financiers Salim Hasan Khalifa Rashid al Kuwari and Abdallah Ghanim Mafuz Muslim al Khawar also were reported to be living in Qatar at the time of their designation in July 2011. Qatar's approach to regional affairs can be described as a multi-directional balancing act. To the chagrin of Saudi Arabia and other regional powers, Qatar has sought in recent years to mediate regional conflicts and political disputes by engaging a wide range of parties in Yemen, Lebanon, Sudan, Libya, Egypt, and Gaza, some of whom are hostile to the United States. Qatari leaders responded boldly to the regional unrest that emerged in 2011, and embraced political change that brought Islamist parties to power in Tunisia and Egypt. In the period since, increasing criticism of Qatar by some of the Sunni Arab members of the Gulf Cooperation Council (GCC) and growing Sunni-Shiite and Arab-Iranian tensions in the Gulf region have led Qatar to close ranks with its neighbors to some degree. Among the key questions for the region is whether or not Qatar's official embrace of some Sunni Islamist movements, including the Muslim Brotherhood, will change significantly under the leadership of Emir Tamim. Several Muslim Brotherhood figures movement left Qatar in 2014 and claim that the government asked them to do so in response to pressure from fellow GCC states Saudi Arabia and the United Arab Emirates. Qatar's approach to the conflict in Syria has evolved over time. The former emir initially took a measured approach and promoted dialogue, but he and the current emir adopted a more confrontational approach as violence continued and worsened during 2012 and 2013. In September 2014, Emir Tamim said before the United Nations General Assembly that: the war of genocide being waged and the deliberate displacement carried out by the [Asad] regime, remain the major crime. …We reiterate the call for the Security Council to promptly shoulder its legal and humanitarian responsibility and support the Syrian people against both dangers posed by terrorism of the regime and the crimes of genocide it is perpetrating, and by the terrorist forces that took advantage of the misery and bitterness and the absence of the state and the international community. The first danger has begotten the second. While some regional voices clearly resent Qatar's assertive diplomacy, the Qatari government's agility in the face of uncertainty and the soft power of its government-supported Al Jazeera satellite television network have made Qatar a key player in regional unrest since 2011. Some critics assert that in spite of Qatar's active foreign policy, its regional diplomacy has actually yielded few tangible results, with the exception of the 2008 Doha agreement that temporarily ended an 18-month long political crisis in Lebanon. Reported Qatari support for Sunni armed groups in Syria has the potential to have a more lasting impact on the region, but has challenged the traditional Qatari preference for remaining engaged with all sides in regional disputes. Qatar's ability and willingness to engage directly with armed groups, as evidenced by a series of reported hostage release negotiations and prisoner exchange agreements in 2014, appears to remain unique in the region and may complicate calculations about the relative costs and benefits of Qatar's policies. Multilateral diplomacy aimed at ending the insurgency in Afghanistan facilitated the opening in June 2013 of a political office by the Afghan Taliban in the Qatari capital, Doha, to engage with third parties. The Obama Administration supported the office initiative "for the purposes of negotiations between the Afghan High Peace Council and the authorized representatives of the Taliban." However, a dispute over the nature of the office led to its closure weeks later in July 2013: Afghan government authorities protested the Taliban's use of the name "Islamic Emirate of Afghanistan" and the display of the former Taliban government flag at the facility. The Obama Administration reiterated its view that, "The office must not be treated as or represent itself as an embassy or other office representing the Afghan Taliban as an emirate government or sovereign." Qatari officials took steps to remove the disputed placards and flag. Afghan President Hamid Karzai had long been critical of plans for the office and said in December 2013 that "Qatar is no longer an option for us." Nevertheless, Qatar remains an interlocutor with the Afghan Taliban movement, and, in May 2014, Qatari officials announced they would host five Taliban prisoners from the U.S. prison at Guantanamo Bay as part of a prisoner-exchange agreement that they had facilitated to secure the release of U.S. Army Sergeant Bowe Bergdahl. As of November 2014, press reports suggest that the five individuals— Khairullah Khairkhwa, Mullah Norullah Noori, Abdul Haq Wasiq, Mohammed Nabi Omari, and Mohammad Fazl—remain in Qatar and thus far have abided by their commitment not to leave the country for 12 months. Qatari officials have committed to monitoring the individuals in question and to ensuring they do not reengage in military or terrorism activity during their stay in Qatar. In October 2014, the Afghan Taliban movement reported that two leaders of the Haqqani Network (a U.S.-designated Foreign Terrorist Organization) were arrested and transferred to Afghan custody after reportedly visiting the released Taliban members in Qatar. The Taliban claim the arrests violated the prisoner release agreement because the individuals were related to or invited by relatives of the detainees. Some U.S. critics of the prisoner exchange have argued that the incident suggests that the terms of release for the Taliban detainees were not sufficiently rigid. Although Qatar and Israel do not have formal diplomatic ties, Qatar has supported the Arab League position backing internationally supported negotiations between the Palestinian Authority and Israel. In his first speech upon taking power, Emir Tamim said: Qatar is committed to the solidarity with brotherly Palestinian people and struggles to achieve the legitimate rights and considers the realization of these rights a condition for just peace, which include the Israeli withdrawal from all the Arab territories occupied in 1967 including East Jerusalem, establishment of independence of the Palestinian State, the right for return for refugees as [there can be] no settlement without a just peace. Qatar, like other Arab states, continues to support the Palestinian bid for recognition and full membership at the United Nations. Qatari leaders regularly criticize Israeli decisions on settlements and Jerusalem that they claim undermine prospects for a two-state solution. In recent years, some observers have viewed Qatar's diplomatic approach as supportive of Hamas, particularly since Hamas politburo chief Khaled Meshaal relocated from Syria to Doha at the Qatari government's invitation in 2012. Outspoken Qatari criticism of Israeli government military operations and negotiating positions continued during the summer 2014 Gaza conflict. In July 2014, Qatar and Turkey jointly sponsored a ceasefire proposal that garnered some positive consideration from U.S. officials but was ultimately rejected. Qatar's Foreign Minister is reported to have subsequently described Israel as "the aggressor" in the conflict and said: I expect the legitimate demands of our kinsfolk in Gaza to be met. I also expect a halt to the aggression and complete lifting of the land, air, and sea blockade. In addition, I expect them (in Gaza) to enjoy a commercial port albeit under international supervision. …The people in Gaza have suffered enough. They have been living in a large prison since 1967. They are deprived of the most basic things in life. The residents of Gaza and the West Bank say that they are killed in any case. They say they are either killed by Israeli gunfire or slowly die of hunger. They resist and defend their land, and we move for their sake. At the September 2014 U.N. General Assembly, Emir Tamim described Israel's summer 2014 military strikes in Gaza as "a crime against humanity." He also said, "I salute the steadfastness of the resistance of the Palestinian people in Gaza in the face of occupation and in insisting on regaining its legitimate rights," vowing that "the State of Qatar will spare no effort to provide assistance for the reconstruction of the Gaza Strip." Since 2013, Qatar reportedly has provided several million dollars for construction projects in the Hamas-controlled Gaza Strip and financed the Palestinian Authority's purchase of a fuel shipment for the Gaza electricity generation plant that Israel approved in December 2013. Though Qatar has claimed to maintain control over its Gaza construction projects, some allege that these projects and Qatari-aided shipments of fuel into Gaza aid Hamas's military or logistical efforts, while others deny this. A Qatari official has reportedly indicated that any money it would contribute to Gaza going forward for humanitarian purposes would not go directly to Hamas. Some Members of Congress, including then-Senator and now Secretary of State John Kerry, have criticized Qatar for providing financial and political support to Hamas. Qatari officials deny that their government supports Hamas financially and argue that their policy is to support the Palestinian people. Qatari officials have long argued that their relationship with Hamas reflects a consistent policy of engagement with all sides in the interests of peace. In August 2014, Emir Tamim hosted meetings between PA President Abbas and Hamas leader Khaled Meshaal in Doha aimed at unifying Palestinian negotiating positions with regard to a potential long-term ceasefire arrangement with Israel ( Figure 2 ). In a concurrent interview, Meshaal said: The relationship between Qatar and HAMAS is not new. It is public. HAMAS has a broad network of Arab, Islamic, and international relations. No one is ashamed of this. We have great appreciation for the popular and official Qatari position and the courage of the Qatari leadership and what it offers to the Palestinian cause. The Qatari support is not for HAMAS as a movement in particular, but for the Palestinian people. Its former emir, Hamad Bin-Khalifah Al Thani, and current emir, Tamim Bin-Hamad Bin-Khalifah, have adopted positions toward Gaza, made direct visits, played a role in construction, adopted political positions that support Palestinian rights, and hosted many meetings in Doha between the Palestinian forces and between us and President Abbas, as well as the first Gaza summit in the 2008 and 2009 war. All of this is honorable history of Qatar, which is to be thanked and not blamed. For the enemy to attack it, this is a source of pride for Qatar and is evidence of the correctness of the Qatari position. During past periods of progress in Arab-Israeli peace negotiations, Qatar was in the forefront of talks aimed at expanding Arab economic ties with Israel. Qatar's position regarding the Arab boycott of Israel is governed by the September 1994 decision by the GCC to terminate enforcement of the indirect boycotts, while maintaining the primary boycott. An Israeli trade office in Doha was shuttered by the Qatari government in response to the January 2009 Gaza War and has not been reopened. Qatar has backed up its active diplomacy with growing financial resources and economic influence over the last decade—a period of "unparalleled prosperity." Between 2000 and 2012, Qatar's nominal GDP skyrocketed from $35 billion to an estimated $185 billion. According to a May 2014 International Monetary Fund (IMF) report, GDP growth averaged 14% over the last decade and the country's per capita GDP is the highest in the world. Hydrocarbon exports have led the way, but non-oil and gas sector growth reached 9% in 2012. Oil and natural gas export proceeds provide roughly half of the government's revenue, but the IMF expects the contribution of the non-hydrocarbon sector to grow steadily over the next five years. Qatar continues to base its annual state budgets on an assumed oil price of $65 per barrel, making Qatar better positioned than other producers to deal with declining oil market prices. In recent years, government spending has exceeded budget projections, but conservative energy export price estimates have ensured large surpluses. The IMF has estimated that Qatar's fiscal surpluses will continue through at least 2015, but are likely to decrease in size. The government continues to invest surplus revenue abroad for future generations and has increased public spending in support of domestic infrastructure, housing, and health sector improvements. Qatari press outlets feature limited criticism of domestic budget transparency, spending priorities, foreign contractors, and government efficiency. Some observers have raised questions about the long-term ability of Qatar to attract private sector investment and produce employment opportunities once the current phase of large state-supported infrastructure investment is complete. By all accounts, Qatari officials remain confident in their economic prospects and appear to have used the post-2008 downturn as an opportunity to assess lessons learned during the country's boom, to reconsider planned projects, and, where possible, to take advantage of lower input costs by delaying project start dates or renegotiating contracts. Managing the infrastructure and service needs created by the influx of laborers to the county remains an immediate challenge. The country's population, including expatriates, more than tripled between 2000 and 2010, growing to over 2 million in 2013. As such, Qatar's economic successes have been accompanied by new challenges in the areas of social cohesion; education; labor; national infrastructure; and energy, water, and food supplies. To respond to these challenges, Qatari authorities have embarked on a series of parallel national development strategies based on a comprehensive national vision document that seeks balanced, sustainable growth by the year 2030. Emir Tamim bin Hamad chaired the implementation oversight body for the Vision 2030 project in his prior role as heir apparent. The national development strategy for 2011 through 2016 sets ambitious infrastructure investment targets with over $65 billion in planned spending on housing, roads, water, airports, and shipping facilities. With proven oil reserves of 25.4 billion barrels, Qatar has far less oil than the major Persian Gulf producers, such as Kuwait (96.5 billion barrels), Iraq (112 billion barrels), and Saudi Arabia (252 billion barrels). However, Qatar has the third-largest gas reserves in the world, an estimated 25.2 trillion cubic meters (tcm). Qatar Petroleum (QP), the state-owned oil and natural gas company, increased its crude oil output from 593,000 barrels per day (b/d) in 1999 to approximately 824,000 b/d in December 2008. However, production has been lowered closer to 700,000 b/d as investments are made in technology to extend the life and productivity of the country's oil fields. According to the U.S. Energy Information Administration, Japan and South Korea are the top importers of Qatari oil. As part of a long-term development strategy, Qatar has tapped international financial markets and invited foreign investment in order to finance the expansion of its gas extraction and liquefied natural gas (LNG) production and export facilities. U.S. companies, particularly ExxonMobil, are partners in most of Qatar's LNG export projects. The Export-Import Bank of the United States has provided over $1 billion in loan guarantees to support the development of Qatar's gas production facilities in cooperation with a range of U.S., European, and Asian companies, banks, and export credit agencies. Qatar expanded its yearly natural gas production from 31.4 billion cubic meters annually in 2002 to 158.5 billion cubic meters in 2013, and is now the world's largest exporter of LNG. More than 60% of Qatari LNG exports go to Asian markets, and most export sales are conducted under the auspices of multi-year supply-purchase arrangements. The large natural gas production and shipping facilities at the coastal city of Ras Laffan in northern Qatar serve as the main site for the country's gas development projects, including the world's largest gas-to-liquids facility. Qatar owns numerous LNG import terminals in other countries, including the United States. Qatar participates in and hosts the headquarters of the Gas Exporting Countries Forum, an assembly of major gas exporting countries that some have described as a potential natural gas OPEC. Qatar has paused its rapid expansion of export-oriented natural gas projects through 2015 in expectation of clearer market signals about long-term investment needs. However, limited off-shore exploration activities are now underway. Global economic uncertainty and natural gas market changes have complicated global demand projections for Qatari energy exports. However, steady growth in regional energy consumption and the recent effects of regional unrest have created new opportunities for growth. For example, Jordan is constructing a new LNG import terminal at Aqaba to relieve pressure placed on Jordanian supplies by unrest in Egypt. According to the U.S. Census Bureau, the value of U.S. exports to Qatar reached $4.95 billion in 2013, consisting mainly of transport equipment, manufactured goods, and machinery—up from $3.57 billion over the same period in 2012. The value of U.S. imports from Qatar, mainly oil, totaled $1.3 billion in 2013 up from $1.01 billion in 2012. U.S. crude oil imports from Qatar have declined to zero, but U.S. imports of Qatari petroleum products have grown. Reflecting the impact of the increase in U.S. domestic natural gas production, U.S. LNG imports from Qatar declined from a peak of 90.9 million cubic feet in 2011 to zero beginning in April 2013. According to the 2014 U.S. Investment Climate Statement for Qatar, "Qatar has not entered into a bilateral investment, trade, or taxation treaty with the United States. However, Qatar and the United States did sign a Trade and Investment Framework Agreement (TIFA) in April 2004." Qatar has made a series of large investments in the United States in recent years, including a real estate investment in the City Center project in Washington, DC. In November 2013, Qatar Airways signed a letter of intent to purchase 50 additional Boeing 777 airplanes in a deal that may be worth more than $19 billion. As noted above (See " U.S. Military Cooperation and Foreign Assistance "), Qatar's purchase of U.S. arms and defense equipment also should contribute to an expansion in the value of U.S. exports in coming years. The leadership transition in Qatar signaled the opening of a new chapter in U.S.-Qatari relations that already had grown increasingly close in recent years, in spite of some abiding policy differences. Emir Tamim and his government appear to be taking an equally active, if quieter approach to diplomacy than that of the emir's father and his counterparts. Nevertheless, increasing scrutiny is being applied by some observers to Qatar's relationships with Islamists and certain armed groups. Most observers expect Qatari policy makers to favor policies that will consolidate the political and economic gains that Qatar has made in recent years and set the country on a sustainable path. Expanding U.S.-Qatari defense relations also may signal a stronger commitment on the part of the new Emir to invest in relations with the United States. Decision makers in the United States appear likely to continue to debate how best to maintain improved defense and counterterrorism relations with Qatar while seeking to address more challenging issues related to regional security, human rights, political reform, and labor conditions. | Qatar, a small peninsular country in the Persian Gulf, emerged as a partner of the United States in the mid-1990s and currently serves as host to major U.S. military facilities. Qatar holds the third-largest proven natural gas reserves in the world, and is the largest exporter of liquefied natural gas. Its small citizenry enjoys the world's highest per capita income. Since the mid-1990s, Qatari leaders have overseen a course of major economic growth, increased diplomatic engagement, and limited political liberalization. The Qatari monarchy founded Al Jazeera, the first all-news Arabic language satellite television network, in 1995. Over time, the network has proven to be as influential and, at times, as controversial as the policies of its founders, including during recent unrest in the Arab world. In June 2013, Emir Hamad bin Khalifa al Thani abdicated in favor of his son Tamim bin Hamad, marking the first voluntary and planned transition of power in Qatar since it became an independent country in 1971. In a 2003 referendum, Qatari voters approved a new constitution that officially granted women the right to vote and run for national office. The constitution envisions elections for two-thirds of the seats in a national Advisory Council. However, elections have not been scheduled, and the term of the current Advisory Council has been extended to 2016. Central Municipal Council elections were last held in May 2011. Following joint military operations during Operation Desert Storm in 1991, Qatar and the United States concluded a defense cooperation agreement that has been subsequently expanded and was renewed in 2013. In 2003, the U.S. Combat Air Operations Center for the Middle East moved from Prince Sultan Airbase in Saudi Arabia to Qatar's Al Udeid airbase southwest of Doha, the Qatari capital. Al Udeid and other facilities in Qatar serve as logistics, command, and basing hubs for the U.S. Central Command (CENTCOM) area of operations. U.S. officials have described Qatar's counterterrorism cooperation since 2001 as significant, but Administration officials and some Members of Congress remain critical of Qatar's efforts to combat reported support for Al Qaeda and other violent extremist groups by some Qatari citizens. According to the 2013 U.S. State Department Country Report on Human Rights in Qatar, principal U.S. human rights concerns included the "inability of citizens to change their government peacefully, restriction of fundamental civil liberties, and pervasive denial of noncitizen workers' rights." Political parties remain prohibited and civil liberties remain restricted. According to the report, "The government made efforts to prevent and eliminate forced labor, although the existence of the restrictive sponsorship system left some migrant workers vulnerable to exploitation." These concerns are drawing increased attention as Qatar implements large scale infrastructure projects in preparation for hosting the 2022 FIFA World Cup. Qatari officials have positioned themselves as mediators and interlocutors in a number of regional conflicts in recent years. Qatar's deployment of military aircraft to support NATO-led operations in Libya and U.S.-led operations against the Islamic State in Syria signaled a new assertiveness, as has reported Qatari support for armed elements of the Syrian opposition. Some of Qatar's positions have drawn U.S. scrutiny and raised the ire of its Gulf Arab neighbors, including its leaders' willingness to engage Iran, Hezbollah, Hamas, the Muslim Brotherhood, and the Taliban and allegations of Qatari support for extremists in Syria. It remains unclear whether Qatar's active and—for the United States—at times vexing policies may change under Emir Tamim. To date, the Obama Administration has remained committed to military and counterterrorism cooperation with the ambitious leaders of this wealthy, strategically located country. |
Even before September 11, 2001, congressional policymakers expressed concern about the safety and security of facilities possessing certain amounts of hazardous chemicals. The sudden release of hazardous chemicals from facilities storing large quantities might potentially harm many people living or working near the facility. Historically, chemical facilities engaged in security activities on a voluntary basis. Following September 11, 2001, some states enacted laws requiring additional consideration of security at chemical facilities. Congress debated whether the federal government should reduce the risk such facilities pose by regulating them for security purposes. In 2006, the 109 th Congress passed legislation providing the Department of Homeland Security (DHS) with statutory authority to regulate chemical facilities for security purposes. Subsequent Congresses have extended this authority. This statutory authority expires on March 27, 2013. The Obama Administration has requested extension of this authority until October 4, 2013. Both FY2013 homeland security appropriations bills ( S. 3216 and H.R. 5855 ) would extend the existing authority until October 4, 2013. Advocacy groups, stakeholders, and policymakers have called for congressional reauthorization of this authority, though they disagree about the preferred approach. Congress may extend the existing authority, revise the existing authority to resolve potentially contentious issues, or allow this authority to lapse. This report provides a brief overview of the existing statutory authority and implementing regulation. It describes several policy issues raised in previous debates regarding chemical facility security and identifies policy options for congressional consideration. Finally, it discusses legislation in the 112 th Congress. The 109 th Congress provided DHS with statutory authority to regulate chemical facilities for security purposes. The statute explicitly identified some DHS authorities and left other aspects to the discretion of the Secretary of Homeland Security. The statute contains a "sunset provision" and expires on March 27, 2013. The Obama Administration has requested extension of this authority until October 4, 2013. On April 9, 2007, the Department of Homeland Security issued an interim final rule regarding the chemical facility anti-terrorism standards (CFATS). This interim final rule entered into force on June 8, 2007. The interim final rule implements both statutory authority explicit in P.L. 109-295 , Section 550, and authorities DHS found Congress implicitly granted. In promulgating the interim final rule, DHS interpreted the language of the statute to determine what DHS asserts was the intent of Congress. Consequently, much of the rule arises from the Secretary's discretion and interpretation of legislative intent rather than explicit statutory language. Under the interim final rule, the Secretary of Homeland Security determines which chemical facilities must meet regulatory security requirements, based on the degree of risk posed by each facility. The DHS lists 322 chemicals as "chemicals of interest" for the purposes of compliance with CFATS. The DHS considers each chemical in the context of three threats: release; theft or diversion; and sabotage and contamination. Chemical facilities with greater than specified quantities of potentially dangerous chemicals must submit information to DHS, so that DHS can determine the facility's risk status. The statute exempts several types of facilities from this requirement: facilities defined as a water system or wastewater treatment works; facilities owned or operated by the Department of Defense or Department of Energy; facilities regulated by the Nuclear Regulatory Commission; and those facilities regulated under the Maritime Transportation Security Act of 2002 ( P.L. 107-295 ). Based on the submitted information, DHS determines the risk associated with each facility. Facilities DHS deems high risk must meet CFATS requirements. The DHS assigns high-risk facilities into one of four risk-based tiers. Facilities in higher risk tiers must meet more stringent performance-based requirements. The statute mandated the use of performance-based security requirements. The DHS created graduated performance-based requirements for facilities assigned to each risk-based tier. All high-risk facilities must assess their vulnerabilities, develop an effective security plan, submit these documents to DHS, and implement their security plan. The vulnerability assessment serves two purposes under the interim final rule. One is to determine or confirm the placement of the facility in a risk-based tier. The other is to provide a baseline against which to evaluate the site security plan activities. The site security plans must address the vulnerability assessment by describing how activities in the plan correspond to securing facility vulnerabilities. Additionally, the site security plan must address preparations for and deterrents against specific modes of potential terrorist attack, as applicable and identified by DHS. The site security plans must also describe how the activities taken by the facility meet the risk-based performance standards provided by DHS. The DHS must review and approve the submitted documents, audit and inspect chemical facilities, and determine regulatory compliance. The DHS may disapprove submitted vulnerability assessments or site security plans that fail to meet DHS performance-based standards, but not because of the presence or absence of a specific security measure. In the case of disapproval, DHS must identify in writing those areas of the assessment and/or plan that need improvement. Owners or operators of chemical facilities may appeal such decisions to DHS. Similarly, if, after inspecting a chemical facility, DHS finds the facility not in compliance, the Secretary must write to the facility explaining the deficiencies found, provide an opportunity for the facility to consult with DHS, and issue an order to the facility to comply by a specified date. If the facility continues to be out of compliance, DHS may fine and, eventually, order the facility to cease operation. The interim final rule establishes the process by which chemical facilities can appeal DHS decisions and rulings, but the statute prohibits third-party suits for enforcement purposes. The statute requires certain protections for information developed in compliance with this act. The interim final rule creates a category of information exempted from disclosure under the Freedom of Information Act (FOIA) and comparable state and local laws. The DHS named this category of information "Chemical-terrorism Vulnerability Information" (CVI). Information generated under the interim final rule, as well as any information developed for chemical facility security purposes identified by the Secretary, comprise this category. Judicial and administrative proceedings shall treat CVI as classified information. The DHS asserts sole discretion regarding who will be eligible to receive CVI. Disclosure of CVI may be punishable by fine. The interim final rule states it preempts state and local regulation that "conflicts with, hinders, poses an obstacle to, or frustrates the purposes of" the federal regulation. States, localities, or affected companies may request a decision from DHS regarding potential conflict between the regulations. Since DHS promulgated the interim final rule, Congress amended P.L. 109-295 , Section 550, to state that such preemption will occur only in the case of an "actual conflict." The DHS has not issued revised regulations addressing this change in statute. Within DHS, the National Protection and Programs Directorate (NPPD) is responsible for chemical facility security regulations. Within NPPD, the Office of Infrastructure Protection, through its Infrastructure Security Compliance Division (ISCD), oversees the CFATS program. This section reviews implementation of the chemical facility security regulations, focusing on funding, the number of regulated facilities, rate of facility inspection, and DHS's internal review of its implementation efforts. As seen in Table 1 , requested and appropriated funding for this program generally increased since its creation, but decreased since FY2011. Full-time equivalent staffing for this program has also increased over time. This increase in staffing reflects, in part, the development of a cadre of CFATS inspectors, based in regional offices. The DHS received statutory authority to regulate chemical facilities in 2006. It did not possess a chemical facility security office or inspector cadre at that time. The DHS requested additional positions to create an inspector cadre. As of February 2012, DHS had hired 102 of a planned 108 inspectors and all of 14 field leadership positions. Chemical inspectors must be able to assess the security measures at a chemical facility using the performance-based criteria developed by DHS. Performance-based security measures are likely more difficult than prescriptive measures for chemical inspectors to assess and thus may require greater training and experience in the inspector cadre. To overcome this challenge, DHS has established a Basic Inspector School training program. Such training, while likely improving the quality of inspection, also introduces additional time between the hiring of new inspectors and their deployment in the field. For FY2013, the House of Representatives and the Senate Committee on Appropriations have recommended different funding levels. The House would appropriate $45 million, a decrease of $30 million from the FY2013 request and $48 million from the FY2012 appropriation. In addition, the House report states, "in spite of ample appropriations provided by Congress, the Department has made little progress carrying out its regulatory responsibilities for … the Chemical Facility Anti-Terrorism Standards (CFATS) program…." The Senate committee, in contrast, recommends $86 million, an increase of $11 million from the FY2013 request and a decrease of $7 million from the FY2012 appropriation. The Senate committee states, "it would be shortsighted, in the meantime, to take the full amount of [Administration's] proposed savings when the need for improvement has been documented. Funding will not resolve all of the outstanding issues, but the proposed cuts are too deep to ensure change for the better can be completed." The Senate report also would direct DHS to retain an inspector cadre of no fewer than 148 FTE for FY2013. The DHS has responded to the House-passed funding level, stating that this level of appropriations would drastically curtail DHS's ability to: 1) implement the statutory and regulatory requirements for the security of high-risk chemical facilities as specified in CFATS; 2) continue development of the proposed Ammonium Nitrate Security Program; and 3) fully implement the program improvements identified in the ISCD Action Plan. DHS estimates that, after expending approximately $35 million for salaries and benefits for 242 FTEs, approximately $12 million would remain for implementing CFATS and completing development of the proposed Ammonium Nitrate Security Program. DHS would be forced to cease virtually all activities under CFATS other than those directly related to reviewing SSPs and performing facility inspections—which means those other activities would be significantly delayed. At the proposed $45.4 million funding level, the Department's ability to conduct the most basic CFATS functions would be impacted. These include maintaining the CSAT and the Chemical-Security Management System information technology systems, and acquiring important technical and subject matter support. Additionally, CFATS-related outreach and engagement with the regulated community would be significantly reduced and some aspects would cease.... The DHS has assessed initial information submissions from more than 41,000 chemical facilities. The DHS considered more than 7,800 of these facilities as preliminarily high-risk and required each to submit a site vulnerability assessment. From the submitted site vulnerability assessments, DHS identified and placed 4,433 facilities into preliminary or final risk tiers. Table 2 shows the number of high-risk facilities in each tier as of July 31, 2012, with Tier 1 those facilities of highest risk. In May 2010, DHS identified an anomaly in one of the risk-assessment tools used by DHS to determine a facility's risk tier. At that time, DHS believed that it had resolved the anomaly. In June 2011, a new acting ISCD Director "rediscovered" this issue, identified its potential effect on facility tiering, brought the issue to the attention of NPPD leadership, and notified facilities of their change in risk tier. Subsequent review of this risk-assessment tool resulted in DHS reassigning approximately 500 facilities to a lower risk tier. The DHS lowered the number of facilities allocated to the highest-risk tier from 211 to 102, a greater than 50% reduction. In some cases, DHS determined that some facilities no longer qualified as a high-risk facility and thus were not subject to CFATS regulation. Overall, the total number of chemical facilities assigned a risk tier by DHS has declined since the CFATS program began. Several factors may have contributed to this decline, including erroneous filing by regulated entities, process changes on the part of regulated entities, and business operations and decisions. The DHS has also engaged in targeted outreach activities to identify those facilities that fall under the regulation but have not yet complied by filing required information. The DHS asserts that the observed reduction in regulated chemical facilities indicates that the CFATS program and its statutory authority are increasing security by inducing voluntary reductions in chemical holdings by regulated entities. The DHS planned to begin inspections of Tier 1 facilities as quickly as 14 months after issuance of regulations. Several factors have delayed inspections, including the release of additional regulatory information in the form of an appendix and the need to build an inspector cadre, to establish a regional infrastructure, and to perform pre-authorization inspections at facilities. DHS officials have provided a series of timeframes for beginning inspections. The DHS began inspections of Tier 1 facilities in February 2010. At that time, DHS testified that it planned to inspect all Tier 1 facilities by the end of calendar year 2010, but DHS had only performed nine authorization inspections as of September 2011. Similarly, although DHS subsequently stated that it expected to inspect all Tier 1 facilities by the end of calendar year 2011, it had approved 10 site security plans and no implementation of any site security plan by that time. Since then, DHS has implemented an interim site security plan review process that it asserts is more effective and timely. The DHS has used this interim review process to authorize additional site security plans. As of September 9, 2012, DHS had approved or conditionally approved 73 site security plans. The DHS also reported that it had successfully inspected and approved the site security plan implementation at two facilities. The DHS also identifies annual performance measures for the inspection of high-risk chemical facilities. The DHS uses as a performance measure the ratio of inspected high-risk chemical facilities that are compliant with CFATS risk-based performance standards to the number of high-risk chemical facilities selected for inspection each year. Table 3 summarizes the information presented by DHS in its annual performance reports. While DHS set target goals of high levels of compliance within inspected facilities, DHS did not meet this goal in FY2008. Beginning in FY2011, DHS lowered the target goal. The DHS reports in the most recent annual performance report that 9.1% of inspected chemical facilities were compliant, even though DHS has testified that no chemical facility has had a successful authorization inspection. Beyond challenges related to program management, DHS identified an additional factor in the delay of the inspection schedule: the necessary iteration between DHS and the regulated entity regarding its site security plan. The DHS has issued 66 administrative orders to compel facilities to complete their site security plans. In addition, DHS established a pre-authorization inspection process to gain additional information from facilities to fully assess the submitted site security plan. Once DHS completes a pre-authorization inspection at a facility, the facility may amend its site security plan to reflect the results of the pre-authorization inspection. The DHS had performed approximately 180 pre-authorization inspections as of February 2012. A series of challenges internal to the Infrastructure Security Compliance Division (ISCD), which implements CFATS regulations, led to an internal review of ISCD. These challenges included problems with the assignment of regulated chemical facilities to risk tiers and issues with respect to locality pay. In December 2010, NPPD initiated a management review of ISCD through the NPPD Office of Compliance and Security. In July 2011, new leadership took charge of ISCD and, at the direction of Under Secretary Beers, began a review of the goals, challenges, and potential corrective actions to improve program performance. In November 2011, ISCD leadership presented Under Secretary Beers with a report containing the results of both reviews. According to DHS, the report was intended as a candid, internal assessment that focused predominantly on the challenges faced by ISCD rather than on the program's successes and opportunities. At the time of the report, DHS had received approximately 4,200 site security plans but had not yet approved any. The review report identified several factors that contributed to this lack of success. These factors included the inability to perform compliance inspections and the lack of an established records management system to document key decisions were identified. Other challenges facing ISCD reportedly include human resource issues, such as having employees with insufficient qualifications and work training, erroneous impressions of inspector roles and responsibilities, and the use of contractors to perform inherently governmental work. Additional reported challenges include difficulty in quickly altering workplace requirements, resolving personnel security requirements, detailing site security compliance inspections, managing workplace behavior and perceptions, and dealing with a unionized workforce. Additionally, ISCD lacked a system for tracking the usage of consumable supplies, potentially allowing for waste fraud and abuse; faced challenges in hiring new qualified individuals; and suffered from a lack of morale. The memorandum identified three top priorities to address the challenges addressing ISCD: clearing the backlog of site security plans; developing a chemical inspection process; and addressing ISCD statutory responsibilities for regulating ammonium nitrate and managing personnel surety as part of the CFATS program. The ISCD has established a working group to look at potential legislative and regulatory changes and developed an action plan with discrete action items to address these challenges. In addition to the action plan, NPPD has requested ISCD leadership to provide milestones and a schedule for completion of the action plan tasks. The ISCD is implementing this plan with the oversight of NPPD leadership. The DHS expects to assess the ongoing success of the action plan and revise it as necessary. According to GAO, ISCD has developed at least eight sequential versions of the action plan, updating each additional version, and in some cases adding additional detail, milestones, or timelines. The DHS reports it has completed 59 of the 95 action items included in the action plan. The ISCD has implemented an interim review process for site security plans with a goal of formalizing a new review process by July 2012. To comply with items in the action plan, ISCD has updated its internal policy and guidance materials for inspections, created a monthly ISCD newsletter, promoted staff engagement and dialogue, provided additional supervisory training and guidance, and attempting to hire a permanent leadership team. In addition, NPPD is overseeing review of the process by which ISCD assigns risk tiers to regulated facilities. The GAO has reviewed DHS progress on the action plan and stated that "ISCD appears to be heading in the right direction, but it is too early to tell if individual items are having their desired effect because ISCD is in the early stages of implementing corrective actions and has not established performance measures to assess results." The GAO provides several caveats to its assessment, including that it did not have available documentary evidence about the causes of the issues identified in the ISCD memorandum. Notably, GAO states, "Program officials did not maintain records of key decisions and the basis for those decisions during the early years of the program." Previous congressional discussion on chemical facility security raised several contentious policy issues. Some issues, such as whether DHS has sufficient funds to adequately oversee chemical facility security; whether federal chemical facility security regulations should preempt state regulations; and how much chemical security information individuals may share outside of the facility and the federal government, will exist even if Congress extends the existing statutory authority without changes. Other issues, such as what facilities DHS should regulate as a chemical facility and whether DHS should require chemical facilities to adopt or consider adopting inherently safer technologies, may be more likely addressed if Congress chooses to revise or expand existing authority. The regulation establishes an oversight structure that relies on DHS personnel inspecting chemical facilities and ascertaining whether regulated entities have implemented their approved site security plans. Although the use of performance-based measures, where chemical facilities have flexibility in how to achieve the required security performance, may reduce some demands on the regulated entities, it may also require greater training and judgment on the part of DHS inspectors. Inspecting the regulated facilities likely will be costly. Congressional oversight has raised the question of whether DHS has requested and received appropriated funds sufficient to hire and retain the staff necessary to perform the required compliance inspections and whether DHS has properly managed the appropriated funds received. The DHS may face challenges when creating the necessary infrastructure to perform nationwide inspections. As stated by DHS when describing its efforts to hire, train, and deploy an inspector cadre and support staff: Infrastructure Security Inspectors, located in up to 10 primary field offices across the Nation, will inspect and ensure regulatory compliance at facilities covered by the CFATS regulation, including site security plan approval and maintaining respective inspection and audit schedule. Creating a fully functional cadre will require not just recruiting and training staff, but also procurement of communications and [information technology] equipment (laptops, blackberries, etc.) to facilitate work efforts while conducting inspections and traveling, but also the acquisition of office space and equipment, government vehicles, support staff, safety equipment and clothing, and support for frequent travel. The degree to which funds meet agency needs likely depends on factors external and internal to DHS. External factors include the number of regulated facilities and the sufficiency of security plan implementation. Internal factors include the ratio between headquarters staff and field inspectors; the risk tiers of the regulated facilities; and the timetable for implementation of inspections. Once the DHS determines the tiers of all regulated facilities and their associated timetables, DHS may be able to more comprehensively determine its resource needs. Now that DHS has begun implementation of these requirements, it may be able to provide further estimates of both funding and staff requirements. According to the committee report accompanying S. 3216 , Department of Homeland Security Appropriations Bill, 2013, NPPD will complete during FY2012 a detailed manpower and systems review that will identify the total number of inspectors. A key factor may be the success in training inspectors to perform CFATS inspections, given the reported difficulties in developing effective inspector training combined with the requirements of a new regulatory program. As of September 2012, two chemical facilities have completed the CFATS process, which starts with information submission by chemical facilities and finishes with inspection and approval of security measures by DHS. The DHS states that the first authorization inspection was conducted in 2010, and as of September 2012, DHS has conducted 19 authorization inspections. According to the report accompanying H.R. 5855 , Department of Homeland Security Appropriations Bill, 2013, DHS projects that it will require almost seven years of inspections to approve and inspect all regulated facilities. Some policymakers have expressed surprise at the pace of inspection and questioned whether DHS should continue at the current pace or accelerate the compliance process. Several factors likely complicate and slow the inspection process. One factor appears to be the internal operations of the DHS implementing office. Another factor appears to be that the information facilities submit in site security plans may not provide what DHS views as necessary detail to evaluate compliance. Rather than reject these site security plans, DHS implemented an additional inspection function, a pre-authorization inspection, to allow DHS to gather the necessary information from regulated facilities. While pre-authorization inspections may lead to higher quality site security plan submissions, they appear to be a significant drain on DHS resources. In principle, such pre-authorization inspections may lower the future authorization inspection burden, as CFATS inspectors will be familiar with security measures at the chemical facility. Such familiarity may hasten the actual authorization inspection. The DHS has also suggested that pre-authorization inspections are most necessary at higher risk tier facilities, due to the complexity of the facility, the potential presence of multiple chemicals of interest, and the more stringent risk-based performance standards that apply. Lower risk tier facilities may not need pre-authorization inspections both because of their comparative simplicity and because inspectors may develop best practices through the pre-authorization inspections of higher tiered facilities. Some policymakers have questioned whether the low inspection rate is due to constraints in the number of chemical facility security inspectors hired by DHS or the availability of appropriated funding. The CFATS regulation states that DHS will inspect the implementation of site security plans at all facilities and requires that facilities resubmit their site security plan every two years for Tier 1 and Tier 2 facilities or three years for Tier 3 and Tier 4 facilities. This requires DHS to perform approximately 1,700 inspections annually to inspect each facility's implementation of its site security plan. The DHS has asserted that inspections require two or more inspectors and approximately one week to perform. The DHS appears to have requested sufficient inspectors to manage the workload associated with a reinspection cycle of every two years for top tier facilities and every three years for lower tier facilities, but such a staffing level may be insufficient to address the large number of initial regulatory submissions or a more frequent reinspection cycle. This level of staffing would appear to require approximately a full cycle of inspections to reduce the backlog created from the initial site security plan submissions. If DHS were to hire additional inspectors, it might reduce the backlog of site security plans but also run the risk of having additional unnecessary staff in future years. The DHS might hire temporary or short-term staff to augment the inspector cadre, but the need to train such employees for CFATS-specific inspections may pose challenges. Finally, because DHS has focused on inspecting those facilities in the highest risk tier, it potentially faces the most complicated inspection environments. Inspections of lower risk tier facilities may pose fewer complications, take less time, and involve fewer inspectors. If so, DHS might quickly and substantially increase the number of facilities inspected by focusing efforts on lower tier facilities. Through this approach, DHS might gain insight and experience among the inspector cadre while reducing some national risk. The original statute did not expressly address the issue of federal preemption of state and local chemical facility security statute or regulation. When DHS issued regulations establishing the CFATS program, DHS asserted that the CFATS regulations would preempt state and local chemical facility security statute or regulation that conflicted with, hindered, posed an obstacle, or frustrated the purposes of the federal regulation. Subsequent to the release of the regulation, Congress amended DHS's statutory authority to state that only in the case of an "actual conflict" would the federal regulation preempt state authority. Few states have established independent chemical facility security regulatory programs, and conflict between the federal and state activities has not yet occurred. The DHS did not identify any state programs that conflict with the CFATS regulations. The DHS has also not altered its regulatory language in response to the statutory amendment. Advocates for federal preemption call for a uniform security framework across the nation. They assert that a "patchwork" of regulations might develop if states independently develop additional chemical facility security regulations. Variation in security requirements might lead to differing regulatory compliance costs, and companies might suffer competitive disadvantage based on their geographic location. Supporters of a state's right to regulate chemical facility security claim that the federal regulation should be a minimum standard with which all regulated entities must comply. They assert that DHS should allow states to develop more stringent regulations than the federal regulations. They claim such regulations would increase security. Some supporters of state regulation suggest that more stringent, conflicting state regulations should preempt the federal regulations. Such a case might occur if a state regulation mandated the use of a particular security approach at chemical facilities, conflicting with the federal regulation that adopts a performance-based, rather than prescriptive, approach. The desire to retain industries that might relocate if faced with increased regulation arguably would temper state inclinations to require overly stringent or incompatible regulations. Some policymakers may assert that chemical facility security should be left to the states rather than be implemented by the federal government. If Congress allows the statutory authority to expire and does not appropriate funds for the further implementation of CFATS, the federal authority would lapse and states would again be responsible for regulating chemical facility security. The CFATS process involves determining chemical facility vulnerabilities and developing security plans to address them. Information developed in this process is not widely or openly disseminated. The CFATS program categorizes this information as CVI and provides penalties for its disclosure. Some advocates have argued for greater transparency in the CFATS process, even if the program does not provide detailed information regarding potential vulnerabilities and specific security measures. They assert that those individuals living in surrounding communities require such information to plan effectively and make choices in an emergency. The current statute and regulation prohibit public disclosure of security-related information. Only specific "covered persons" may access CVI. While acknowledging a legitimate homeland security need to limit dissemination of security information, some policymakers have questioned whether such limitations hinder other efforts. For example, first responders and community representatives have highlighted how such information protection regimes may impede emergency response and the ability of those in the surrounding community to react to emergency situations at the chemical facility. Additionally, worker representatives have raised concerns that these limitations and the lack of mandated inclusion of worker representatives may impede worker input into security plans. The current information protection regimes for chemical facility security information, CVI under CFATS and Sensitive Security Information (SSI) under the Maritime Transportation Security Act (MTSA), do not contain penalties for incorrectly marking information as protected. Only disclosure of correctly marked information is penalized. Additionally, the chemical facility is responsible for identifying and appropriately marking protected information. These information markings only would be assessed in the case of dispute. As was asserted during congressional oversight, this disparity may lead to a tendency by regulated entities, in order to protect themselves against potential liability or scrutiny, to erroneously limit dissemination of information that should be made available to the public. Congressional investigation indicated that documents related to the 2007 explosion at a Bayer CropScience chemical facility in West Virginia were incorrectly labeled as protected from disclosure. The DHS regulated this chemical facility under MTSA, not CFATS. In this case, security information was protected from disclosure as SSI, an information protection regime similar to CVI. Company officials broadly applied SSI markings to facility documents partly in hopes of avoiding a public debate on the use and storage of particular chemicals at the facility. This revelation led to questions regarding the application and oversight of such protective markings. Additionally, the existing statute contains no provisions explicitly protecting or allowing for concerned covered persons to divulge CVI or to challenge the categorization of information as protected in an attempt to inform authorities about security vulnerabilities or other weaknesses. Depending on the circumstances, those individuals might be penalized for their disclosure of protected information. The CFATS regulations, reflecting this inherent tension, provide for a point of contact to which such information might be revealed, but also state "Section 550 did not give DHS authority to provide whistleblower protection, and so DHS has not incorporated specific whistleblower protections into this regulation." The DHS regulates both entities that possess and entities that manufacture chemicals of interest. Thus, the term chemical facility encompasses many types of facilities, including agricultural facilities, universities, and others. With DHS defining chemical facilities according to possession of a chemical of interest, facilities not part of the chemical manufacturing and distributing chain have become regulated facilities. Stakeholders have expressed concern that the number of entities so regulated might be unwieldy and that the regulatory program might focus on many chemical facilities that pose little risk rather than on those facilities that pose more substantial risk. For example, during the rulemaking process, DHS received commentary and revised its regulatory threshold for possession of propane, stating: DHS, however, set the [screening threshold quantities] for propane in this final rule at 60,000 pounds. Sixty thousand pounds is the estimated maximum amount of propane that non-industrial propane customers, such as restaurants and farmers, typically use. The Department believes that non-industrial users, especially those in rural areas, do not have the potential to create a significant risk to human life or health as would industrial users. The Department has elected, at this time, to focus efforts on large commercial propane establishments but may, after providing the public with an opportunity for notice and comment, extend its [CFATS] screening efforts to smaller facilities in the future. This higher [screening threshold quantity] will focus DHS's security screening effort on industrial and major consumers, regional suppliers, bulk retail, and storage sites and away from non-industrial propane customers. Similarly, academic institutions have asserted that DHS should not apply CFATS regulations to them because of the dispersed nature of chemical holdings at colleges and universities. These institutions claim that regulatory compliance costs would not be commensurate with the risk reduction. While the regulatory compliance costs likely decrease at lower risk tiers compared to higher risk tiers, all regulated entities bear compliance costs as continued annual expenses. As mentioned above, the statutory authority underlying CFATS exempts several types of facilities, including water and wastewater treatment facilities. The federal government does not regulate water and wastewater treatment facilities for chemical security purposes. Instead, current chemical security efforts at water and wastewater treatment facilities are voluntary in nature. Some advocacy groups have called for inclusion of currently exempt facilities, such as water and wastewater treatment facilities. Some drinking water and wastewater treatment facilities possess large amounts of potentially hazardous chemicals, such as chlorine, for purposes such as disinfection. Advocates for their inclusion in security regulations cite the presence of such potentially hazardous chemicals and their relative proximity to population centers as reasons to mandate security measures for such facilities. In contrast, representatives of the water sector point to the critical role that water and wastewater treatment facilities have in daily life. They caution against including these facilities in the existing regulatory framework because of the potential for undue public impacts. They cite, for example, loss of basic fire protection and sanitation services if the federal government orders a water or wastewater utility to cease operations for security reasons or failure to comply with regulation. If Congress were to remove the drinking water and wastewater treatment facility exemption, the number of regulated facilities might substantially increase, placing additional burdens on the CFATS program. The United States contains approximately 52,000 community water systems and 16,500 wastewater treatment facilities. These facilities vary substantially in size and service. The number of regulated facilities would depend on the criteria used to determine inclusion, such as chemical possession or number of individuals served. It is likely that only a subset of these facilities would meet a regulatory threshold. In 2011, a DHS official testified that approximately 6,000 such facilities would likely meet the CFATS threshold. Previous debate on chemical facility security has included whether to mandate the adoption or consideration of changes in chemical processes to reduce the potential consequences following a successful attack on a chemical facility. Suggestions for such changes have included reducing the amount of chemical stored onsite and changing the chemicals used. In previous congressional debate, these approaches have been referred to as inherently safer technologies or methods to reduce the consequences of a terrorist attack. A fundamental challenge for inherently safer technologies is how to compare one technology with its potential replacement. It is challenging to unequivocally state that one technology is inherently safer than the other without adequate metrics. Risk factors may exist outside of the comparison framework. Some experts have asserted that the metrics for comparing industrial processes are not yet fully established and need additional research and study. The National Academies have recommended that DHS support research and development to foster cost-effective, inherently safer chemistries and chemical processes. The National Academies has identified as a potential concern that inherently safer process analyses may become narrowly focused and its outcomes inappropriately weighted. A facility might consider many additional factors beyond homeland security implications when weighing the applicability and benefit of switching from one process to another. These factors include cost, technical challenges regarding implementation in specific situations, supply chain impacts, quality and availability of end products, and indirect effects on workers. Supporters of adopting these approaches as a way to improve chemical facility security argue that reducing or removing these chemicals from a facility will reduce the incentive to attack the facility. They suggest that reducing the consequences of a release also lowers the threat from terrorist attack and mitigates the risk to the surrounding populace. They point to facilities that have voluntarily changed amounts of chemicals on hand or chemical processes in use as examples that facilities can implement such an approach in a cost-effective, practical fashion. Opponents of mandating what proponents call inherently safer technologies question the validity of the approach as a security tool and the government's ability to effectively oversee its implementation. Industrial entities assert that process safety engineers within the regulated industry already employ such approaches and that these are safety, not security, methods. They assert that process safety experts and business executives should determine the applicability and financial practicality of changing existing processes at specific chemical facilities. A 2011 industry survey stated that, of those respondents that assessed using alternative chemicals or processes, 66.4% determined such alternatives were not technically feasible. Opponents of an inherently safer technology mandate also state concern that few existing alternative approaches are well understood with regard to their unanticipated side effects. They claim that researchers should continue to study these alternative approaches rather than immediately apply them, since unanticipated side effects could injure business and other interests. A third opposing view questions whether the federal government contains the required technical expertise to adjudicate the practicality and benefit of alternative technological approaches. Holders of this view raise concerns that the federal government may not possess the required knowledge or expertise to judge whether a particular site can implement alternative technology, even if the alternative theoretically provides benefits over existing technology. The DHS has engaged in research and development activities within its Science and Technology (S&T) Directorate to develop a better understanding of inherently safer technology, including efforts to define inherently safer technology. The NPPD has not adopted the results from these research and development efforts within its regulatory context. Congress has directed DHS to detail and report to Congress the Department's definition of inherently safer technology as it relates to chemical facilities under the purview of CFATS. Some industry representatives have asserted that an inherently safer technology mandate might have a potentially significant negative financial impact. Regulated entities incur a cost when meeting existing CFATS requirements, and small businesses may be challenged to make necessary capital investments. In its interim final rule, DHS estimated that even without an inherently safer technology requirement CFATS "may have a significant economic impact on a substantial number of small entities." Because of the performance-based nature of the regulatory requirement, it is difficult to detail the exact impact on small businesses. Adding an inherently safer technology requirement might increase the cost of CFATS compliance and might disproportionately affect small entities not already incorporating such activities in their business processes. Policymakers in previous Congresses highlighted the issue of small business impact, especially in the context of requiring additional measures that might hurt productivity. The statutory authority for CFATS expires on March 27, 2013. The Obama Administration has requested extension of this authority until October 4, 2013. The 112 th Congress may address chemical facility security through several options. Congress may increase its oversight of DHS's efforts to implement this program. Congress might also take legislative action to extend further the existing statutory authority by revising or repealing its sunset provision; codify the existing regulations; amend the existing statutory authority; address existing programmatic activities; or restrict or expand the scope of chemical facility security regulation. If Congress does not act and allows the statutory authority to expire, regulated entities may question the application and enforcement of the CFATS regulations. In the case where Congress allows the statutory authority to expire, but Congress appropriates funds for enforcing the CFATS program, DHS will likely be able to enforce the CFATS regulations. The Government Accountability Office (GAO) has found that in the case where a program's statutory authority expires, but Congress explicitly appropriates funding for it, the program may continue to operate without interruption. If Congress allows the statutory authority to expire and also does not appropriate funding for implementing the CFATS program, the CFATS regulations will likely also lapse. In this case, the states would likely become the primary source of any chemical facility security regulation. Interested Members of Congress or congressional committees might increase their oversight of the CFATS program. Historically, much of the congressional debate has considered legislative options to reauthorize the existing statute or authorize the CFATS program through a different statutory vehicle. Congressional committees have accepted the assurances of DHS officials regarding CFATS activities even as DHS failed to meet its self-established deadlines. With the program's critical self-assessment, congressional oversight may increase due to concerns about program performance, use of appropriations, and internal oversight. The 112 th Congress has held oversight hearings on DHS's implementation of the CFATS program. Following the results of the ISCD review memorandum, congressional oversight has additionally focused on DHS's progress in addressing identified management challenges. The GAO is currently reviewing the CFATS program management and plans on beginning a new engagement addressing mission-related issues. The existing statutory authority places much of the CFATS regulatory framework at the discretion of the Secretary of Homeland Security. The DHS is still in the process of implementing these regulations and has not yet determined their effectiveness. Congressional oversight of their implementation, enforcement, and efficacy may play a key role in determining the sufficiency of the existing authority and regulations. Congress might choose to maintain the existing regulations by extending the statutory authority's sunset date or codifying the existing regulations. Also, as noted above, allowing the statutory authority to expire could in effect maintain the existing regulatory framework if Congress continues to fund implementation, although this might lead to litigation. Congressional policymakers might choose to extend the current statutory authority for a fixed or indefinite time. Congress has enacted a series of limited extensions of the statutory authority since its inception. The Obama Administration requested for FY2012 extension of the statutory authority to October 4, 2013. The Continuing Appropriations Resolution, 2013 ( P.L. 112-175 ) extends the statutory authority through March 27, 2013. Extending the existing statutory authority may provide regulated entities continuity and protect them from losing benefits from those resources already expended in regulatory compliance. An extension may allow assessment of the efficacy of the existing regulations and inclusion of this information in any future attempts to revise or extend DHS's statutory authority. Moreover, since DHS is in the process of implementing current regulations, some policymakers argue for a simple extension without changing statutory requirements. In addition to requesting extension of the statutory authority, the Obama Administration also supports enacting a permanent statutory authority. Congress might make the existing program permanent by removing the sunset date entirely. Some chemical manufacturers support converting the existing program into a permanent program. The removal of the sunset date would maintain the current discretion granted to the Secretary of Homeland Security to develop regulations and might allow assessment of the efficacy of the existing regulations. Making the existing statute permanent would provide consistency in authority and remove the statutory pressure to reauthorize the program. In contrast, the presence of a sunset date for the statutory authority increases the likelihood of congressional attention to chemical facility security as a legislative topic. Some advocates who wish for more regular congressional review of the statute might oppose removing the sunset date. Congressional policymakers might choose to affirm the existing regulations by codifying them or their principles in statute. Such codification could reduce the discretion of the Secretary of Homeland Security to alter the CFATS regulations in the future. The existing statutory authority grants broad discretion to the Secretary to develop many elements of the CFATS regulations. Future Secretaries may choose to alter its structure or approach and still comply with the existing statute. Policymakers might identify specific components of the existing regulation that they wish any future regulation to retain and codify those portions. Specifying these components might limit the ability of the Secretary to react to changing circumstance, gained experience, and new knowledge. On the other hand, the codified portions might enhance the regulated community's ability to plan for future expenses and requirements. Congressional policymakers might choose to alter the existing statutory authority to modify the existing regulations, address stakeholder concerns, or broadly change the regulatory program. The DHS bases its schedule for facility CFATS compliance on the chemical facility's assigned risk tier. Those chemical facilities assigned to higher risk tiers have a more accelerated compliance and resubmission schedule than those assigned to lower risk tiers. Congressional policymakers might attempt to accelerate the compliance schedule by increasing funding available to DHS for CFATS, thereby increasing the ability of DHS to provide feedback to regulated entities, review submissions, and inspect facilities filing site security plans. Additional funding might reduce or mitigate inefficiencies or delays related to DHS processing of submissions. Alternatively, policymakers might provide DHS with the authority to use third parties as CFATS inspectors. The DHS could then augment the number of CFATS inspectors to meet increased demand or delegate inspection authority to state and local governments. Third-party inspectors might allow DHS to draw on expertise outside of the federal government in assessing the efficacy of the implemented site security activities. The DHS may need to define the roles and responsibilities of these inspectors and how DHS will assess and accredit their qualifications. The DHS has stated its intent to issue a rulemaking regarding the use of third-party inspectors but has not yet done so. The use of third-party inspectors might lead to concerns about equal treatment of chemical facilities by different third-party inspectors, and questions about whether homeland security inspections of this type are an inherently governmental responsibility that only federal employees should perform. Finally, Congress might determine that DHS has sufficient resources to accelerate compliance activities but is restrained by some other procedural factor. Congressional policymakers might direct DHS to streamline its review process, reduce the timeframe for response and interaction with regulated entities, or otherwise enact process improvements. Congressional policymakers might choose to slow the implementation schedule of the chemical facility security regulations. Concern about the impact of the regulation on small businesses or other entities might lead to a decelerated compliance schedule. The DHS has already implemented select regulatory extensions for certain agricultural operations. Congressional policymakers might direct DHS to provide longer submission, implementation, and resubmission timelines for those regulated entities that might suffer disproportionate economic burdens from compliance. Policymakers might remove some or all of the statutory exclusions from the CFATS program. The DHS and the Environmental Protection Agency (EPA) have called for additional authorities to regulate water and wastewater treatment facilities: The Department of Homeland Security and the Environmental Protection Agency believe that there is an important gap in the framework for regulating the security of chemicals at water and wastewater treatment facilities in the United States. The authority for regulating the chemical industry purposefully excludes from its coverage water and wastewater treatment facilities. We need to work with the Congress to close this gap in the chemical security authorities in order to secure chemicals of interest at these facilities and protect the communities they serve. Water and wastewater treatment facilities that are determined to be high-risk due to the presence of chemicals of interest should be regulated for security in a manner that is consistent with the CFATS risk and performance-based framework while also recognizing the unique public health and environmental requirements and responsibilities of such facilities. The EPA has testified that the Obama Administration believes that EPA should be the lead agency for chemical security for both drinking water and wastewater systems, with DHS supporting EPA's efforts. The EPA also supports providing states with an important role in regulating chemical security at water systems, including determinations, auditing, and inspecting. In addition, DHS supports modifying the existing exemption for (1) MTSA facilities to increase security at these facilities to the CFATS standard and (2) facilities regulated by the Nuclear Regulatory Commission to clarify the scope of the exemption. If Congress provides the executive branch with statutory authority to regulate water and wastewater treatment facilities for chemical security purposes, it may weigh several policy decisions. Among these choices are which facilities should be regulated; how stringent such security measures should be; what federal agency should oversee them; and whether compliance with these security measures is practicable given the public nature of many water and wastewater treatment facilities. One option for congressional policymakers might be to include water and wastewater treatment facilities under the existing CFATS regulations, effectively removing the exemption currently in statute. This would place water and wastewater treatment facilities on par with other possessors of chemicals of interest. The DHS would provide oversight of all regulated chemical facilities. Opponents might claim that activities under CFATS, such as vulnerability assessment, duplicate existing requirements under the Safe Drinking Water Act. Also, opponents of such an approach cite the essential role that water and wastewater treatment facilities play in daily life and assert that several authorities available to DHS under CFATS, such as the ability to require a facility to cease operations, are inappropriate if applied to a municipal utility. Another option might be to grant statutory authority to regulate water and wastewater treatment facilities for security purposes to EPA or require DHS to consult with EPA regarding its regulation of water and wastewater treatment facilities. Since water treatment facilities must provide a vulnerability assessment to EPA, some facilities might view regulation under CFATS as redundant in this context. Some industry representatives have expressed concern regarding the effects of multiple agencies regulating security at drinking water and wastewater treatment facilities. They assert that municipalities that operate both types of facilities might face conflicting regulations and guidance if different agencies regulate drinking water and wastewater treatment facilities. These stakeholders suggest that EPA retaining the lead for water and wastewater facilities would be more efficient. Following prior debate on chemical facility security, Congress provided statutory authority for chemical security to DHS. This separated DHS security responsibilities from the public health and safety responsibilities given to EPA. Providing one agency the authority to oversee safety and security operations may reduce the potential for redundancy and other inefficiencies but also might increase stakeholder reluctance to voluntarily consult on security issues. If policymakers assign responsibility for chemical facility security at different facilities to different agencies, each agency will promulgate separate rules. These rules may be similar or different depending on the agencies' statutory authority, interpretation of that authority, and ability of the regulated entities to comply as well as any interagency coordination that might occur. Congress may wish to assess the areas where such facilities are similar and different in order to provide authorities that meet any unique characteristics. Any new regulation of drinking water and wastewater treatment facilities is likely to cause the regulated entities, and potentially the federal government, to incur some costs. Representatives of the water and wastewater sectors argue that local ratepayers will eventually bear the capital and ongoing costs incurred due to increased security measures. Congressional policymakers may wish to consider whether the regulated entities and the customers they serve should bear these costs, as is done for other regulated chemical facilities, or by the taxpayers in general through financial assistance to the regulated entities. Additionally, if inclusion of other facility types significantly increases the number of regulated entities, the regulating agency may require additional funds to process regulatory submissions and perform required inspections. Other security provisions, such as MTSA, apply to some facilities exempt from the existing chemical facility security regulations. The DHS supports modifying the existing exemption for MTSA facilities to increase security at these facilities to the CFATS standard and modifying the existing exemption for facilities regulated by the Nuclear Regulatory Commission to clarify the scope of the exemption. The EPA has testified that the Obama Administration believes that DHS should be responsible for ensuring consistency of high-risk chemical facility security across all critical infrastructure sectors. If Congress modifies these exemptions, conflicts may arise between requirements under chemical facility security regulations and these other provisions. One approach to resolving these conflicts is to identify which statute would supersede the others, providing a single statutory requirement. Critics of such an approach might assert that the superseding statute does not contain all of the protections present in the other statutes. Another approach might be to require agencies to generally harmonize the regulations implementing each statute. Regulatory agencies might identify and determine the best ways to meet statutory requirements while also limiting regulatory duplication or contradiction. Such harmonization might reduce the regulatory burden on companies possessing facilities regulated under two frameworks, such as MTSA and CFATS, by allowing a single security approach to the regulations. For example, equivalent credentialing of workers under both regulatory frameworks might limit the regulatory cost of compliance, in contrast to requiring two distinct security credentials. The DHS has established a joint NPPD/U.S. Coast Guard (USCG) working group to evaluate and, where appropriate, implement methods to harmonize the CFATS and MTSA regulations. In contrast, if the process of harmonization leads to a significant increase in security requirements, the regulatory burden faced by industry might also increase. Congress previously expressed its expectation that DHS would execute a Memorandum of Agreement between NPPD and USCG regarding harmonization of chemical security responsibilities under CFATS and MTSA no later than March 30, 2012. The DHS did not meet this expectation. The Senate Committee on Appropriations, in the report accompanying S. 3216 , Department of Homeland Security Appropriations Bill, 2013, directs the DHS Deputy Secretary to continue to report on efforts to harmonize chemical security responsibilities. The report accompanying H.R. 5855 , Department of Homeland Security Appropriations Bill, 2013, cites the comparative success the U.S. Coast Guard has experienced in implementing facility security regulations compared with NPPD. The House committee directs NPPD, in conjunction with the U.S. Coast Guard, to critically review CFATS implementation and report to the committee on a wide range of specified topics. Congressional policymakers may choose to address the issue of inherently safer technologies, sometimes called methods to reduce the consequences of terrorist attack. The current statute bars DHS from mandating the presence of absence of a particular security measure. Therefore, DHS cannot require a regulated facility to adopt or consider inherently safer technologies. Congress could choose to continue the current policy or provide DHS with statutory authority regarding inherently safer technologies at regulated chemical facilities. One approach might be to mandate the implementation of inherently safer technologies for a set of processes. Another might be to mandate the consideration of implementation of inherently safer technologies with certain criteria controlling whether implementation is required. A third approach might be to mandate the development of a federal repository of inherently safer technology approaches and consideration of chemical processes against those options listed in the repository. Stakeholders might assess and review the viability of applying these inherently safer approaches at lower cost if such information were centralized and freely available. Alternatively, policymakers might establish an incentive-based structure outside of the chemical facility security mandate to encourage the adoption of inherently safer technologies by regulated entities. Lastly, congressional policymakers might choose to not require any consideration or adoption of inherently safer technology approaches. The Obama Administration has given some support to the use of inherently safer technologies to enhance security at high-risk chemical facilities. It has established a series of principles directing its policy: The Administration supports consistency of inherently safer technology approaches for facilities regardless of sector. The Administration believes that all high-risk chemical facilities, Tiers 1-4, should assess [inherently safer technology] methods and report the assessment in the facilities' site security plans. Further, the appropriate regulatory entity should have the authority to require facilities posing the highest degree of risk (Tiers 1 and 2) to implement inherently safer technology methods if such methods demonstrably enhance overall security, are determined to be feasible, and, in the case of water sector facilities, consider public health and environmental requirements. The Administration believes that the appropriate regulatory entity should review the inherently safer technology assessment contained in the site security plan for all Tier 3 and Tier 4 facilities. The entity should be authorized to provide recommendations on implementing inherently safer technologies, but it would not have the authority to require facilities to implement the inherently safer technology methods. The Administration believes that flexibility and staggered implementation would be required in implementing this new inherently safer technology policy. A congressional mandate for regulated entities to adopt or consider adopting inherently safer technologies may lead regulated entities to consider factors such as homeland security impact in their chemical process assessments. Some experts assert that existing chemical process safety activities consider and assess inherently safer technology approaches though not necessarily in a homeland security context. These assessments may lead to changes in chemical process when deemed safer, more reliable, and cost-effective. The extent to which homeland security impact has factored into these industry decisions is unknown, but DHS has identified cases where chemical facilities have voluntarily modified chemical processes to lower their CFATS tier. An additional complication to assessing inherently safer technology is the varying amounts and quality of information available regarding industrial implementation of inherently safer technologies. While some facilities have converted to processes generally deemed as inherently safer, other facilities may not have sufficient information available to effectively assess the impacts from changing existing processes to ones considered inherently safer. The differences that exist among chemical facilities, in terms of chemical process, facility layout, and ability to finance implementation, may challenge mandatory implementation of inherently safer technologies at regulated entities. Finally, the National Academies have identified that the chemical industry lacks a common understanding and set of practice protocols for identifying safer processes. Therefore, it seems likely that any such mandate will also require accompanying outreach and educational activities for regulated entities. Even the mandatory consideration of inherently safer technologies may place a financial burden on some small regulated entities. Congress might limit mandatory measures to those facilities considered by DHS to pose the most risk or might provide such financial assistance to regulated facilities. Policymakers might choose to try to further incentivize regulated entities to adopt inherently safer technologies. Under the CFATS regulations, facilities that adopt inherently safer technologies might change their assigned risk tier by reducing the amount of chemicals of interest on hand. As of July 2012, more than 2,730 facilities had removed or reduced the amount of chemical of interest stored onsite in order to no longer qualify as a high-risk facility. Policymakers might provide regulated entities that adopt inherently safer technologies with financial or regulatory incentives. Alternatively, policymakers might direct DHS or another agency to perform inherently safer technology assessments for regulated entities, transferring the cost of such assessment from the facility to the federal government. The regulated entity or the overseeing agency might use the results of these assessments to guide implementation. Congressional policymakers might choose to increase transparency in the CFATS process by altering the information security provisions of the program. Such an approach might include increasing the number and type of individuals granted access to CVI, improving information exchange with first responders, and adjusting the manner by which courts and administrative proceedings handle CVI. The Obama Administration has testified that CVI is a distinct information protection regime and expressed support for maintaining CVI in its current form. Congress might choose to amend the existing statutory authority to address policy concerns. For example, while still maintaining disclosure prohibitions for vulnerability or security related information, congressional policymakers might require that DHS gather and document comments and information. Such input might come from outside groups, worker organizations, or other trade representatives through formal and informal mechanisms or by the solicitation, development, and use of industry best practices. Policymakers might direct DHS to make specific types of information, such as the results of enforcement activities or the approval of successful implementation of a site security plan, more generally available. By mandating the inclusion of such information gathering or the release of specific information, congressional policymakers might facilitate greater cooperation between various stakeholder groups. Conversely, such requirements may raise concerns about the degree of security given to the protected information, since more individuals will participate in its development and analysis, perhaps increasing the ability of malicious persons to use such information for targeting purposes. As more information about the vulnerability assessment and the security process becomes available, the potential that adversaries might combine this disparate information to obtain insight into a security weakness may increase. Congressional policymakers might require that the executive branch or another entity identify the threats or vulnerabilities that might accrue from release of a greater amount of chemical facility security information prior to implementing such a policy change. Congressional policymakers can choose to alter the information protection regime afforded to chemical facility security information by specifically expanding access to first responders. The existing regulation explicitly states that information developed in response to other laws or regulations, such as Emergency Planning and Community Right-to-Know Act, are not protected from disclosure. Enhancing first responder access to such information might minimize perceived barriers to disclosing information during an accident. For example, Congress might mandate that each jurisdiction with a regulated chemical facility contain a first responder designated as a covered individual. Congressional policymakers also can choose to further limit dissemination of CVI so as to increase barriers to its release if that is a policy goal. Congress might prohibit DHS from sharing such information outside of the federal government or set particular criteria that would allow CVI access to state and local officials. Limiting the number of individuals with access to CVI may make it more difficult for those wishing to do harm to obtain technical or operational security information. Conversely, state and local officials may not support such an approach, as limitations on distribution may also adversely affect emergency response at a regulated facility or inhibit the ability of state and local law enforcement officials to provide targeted protection of particular chemical facility assets. Policymakers might also choose to address the issue of identifying and marking protected information by mandating review of marked documents. Congressional policymakers might place this responsibility to review and certify marked information on the chemical facility. Alternatively, the federal government might review and certify documents marked CVI on a regular basis. Industry representatives may not support such a requirement due to the additional regulatory burden caused by the review. Additionally, while such review might potentially limit incorrect marking, it may inhibit information reporting by regulated entities to the federal government. Additionally, absent a penalty for incorrect marking, it is unclear how to ensure compliance. Congressional policymakers may also address concerns raised regarding the ability of concerned individuals to report misdeeds by creating a "whistleblower" reporting mechanism. One approach might be to codify the current mechanism of reporting such concerns to DHS or a similar federal entity, such as an agency Inspector General. Alternatively, Congress can create a more general exemption to the penalties arising from disclosure of protected information for those individuals who report such concerns to federal officials if that is needed to protect whistleblowers. As part of a whistleblower mechanism, policymakers might choose to extend protections against retaliation or other job-related actions to those individuals availing themselves of current or newly established reporting mechanisms. The 110 th Congress addressed the issue of federal preemption of state chemical facility security statutes and regulations by placing in statute the requirement that federal regulation preempt the state regulation only when an "actual conflict" occurs between them. Congressional policymakers may choose to further limit the cases where federal regulation would preempt state regulation by affirming the right of states to make chemical facility security regulations that are more stringent than federal regulation even if they conflict. Alternatively, policymakers may choose to increase the number of cases where federal regulations preempt those of a state by expanding the types of conflict, beyond "actual," that will lead to preemption. The annual appropriations process provides funding for implementation of chemical facility security regulation. The Continuing Appropriations Resolution, 2013 ( P.L. 112-175 ) extends the statutory authority through March 27, 2013, and provides appropriations for CFATS implementation. The current statutory authority expires on March 27, 2013. Congress is considering extending the existing authority through authorization legislation. The Obama Administration has requested extension of the existing statutory authority in each budget request. For FY2013, it has requested extension of this authority until October 4, 2013. It requested a one-year extension of the existing statutory authority to October 4, 2011, in the FY2011 budget and a two-year extension to October 4, 2013, in the FY2012 budget. Congress provided a one-year extension in the DHS appropriation act for FY2011 and FY2012. H.J.Res. 117 / P.L. 112-175 , the Continuing Appropriations Resolution, 2013, became law on September 28, 2012. It extended the existing statutory authority to March 27, 2013. H.R. 901 , the Chemical Facility Anti-Terrorism Security Authorization Act of 2011, was reported as amended by the House Committee on Homeland Security. The act would amend the Homeland Security Act of 2002 with provisions authorizing DHS oversight of chemical facility security. The provisions of H.R. 901 generally match the existing statutory authority. H.R. 901 would also authorize appropriation of $89.9 million annually from FY2012 through FY2018. The statutory authority would expire on September 30, 2018. In addition, the DHS would be required to approve or disapprove of vulnerability assessments and site security plans within 180 days of receipt and provide technical support to regulated entities qualifying as small businesses. The DHS would issue guidance on how alternative background checks would meet in full or in part any background check personnel security requirement. Finally, the DHS would be required to report to select congressional committees regarding its success at meeting the 180 day requirement, efforts to harmonize CFATS and MTSA regulations, and on the number of jobs created or eliminated due to CFATS regulation. H.R. 901 was also referred to the House Committee on Energy and Commerce to the Subcommittee on Environment and the Economy. The subcommittee has taken no further action on this bill. H.R. 908 , the Full Implementation of the Chemical Facility Anti-Terrorism Standards Act, was reported as amended by the House Committee on Energy and Commerce. The act would extend the existing statutory authority to October 4, 2018. H.R. 908 would authorize appropriations of $89.92 million for each fiscal year from FY2012 through FY2018. It would allow the Secretary of Homeland Security to accept security background checks conducted for other purposes. Finally, it would also allow holders of Transportation Worker Identification Credential cards access to CFATS-regulated facilities. H.R. 916 , the Continuing Chemical Facilities Antiterrorism Security Act of 2011, was referred to the House Committee on Energy and Commerce and the House Committee on Homeland Security. The act would extend the existing statutory authority to October 4, 2015. It would also amend the Homeland Security Act of 2002 to direct the Secretary of Homeland Security to establish a voluntary chemical security training program and a voluntary chemical security exercise program. Finally, it would authorize such sums as necessary for these programs. H.R. 2017 / P.L. 112-33 , the Continuing Appropriations Act, 2012, became law on September 30, 2011. It extended the existing statutory authority to October 4, 2011. H.R. 2055 / P.L. 112-74 , the Consolidated Appropriations Act, 2012, became law on December 23, 2011. It extended the existing statutory authority to October 4, 2012. H.R. 5855 , the Department of Homeland Security Appropriations Bill, 2013, was passed by the House of Representatives on June 7, 2012. H.R. 5855 would extend the existing statutory authority to October 4, 2013. S. 473 , the Continuing Chemical Facilities Antiterrorism Security Act of 2011, was reported with an amendment by the Senate Committee on Homeland Security and Governmental Affairs. S. 473 would extend the existing statutory authority to October 4, 2014. In addition, it would amend the Homeland Security Act of 2002 to direct the Secretary of Homeland Security to establish a voluntary chemical security training program, a voluntary chemical security exercise program, a voluntary technical assistance program, and a chemical facility security advisory board. S. 473 would authorize such sums as necessary for the programs and board. S. 3216 , the Department of Homeland Security Appropriations Bill, 2013, was reported by the Senate Committee on Appropriations. S. 3216 would extend the existing statutory authority to October 4, 2013. Legislation has been introduced in both chambers that would modify the existing authority. H.R. 225 , the Chemical Facility Security Improvement Act of 2011, was referred to the House Committee on Energy and Commerce and the House Committee on Homeland Security. The act would prohibit the Secretary of Homeland Security from approving a chemical facility site security plan if the plan did not meet or exceed existing state or local security requirements. It would allow the Secretary of Homeland Security to mandate the use of specific security measures in site security plans. The bill would also cause CVI to be treated as sensitive security information in both general and legal proceedings. Finally, the act would no longer prohibit third-party individuals from bringing suit in court to require the Secretary of Homeland Security to enforce chemical facility security regulations against a chemical facility. H.R. 2890 was referred to the House Committee on Energy and Commerce and the House Committee on Transportation and Infrastructure. The act would expand chemical facility security regulation to include public water systems and wastewater treatment facilities and direct the President to delegate such regulatory authority from the Secretary of Homeland Security to the EPA Administrator. S. 709 , the Secure Chemical Facilities Act, was referred to the Senate Committee on Homeland Security and Governmental Affairs. The act would codify aspects of the CFATS regulation. It would require facilities to evaluate whether the facility could reduce the consequences of an attack by using a safer chemical or process. The act would authorize DHS to require implementation of those safer measures if a facility has been classified as one of the highest-risk facilities, implementation of safer measures is feasible, and implementation would not increase risk overall by shifting risk to another location. Among other provisions, S. 709 also would increase the participation of employees and employee representatives in developing security plans. S. 709 would alter the current information control regime, aligning it with that for sensitive security information. Finally, S. 709 would allow third-party individuals to file suit against the Secretary of Homeland Security or submit a petition to the Secretary to enforce compliance with statute. S. 711 , the Secure Water Facilities Act, was referred to the Senate Committee on Environment and Public Works. The act would authorize the EPA Administrator to regulate community water systems and wastewater treatment facilities for security purposes. S. 711 also would authorize implementation of methods to reduce the consequences of a chemical release from an intentional act. Among other provisions, the Administrator would be directed to promulgate regulations as necessary to prohibit the unauthorized disclosure of controlled information. S. 711 would authorize the Administrator to provide grants or enter into cooperative agreements with states or regulated entities to assist in regulatory compliance. | The Department of Homeland Security (DHS) has statutory authority to regulate chemical facilities for security purposes. The 112th Congress has extended this authority through March 27, 2013. The Obama Administration has requested extension of this authority until October 4, 2013. Congressional policymakers have debated the scope and details of reauthorization and continue to consider legislation establishing an authority with longer duration. Some Members of Congress support extension, either short- or long-term, of the existing authority. Other Members call for revision and more extensive codification of chemical facility security regulatory provisions. Questions regarding the current law's effectiveness in reducing chemical facility risk and the sufficiency of federal funding for chemical facility security exacerbate the tension between continuing current policies and changing the statutory authority. Congressional policymakers have questioned DHS's effectiveness in implementing the authorized regulations, called chemical facility anti-terrorism standards (CFATS). The DHS finalized CFATS regulations in 2007. No chemical facilities have completed the CFATS process, which starts with information submission by chemical facilities and finishes with inspection and approval of facility security measures by DHS. Several factors, including the amount of detailed information provided to DHS, effectiveness of DHS program management, and the availability of CFATS inspectors, likely complicate the inspection process and lead to delays in inspection. Policymakers have questioned whether the compliance rate with CFATS is sufficient to address this homeland security issue. Key policy issues debated in previous Congresses contribute to the current reauthorization debate. These issues include the adequacy of DHS resources and efforts; the appropriateness and scope of federal preemption of state chemical facility security activities; the availability of information for public comment, potential litigation, and congressional oversight; the range of chemical facilities identified by DHS; and the ability of inherently safer technologies to achieve security goals. The 112th Congress might take various approaches to this issue. Congress might allow the statutory authority to expire but continue providing appropriations to administer the regulations. Congress might permanently or temporarily extend the statutory authority to observe the impact of the current regulations and, if necessary, address any perceived weaknesses at a later date. Congress might codify the existing regulations in statute and reduce the discretion available to the Secretary of Homeland Security to change the current regulatory framework. Alternatively, Congress might substantively change the current regulation's implementation, scope, or impact by amending the existing statute or creating a new one. Finally, Congress might choose to terminate the program by allowing its authority to lapse and removing funding for the program. This would leave regulation of chemical facility security to state and local governments. Both appropriation and authorization legislation in the 112th Congress address chemical facility security. P.L. 112-175 extended the existing authority until March 27, 2013. Both FY2013 homeland security appropriations bills (S. 3216 and H.R. 5855, as passed by the House) would extend the existing authority until October 4, 2013. Authorizing legislation includes H.R. 225; H.R. 901, reported as amended by the House Committee on Homeland Security and referred to the House Committee on Energy and Commerce; H.R. 908, reported as amended by the House Committee on Energy and Commerce; H.R. 916; H.R. 2890; S. 473, reported as amended by the Senate Committee on Homeland Security and Governmental Affairs; S. 709; and S. 711. |
In September 2009, the U.N. General Assembly adopted a resolution expressing strong support for the consolidation of four U.N. bodies addressing women's issues into one composite entity. Current U.N. efforts to address the well-being of women are spread across various U.N. system programs, funds, and offices with no single leadership or coordination mechanism. As a result, U.N. bodies addressing women's issues have been criticized for being ineffective, incoherent, and underfunded. U.N. member states, including the United States, are engaged in ongoing consultations to consider the new entity's mission, functions, governance, and funding. At this time, it is unclear how a new U.N. entity will be structured and whether it will prove effective in addressing global women's issues. Recent efforts toward the establishment of a new U.N. entity for women reflect a gradual shift in the international community's approach to prioritizing and addressing the needs of women. Many governments, including the United States, have recognized that the well-being of women is linked with national and international security, development, and economic stability. More broadly, the possibility of a new entity raises the question of how the international community, and the United Nations in particular, can best address the needs of women globally. This fundamental issue underlies all aspects of the intergovernmental consultations regarding the creation of a U.N. women's entity. Many Members of Congress have demonstrated support for global women's issues, as well as for U.N. efforts to address the needs of women and girls. Congressional interest in the new U.N. entity for women centers around several key issues, including possible U.S. funding and participation, support for global women's issues in U.S. foreign policy, and oversight of the new entity's efficiency and effectiveness. This report discusses perceived weaknesses in the current U.N. system gender structure and recent steps taken by governments to address the issue. It examines U.S. policy toward the new entity, including to what extent, if any, the United States will fund the new entity, and the role the United States may play once the entity is established. It analyzes possible policy issues related to a new entity, including its role in U.N. field operations, proposals for its leadership and governance structures, and the nature of its funding mechanisms. It also discusses the entity in the context of broader U.N. system-wide reform efforts, its potential impact on the activities of other U.N. agencies, funds, and programs, and the involvement of other actors such as non-governmental organizations (NGOs) in its activities and governance. During the past decade, the international community has increasingly recognized the need for a new U.N. entity to address issues related to women. This recognition was brought about in part by an organized grassroots campaign led by women's groups, NGOs, and other members of civil society to frame women's issues as a global priority and raise awareness of weaknesses in existing U.N. system efforts to address women's well-being. Advocates of a new U.N. women's entity argue that the existing U.N. system gender structures lack leadership and coordination, sufficient funding, visibility, and operational capacity—particularly when compared to other U.N. bodies that address specific segments of the world population, such as the U.N. Children's Fund (UNICEF) and the U.N. Development Program (UNDP). Supporters argue that this dearth of leadership and coherence has made women's issues a low priority in the U.N. system. The following sections briefly summarize the structure and objectives of the four U.N. gender entities that will be consolidated into one composite entity—the U.N. Development Fund for Women (UNIFEM), the Division for the Advancement of Women (DAW), the Office of the Special Adviser on Gender Issues and Advancement of Women (OSAGI), and the International Research and Training Institute for the Advancement of Women (INSTRAW). See the Appendix for examples of other U.N. bodies, initiatives, and agreements that either directly or indirectly address the well-being of women. UNIFEM is a U.N. fund that was established as a separate and identifiable entity in "autonomous association" with UNDP. Its goal is to support the implementation of existing international commitments to advance gender equality at the national level by focusing on (1) women's economic security and rights, (2) violence against women, (3) reducing levels of HIV and AIDS in women, and (4) advancing gender justice in democratic governance. To achieve its goals, UNIFEM provides funding and technical assistance to activities that promote gender equality and women's empowerment in developing countries. It is funded through voluntary contributions by U.N. member states, NGOs, and others. Total UNIFEM contributions in 2008, the last year for which data are available, were $121.4 million. In addition, UNIFEM administers the U.N. Trust Fund in Support of Actions to Eliminate Violence Against Women, which provides grants to government, United Nations, and NGO efforts to combat violence against women on the local, regional, and national level. The Trust Fund relies on voluntary contributions from national governments, NGOs, and the private sector. DAW, which is part of the Department of Economic and Social Affairs in the U.N. Secretariat, advocates the advancement of women through formulating policy, researching global standards and norms, promoting the implementation of international agreements, and mainstreaming gender perspectives in the U.N. system. DAW's key responsibility is servicing the Commission on the Status of Women (CSW), the main U.N. intergovernmental policymaking body on women's issues. DAW is funded through the U.N. regular budget. OSAGI, which is part of the Department of Economic and Social Affairs in the U.N. Secretariat, is headed by the Special Adviser on Gender Issues and Advancement of Women. It works to "promote and strengthen" the implementation of the Beijing Declaration and the Platform for Action agreed to at the Fourth World Conference on Women held in Beijing in 1995. OSAGI also provides oversight and policy guidance to DAW in its work supporting the General Assembly, ECOSOC, and CSW. Moreover, it develops new strategies and programs to enhance gender equality and women's empowerment. Like DAW, OSAGI is funded through the U.N. regular budget. INSTRAW is a U.N. system research and training institute mandated with developing research and training programs on women's empowerment and gender equality. It promotes applied research, information sharing, and capacity building among U.N. member states, civil society, academia, the private sector, and others. Governments, academia, and NGOs provide voluntary contributions to INSTRAW. Experts contend that weaknesses in the current U.N. system gender structure have contributed to significant gaps between U.N. member state commitments to women's equality and the implementation of these commitments. These apparent weaknesses center around several key organizational issues—coordination and cohesion, governance, and resources and capacity. Leadership and co ordination . Critics argue that lack of leadership and coordination is one of the primary deficiencies in the existing U.N. system gender structure. For example, UNIFEM, DAW, OSAGI, and INSTRAW share many similar objectives, and in some cases their work may run parallel to each other or even overlap. Yet for the most part they act independently with no single authority or coordinating mechanisms to unify their work. Critics hold that this lack of leadership and cohesion affects the status of women's issues in the U.N. system, as well as its effectiveness in addressing the needs of women. Governance. Some experts have criticized the governance of existing gender entities. Many, for instance, express concern with what they view as UNIFEM's secondary status in the U.N. system. Unlike specialized agencies with their own governance and in-country operations, UNIFEM is autonomously associated with UNDP. It is led by an executive director, while the UNDP administrator is accountable for UNIFEM's management and operation. UNIFEM requires involvement from UNDP, specialized agencies, and others when planning and implementing projects. Many argue that this places UNIFEM at a financial and operational disadvantage, hindering its ability to promote and implement programs that enhance women's equality and empowerment. Resources and c apacity . Many analysts contend that existing U.N. gender entities lack the financial and human resources necessary to achieve their goals, particularly at the country level. To support this view, critics point to the budgets of other U.N. entities focused on specific segments of the world's population. For example, total voluntary and regular budget contributions for UNIFEM, DAW, OSAGI, and INSTRAW in 2008 were approximately $247 million. By comparison, for the same period, the total income for UNICEF alone was over $3.3 billion. In 2006, efforts to establish a new entity gained momentum when then-Secretary-General Kofi Annan appointed a High-level Panel on System-wide Coherence (the Panel) to examine how the U.N. system can work more effectively. The Panel's recommendations regarding the U.N. system gender structure reflected many of the aforementioned concerns voiced by women's groups and governments. The Panel found that "there is a strong sense that the United Nations system's contribution [to achieving gender equality and women's empowerment] has been incoherent, under-resourced and fragmented." It recommended that the United Nations establish one entity focused on women's equality and empowerment. According to the Panel, the new entity should be a consolidation of existing U.N. gender entities; have a strengthened operational, normative, and advocacy role; and be "fully and ambitiously funded." At the same time, the Panel emphasized that commitment to gender equality should remain the mandate of the entire U.N. system. The Panel's recommendation and the ongoing efforts of women's groups to establish a new U.N. gender entity laid the groundwork for the adoption of U.N. General Assembly resolution 63/311 in September 2009. The resolution, which was agreed to by consensus after two years of intergovernmental negotiations, expressed member state support for the consolidation of four existing U.N. bodies into one composite entity to be led by a new Under-Secretary-General. It requested Secretary-General Ban Ki-moon to produce a comprehensive proposal addressing the new entity's mission statement, organizational arrangements, funding, and governance for U.N. member state consideration. In response to the General Assembly's request, in December 2009 the Secretary-General submitted a report to the General Assembly, Comprehensive Proposal for the Composite G ender Equality E ntity (hereafter referred to as the "Secretary-General's proposal") . The proposal recommended that the new entity combine the mandates and assets of the four existing gender entities and work to fill existing gender gaps in the U.N. system. It would aim to ensure "universal coverage" of gender equality issues. To achieve this, the proposal suggested the establishment of both an operational and normative entity addressing women at the regional, national, and global level. The normative work would be guided by the Commission on the Status of Women (CSW), while the operational work would be governed by an executive board. Similar to UNDP, UNICEF, and UNFPA, the entity would be a subsidiary body of the General Assembly that reports to the Assembly through the Economic and Social Council (ECOSOC). Ban emphasized that a new entity would not relieve any other parts of the U.N. system from their responsibility to address women's equality or gender empowerment. The Secretary-General proposed that the new entity be led by an Under-Secretary-General who would be a member of all senior U.N. policymaking bodies. Its funding would be derived from a combination of assessed and voluntary contributions. Specifically, the report proposed a total of $500 million for the entity's "start-up" phase. This included $125 million per annum for basic staff, operating costs, and capacity at the country, regional, and headquarters level, as well as $375 million to respond to country level requests for U.N. programmatic support. It would operate in both developed and developing countries. U.N. member states are currently considering the Secretary-General's proposal and negotiating the structure and governance of a new entity. Issues that need to be resolved include how to efficiently and effectively merge the four existing gender entities, the appointment of a new Under-Secretary-General, how the entity will be governed and funded, and the role of a new entity in-country. The timeline for establishing the new entity is largely dependent on U.N. member states. It is expected that the General Assembly will address the Secretary-General's proposal during its 64 th session, which began in September 2009 and will end in September 2010. The U.N. General Assembly is composed of 192 member states with different national priorities, attitudes toward gender, and perspectives on the role of the U.N. system. As a result, negotiating the scope, structure, and funding of a new composite gender entity will likely be a significant challenge. This section examines policy issues that may be considered during negotiations. Many of these issues—particularly those regarding accountability, funding, and coordination—may be areas of congressional concern once the new entity is established. A key issue facing U.N. member states during negotiations will be funding the composite entity. Debate will likely focus on how the entity should be funded and its overall budget, including start-up costs. U.N. member states are currently considering the financial structure proposed by Secretary-General Ban, who recommended a $500 million annual budget for the start-up phase. This includes $125 million annually for staff and operating costs, and an additional $375 million per year in the initial phase to respond to country requests for U.N. program support. According to Ban, the composite entity would be funded through a combination of voluntary contributions and the U.N. regular budget. Voluntary contributions would fund operational and programming activities, while normative functions, such as support to the Commission on the Status of Women (CSW), would be funded through the regular budget. The entity's main funding source would be voluntary contributions from governments, NGOs, and the private sector. Contributions from the regular budget would make up a small percentage of the entity's total funding but, according to Ban, would be important to ensuring substantive support for the intergovernmental process. The response of governments and NGOs to the Secretary-General's funding proposal has been mixed. Both generally support the Secretary-General's suggestion that the composite entity be funded by a combination of assessed and voluntary contributions. They also support his recommendation that the new entity have its own financial rules and regulations. However, during intergovernmental consultations, some member states reportedly expressed worry with what they viewed as the entity's initial reliance on voluntary contributions from governments. In addition, many NGOs contend that the proposed $500 million budget "falls short" of what is needed to achieve system-wide gender mainstreaming and effective gender equality programming at the country level. Some hold that an annual budget of "no less than $1 billion" would be necessary for the composite gender entity to have substantial impact on the lives of women. Many women's groups also emphasize that the composite entity's funding should be sustained and consistent so that it can attract and maintain top experts in women's equality and empowerment. Governments and NGOs have recognized that the existing U.N. gender-related structure lacks strong governance. Accordingly, in General Assembly resolution 63/311, U.N. member states called for the new composite gender entity to be led by a new Under-Secretary-General who reports directly to the Secretary-General. The entity would be governed by an executive board to oversee the entity's operational activities. Supporters emphasize that these actions would elevate the importance of women's well-being in the U.N. system, increase accountability on U.N. system approaches to gender, and enhance the visibility of women's issues among U.N. leadership. Secretary-General Ban made several recommendations related to the composite entity's governance structure. He suggested that entity have a "tiered" approach that reflects the operational and normative work of the composite entity. Specifically, the CSW would guide the normative activities and operations of the entity, whereas an executive board would oversee its operational activities. In his proposal, Ban presented two options to member states regarding the possible structure of the executive board: Join the UNDP/UNFPA Executive Board. The General Assembly could establish an "autonomous segment" of the UNDP/U.N. Population Fund (UNFPA) Board, which would ensure "close collaboration" between the new entity and the two organizations, providing a "strong link" between gender equality and development. According to Ban, this could be established immediately. Establish a new executive board. The General Assembly could create a new executive board, similar to the UNICEF or UNDP/UNFPA boards. This would require the establishment of a board secretariat, which would have additional financial costs. According to the Secretary-General, the creation of a new board could take "considerable time," possibly delaying the establishment of the new entity. Ban recommended that for reasons of "coherence, cost and expediency," member states may wish to consider the first option of joining the UNDP/UNFPA Executive Board. Some governments, however, have argued that the entity should have its own board. They are concerned that becoming part of the UNDP/UNFPA executive board could result in a "loss of focus" regarding the new entity's mission. Member states and women's organizations have raised questions regarding the new gender entity's impact on the activities of other U.N. bodies addressing women. For instance, some countries—including the United States—have cautioned against possible duplication between the new composite entity and other bodies such as such as UNDP, the U.N. Population Fund (UNFPA), UNICEF, and the World Health Organization (WHO). Others have expressed concern that the establishment of a new U.N. gender entity would cause other U.N. bodies to abandon their work addressing women's equality and empowerment. According to the Secretary-General, other U.N. bodies would continue their normal activities and programs related to gender. He emphasized that the new entity would "enhance, rather than replace" them and "sharpen and focus" the impact of the gender equality activities of the entire U.N. system. Many expect that the new composite entity will engage with other U.N. bodies more frequently than the current U.N. system gender entities, such as UNIFEM and DAW. At the global level, the Secretary-General proposed that the entity be more involved in high-level U.N. system policymaking and coordinating bodies such as the U.N. Development Group (UNDG) and Chief Executives Board (CEB). At the regional level, the entity would have a staff presence at U.N. regional operational support and oversight hubs and work as a member of regional directors teams that provide quality assurance, advice, and support to U.N. country teams. At the country level, the entity would, depending on the country, work as a full member of U.N. country teams to lead and coordinate U.N. system actions on gender equality. Some NGOs and governments, however, have raised questions regarding the new gender entity's role in U.N. country teams as outlined in the Secretary-General's proposal. The nature and extent of the composite gender entity's operational capacity at the country level has generated debate among governments and women's organizations. According to critics, a significant weakness in current U.N. system gender activities is the lack of gender perspectives and programming in U.N. country teams. Some argue that for the composite gender entity to meets its objectives, it should over time establish a presence in every country in which the United Nations operates and fully participate in U.N. country teams, overseeing and coordinating gender-related programming and activities. Others, including the United States, maintain that the composite entity can effectively address women's equality and empowerment at the national level without establishing a new U.N. office in all countries. The Secretary-General's proposal stated that the capacity to implement and monitor progress toward gender equality at the national level should exist in all countries. He recommended that the new entity lead and coordinate U.N. system actions on gender equality at the country level. The entity would be a member of the U.N. resident coordinator system, with its work varying from country to country, depending on national needs and priorities. It would, if needed, support national efforts to promote and enhance gender equality, advocate issues critical to gender equality, support governments in implementing and monitoring gender-related resolutions and agreements, act as a hub for knowledge and experience on gender equality, and provide capacity development and training on women's equality and empowerment. The entity would also work with U.N. country teams to strengthen the accountability of U.N. system efforts to achieve national gender equality priorities and offer technical support and policy advice to governments and U.N. bodies. In addition, it would help country teams align their gender equality programs with U.N. system-wide policies on gender mainstreaming. NGO responses to the Secretary-General's proposal have been mixed. Many express support for the universal country presence recommended for the entity, as well as its diverse approach to countries based on individual needs and priorities. At the same time, many are concerned that the proposal does not adequately address country-level programming capacity for women's empowerment and rights. Some contend that the proposal's language, if adopted by U.N. member states, could "weaken or downplay" the importance of the entity's operational capacity in the field. Portions of the text, for example, state that the entity will "assist" or "help" U.N. country team members with various gender-related activities. Some argue that this language implies that the entity is a subsidiary body, appearing to contradict the Secretary-General's recommendation that the composite entity "lead and coordinate" U.N. system actions on gender equality. The level and extent of civil society's involvement in the new composite gender entity will likely be a key area of discussion during intergovernmental consultations. Many maintain that for the entity to be effective, civil society, especially women's organizations, must have "systematic and meaningful" participation in the work of the entity. Secretary-General Ban's proposal to member states suggests that the composite entity build effective partnerships with civil society. Specifically, he recommends the establishment of an advisory board composed of civil society and women's organizations to enhance the entity's efforts to address gender equality and women's empowerment. Many women's groups argue that the Secretary-General's proposal does not adequately incorporate civil society into the structure and mission of the new composite entity. They contend that NGOs with expertise and a history of working on gender issues can add significant value to the new entity and should have a more formal role than what is outlined in the Secretary-General's proposal. The Gender Equality Architecture Reform (GEAR) Campaign, a network of over 300 global NGOs, holds that NGOs should be full participants on the entity's executive board (similar to the Joint Program on HIV and AIDS (UNAIDS) model). It further maintains that civil society advisory councils should be established on the country, regional, and headquarters level, and that NGOs should be able to participate in meetings related to the entity's budget, strategic planning, monitoring and evaluation, and policy formulation. The goal of gender mainstreaming is to achieve gender equality by incorporating gender perspectives into U.N. system programs, policies, and actions at all levels. During negotiations, member states will likely take into account the role and effectiveness of gender mainstreaming in the U.N. system—including how it may be incorporated into the mission and activities of a new composite entity. Gender mainstreaming was first introduced as a U.N. system strategy in the mid-1990s at the Fourth World Conference on Women in Beijing. Since then, with the support of U.N. member states, the U.N. Secretary-General and U.N. agencies, funds, and programs have attempted to incorporate it into U.N. activities and programs, with varied results. Many agree with the overall concept of gender mainstreaming and recognize its importance—however some contend that ongoing efforts have been unsuccessful due to a lack of accountability and limited awareness and understanding of gender mainstreaming and gender equality in the U.N. system. This apparent lack of knowledge, some argue, has affected U.N. efforts to mainstream gender perspectives into the U.N. system and also hindered its ability to assist national governments in implementing their own gender mainstreaming initiatives. Secretary-General Ban's proposal recommends that the new composite gender entity play a key role in U.N. gender mainstreaming efforts. Specifically, the entity would lead and coordinate U.N. system actions on gender equality and women's empowerment and strengthen the accountability of the U.N. system on gender equality and mainstreaming. It would provide substantive support to U.N. bodies where commitments, norms, and policy recommendations on gender mainstreaming are discussed. It would also work with other U.N. bodies to refine policies and strategies for strengthening implementation of a gender mainstreaming strategy. Many observers and women's groups support the Secretary-General's proposal in principle. Some emphasize, however, that if U.N. member states decide to make gender mainstreaming part of the new entity's mission, they should ensure that the entity has the authority and financial resources to carry out its responsibilities. Many governments, experts, and organizations, including the United States, have emphasized that U.N. member states should ensure there are mechanisms in place to review the efficiency and effectiveness of the new entity after its establishment. As such, the Secretary-General's proposal recommends that member states "may wish to undertake a review of the functioning of the composite entity after three years," and make any adjustments based on this review. The Secretary-General also recommends that a review of the entity's executive board arrangements be undertaken after three years to ensure the entity has an "appropriate" executive board and to make any adjustments to align the entity's governance structure with system-wide coherence discussions. It is unclear how governments will evaluate or measure the work of the composite gender entity. In the past decade, the United States has increasingly acknowledged the importance of women's well-being to development and international security. It has also generally supported U.N. funds, programs, and activities that, either whole or in part, address the well-being of women. Many U.S. policymakers appear cautiously optimistic regarding the creation of a new U.N. entity for women. Ultimately, however, future U.S. policy toward the new gender entity will likely depend on whether the United States views the entity's future work as effective and efficient. The Obama Administration has expressed support for the establishment of a new U.N. entity for women—reflecting its broader efforts to address the well-being of women worldwide. At the State Department, for example, the Administration created the post of Ambassador-at-Large for Global Women's Issues. The Ambassador, who reports directly to the Secretary of State, heads the Office of Global Women's Issues (GWI), which is charged with coordinating and supporting State Department foreign policy activities relating to the political, economic, and social advancement of women worldwide. According to Administration officials, this newly established Ambassadorship "reflects the elevated importance of global women's issues for the President...." Within the U.S. government, the responsibility for negotiating the scope and structure of a new U.N. entity for women in U.N. fora lies primarily with the State Department. The Obama Administration has made a number of statements in U.N. fora setting forth its vision for a new U.N. gender entity. However, its position will likely evolve as intergovernmental negotiations move forward. In a June 2009 General Assembly meeting, an Administration official stated: We envision this hybrid entity as a central repository of expertise, analysis, and research on issues such as gender equality, women's political participation, women's economic opportunities…. The composite entity would not only draft reports on these issues, but would deploy staff into the field to serve a catalytic role to raise these issues within country teams, and work with operational agencies to ensure that their work takes due account of gender aspects of their projects.... In the same statement, the Administration recommended that the new entity should have a strong field presence but emphasized that it did not expect that new U.N. offices would be established in all countries. It foresaw the entity as having a small branch that would organizationally be part of the U.N. Secretariat to support the Under-Secretary-General. Moreover, the Administration proposed that the new entity's Under-Secretary-General have two primary responsibilities: one as the executive head of the normative and operational aspects of the entity and another as a member of the U.N. Secretary-General's team of department heads. Unlike existing U.N. bodies, a new entity would have an equal voice on U.N. senior-level consultative mechanisms, such as the Chief Executives Board and the U.N. Development Group. In addition, the Administration recommended that an entity be funded primarily through voluntary contributions, but with part of the budget coming from assessed contributions to the U.N. regular budget to cover the cost of the Under-Secretary-General's office in the Secretariat. To ensure the composite entity would operate as effectively as possible, the Administration suggested that it be reviewed by member states after three to five years. In a more recent statement in February 2010, the Administration elaborated on its position, making several recommendations that were similar or identical to the Secretary-General's December 2009 proposal to the General Assembly. For example, the Administration suggested that the new entity be a "vigorous actor, with resources to command and programs to carry out," and reemphasized that at the same time the entity may not be able to provide support to all women in all areas. The Administration also supported the Secretary-General's recommendation that the new entity be jointly governed by an executive board and the Commission on the Status of Women. Moreover, it recommended that the Under-Secretary-General position should be on the same institutional level as the heads of other major funds and programs, as well as other Under-Secretaries-General heading major departments within the Secretariat. Members of Congress have generally supported U.N. system activities that address the well-being of women, and may demonstrate an interest in the new gender entity. Members may focus on several issues, including (1) U.S. funding of and participation in the new entity, (2) the relevance of the entity to U.S. foreign policy, and (3) oversight of the entity's efficiency and effectiveness after it is established. To address these issues, Congress could use a range of legislative options, including authorizing, appropriating, or prohibiting U.S. financial contributions to the entity; enacting "sense of the Congress" resolutions; and holding oversight hearings on the entity's effectiveness once it is established. Since the United Nations was created, Members of Congress have used U.N. mechanisms to further U.S. foreign policy objectives and priorities. Increased attention to global women's issues, coupled with the possible establishment of a new U.N. gender entity, points to heightened congressional interest in what role, if any, the entity should play in U.S. foreign policy and to what extent the United States will support and participate in it. As negotiations move forward and the gender entity begins its work, Congress may wish to consider the following issues. With the United States as the largest financial contributor to the U.N. system, Members of Congress have demonstrated an ongoing interest in ensuring the United Nations runs as efficiently and effectively as possible. Therefore, Congress may conduct oversight on the new entity to ensure it is successfully addressing the well-being of women. This raises the broader question of how, if at all, U.N. member states, including the United States, can measure or evaluate the entity's overall effectiveness, or its improvement, if any, over the previous U.N. gender structure. This is a challenge shared by many governments and organizations that aim to enhance development, human rights, and the well-being of women through their own programs and initiatives. Some experts argue that women's rights should be addressed in the context of existing international human rights and development mechanisms. Supporters of this view contend that rather than creating a new stand-alone U.N. gender entity focused specifically on women, U.N. member states should work to fully integrate gender issues into U.N. system activities such as UNDP, UNICEF, the Office of High Commissioner for Human Rights, and others. Accordingly, they argue that the creation of a new gender entity would be an unnecessary expense for U.N. member states. For this reason, some have suggested that the United States withhold U.S. contributions to the new composite gender entity. When examining the possible role of the new entity in U.S. foreign policy, Members of Congress may wish to consider the entity's priorities in the context of existing U.S. efforts and priorities to address global women's issues—including violence against women, women's health, and women's political participation. Many experts contend that providing financial assistance or technical support to the new composite gender entity may benefit the United States because it allows the U.S. government to share costs and resources related to global women's issues with other governments and organizations. Others, however, maintain that the U.S. government should focus on its own efforts to address international women's issues; they note that U.N. gender-related activities may not always match U.S. foreign policy or assistance priorities. In the coming months, U.N. member states are expected to transfer the mandates of existing U.N. gender entities—UNIFEM, DAW, OSAGI, and INSTRAW—into a composite entity. When this occurs, Members of Congress may consider whether to provide U.S. contributions to the new entity. The nature and type of the level of U.S. contributions have not yet been determined; U.N. member states are currently negotiating whether the entity will be funded by the U.N. regular budget, by voluntary contributions, or by a combination of both. If the new entity is funded through the U.N. regular budget, the United States would be legally obligated to provide assessed contributions under Article 17 of the U.N. Charter. (The United States is currently assessed at 22% of the U.N. regular budget.) However, if the entity is financed through voluntary contributions, the United States is under no legal obligation to fund the entity; each individual country determines whether or not to make voluntary contributions. The House and Senate Committees on Appropriations have recognized that the establishment of a new U.N. entity for women would affect annual appropriations. In the conference report accompanying H.R. 3288 , for example, conferees noted the adoption of General Assembly Resolution 63/311 establishing a new U.N. gender entity, and directed the State Department to consult with the Committees on Appropriations "prior to providing funds to this new entity or providing any funds appropriated for a United States contribution to UNIFEM or the UNIFEM Trust Fund to this new mechanism." Many policymakers and experts suggest that when determining U.S. funding levels for the new entity, consideration should be given to U.S. contributions to the existing gender entities that will be consolidated. Most of the U.S. funding for existing U.N. gender entities is provided through voluntary contributions to UNIFEM and the UNIFEM Trust Fund in Support of Actions to Eliminate Violence Against Women (Trust Fund), which is administered by UNIFEM. In many instances, Congress appropriated contributions to these funds higher than the amounts requested by Administrations. Both UNIFEM and the Trust Fund are financed through the IO&P account in annual foreign operations appropriations (see Table 1 ). In FY2010, the United States contributed $6 million to UNIFEM and $3 million to the Trust Fund, for a total of $9 million. Total UNIFEM income in calendar year (CY) 2008, the last year for which data are available, was $215.3 million, while expenditures were $118.25 million. For comparison, in fiscal year FY2008, the United States contributed $3.571 million to UNIFEM. DAW and OSAGI are financed through the U.N. regular budget (the United States assessment is 22%). The 2008-2009 biennium budget for both offices was $13.748 million (approximately $6.87 million per year). The United States has decided not to contribute to INSTRAW (which is funded by voluntary contributions) in recent years. In CY2008, the Institute's core budget and expenditures were $1.133 million. This section describes selected U.N. system entities, initiatives, or commitments that directly address issues related to gender equality and women's empowerment. I. Commission on the Status of Women (CSW) CSW, established in February 1946, is a functional intergovernmental commission under the U.N. Economic and Social Council (ECOSOC). It is the only U.N. intergovernmental policymaking body that specifically addresses issues related to women. It is composed of 45 member state representatives elected by the council (other states serve as observers) who meet annually at U.N. Headquarters. CSW observes, monitors, and implements measures for the advancement of women. It also reviews and supports gender mainstreaming in the U.N. system. CSW is funded through assessed contributions to the U.N. regular budget. The United States is a CSW member; its term expires in 2012. II. U.N. World Conferences on Women U.N. member states have sought to address women's equality and gender empowerment through four World Conferences specifically addressing issues related to women. The first conference, held in 1974 in Mexico City, inaugurated the U.N. "Decade on Women," which spanned from 1976 to 1985. The second conference was held in Copenhagen, Denmark, in 1980, and the third was held in Nairobi, Kenya, in 1985. The conferences addressed and expressed member states commitments to achieving (1) equality between men and women, (2) the integration of women into development, and (3) recognition of the participation of women in achieving world peace. The conferences also focused on women's health, work, and education. The Fourth World Conference on Women, held in Beijing in 1995, sought to build on commitments made at previous conferences. The conference had two outcome documents: the Beijing Declaration and the Platform for Action , which were adopted by consensus (185 governments). The Beijing Declaration reaffirmed member state commitments to equal rights for men and women and the empowerment and advancement of women. Governments also expressed their determination to intensify efforts to ensure full human rights for women and girls, eliminate discrimination against women, promote sustainable development and education, combat violence against women and girls, and ensure equal access to economic resources. The Platform for Action , described in its mission statement as an "agenda for women's empowerment," reaffirmed the human rights of women and girls and called for strong commitments by U.N. member states to take specific actions to address issues affecting women, including poverty, education, health, violence against women, armed conflict, decision-making, environment, and economic inequality. The United States was a key participant in the Fourth World Conference and played a significant role in drafting the Declaration and Platform for Action . In December 1995, the U.N. General Assembly, including the United States, adopted resolution 50/45 endorsing both documents. III. The U.N. Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW) CEDAW (the Convention) is the only international human rights treaty that specifically focuses on the rights of women. It calls on States Parties to take all appropriate measures to eliminate discrimination against women in all areas of life. This includes equality in legal status, political participation, employment, education, health care, and the family structure. Article 2 of the Convention specifies that States Parties should undertake to "embody the principle of equality of men and women in their national constitutions or other appropriate legislation ... to ensure, through law and other appropriate means, the practical realization of this principle." As of April 29, 2009, 186 countries have ratified or acceded to the Convention. The United States is the only nation to have signed but not ratified CEDAW. To date, the treaty has not been considered for advice and consent to ratification by the full Senate. The Committee on the Elimination of Discrimination Against Women (the Committee) was established in 1982 as a mechanism to monitor the progress of the Convention's implementation. It is composed of 23 independent experts who are elected at a meeting of States Parties to the Convention by secret ballot. The Committee is responsible for reviewing the reports on national CEDAW implementation submitted by States Parties. Countries are required to submit an initial report within the first year of ratification or accession, followed by a report every four years. The reports identify areas of progress as well as concerns or difficulties with implementation. The Committee engages in an open dialogue and exchange of ideas with the reporting country and compiles recommendations and conclusions based on its findings, which include general recommendations on cross-cutting issues of concern. IV. U.N. Population Fund (UNFPA) UNFPA, established in 1969, is the world's largest source of population and reproductive health programs and the principal unit within the United Nations for global population issues. In 2008, the organization provided services in some 158 developing and transition countries, with funds totaling $845.3 million, drawn primarily from voluntary contributions made by nations and some foundations. UNFPA does not focus exclusively on women. However, because it addresses family planning and reproductive health, the majority of its activities directly affect the lives of women and girls. In the past 25 years, there has been continuing and contentious debate within the United States, especially among Members of Congress, as to whether the United States should financially support UNFPA. This debate has centered on the extent to which, if any, UNFPA aids China's coercive family planning programs and policies. In 16 of the past 26 years, the United States did not contribute to the organization as a result of executive branch determinations that UNFPA's program in China violated the "Kemp-Kasten" amendment, which bans U.S. aid to organizations involved in the management of coercive family planning programs. From FY2002 through FY2008, the George W. Bush Administration found UNFPA ineligible for funding under the Kemp-Kasten amendment. In March 2009, President Obama expressed his support for UNFPA, and in December 2009 signed the Consolidated Appropriations Act, 2010 ( P.L. 111-117 ), which directed that $55 million shall be made available for the organization. V. U.N. Children's Fund (UNICEF) UNICEF works to protect children's rights, provide for their basic needs, and expand their opportunities. 67 As part of its mission, UNICEF aims to promote equal rights for women and girls and to support their full participation in the political, social, and economic development of their communities. UNICEF programs seek to reduce gender-based violence, ensure equal access to water, enhance gender equality in education, and protect women and girls from child marriage. UNICEF is funded primarily from voluntary contributions from governments. In FY2010, the United States contributed $132.25 million to the organization. VI. U.N. Security Council Resolutions 1325, 1820, and 1888 On October 31, 2000, the U.N. Security Council adopted Resolution 1325 relating to women, peace, and security. The resolution, which is strongly supported by the United States, addresses the impact of war and conflict on women and highlights the need for protection of women and girls from human rights abuses. Specifically, the resolution calls on all parties to armed conflict to "take special measures to protect women and girls from gender-based violence, particularly rape and other forms of sexual abuse, and all other forms of violence in situations of armed conflict." It also urges U.N. member states and the U.N. Secretary-General to work toward increased representation and participation of women in all decision-making levels in national, regional, and international institutions that address conflict resolution, management, and prevention. U.N. efforts in this area have intensified since 2003 and 2004, following media reports on sexual abuse and exploitation of vulnerable civilians by U.N. peacekeeping personnel. In June 2008, when the United States served as president of the Security Council, then-Secretary of State Condoleezza Rice participated in an open thematic debate on "women, peace, and security: sexual violence in situations of armed conflict." After the debate, Security Council members unanimously adopted Resolution 1820, marking the first time the Security Council adopted a resolution on women and violence since Resolution 1325. Resolution 1820 "demands the immediate and complete cessation by all parties to armed conflict in all acts of sexual violence against civilians with immediate effect." It reaffirms commitment to Resolution 1325 and notes that rape and other forms of sexual violence can constitute a war crime, a crime against humanity, or a constitutive act with respect to genocide. It further requests that the Secretary-General establish training programs for all peacekeeping and humanitarian personnel deployed by the United Nations, and encourages troop and police contributing countries to take steps to heighten awareness of and prevent sexual violence in conflict and post-conflict situations. On September 30, 2009, the U.N. Security Council adopted Resolution 1888, which demanded that all parties to armed conflict "take appropriate measures to protect civilians, including women and children, from all forms of sexual violence." It reaffirmed that sexual violence, when used as a tactic of war or as part of a widespread attack against civilian populations, can exacerbate armed conflict situations and may impede the restoration of international peace and security. The resolution called on the Secretary-General to appoint a Special Representative to provide leadership to address sexual violence in armed conflict, and to rapidly deploy a team of experts to situations of particular concern. The United States, which served as Security Council President for October, strongly supported the adoption of the resolution, with U.S. Secretary of State Hillary Clinton serving as Chair of the Council meeting when the resolution was adopted. VII. Interagency Network on Gender and Women's Equality (IANGWE) IANWGE is a network of designated gender focal points from all U.N. agencies, offices, funds, and programs. It aims to promote gender equality in the U.N. system as a follow-up to the Fourth World Conference on Women in Beijing, and works to monitor and coordinate gender mainstreaming in the U.N. system. It also supports and monitors the implementation of gender-related recommendations from U.N. General Assembly special sessions, conferences, and summits. Moreover, IANGWE has established issue-specific ad hoc working groups to address priority issue areas such as violence against women, women, peace, and security, and gender and trade. | In recent years, many in the international community have argued for elevating the status of women's issues within the United Nations (U.N.) system. They contend that the way in which the U.N. system addresses gender issues is fragmented, weak, and under-resourced. Moreover, they argue that such efforts lack clear leadership and coordination. These weaknesses, critics maintain, hinder the U.N. system's ability to promote and implement programs that enhance gender equality. In September 2009, U.N. member states, including the United States, adopted a General Assembly resolution expressing strong support for the consolidation of four U.N. bodies addressing women's issues into one composite entity. The four entities selected for consolidation were (1) the U.N. Development Fund for Women, (2) the Division for the Advancement of Women, (3) the Office of the Special Adviser on Gender Issues and Advancement of Women, and (4) the International Research and Training Institute for the Advancement of Women. According to the United Nations, voluntary and U.N. regular budget contributions for these four bodies in calendar year 2008 totaled approximately $247 million. At this time, it is unclear how the new U.N. entity will be structured or whether it will prove effective in addressing global women's issues. U.N. member states are currently negotiating the structure, governance, and funding of the new entity. The timeline for the entity's establishment depends primarily on U.N. member states; many anticipate that the General Assembly could address the issue during its 64th session, which began in September 2009 and will end in September 2010. Members of Congress have generally supported U.N. system efforts to address women's issues and may have an interest in the new entity. Areas of congressional focus could include (1) U.S. financial contributions to and participation in the new entity, (2) the role of the new entity in the context of U.S. foreign policy priorities, and (3) oversight of the efficiency and effectiveness of the entity. This report discusses possible policy issues that may arise as the composite gender entity is established, including its funding mechanisms, the creation of an effective governance structure, the entity's possible impact on U.N. system in-country operational capacity, and the relationships and coordination between the entity and other U.N. system bodies. The report also discusses the entity in the context of broader U.N. reform efforts and examines the involvement of non-governmental organizations (NGOs). Finally, it analyzes U.S. policy toward the new entity, including its possible role in U.S. foreign policy and the level and extent of U.S. financial contributions to existing U.N. system gender entities. This report will be updated as events warrant. |
RS21529 -- Al Qaeda after the Iraq Conflict May 23, 2003 There is a great deal that remains unknown or debatable about the specific nature, size, structure and reach of the organization, despite many years of studyingit. For example, Western experts are not exactly sure how many members it has now or has had in the past. Estimates are often based upon an approximationof how many people trained in Al Qaeda camps in Afghanistan and Sudan. The estimates range as high as60,000 (7) and as low as 20,000. (8) These assessmentsare inexact in part because the total number of camps that operated is not firmly agreed. (9) But even if experts knew the correct total number of camps andtrainees, not all the people who took the training necessarily became (or remained) actual members of theorganization. (10) The State Department estimatesthatAl Qaeda "probably has several thousand members and associates." (11) But since these are all estimates, it is not known what proportion of AlQaeda membersU.S. and allied forces have captured or killed. (12) But do operatives even necessarily need to be members? It is apparent from some of those apprehended in failed plots that it is not essential to be formally "in"Al Qaeda in order to carry out attacks. Operatives seem to vary, from the best-trained, controlled and financedprofessional cadres, such as Mohammed Atta(who led the September 11th attacks), to less-trained and relatively uncontrolled volunteers, such asAhmed Ressam (who intended to blow up Los AngelesInternational Airport) and Richard Reid (who tried to detonate plastic explosives in his shoes aboard an AmericanAirlines transatlantic flight). (13) Al Qaedaeven acts like a foundation at times, reportedly giving grants to existing local terrorist groups who present"promising" plans for attacks that serve theorganization's general goals. (14) Unlike manytraditional terrorist groups, Al Qaeda has no single standard operating procedure, although it does have awell-developed manual for its operations. Benefitting from Osama bin Laden's considerable experience in business,the organization is said to be structuredlike a modern corporation, reflective of management concepts of the early 1990s, including bottom-up and top-downnetworks, a common "mission statement,"and entrepreneurial thinking even at the lowest levels. This makes it extraordinarily flexible and, many believe, ableto survive serious blows. (15) Al Qaeda has also developed strong ties to other terrorist organizations, some new and some long-standing. (16) Osama bin Laden formed an umbrella group inlate 1998, "The International Islamic Front for Jihad Against Jews and Crusaders," which included not only AlQaeda, but also groups from Egypt, Algeria,Pakistan, and Bangladesh. Some argue that Al Qaeda has been something of a hybrid terrorist organization for sometime. (17) A sampling of groups currentlythought to be connected includes the Moro Islamic Liberation Front (Philippines), Jemaah Islamiah (SoutheastAsia), Egyptian Islamic Jihad (merged with AlQaeda in 2001), Al-ansar Mujahidin (Chechnya), al-Gamaa al-Islamiya (Egypt, and has a worldwide presence), AbuSayyaf (Philippines), the IslamicMovement of Uzbekistan, and Harakat ul-Mujahidin (Pakistan/Kashmir). The list is illustrative, not comprehensive. Some experts see increased reliance onconnections to other groups as a sign of Al Qaeda's weakness; others point to enhanced cooperation with othergroups as a worrisome indicator of strength,especially with groups that formerly focused on local issues and now display evidence of convergence on Al Qaeda'sinternational anti-U.S., anti-West agenda. An important question is whether Al Qaeda might be evolving further into a new form, more like a movement thana formal organization, increasingly diffuseinternationally and less reliant upon its own membership. Clearly Al Qaeda is in transition. Whether that transition will lead to something more or less dangerous is a point of contention. On one hand, clear progress inapprehending or killing senior leaders of Al Qaeda has been evident. In recent weeks, President Bush announcedthat the United States has captured about halfthe senior leadership; (18) other sources claim thatabout a third have been captured. (19) Many of theseterrorist leaders have been crucial participants in past AlQaeda attacks; the arrests of September 11 plotter and third-in-command Khalid Shaikh Mohammed and operationschief Abu Zubaydah, for example, arebelieved to have hurt the organization and disrupted its operations. According to U.S. officials, the organization'sprevious communications network hasapparently been crippled, its leaders are on the run, and its Afghanistan base has been largely eliminated. (20) Still, Al Qaeda is not like a state, whose regime you can remove in order to disable it. Counterterrorism officials describe it more as an organic structure thatadapts to changing circumstances, including the loss of some senior leaders. The two most senior leaders, Osamabin Laden and Ayman al-Zawahiri, are widelybelieved to be alive and at large, and terrorism experts argue over the extent to which a succession plan is in effectto replace those who have been captured. (21) During the week before the Riyadh attacks, email interviews conducted by the London-based magazine AlMajalla apparently with Al Qaeda spokesman Thabetbin Qais claimed that Al Qaeda had undertaken a thorough restructuring of its leadership. (22) One of the worrisome aspects of the attack itselfwas the apparentinvolvement of people thought to have been lower-level fighters who may have now stepped into the breach. Forexample, Khaled Jehani, who was previouslyconsidered a low-level operative, seems to have been involved in the Riyadh operation. (23) Also mentioned is Seif al-Adel, one of a number of younger AlQaeda members who seem to have gained influence in the absence of former leaders and who may have played arole. (24) Many worry that this could illustratean evolution within Al Qaeda to a new generation. (25) This, as well as other evidence in the attack itself, seems to demonstrate a level of central direction. Finally, some believe that there has been a spike in recruitment to the network as a result of the U.S. militaryoperations in Iraq, leading to a worry that, despiteits serious recent losses, Al Qaeda could grow stronger in future months. (26) Ultimately, the debate about Al Qaeda's current status centers on the important question of whether it is growing or declining in strength. In the wake of theAfghanistan and Iraq military campaigns, when the predicted terrorist attacks on the United States and its interestsdid not materialize, what is the current levelof threat to the United States? Most believe that the denial of safe havens and arrests of senior leaders have seriously crippled the organization when judged by its earlier form. However, itmay be evolving into something new. For terrorist groups, periods of evolution can be particularly dangerous. Organizations in transition can be especiallyvulnerable to disruption and destruction, but they can also be less predictable and prone to lash out in order to causeadditional damage, rally flaggingsupporters, and/or prove their continuing viability. (27) With respect to Al Qaeda, evidence of new sophisticated operations, a possible succession planin action,central coordination of attacks, and growing international ties, all increasingly converging on a commoninternational agenda hostile to the United States and itsallies, may give U.S. officials new reason for concern. In the short term at least, even successes in counterterroristoperations against a more decentralizedorganization can lead to greater difficulty in collecting reliable intelligence, as the paths of communication areincreasingly unfamiliar, the personalities arechanging, and the locations of operatives are more diffuse. While the long term trajectory is very difficult to assess,for the time being it seems that Al Qaeda(or its successors) has emerged from a period of inactivity and remains a very serious threat, requiring concentratedattention and vigorous countermeasures onthe part of its prospective targets. Congress may face a number of questions in the coming months. These include How does U.S. counterterrorism policy need to adapt to match the changingthreat of Al Qaeda and its associated groups? Is there a need for strategic reassessment of the successes and failuresof U.S. counterterrorism policy in thepost-Iraq strategic environment, not only in the military and intelligence fields but also in foreign policy, lawenforcement, international cooperation, publicdiplomacy, foreign aid, homeland security, and elsewhere? Are there places where U.S. policies in a given area arenow no longer meeting the challenge, arepotentially counterproductive, or where funding is inadequate or misplaced? How will the U.S. occupation of Iraqaffect the changing regional terrorist threat? To what degree will regime change in Iraq alter the overall international terrorist threat to the United States at homeand abroad? Will progress, or the lackthereof, in achieving an Israeli-Palestinian peace agreement and resolving sensitive issues such as the conflicts inKashmir, southern Philippines, Chechnya, andelsewhere affect Al Qaeda's prospects? | The May 12, 2003, suicide bombings of three Western housing compounds in Riyadh,Saudi Arabia reopenedquestions about the strength and viability of Al Qaeda in the post-Iraq conflict environment. The apprehension ofa number of senior Al Qaeda leaders in recentmonths, combined with the absence of major terrorist attacks during the military campaign in Iraq, had led someto believe that Al Qaeda was severely crippledand unable to launch major attacks. Others argued that the organization was in transition to a more decentralizedstructure, had gained new recruits, and mighteven be a growing threat. This report analyzes current viewpoints about the state of Al Qaeda and the threat it posesto the United States. It will be updated asevents warrant. |
At the June 2005 Group of Eight (G8) (1) finance ministers meeting, member nations agreed on a financingplan for 100% debt relief for countries that complete the International Monetary Fund (IMF) andWorld Banks' Heavily Indebted Poor Countries (HIPC) debt relief program. If the proposal is fullyimplemented, 18 countries that have completed the HIPC program would receive complete andimmediate forgiveness of their multilateral debts, approximately $40 billion. An additional 20countries are eligible for debt relief, but are currently implementing pre-requisite economic reforms. If all of the 38 HIPC-eligible countries receive debt cancellation, total debt relief would beapproximately $55.6 billion. According to the proposal, creditor nations will provide additionalfunding for the World Bank and the African Development Bank (AfDB) to fund their debt relief. IMF debt relief will be funded by the remaining proceeds of a 1999 sale of IMF gold reserves. To date, the Bush Administration has not requested new funds to contribute toward the U.S.share of the G8 debt relief proposal. Congress, however, is currently considering appropriations forthe World Bank and the AfDBs' concessional lending facilities and, although none of this fundinghas been specifically earmarked for HIPC, it appears that the administration would like to use someof this funding for the increased debt relief. There are also two pieces of legislation( H.R. 1130 and S. 1320 ) that if enacted would allow for higher levels ofdebt relief than is provided for in the G8 proposal. This report addresses the HIPC debt burden and the various debt relief initiatives, bothbilateral and multilateral, that have been implemented and proposed. Following a brief backgroundand a discussion of the economic literature on debt relief, this report addresses: (1) previous U.S.debt relief initiatives; (2) multilateral debt relief through the HIPC program; (3) the June 2005 G8proposal for 100% debt cancellation; and (4) congressional action. In recent decades, the rapid growth in poor country debt has emerged as a key foreign policyconcern. As early as 1967, the United Nations Conference on Trade and Development (UNCTAD)argued that debt service payments in many poor nations had reached "critical situations." (2) Since then, and notably in thelast ten years, there has been pressure exerted on national bilateral creditors and multilateral lenders(such as the International Monetary Fund or the World Bank) by non-governmental organizations(NGOs) and several Western nations for creditors to cancel all debts owed to them by the poorestand least developed countries. In a speech to the United Nations in 2002, UK Chancellor of theExchequer [author name scrubbed] challenged developed nations to help build "a virtuous circle of debtrelief, poverty reduction and sustainable development for the long term" for the world's poorestcountries. (3) According toU.S. Secretary of the Treasury John Snow, debt has been "locking these poorest countries intopoverty and preventing them from using their own resources [for development]." Requiringrepayment of the debt is, he added, "morally wrong." (4) Much of the recent debt relief momentum has been spurred by the Jubilee (formerly theJubilee 2000) debt campaign. Initially launched in 1996, the Jubilee campaign's mission is toconvince major creditor nations to cancel the unpayable debts of the poorest countries under a fairand transparent process. (5) The international campaign is spearheaded primarily by various Catholic and Protestantorganizations that have had longstanding involvement in debt relief issues and includes numeroushigh-profile supporters such as Sir Bob Geldof, an Irish rock singer and activist, and Bono, leadsinger of the Irish band U2. Debt relief proponents often maintain that poor country debt is illegitimate, or according toBono, "immoral and unjust." (6) This claim rests on the so-called "odious debt" argument. Odiousdebt is normally considered to be debt which benefits ruling elites in a borrowing country (throughgraft and corruption) but has little or no benefit for the general population. Debt critics questionwhether successor regimes should be obligated, under international law, to repay money that wasstolen, wasted, or otherwise used in ways having little benefit for their people. Although the odiousdebt concept has gained popularity in the NGO community, it has not been endorsed by anyinternational legal or financial body. Moreover, there is almost no likelihood that debts incurredthrough World Bank or IMF projects could be legally determined to be odious, since they wereundertaken for nominally development-related projects. Nonetheless, many agree that high levelsof debt are a major burden for the poorest countries and that any effort to promote economic growthand reduce poverty needs to address the HIPC debt burden. The poor country debt burden is indeed staggering. For the 38 International DevelopmentAssociation (IDA) (7) countries that have been designated as the most Heavily Indebted Poor Countries, total external debtrose from $19.7 billion in 1975 to a peak of $222 billion in 1995, a major increase over otherdeveloping countries. (8) Table 1 compares debt as a percentage of gross domestic product (GDP) for three tiers of poorcountries: HIPCs, other IDA countries, and other lower middle income countries. (9) (See Appendix 1 forinformation on the World Bank debt and poverty classification systems.) Table 1. External Debt as a Percentage of GDP (PeriodAverage) Source: World Bank. In the 1980s and early 1990s, as the debts of the poorest countries increased rapidly comparedto other low-income countries, several debt relief efforts were introduced. In 1988, a group of majorcreditor nations, known as the Paris Club, (10) agreed for the first time to cancel debts owed to them instead ofrefinancing them on easier terms as they had done until then. In 1996, the International Monetary Fund, the World Bank, and the regional developmentbanks agreed to allow a portion of debts owed to them to be cancelled as well, and created the DebtRelief Initiative for Heavily Indebted Poor Countries (HIPC). At the meeting of the G8 financeministers on June 11, 2005, member nations extended debt relief and committed themselves tocancelling permanently all remaining multilateral HIPC external debt, providing up to $55 billionin additional debt relief. According to the proposal, the 18 countries that have completed the HIPCprogram would receive immediate debt relief (worth $40 billion at face value). Countries that arein the middle of the program, or have not yet begun, would receive total debt relief upon completionof the program. If the remaining 20 countries complete the HIPC program, total debt relief couldexceed $55 billion. There are several root causes of the HIPC debt burden. A 1999 IMF study concluded thatthe rise in HIPC debt had its origins in weak macroeconomic policies, a lack of economic structuralreform, and poor debt management practices on the part of debt-stressed countries, as well as adversetrade shocks and political factors such as war, famine, and social strife. (11) The debt problem wascompounded by the willingness of creditor nations and multilateral institutions to provide loans andaccept risks that the private sector would not. William Easterly, formerly a World Bank economistand currently a professor at New York University, points out that between 1979 and 1997, the IMFand World Bank provided more financing to HIPCs than other countries of their income level,despite HIPC countries' often poor economic policies. (12) Among economists, the likely success of debt relief in spurring meaningful economic reformor make substantial inroads against poverty is often questioned. Critics maintain that money to funddebt relief must be transferred from other resources and there is a risk that donors will take all orsome of these resources from other parts of their foreign assistance budgets. If this occurs, overallresources for promoting development may not increase, or may increase by less than the amount ofdebt relief provided. Moreover, many analysts argue that there are foreign aid activities, such asadditional investments in the legal, financial, education, or public health systems that may have agreater impact on promoting economic growth and providing resources for poverty reductionactivities than debt relief. A second problem is determining whether the actual debt load is itself sobig as to impede growth and development. Advocates of debt relief argue that such a "debtoverhang" must be relieved if a country is to resume growth. Debt Overhang: Theory. Most debt relief isgrounded in the "debt overhang" theory which holds that the accumulation of a large stock of debtwill frighten off potential lenders and investors. It originated in the 1980s and was based on thelargely positive economic growth that several heavily indebted countries experienced following a1989 debt relief initiative known as the "Brady Plan," named after then-U.S. Treasury SecretaryNicholas Brady. (13) Thetheory suggests that if investors expect a country's debt level to impair its ability to repay its loans,they will not invest out of a concern that the government may resort to distortionary measures, suchas expanding the money supply (which promotes inflation) or raising taxes on their profits to financedebt payments. (14) Evenif the debt is not being serviced, the theory suggests that it is still an impediment to economic growthbecause of the effect the large debt stock has dissuading private investors. When a large stock of external debt is present, creditor countries could continue to lend atconcessional rates in the hope that continued aid will spur economic growth and that the recipientcountry will one day be able to repay its debts. According to the debt overhang theory, however, itis better to forgive the debts, either entirely or to some reduced "sustainable" level so that investorconfidence will be restored. It is presumed that at a "sustainable" level debtor nations would be ableto make some debt payments to their creditors without sacrificing economic growth. Debt Overhang: Evidence. A 2002 study of 93developing countries between 1969 and 1998, and a follow-up study of 61 countries over the sametime period, were cited as strong support for the debt-overhang theory. The first study found thatexternal debt began to have a negative impact on growth when its net present value (15) exceeded 160% to 170%of exports and 35% to 40% of GDP. Study simulations suggest that doubling the average stock ofexternal debt in these countries would slow down annual per capita growth by ½% to 1%. Thesecond study found that doubling a country's average external debt level would reduce growth ofboth per capita physical capital and productivity by almost 1%. The studies concluded that largedebt stocks negatively affect growth by slowing both the accumulation of physical capital andproductivity, often at the expense of investment. (16) Although the debt overhang theory may be true in general, several new studies have arguedthat it does not hold for HIPC countries. One study points to two key differences between the Bradyand HIPC countries. (17) In contrast to the Brady countries, there never was a significant amount of private investment in theHIPC countries, and the HIPC countries have never suffered a negative net flow of resources becauseinflows of foreign aid are typically more than sufficient to cover debt payments. (18) Moreover, debt relief thatthe HIPC countries have received has not been sufficient to allow them access to private sector creditmarkets. Thus, rather than a debt overhang, some argue that lack of institutional capacity (legal,political, educational, health, etc.) are the HIPCs' major impediments to economic growth, and thatin the absence of additional funds dedicated for debt relief, other forms of targeted assistance maybe more effective in boosting economic growth than debt relief. If the economies of countries grew,they argue, the debt would not be a problem. Instead of forgiving debts, creditor nations may be ableto help the poorest countries by helping to improve their domestic institutions, expand their exportsectors, and by providing greater market access for their goods. U.S. bilateral debt relief is accomplished two ways. One is through legislation enacted byCongress granting authority to the President to cancel country debt obligations. (19) The second is throughthe Paris Club. The Paris Club is the major forum where creditor countries renegotiate official sectordebts. By definition, 'Official sector' debts are those that have been either issued, insured, orguaranteed by creditor governments. A Paris Club 'treatment' refers to either a reduction and/orrenegotiation of a developing country's Paris Club debts. The Paris Club includes the United Statesand 18 other permanent members, the major international creditor governments. Besides the UnitedStates, the permanent membership is composed of Austria, Australia, Belgium, Canada, Denmark,Finland, France, Germany, Ireland, Italy, Japan, Netherlands, Norway, Russia, Spain, Sweden,Switzerland, and the United Kingdom. Other creditors are allowed to participate in negotiations onan ad-hoc basis. By contrast, a separate informal, voluntary group of private sector participants meets torenegotiate some of the developing country debt they are owed. The London Club, a parallel,informal group of private firms, meets in London to renegotiate commercial bank debt. Unlike theParis Club, there is no permanent London Club membership. At a debtor nations request, a LondonClub meeting of its creditors may be formed, and the Club is subsequently dissolved after arestructuring is in place. The Paris Club does not exist as a formal institution. It is rather a set of rules and principlesfor debt relief that have been agreed on by its members. Five 'principles' and four 'rules' currentlygovern Paris Club treatments. Any country that accepts the rules and principles may, in principle,become a member of the Paris Club. Yet since the Paris Club permanent members are the majorinternational creditor countries, they determine its practices. The five Paris Club 'principles' stipulate the general terms of all Paris Club treatments. Theyare: (1) Paris Club decisions are made on a case-by-case basis; (2) all decisions are reached by full consensus among creditor nations; (3) debt renegotiations are applied only for countries that clearlyneed debt relief, as evidenced by implementing an International Monetary Fund (IMF) program andits requisite economic policy conditionality ; (4) solidarity is required in that all creditors willimplement the terms agreed in the context of the renegotiations; and (5) the Paris Club preserves the comparability of treatment between different creditors. This means that a debtor country cannotgrant to another creditor a treatment on more favorable terms than the consensus reached for ParisClub members. (20) While Paris Club 'principles' are general in nature, its 'rules' specify the technical details ofParis Club treatments. The 'rules' detail (1) the types of debt covered -- Paris Club arrangementscover only medium and long-term public sector debt and credits issued prior to a specified"cut-off"date; (2) the flow and stock treatment; (21) (3) the payment terms resulting from Paris Club agreements; and(4) provisions for debt swaps. (22) Since the Paris Club is an informal institution, the outcome of a Paris Club meeting is nota legal agreement between the debtor and the individual creditor countries. Creditor countries thatparticipate in the negotiation sign a so-called 'Agreed Minute.' The Agreed Minute recommends thatcreditor nations collectively sign bilateral agreements with the debtor nation, giving effect to themultilateral Paris Club agreement. Prior to U.S. involvement, Paris Club members began providing outright debt cancellationin 1988. Previously, debt treatments involved rescheduling of debts on increasingly concessionalterms. At the 1988 Toronto meeting of G7 finance ministers, it was agreed that Paris Club memberswould extend to some countries up to one-third forgiveness of their bilateral debts. (23) Over the next decade, the Paris Club gradually increased the amount of debt that it would bewilling to write off from 33.33% in 1988 to 90% in 1999. (24) There are currently two Paris Club debt cancellation options,"Naples" terms for non-HIPC IDA countries and "Cologne" terms for HIPC countries (see box). These terms are named after the cities where they were negotiated by G7 countries. The United States joined Paris Club debt forgiveness negotiations in 1994, under authoritygranted by Congress in 1993 (Foreign Operations Appropriations, section 570, P.L. 103-87 ). Annually re-enacted since 1993, this authority allows the Administration to cancel various loansmade by the United States. These may include U.S. Agency for International Development (USAID)loans, military aid loans, Export-Import Bank loans and guarantees, and agricultural creditsguaranteed by the Commodity Credit Corporation. Between 1990 and 2005, the United States forgave $23.1 billion in foreign debt owed to theUnited States, only a small part of which -- $3.14 billion -- was reduced via the Paris Club. (25) Debt has also beenreduced through various legislative measures and congressionally authorized U.S. bilateralnegotiations. These include (Appendix 2 provides U.S. bilateral debt relief data): Section 411 Debt Relief. Under Section 411 of the Agricultural TradeDevelopment and Assistance Act of 1954 (PL 83-480; 7 USC sec. 1736e), Congress authorized thePresident to cancel concessional food aid loans to poor and indebted countries under an IMF orWorld Bank economic program. Section 572 Debt Relief. Under Section 572 of the Foreign Operations,Export Financing, and Related Appropriations Act for Fiscal Year 1989 ( P.L. 100-461 , 22 USC2151), the U.S. President was authorized to forgive debt during fiscal years 1990 and 1991 fromconcessional development assistance loans to African and other poor and indebted countries thatmaintained an economic reform program with the IMF or the World Bank. Enterprise for the Americas Initiative (EAI). The Enterprise for theAmericas (EAI) Initiative supports trade, investment and economic growth in Latin America and theCarribean. Debt reduction legislation in support of the EAI Initiative was enacted in 1990 to forgiveU.S. food aid loans for EAI countries that did not meet the necessary criteria for Section 411 debtrelief ( P.L. 102-549 , Enterprise of the Americas Act of 1992, which added part IV to the ForeignAssistance Act of 1961; 22 USC 2430 et seq.) and in 1992 for USAID and Export-Import Bank debt( P.L. 102-429 , Export Enhancement Act of 1992, which added Section 12 to the Export-Import BankAct of 1945; 12 USC 635-6). Conservation of Tropical Forests. The Tropical Forest Conservation Actof 1998 (TFCA) ( P.L. 105-214 , which added part V to the Foreign Assistance Act of 1961; 22 USC2431 et seq.) authorizes the President to request debt relief for low and middle-income countries withtropical forests to support conservation of endangered forests. (26) Debt Swaps under the SEED Act. The Support for East EuropeanDemocracy (SEED) Act of 1989 ( P.L. 101-170 , USC 5401 et seq.) authorized debt relief to supportEastern European countries as they progressed towards democracies with free-marketeconomies. Special Debt Reduction Programs. The U.S. government has reduced thedebts of Egypt, Poland, Jordan, and Pakistan for various national security reasons. Each of thesedebt relief activities was provided pursuant to special legislation. For much of their history, the international financial institutions (IFIs) argued that since theywere lenders of last resort, providing assistance to poor countries that could not borrow money fromthe global financial markets, they required preferred creditor status. This means that the World Bankand the IMF would be paid first in the event that borrowers ran into financial difficulties, and thatdebts owed to them would not be reduced under any circumstances. Forgiving their debts, theyargued, would diminish their resources available for other poor and developing countries and set abad example for other indebted countries as they undertook often painful, albeit economicallycrucial, reforms. This is the so-called "moral hazard" problem with debt relief. Some creditors arguethat by providing debt relief, they are creating a "moral hazard" by convincing borrowers that theyneed not worry about repayment. Despite initial reservations, and at the G8's request, the World Bank and the IMF created theHIPC debt relief program in 1996 to reduce some multilateral debt in conjunction with bilateral debtforgiveness. According to the IMF and the World Bank, the goal of the HIPC program would be tohelp the poorest and most indebted countries meet their "current and future external debt serviceobligations in full, without recourse to debt rescheduling or the accumulation of arrears, and withoutcompromising growth." (27) In 1999, the program was expanded to provide deeper, faster, and broader debt relief. Initially, the HIPC program determined that a debt service-to-exports ratio (28) of 250% was determinedto be sustainable. Moreover, it took a minimum of six years for borrowers to qualify for debt relief. Critics charged that this ratio was too high and the time-frame too long. When the program wasredesigned in 1999, the debt service-to-exports ratio was reduced to 150%, and the time period wasshortened. The HIPC program was also modified to include a greater focus on poverty reductionefforts. Countries receiving debt relief were now be required to use money freed up by debt relieffor poverty reduction as specified in a Poverty Reduction Strategy Paper (PRSP) approved by itslenders. There are three criteria for HIPC eligibility. A country must: Be a low-income country eligible to borrow only from the World Bank'sconcessional facility, the International Development Association. (29) Have a strong record of policy performance, evidenced by a strong track recordof economic reforms under World Bank and IMF-sponsored programs; and Possess a debt burden that is unsustainable (greater than 150% debtservice-to-exports ratio) after bilateral debt relief has been applied. In 1996, at the start of the program, the World Bank and the IMF designated 41 countries aspotentially HIPC-eligible. Comoros was added in 2001. Of these 42 countries, Angola, Kenya,Vietnam, and Yemen were later removed after additional IMF/World Bank debt analysis determinedthat they could reach debt sustainability through bilateral debt relief. Many critics argue that the four excluded countries, as well as many others, should be eligiblefor relief. They maintain that the debt sustainability analysis used to determine HIPC eligibilityrelied on overly optimistic assumptions with respect to GDP and export rates in deciding countryeligibility. An official review of the HIPC program in 2003 concurred with this assessment andcalled for more realistic economic projections in determining HIPC eligibility. (30) It has also been assertedthat the eligibility criteria were based on political and cost factors, rather the actual amount of debtrelief a country may need to be able to successfully pay off a given level of debt. (31) HIPC debt relief is divided into two stages: decision point and completion point. Pre-decision point HIPC countries do not receive any debt relief. Decision Point. In order to reach the decisionpoint, a country must establish a three-year track record of good economic performance underexisting IMF and World Bank lending arrangements. During the three-year period, the debtorcountry receives debt reduction from Paris Club official creditors on Naples Terms (67% net presentvalue reduction). Other bilateral and commercial creditors are expected by Paris Club members tooffer at least similar treatment. At the decision point, staffs of the World Bank and IMF carry outa debt sustainability analysis to determine whether bilateral Paris Club debt reduction (at NaplesTerms) is sufficient for the country to reach the 150% target ratio. If it is not, the IMF and Worlddetermine how much multilateral debt relief is required and the country enters the second phase ofdebt relief. Completion Point. If a country enters the secondstage, it must establish a further track record of good economic policies and implement its povertyreduction strategy. During the period between the decision point and the completion point, a debtorcountry receives bilateral debt rescheduling under Cologne Terms (90% to 100% debt relief) andinterim assistance is provided by the multilateral creditors. Once the World Bank and IMFdetermine that a country has reached the completion point, it receives full and irrevocable debt reliefof the amount determined at the decision point. Table 2 summarizes the HIPC program. Table 2. Summary of the HIPC Program HIPC Trust Fund. The World Bank provides itsdebt relief through the IDA-administered HIPC trust fund. The trust fund has two components. Thefirst is for funds provided to reimburse IDA for HIPC debt relief. The second uses contributionsfrom donors to support HIPC debt relief provided by eligible regional multilateral creditors. Individual nations, including the United States, have also made pledges and contributed to the fund. As of the end of February 2005, bilateral contributions to the HIPC trust fund totaled $2.97billion. (32) The United States initially pledged $600 million to the HIPC trust fund. This pledge wasfulfilled with contributions in FY2001 and FY2002. In 2002, the Bush administration pledged anadditional $150 million for the HIPC trust fund to fund remaining costs. In FY2004, Congressappropriated $74.6 million for the HIPC trust fund. A funding gap of $75.6 million remains. Otherlarge contributors to the trust fund include the United Kingdom ($261 million), Germany ($232million), Japan ($219 million), France ($187 million), and the Netherlands ($174 million). IMF Gold. The IMF initially funded its share ofHIPC debt relief through an interim arrangement that drew on the resources of the IMF's EnhancedStructural Adjustment Facility (ESAF), the predecessor to the IMF's current concessional lendingfacility, the Poverty Reduction and Growth Facility (PRGF). In order to create a permanent facilityto finance the IMF's HIPC participation, the IMF and several major contributors designed a plan inthe late 1990s to sell some IMF gold reserves. When the IMF was originally created, membernations were required to contribute a percentage of their quota in gold. (33) Although, the internationalfinancial system is no longer based on a gold standard, the IMF continues to hold this gold in itsreserves and values it at around $48 an ounce, significantly less than the current market price of $438per ounce. (34) The IMFcurrently holds 103.4 million ounces of gold that are valued on its balance sheet at about $9 billion. At current market prices the IMF's holdings amounts to around $45.3 billion. Fearing disruption of the international gold market, the Clinton Administration and severalmembers of Congress strongly objected to any plans to sell IMF gold. (35) A compromise wasreached at the September 1999 IMF annual meetings authorizing off-market transactions in gold ofup to 14 million ounces to help finance IMF participation in the HIPC program. Between December1999 and April 2000, transactions involving a total of 12.9 million ounces of gold were carried outbetween the IMF and two members, Brazil and Mexico, that had financial obligations to the IMF. Gold was sold to Brazil and Mexico at the then-market price and profits were placed in a special IMFHIPC account. At the same time, the IMF accepted back the gold sold to Brazil and Mexico insettlement of their financial obligations to the Bank. The balance of the IMF's holdings of physicalgold remained unchanged although its usable resources shrank. (36) To date, 18 of the 38 HIPC-eligible countries have completed the HIPC program, elevencountries have reached their decision point, and nine are in pre-decision point status ( Table 3 ). (37) Table 3. HIPC Countries and Their Status Source: International Monetary Fund and World Bank. Appendix 3 displays debt statistics for all HIPC countries. Countries with major debtobligations to the United States are: the Democratic Republic of Congo ($1.66 billion), Sudan($1.65 billion), Somalia ($592.7 million), Cote d'Ivoire ($327.7 million), and Liberia ($363.3million). According to a 2004 IMF study, significant additional donor support and structural reformsare necessary for HIPC countries to reach debt sustainability. The study found that HIPC completionpoint countries had more robust economic policies and institutional frameworks than other HIPCcountries but they still fared poorly when compared to other developing countries. In addition theirdebt management capacity remained weak. (38) Many argue that these countries need additional donor supportfor other reasons as well, in areas such infrastructure, education, and AIDS prevention. Other similarresearch, as well as NGO pressure, led in 2004 to active discussions proposing 100% multilateraldebt relief for HIPCs and other poor indebted countries. Discussion of 100% debt relief began in earnest among the G8 nations at the February 5,2005 finance ministers meeting in London. At the meeting, ministers announced their "willingnessto provide as much as 100% multilateral debt relief." (39) Moreover, ministers intended to work with the AfricanDevelopment Bank and the World Bank "to bring forward proposals ... to achieve this [additionaldebt relief] without reducing the resources available to the poorest countries through theseinstitutions." (40) Central to the multilateral debt cancellation debate was whether to compensate theinternational financial institutions for the amount of debt they would write off. U.S. officials hadreportedly argued that the cost of multilateral debt relief could be borne by the institutionsthemselves without compromising new assistance. The World Bank's IBRD resources haveincreased steadily over the past several years, and many argued that some of this money could bediverted to provide IDA debt relief without harming the bank's financial situation. (41) Other creditors, includingGreat Britain, believed the institutions should be compensated for their debt forgiveness so as notto possibly weaken the credit standing of the World Bank and force it to raise borrowing rates toIBRD borrowers. (42) On July 11, 2005, G8 finance ministers compromised on a plan to cancel all remaining HIPCmultilateral debt. (43) Thecompromise was that the multilateral development banks would receive new money from creditornations to offset their debt reductions and the IMF would absorb the cost of debt relief using internalresources, principally the remaining proceeds of the 1999 off-market gold transactions with Braziland Mexico. New gold sales had been proposed during the 2005 discussion but, like earlierproposals, were strongly opposed by the gold industry, the Bush Administration, and many Membersof Congress. (44) According to British Chancellor of the Exchequer, [author name scrubbed], "We are presenting themost comprehensive statement that finance ministers have ever made on the issues of debt,development, health and poverty." He further added that the agreement represents a "new dealbetween the rich and poor of the world." (45) U.S. Treasury Secretary John Snow called the agreement "anachievement of historic proportions." (46) According to officials at the meeting, the cost of forgiving this debt will be $16.7 billion --the net present value of payments that the IFIs would have received from the HIPCs between nowand 2015. Of this, the United States reportedly agreed to pay up to $1.75 billion over the next tenyears in compensation to the development banks over the next ten years to fund the debt relief. (47) According to British andGerman officials, Britain will pay $700 million to $960 million, and Germany will pay $848 millionto $1.2 billion to offset future lost repayments to the World Bank and the African DevelopmentBank. (48) Reaction from poor countries not included in the debt deal was critical. Many have longargued that debt relief benefits countries that have poor economic performance and that are lesswilling to service their debts than other developing countries. Some countries, such as Kenya, areineligible for debt relief, yet suffer from many of the same economic constraints as many HIPCcountries and are servicing their debts. "Those faithful in servicing their debt like Kenya are beingignored while HIPCs who have failed to service the debt are getting more attention. This is not goodfor Africa," asserted Kenyan Planning and National Development Minister Peter AnyangNyongo. (49) Both IMF Managing Director Rodrigo Rato and World Bank President Paul Wolfowitzcautiously welcomed the proposal but stressed the importance of providing debt relief withoutdiverting resources from other developing countries. According to Mr. Rato, although InternationalMonetary Fund member countries are committed to canceling debts of the world's poorest nations,debt relief should be carefully designed and implemented. He stressed that there is a "clearconsensus" among IMF directors that writing off the debt should not affect the fund's ability tocontinue to lend to poor countries. (50) Mr. Wolfowitz has also voiced support for the proposal. (51) However, several WorldBank concerns with the proposal were reported in the press. These will be discussed below. If fully implemented, the agreement would result in immediate 100% cancellation of theremaining debts of 18 countries that have reached HIPC completion point ($40 billion) from theInternational Monetary Fund, the World Bank, and the African Development Bank, and totalcancellation of $55.6 million if all HIPC-eligible countries complete the program. Decision pointand pre-decision point countries would be eligible for 100% debt cancellation upon their completionof the HIPC program. Key features of the agreement are: World Bank and AfDB debt cancelled under the proposal will be deductedfrom gross country allocations and redistributed among all available countries. The amount of the redistributed assistance that the 18 completion pointcountries receive will depend on how they compare with other World Bank or AfDB countries. Thatthey meet the economic targets to reach completion point should serve as assurance that they willreceive some portion of the redistributed assistance under the proposal. The World Bank and the AfDB would receive additional contributions to offset"dollar for dollar" the principal and interest payments of forgiven debts. Additional funds would bemade available immediately to cover the full costs during the next three years , covering currentreplenishment periods. (52) For the period after this, donors commit to cover the full costs for the durationof the cancelled loans by making additional contributions to the World Bank and the AfricanDevelopment Bank over the next 10 years. The Bush Administration has not requested any new funds to cover debt relief during IDA-14or AfDF-10. Reportedly, the intention is to finance the U.S. share of IDA and AfDF debt relief byearly encashment of regular U.S. appropriated contributions. (53) Early encashment is theimmediate disbursement of appropriated funds that are normally disbursed over a given period oftime. This means that either more contributions will be asked for later to replace funds used by earlyencashment or IDA aid will shrink in the future unless higher contribution levels are appropriated. Donors also committed to finance debt relief for any new countries that enter the HIPC program,either among the nine countries that have not yet reached the decision point, or any new countriesthat the program accepts. Since the proposal was released, several critiques of it have been published by various debtrelief-related NGOs. (54) Four potential areas of concern are: No Net Resource Gain. The proposed agreementspecifies that HIPC countries that receive debt reduction will have their gross assistance flowsreduced by the amount of debt forgiven. Many would prefer that any debt relief be additional tocurrent assistance. This is based on the belief, which is supported by some, that according to recentresearch, one-for-one changes in debt service payments and official aid flows have no net effect oneconomic growth. In this view, any potential economic growth due to the increased resourcesprovided by debt relief may be negated by a decrease in total net assistance. (55) Limited Debt Cancellation. As proposed, theagreement only covers one regional development bank, the African Development Bank. Althoughthe majority of HIPC countries are African, several are not, and many owe debt to the other regionalbanks, such as the Inter-American Development Bank or the Asian Development Bank. There arealso many smaller sub-regional development banks to which the HIPCs are indebted. Multilateral Development Bank Compensation is NotGuaranteed. The proposed agreement to compensate the IFIs only covers the nextthree years, through the completion of the most recent replenishments of the World Bank and theAfrican Development Bank's concessional lending facilities. Future assistance to the developmentbanks, compensating them for their debt relief, is not assured. The agreement states that "donors willcommit to cover the full costs for the duration of the cancelled loans, by making contributionsadditional to regular replenishments" (emphasis added). However, there is no regular replenishmentamount for either institution. Every three years, donor nations meet and decide how much to fundthe institutions' concessional lending facilities. Since there is no baseline level of assistance, it maybe impossible to know if the funds for debt relief are additional to the amount of funding that themultilateral development banks would normally receive. The World Bank has expressed two additional concerns over the proposed debt relief terms.These are contained in an internal World Bank presentation that was leaked to the press. (56) First, although the WorldBank will write off the debt owed it immediately, promised donor contributions to cover the cost ofthis debt relief will be spread out over the next decade. Since the agreement includes no bindingfuture commitment to cover donor contributions during this period, the World Bank is concernedthat donor countries may not be committed to compensating the World Bank for all of the debtpayments it would have received from the debt relief recipients. Second, many concessional loansfrom the development banks have terms lasting up to forty years but the proposal only specifiesrepayment of lost debt payments for ten years. Theoretically, the Bank would lose 30 years' worthof repayments under the proposal. In response, the World Bank has suggested donor countries either make legal commitmentsnow for the extra money needed to finance the debt relief or allow creditor countries to receive debtrelief over time by relieving payments as they come due rather than wiping out the entire stock ofdebt immediately. This would have the same effect on net flows to debt relief recipients without theWorld Bank assuming a potentially unfunded liability by cancelling all debts owed to it immediately. For the United States, making a legal commitment to finance additional debt relief would requirecongressional action. Future Cost May Rise. Depending on whichcountries are added, the cost of HIPC may increase. When the HIPC program was designed in 1996,a two-year sunset clause was included to limit the countries eligible for debt relief to those that havereached decision point as well as to prevent HIPC from becoming a permanent facility. Since then,the sunset clause has been repeatedly extended. In September 2004, the World Bank and IMFBoards agreed again to extend the sunset clause by two years, through 2006. (57) The Boards also extendedthe sunset clause to IDA-only and PRGF-eligible countries that have not yet benefitted from HIPCrelief. In April 2006, the World Bank released a list of eleven countries that currently meet theHIPC income and indebtedness criteria and may wish to be considered for HIPC debt relief. The listincludes seven countries previously identified as HIPCs (Central African Republic, Comoros, Coted'Ivoire, Liberia, Somalia, Sudan, and Togo) and four new countries (Eritrea, Haiti, the KyrgyzRepublic, and Nepal). Three additional countries, Bhutan, Lao PDR, and Sri Lanka, also meet theHIPC criteria but do not wish to partake in the initiative. If HIPC debt relief is provided to all elevencountries, the total cost is estimated at $21 billion, broken up among various creditors. The cost tobilateral Paris creditors is estimated at $10.2 billion, while the cost to the IMF and the World Bankwould be $2.4 billion and $2.9 billion respectively. (58) Several analysts have proposed extending the HIPC program to countries eligible for grantassistance from the World Bank. In November 2004, the World Bank created a framework to assessthe level of debt burden necessary to qualify for 100 % grant assistance instead of loans. (59) Under the new "debtdistress" framework, 47 countries are projected to receive grant financing, 42 of which will receive100% of their IDA assistance in grants. The 47 countries eligible for grant assistance include 29HIPC and 18 non-HIPC countries. According to one analyst, the debt burden of these 18 countriesis comparable to those receiving HIPC assistance and they may be worthy of receiving debt reliefunder HIPC. This would mean an 18-country increase in the size of the HIPC program, and increasethe amount of debt relief provided by an additional $31.8 billion in nominal debt relief. ( Appendix4 provides debt information for the 18 additional countries.) Several Members of Congress have introduced legislation in the 109th Congress that wouldextend debt relief to a larger group of countries than is already covered by HIPC. Multilateral Debt Relief Act of 2005. Introducedby Senator Mike DeWine on June 28, 2005, the Multilateral Debt Relief Act of 2005 ( S. 1320 ) would authorize the necessary funding to implement the June 2005 G8 debt relief andauthorize the Secretary of the Treasury to instruct the U.S. Executive Director of each internationalfinancial institution to use the voice and vote of the United States to reach an agreement among theother shareholder nations to permanently cancel 100% of the debts owed to each institution by allHIPC countries. The proposed legislation also expresses the sense of Congress to expand the list of countrieseligible for debt relief. If enacted, the act would request that the Secretary of the Treasury pursueadditional bilateral and multilateral debt relief (including the Inter-American Development Bank)for each of the 47 countries that are eligible for World Bank grant assistance. Jubilee Act of 2005. Introduced byRepresentative Maxine Walters on March 3, 2005, the Jubilee Act of 2005, is a much broader pieceof legislation, with higher costs. If enacted, H.R. 1130 would amend the InternationalFinancial Institutions Act to require the Secretary of the Treasury to commence immediate efforts,within the Paris Club, the International Monetary Fund, the World Bank, and other internationalfinancial institutions to: Cancel all debts owed to each institution by 50 eligible poor countries whilelimiting any waiting period before receipt of debt cancellation to one month from the date of aneligible poor country's application for it. If implemented, this immediate debt cancellation wouldinhibit the World Bank and the IMF from seeking economic reforms from creditor countries inexchange for the given debt relief. Encourage the government of each eligible poor country to allocate at least20% of its national budget, including the savings from such debt cancellation, for the provision ofbasic public health care, education, and clean water to its citizens. Unrelated to debt relief, the Jubilee Act of 2005 would also set forth requirements forestablishing a framework to improve transparency regarding each international financial institution'sactivities; and require the availability on the Treasury Department's website of all U.S. ExecutiveDirectors' remarks at Bank or Fund meetings. Indebtedness is measured by the World Bank primarily using two debt service ratios: theratio of the present value of total debt service to gross national income (PVGNI) and the ratio of thepresent value of total debt service to exports of goods and service (PV/XGS). According to theBank, these ratios reflect two of most important aspect of a country's ability to service its debts:gross national income, since this is the broadest measure of a country's total income, and exports,since these are the revenue generating mechanism for debt service (exports provide foreign reserveswhich are needed to service debt). If any of the 136 countries that the World Bank collects debt data on exceeds a critical value: 80% for the debt service to GNI ratio, or 220% for the debt service to exports ratio, the country isclassified as severely indebted. A country is classified as moderately indebted if both of its debtratios are three-fifths or more of the critical value (48% for the debt service to GNI ratio and 132%for the debt service to exports ratio) and less indebted if its debt ratios are below the three-fifthsthresholds. The World Bank also breaks out countries based on their level of income. Countries areclassified as low income if their 2003 GNI per capita is $765 or less. Middle income countries area much larger grouping including countries with GNI per capita between $766 and $9,385. Bycombining these two sets of indicators, the poorest and most indebted countries can be identified. Table 4. World Bank Debt Categories Source: World Bank, 2005 Global Development Finance. Table 5. World Bank Debt Ratings (HIPC countries are highlighted) Source: World Bank, 2005 Global Development Finance. (in U.S. $ millions) Source: The Department of the Treasury and the Office of Management and Budget, U.S. Government Foreign Credit Exposure As of December 31,2004. (2003, in U.S. $ millions) Source: World Bank, 2005 Global Development Finance. (2003, in U.S. $ millions) Source: World Bank, 2005 Global Development Finance. | In recent decades, the rapid growth in poor country debt has emerged as a key foreign policyconcern. Many analysts believe that this debt burden is an impediment to economic growth andpoverty reduction. Others contend that for the poorest countries, other factors such as weak politicaland economic institutions, are a greater impediment to growth than the debt burden. There have been many efforts to help reduce poor country debt. In 1988 a group of majorcreditor nations, known as the Paris Club, agreed for the first time to cancel debts owed to theminstead of refinancing them on easier terms as they had done previously. In 1996, the InternationalMonetary Fund (IMF), the World Bank, and the regional development banks agreed to allow aportion of debts owed to them by a select group of countries to be cancelled. This effort is knownas the Debt Relief Initiative for Heavily Indebted Poor Countries (HIPC). In June 2005, the Groupof Eight (G8) nations agreed to further deepen debt relief and proposed 100% cancellation of allmultilateral debt for countries that have finished the HIPC program. Several pieces of legislation( H.R. 1130 and S. 1320 ) also have been introduced that could extend debtrelief to an even larger group of countries. As introduced, the G8 proposal raises four possibleconcerns: Scope of Debt Cancellation -- The proposed agreement is limited to the IMF,the World Bank, and the African Development Bank. Several other development banks are majorcreditors and are not included in the proposal. No Net New Assistance -- The proposed agreement specifies that HIPCcountries that receive debt reduction will have their total assistance flows reduced by the amount ofdebt forgiven. This money will then be reallocated among all low-income countries. Funding is Not Assured -- The agreement promises that G8 countries willcompensate the development banks for any debt relief they provide. However, future contributionsto the development banks are not guaranteed. Future Commitments are Unspecified -- The agreement commits G8members to cover the cost of debt relief for countries that may later enter the HIPC process. Depending on which, if any, countries are added, the potential cost of debt relief may risesignificantly. No congressional appropriations are required at this time to implement the G8 proposal. However, additional U.S. funds may need to be appropriated in the future to fund higher levels ofHIPC debt relief. This report will no longer be updated. For information on the current status of the G8 debtrelief proposal, see CRS Report RS22534 , The Multilateral Debt Relief Initiative , by Martin A.Weiss. |
On December 16, 2009, President Obama signed the FY2010 Department of Transportation, Housing and Urban Development, and Related Agencies Appropriation Act into law (Divison A of the Consolidated Appropriations Act, 2010, P.L. 111-117 ), after Congress had passed the conference version of the bill on December 10, 2006. The enacted bill provided a total of $122.1 billion, $15.1 billion (14.1%) more than the equivalent figure provided in FY2009 and $1.1 billion less than the amount requested by the Administration. The President's net FY2010 request for the programs covered by this appropriations bill was $123.2 billion (after scorekeeping adjustments). This was $16.2 billion (15.1%) more than the amount enacted in the FY2009 THUD appropriations act. DOT and HUD received additional funding in FY2009 through the ARRA emergency stimulus act (see Appendix for more information). The request for DOT was $72.4 billion, $1.0 billion (1.4%) more than the $71.5 billion of total new funding provided in the FY2009 THUD appropriations act. The request reflected slight increases over FY2009 funding for most DOT programs. The HUD request was $45.5 billion, $4.0 billion (7.7%) more than the comparable amount of new funding provided in the regular annual appropriation for FY2009. The House-passed bill provided $47.1 billion, while the Senate Committee on Appropriations recommended $45.8 billion. The President requested $5.3 billion for other related agencies in the THUD bill, compared to the $303 million provided in FY2009. The difference was due to the President's request for $5 billion for a new independent federal agency, a national infrastructure bank. Appropriators considered this request as part of the request for DOT funding. The President also requested the termination of five programs that received a total of $212 million in funding in the FY2009 THUD appropriations act. This was part of a budget-wide effort that requested 121 terminations, reductions, and savings in the FY2010 budget, totaling $$17 billion, from "programs that do not accomplish the goals set for them, do not do so efficiently, or do a job already done by another initiative." Congress did not fund two of the five programs in the FY2010 THUD act; the remaining three received increased funding, totaling $346 million (see Table 1 ). Leaders of the House and Senate Committees on Appropriation declared their desire to pass all 12 FY2010 appropriations bills separately, and thus avoid having to bundle two or more of the bills into a consolidated or omnibus appropriations act, as has happened in each of the past several years. This goal was made more challenging by the fact that 2009 was the first year of a new administration. President Obama did not take office until January 20, 2009; his administration was not prepared to submit a regular budget request for FY2010 during the first week in February, the usual date. Congress did not pass the last of the FY2009 appropriations acts until March 10, 2009. The Administration's detailed budget request for FY2010 was submitted to Congress on May 7, 2009. Also, Congress was dealing with several major initiatives during 2009, including energy and health care reform, in addition to dealing with the effects of the recession. Table 2 notes the status of the FY2010 THUD appropriations bill, and Table 3 lists the total funding provided for each of the titles in the bill for FY2009 and the amount requested for that title for FY2010. Since 2003, the House and Senate Committees on Appropriations have reorganized their subcommittee structure three times. In 2003, a new subcommittee (Homeland Security) was added; in order to maintain the existing number of subcommittees at 13, the Transportation appropriations subcommittees were combined with the Treasury, Postal Service, and General Government appropriations subcommittees, becoming the Subcommittees on Transportation, Treasury, and Independent Agencies. In early 2005, the House and Senate Committees on Appropriations again reorganized their subcommittee structures. The House Committee on Appropriations reduced its number of subcommittees from 13 to 10. This change included combining the Transportation, Treasury, and Independent Agencies subcommittee with the District of Columbia subcommittee; to the resulting subcommittee, in addition, jurisdiction over appropriations for the Department of Housing and Urban Development and the Judiciary, as well as several additional independent agencies, was added. The subcommittee was then known as the Subcommittee on Transportation, Treasury, Housing and Urban Development, The Judiciary, District of Columbia, and Independent Agencies (or TTHUD). The Senate Committee on Appropriations reduced its number of subcommittees to 12. The Senate also added jurisdiction over appropriations for the Departments of Housing and Urban Development and the Judiciary to the Transportation, Treasury, and Independent Agencies subcommittee. The Senate retained a separate District of Columbia Appropriations subcommittee. As a result, the areas of coverage of the House and Senate subcommittees with jurisdiction over this appropriations bill were almost, but not quite, identical; the major difference being that in the Senate the appropriations for the District of Columbia originate in a separate bill. At the beginning of the 110 th Congress in 2007, the House and Senate Committees on Appropriations again reorganized their subcommittee structures. The House and Senate committees divided the responsibilities of the TTHUD subcommittees between two subcommittees: Transportation, Housing and Urban Development, and Related Agencies (THUD); and Financial Services and General Government, whose jurisdiction included the Treasury Department, the Judiciary, the Executive Office of the President, the District of Columbia, and many of the independent agencies formerly under the jurisdiction of the TTHUD subcommittees. These changes make year-to-year comparisons of Transportation and Housing and Urban Development appropriation bills complex, as their appropriations appear in different bills in combination with various other agencies. Other factors, such as supplemental appropriations for response to disasters (such as the damage caused by the Gulf Coast hurricanes in the fall of 2005) and changes in the makeup of the Department of Transportation (portions of which were transferred to the Department of Homeland Security in 2004), also complicate comparisons of year-to-year funding. Table 4 shows funding trends for DOT and HUD over the period FY2004-FY2009, omitting emergency funding and other supplemental funding, and the amounts requested for FY2010. The purpose of Table 4 is to indicate trends in the funding for these agencies. Emergency supplemental appropriations are not included in the figures. Table 5 presents funding provided for DOT in the emergency supplemental funding act passed in February 2009 (the American Recovery and Reinvestment Act of 2009); the funding provided in the FY2009 THUD appropriations act passed as Division I of the Omnibus Appropriations Act of 2009 in March of 2009, and the amounts requested for FY2010 by the Administration and reported by the House and the Senate Committee on Appropriations. The President's FY2010 budget requested a total of $72.4 billion in funding for the Department of Transportation (DOT). That was $5.2 billion (7.7%) above the $67.2 billion, excluding emergency funding, provided for FY2009. DOT funding is provided in two forms: discretionary funding drawn from the general fund of the Treasury (i.e., general funds), and contract authority. Contract authority is a type of budget authority—in the case of DOT, derived from the existence of the Aviation and Highway Trust Funds—that is available for "obligation" (which makes the federal government obligated to pay the money to the recipient) as a result of provisions in authorizing legislation, without requiring any further legislative action (i.e., without any appropriation by Congress). In order to impose a limit on the amount of money that the government can be obligated to spend, the amount of contract authority that can be obligated is limited by a spending control mechanism called a "limitation on obligations" (often referred to as "ObLim" or "Oblimit"). The ObLim for each year is set in the authorizing legislation, and is included in the DOT appropriations bill. In most discussions, the Oblim is analogous to an appropriation, in that it is considered to be the best indicator of the amount of contract authority actually being made available for use by recipients. In this report, references to DOT funding include both discretionary funds and the contract authority Oblim, unless otherwise indicated. In preparing legislation to fund DOT for FY2010, Congress faced several issues both within and outside the context of the President's budget request and FY2010 transportation funding initiatives. These included the solvency of the Highway Trust Fund, the pending expiration of authorizations for federal aviation, highway, and transit programs at the end of FY2009, and a pending $8.7 billion rescission of contract authority previously provided to the states at the end of FY2009. Other funding issues included the President's request for two new programs, $5 billion for a national infrastructure bank and $1 billion for high-speed and intercity passenger rail grants. Typically, all or virtually all federal highway funding is drawn from the Highway Account of the Highway Trust Fund, whose revenues come largely from taxes on gasoline and diesel fuel sales and on sales of large trucks and truck tires. For example, only $320 million of the $41.7 billion provided for the Federal Highway Administration in the FY2009 THUD appropriations act came from general funds; the remainder was contract authority. In addition, most federal transit funding also comes from the transit account of the Highway Trust Fund (about $2 billion of FTA's $10.2 billion in the FY2009 regular appropriation came from general funds). When the federal highway and transit programs were last authorized in 2005 ( P.L. 109-59 , the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, or SAFETEA), Congress authorized highway spending levels to be drawn from the Fund through FY2009. Since that time, a number of events have reduced the balance of the Fund more than was projected: Congress provided more than the originally authorized level of highway funding from the Highway Trust Fund in some fiscal years, and the economic recession led to lower than projected revenues to the Fund. This situation led Congress to transfer $8 billion in general revenues to the Highway Trust Fund late in FY2008 to maintain its solvency. In order to maintain the solvency of the Highway Trust Fund, the President's FY2010 budget proposed drawing only $5 billion from the Highway Trust Fund for the federal highway program for FY2010, with the remaining $36 billion for the program to be appropriated from the general fund of the Treasury. Congress rejected this proposal, and in July 2009 again transferred money ($7 billion) from the general fund to the Highway Trust Fund to maintain its solvency ( P.L. 111-46 / H.R. 3357 ). This is expected to keep the Fund solvent for most of FY2010. Funding authorization for aviation programs expired at the end of FY2007, and Congress has repeatedly extended authorization for the aviation program (for further information, see CRS Report R40410, Federal Aviation Administration (FAA) Reauthorization: An Overview of Legislative Action in the 111 th Congress , coordinated by [author name scrubbed]) (pdf). The SAFETEA highway and transit program authorization were scheduled to expire on September 30, 2009. The President asked Congress to extend the existing authorization for 18 months, to March 31, 2011, to give the Administration time to prepare a reauthorization proposal. Congressional reaction to that request was mixed, with the House Transportation and Infrastructure Committee leadership urging Congress to pass reauthorization legislation without delay, while the Senate Environment and Public Works leadership has been supportive of the President's request to extend the existing authorization for a time. Given the many major initiatives Congress was grappling with, and the short time remaining before the expiration of the current authorization, Congress passed two short-term extensions, extending the authorization to February 28, 2010. During the last reauthorization of highway and transit programs, the then-existing authorization was extended repeatedly, for a total of almost two years beyond the original expiration date, before Congress passed new reauthorization legislation. (For further information about highway and transit program reauthorization, see CRS Report R40780, Surface Transportation Reauthorization Legislation in the 111 th Congress: Summary of Selected Major Provisions , coordinated by [author name scrubbed].) At the time of the passage of SAFETEA, the Bush Administration was trying to hold down the level of spending in the bill. In order to bring the total funding level of the bill down to the limit set by the President, SAFETEA provided that $8.7 billion in contract authority would be rescinded from the federal highway program on the last day of the final fiscal year of the authorization, September 30, 2009. SAFETEA-LU, like previous surface transportation authorization legislation, provided states more contract authority than obligational authority (i.e., they are given more contract authority each year than they are authorized to spend). As discussed earlier, the actual level of contract authority expenditure is set by the limitation of obligations, not by the amount of contract authority that is authorized. The contract authority does not expire; consequently, an amount of unused contract authority builds up for each state over time. At the time SAFETEA was enacted, it seemed likely that the rescission of contract authority required on September 30, 2009, if not canceled, could be taken out of their unused amounts of contract authority by the states and would not affect their transportation spending. In the years since passage of SAFETEA, Congress has several times included rescissions of contract authority in the annual THUD appropriations bills. This practice enabled Congress to provide more highway funding to states than might otherwise have been possible under the annual budget limits and in light of the previous administration's calls for limiting congressional spending, since it made the enacted net highway funding levels appear to be smaller than they actually were. However, by doing so Congress reduced the amount of unused contract authority that states had accumulated.. For some states, their share of the $8.7 billion rescission that was required on September 30, 2009, was larger than their amount of unused contract authority. The result was that the rescission did actually reduce the amount of federal highway funding those states would otherwise have been able to spend in FY2010. An effort to add an amendment to P.L. 111-46 to prevent the September 30, 2009 rescission failed. Senator Barbara Boxer, chairman of the Senate Committee on Environment and Public Works, said that the issue would be taken up again before the rescission was scheduled to take place. However, canceling the rescission would have been scored as additional Congressional spending. The House had committed to offset any spending increases, so canceling the rescission would have required either increased revenues or a cut in other programs. In the end, Congress allowed the rescission to take place. This had two results; first, for some states it reduced the amount of federal transportation funding that could be spent in FY2010. Second, by significantly reducing the amount of unused contract authority states had accumulated for surface transportation prrograms, it reduced the opportunity for Congress to use the budget tactic of rescinding unused contract authority (to make the net DOT funding level appear smaller than it actually is) in the future. In the FY2010 DOT appropriation, Congress did not rescind any contract authority under the Federal Highway Administration account; in FY2009 there was a $3.2 billion contract authority rescission in that account. The President requested $5 billion for a national infrastructure bank. This program would provide federal support, in the form of grants and loan guarantees, to large infrastructure projects that promise regional and national economic benefits, and would provide this support in ways intended to attract and coordinate state, local, and private investment in those projects. The House noted that the bank was unlikely to be established prior to the end of FY2010, and thus did not provide any funding for the bank. However, the House bill would have allowed $2 billion of the $4 billion it recommended for the high-speed and intercity passenger rail grant program to be transferred to the bank, should it be established during FY2010. The Senate did not provide funding for the bank, but provided $1.1 billion for transportation infrastructure grants to state and local governments for projects that would make a significant impact on the nation, a metropolitan area, or a region. This is similar to the discretionary grant program for transportation projects of national and regional significance in the economic stimulus act, for which $1.5 billion was provided. While these grants are to be made on a competitive basis, the competition is limited in certain ways: DOT is required to ensure an "equitable geographic distribution" and an "appropriate balance in addressing the needs of urban and rural communities," with a requirement that at least $250 million (23% of the total) be spent on projects in rural areas. There are also limits on the minimum and maximum size of grants, and a limit on the amount that can be spent in a single state. The grants require a local match, though that can be waived for rural areas, which are also allowed a lower minimum grant size ($1 million). Conferees expressed their belief that creation of a national infrastructure bank should be pusued through the normal authorization process. They provided $600 million for the national infrastructure development grants proposed by the Senate. The President requested $1 billion for another program established in the ARRA, grants to states and other entities for capital projects to develop or improve intercity passenger rail service, including high-speed passenger rail service (in this context, "high speed" is defined as 110 miles per hour or more). The President has said he will request a total of $5 billion for this program over five years, in addition to the $8 billion that Congress provided for this program in the ARRA. The first grants were awarded in January 2010. Congress also provided $90 million in the FY2009 THUD appropriations act for a similar purpose. The House provided $4 billion for this program, $3 billion more than the request, though it allowed $2 billion of that to be transferred to the national infrastructure bank, should that program be implemented during FY2010. The Senate provided $1.2 billion for this program. The enacted legislation provided $2.5 billion. The FAA budget provides both capital and operating funding for the nation's air traffic control system, and also provides federal grants to airports for airport planning and development, and expansion of the capacity of the nation's air traffic infrastructure. The President's budget requests $15.96 billion in new funding for FY2010. This is $579 million (3.8%) more than the amount of funding provided in FY2009. The House approved $15.98 billion for FY2010, an increase of $26 million (less than 1%) over the amount requested. The House added $11 million to the operations account request and $15 million to the research, engineering, and development account request. The Senate provided $15.99 billion in funding for FY2010, an increase of $35 million (less than 1%) over the amount requested. Compared to the House, the Senate provided $12 million more for the operations account, $17 million more for the facilities and equipment account, $8 million more for the small community air service development program, and $20 million less for the research, engineering, and development account. The enacted legislation provided $15.99 billion, 3% ($522 million) more than the comparable FY2009 figure and less than 1% ($36 million) more than requested. The enacted figure was reduced to $15.60 billion for budgetary purposes by a rescission of $394 million in contract authority. The President's budget requested $3.5 billion for AIP funding, essentially the same amount provided in FY2008 and FY2009. The House and Senate agreed with the requested level of funding, and this amount was provided in the enacted legislation. AIP funds are used to provide grants for airport planning and development, and for projects to increase airport capacity (such as construction of new runways) and other facility improvements. The President's budget requested $125 million for the EAS program, a $52 million (54%) increase over the $73 million Congress provided in FY2009. The House and Senate both agreed with the requested funding level; conferees increased the funding to $150 million. These funds are added to $50 million that is reserved for the program each year, so the total funding enacted for FY2010 is $200 million, compared to $123 million in FY2009. This program seeks to preserve air service to small airports in rural communities by subsidizing the cost of that service. Supporters of the EAS program contend that preserving airline service to rural communities was part of the deal Congress made in exchange for deregulating airline service in 1978, which was expected to reduce air service to rural areas. The President's budget requested $41.8 billion in funding for federal highway programs for FY2010, an increase of $88 million (less than 1%) over the comparable figure provided in FY2009. In order to address the projected financial difficulties of the Highway Trust Fund, the Administration requested that $36.1 billion come from the general fund, and only $5.7 billion from the Trust Fund. By contrast, $41.4 billion of FHWA's funding in the FY2009 THUD appropriations act came from the Trust Fund, and only $320 million from the general fund. The House approved $42.0 billion for FHWA, but rejected the request to draw most of that funding from the general fund, taking only $126 million from the general fund. The Senate provided $43.4 billion for FHWA, likewise taking virtually all that amount from the Trust Fund (it took $1.6 billion from the general fund). The enacted legislation provided $42.8 billion, with $41.8 billion of that to come from the Highway Trust Fund. Conferees noted their expectation that FHWA would make more progress on the inspection of bridges. As noted above, Congress passed legislation in July 2009 to transfer $7 billion from the general fund to the Highway Trust Fund, an amount which is expected to keep the Fund solvent until sometime during FY2010. To assure the continuing solvency of the Trust Fund—and its ability to support the funding that the FY2010 THUD appropriations bill provides—Congress will need to take additional steps. The Administration requested $550 million for FMCSA, $9 million (1.7%) more than the net new funding provided for FY2008. The request included $310 million for grants to states to enforce commercial truck and bus safety regulations. The House and Senate provided the requested amount, as did the enacted legislation. The House Committee on Appropriations noted that FMCSA's proposed rule regarding electronic on-board data recorders would only require that motor carriers with a history of serious hours-of-service violations install the recorders in their vehicles. The National Transportation Safety Board has long recommended that all commercial vehicles have recorders installed. The Committee directed FMCSA to issue the final rule as soon as possible and to report on how it proposes to encourage installation of recorders in all commercial vehicles. The Senate Committee on Appropriations directed FMCSA to use a portion of its research and technology program funding to educate motor carrier operators on available safety technologies. Conferees reiterated both directives. The Administration requested $867 million for NHTSA, an increase of $11 million (1.3%) over the amount provided for FY2009. This amount included $626 million for grants to states for highway safety programs to reduce deaths and injuries from motor vehicle crashes. The House provided the requested level (though it increased funding over the requested amount for operations & research and national driver register accounts by a total of $6 million, and reduced the grants to states by a corresponding amount, resulting in the same level for state grant funding as in FY2009). The Senate provided $868 million, adding a total of $8 million to the Administration request for the operations & research and national driver register accounts, and likewise reduced the state grants to their FY2009 level. The enacted legislation provided $873 million, 2% ($17 million) over the comparable FY2009 figure and $5 million more than the requested level. Conferees provided more funds than requested for projects developing less-intrusive in-vehicle alcohol detection technologies and for safety research on vehicles that use alternative fuels. While overall highway fatalities have been decreasing in recent years, one category of highway fatality—motorcycle fatalities—has been increasing. Research indicates that the most effective motorcycle safety policy is requiring that all motorcyclists wear helmets meeting safety standards. Some motorcyclists are strongly opposed to being required to wear helmets. At times, Congress has penalized states that did not have mandatory helmet laws by withholding or restricting the use of some of their federal highway funding, which resulted in near-universal adoption of mandatory helmet laws by states. Congress repealed such a provision in 1995; now 30 states do not have universal mandatory helmet laws. In 1998 Congress also forbade DOT from lobbying states to adopt traffic safety laws. The Senate Committee on Appropriations recommended that an exception be made to this prohibition to allow DOT to engage in activities with states to consider proposals related to the reduction of motorcycle fatalities (Section 104), a recommendation that was reiterated by the conference agreement (Section 103). The same exception was included in the FY2009 THUD appropriations act. The Administration requested $2.7 billion for FRA for FY2010, an increase of $907 million (50%) over the comparable FY2009 level of $1.8 billion. Virtually all of the increase was due to the Administration's request for $1.0 billion for intercity passenger rail and high-speed rail grant funding. The House-passed bill provided $5.8 billion, an increase of $3.0 billion over the requested funding level. Virtually all of this additional funding was also for intercity passenger rail and high-speed rail grant funding; the House provided $4.0 billion, though it provided that $2 billion of that funding could be transferred to a national infrastructure bank, should one be established during FY2010. Amtrak received its requested level of $1.5 billion, $12 million (less than 1%) more than the comparable figure for FY2009. The Senate-passed bill provided $3.0 billion for FRA, $331 million more than the requested level. The additional funding was provided for grants for intercity passenger rail and high-speed rail grants ($200 million more than the $1.0 billion requested), Amtrak ($53 million more than the $1.5 billion requested), railroad safety technology ($50 million, no corresponding request), and rail line relocation and improvement ($25 million, no corresponding request). The $50 million for railroad safety technology would fund a grant program created in the Rail Safety Improvement Act of 2008 ( P.L. 110-432 , Division A, section 105) to fund the deployment of train control technologies. That legislation also mandated that railroads deploy positive train control technology on most of the nation's intercity rail network. Estimates of the costs of that deployment are in the billions of dollars. The enacted legislation provided $4.4 billion, $1.6 billion more than requested and $2.6 billion more than in FY2009. The majority of the additional funding – $1.5 billion – was for grants, mostly for passenger rail and high speed rail development, but also for safety and rail line relocation. In June 2009, Amtrak's Inspector General, who had served as Amtrak's IG since the creation of the office in 1989, resigned. Soon afterward, the House Committee on Oversight and Government Reform announced that it was launching an investigation into the circumstances surrounding the departure of the IG. To promote the independence of the Office of the Inspector General, the Senate Committee on Appropriations recommended that Amtrak's OIG be funded as an independent agency, not as part of Amtrak's appropriation under FRA, and accordingly placed the funding for the OIG in Title III of the appropriation bill, "Independent Agencies." Conferees confirmed this shift. During Senate floor consideration of the THUD bill, an amendment was added which required that Amtrak allow passengers to transport firearms in checked baggage as of March 31, 2010, or lose their federal funding. Amtrak began prohibiting the transport of firearms even in checked baggage after 9/11. In the enacted legislation, this requirement was altered to give Amtrak one year to implement procedures to allow passengers to carry firearms in checked baggage (section 159). Virtually all of FTA's funding goes to state and local transportation authorities to support bus, commuter rail, subway, and light rail transit services. Most of this funding is distributed by formulas established in authorizing legislation. The Administration requested $10.3 billion for FTA for FY2010, an increase of $104 million (1.0%) over the comparable figure of $10.2 billion provided for FY2009. As with the request for the FHWA, the Administration sought to reduce the pressure on the Highway Trust Fund by reducing the amount of FTA funding drawn from the Fund, from 81% ($8.3 billion) in FY2009 to 48% ($5.0 billion) in FY2010, with the rest coming from general revenues. This change was not supported by Congress. The House-passed bill recommended $10.5 billion, an increase of $148 million (1.4%) over the requested figure. The increase was due to the inclusion of a $150 million grant to the Washington Metropolitan Area Transit Authority (WMATA). The Senate-passed bill provided $11.1 billion, $730 million (7.1%) more than the requested figure. Most of the increase was additional funding for the New Starts program ($500 million); there was also a $150 million grant to WMATA for capital and preventive maintenance expenses, and $100 million for grants to transit agencies for capital investments that will improve their energy efficiency and reduce their greenhouse gas emissions. The Senate Committee on Appropriations noted that $100 million was provided for this purpose in the economic stimulus act, and FTA received grant applications totaling over $1 billion for this funding. Conferees provided $10.7 billion in the enacted legislation, with 78% ($8.3 billion) coming from the Trust Fund. The primary difference among the houses was the amount provided for the New Starts program, with the final figure ($2.0 billion) being more than requested by the administration and provided by the House, but less than provided by the Senate. The final legislation also provided $75 million for the energy efficiency grants that were proposed by the Senate. There are two large discretionary grant programs under FTA, the Bus and Bus Facilities Program and the New Starts Program. The bus program funds bus-related capital projects, including the purchase of new buses, maintenance of existing buses, construction of transfer facilities, intermodal stations, and park-and-ride stations, and bus-related equipment. Typically, most of the program's funds are designated for particular projects; some of these designations are contained in the authorizing legislation, and some in the annual appropriations legislation. The House provided $584 million for the bus program for FY2010, $300 million less than in FY2009, as recommended by the House Committee on Appropriations. The Committee explained that, since the bus project designations contained in SAFETEA-LU (which totaled $495 million for FY2009) would expire at the end of FY2009, $584 million would provide adequate discretionary funding for FY2010. The Senate also provided $584 million. The New Starts program funds new fixed-guideway transit systems and extensions to existing fixed-guideway systems. While it is a discretionary program, there are a variety of procedural requirements that apply to projects seeking more than $25 million in federal funding. The House provided $1.8 billion for the New Starts program, the amount requested and virtually identical to the amount provided in the FY2009 appropriation act (an additional $750 million was provided in the emergency stimulus act passed in February 2009). The Senate Committee on Appropriations recommended $2.3 billion, $480 million more than the request and the House provision. Conferees provided $2.0 billion. The Administration requested $345.5 million for MARAD for FY2010, $12 million (3.6%) above the $333 million enacted for FY2009. The House provided $333.5 million, $12 million less than requested and approximately the same amount provided in FY2009. The Senate provided $375.4 million, $30 million more than the requested level. The enacted legislation provided $363 million, $30 million more than the comparable FY2009 amount and $17 million more than requested. MARAD supports maritime transportation. The largest components of its budget are the Maritime Security Program and Operations and Training. The Administration requested $174 million for the Maritime Security Program, the same amount provided in FY2009. This program provides payments of roughly $2.6 million per ship to retain a fleet of 60 active, militarily useful, privately owned vessels to be available to the federal government in the event they are needed for security purposes. A total of $153 million was requested for Operations and Training, $30 million (24.4%) more than provided for FY2009. This program funds the U.S. Merchant Marine Academy, State Maritime Schools, and MARAD's operations. The House's recommendation cut $12 million from the requested level of funding for the Maritime Program expenses line of this account. The Senate committee's primary changes from the requested level were the addition of $17.5 million for assistance to small shipyards (no corresponding request) and $10 million over the requested level of $4 million for the Maritime Guaranteed Loan Program. Congress provided $10 million for assistance to small shipyards in FY2008—its first year of funding, after being authorized in 2006—and $17.5 million in FY2009; no money was requested in either year. The program provides grants and loans to small shipyards for capital improvements. The enacted legislation cut $3 million from the requested level for Operations and Training, and provided additional funding not requested or provided by the House for assistance to small shipyards ($15 million) and guaranteed loan subsidies under the Maritime Guaranteed Loan Program ($5 million). Table 6 presents President Obama's FY2010 budget request for HUD, compared to the prior year's enacted budget authority. Four totals are given at the bottom of Table 6 : "budget authority provided" and "available budget authority," with and without emergency appropriations. Total budget authority provided includes current year appropriations, plus advance appropriations provided in the current fiscal year for use in the next fiscal year; total available budget authority includes current year appropriations, plus advance appropriations provided in the prior fiscal year for use in the current fiscal year. Congress is scored by CBO for the amount of available budget authority in an appropriations bill; however, the Appropriations Committees' documents often discuss the amount of budget authority provided. President Obama's first HUD budget requested a 7.7% increase in regular annual appropriations for HUD programs. However, that increase would require a 9.5% increase in net new budget authority because of a decline in the amount requested for rescission. The House-passed version of H.R. 3288 would provide more than an 11% increase in regular annual appropriations for HUD programs, 3% more than the President's request. That increase would require more than a 13% increase in net new budget authority, also attributable to a decline in rescissions. The Senate Committee-reported version of H.R. 3288 would provide less than the House-passed bill, but more than the President's request. It would result in an 8.5% increase in regular annual appropriations for HUD programs, which would require more than a 10% increase in net new budget authority. After a series continuing resolutions, final FY2010 funding levels for HUD were set by the Consolidated Appropriations Act ( P.L. 111-117 ). The act provided more for HUD than the Senate recommended and the President requested, but less than the House recommended. The 9% increase in total HUD funding over FY2009 levels required an 11% increase in net new budget authority. The difference is largely attributable to a decline in the amount of funding rescinded. This section of the report summarizes select HUD budget issues in FY2010. For an expanded discussion, see CRS Report R40727, The Department of Housing and Urban Development: FY2010 Appropriations , coordinated by [author name scrubbed]. The FY2010 budget is the first of the Obama Administration. While it was completed on a short time-frame, it contains several initiatives that are new and reflect the Obama Administration's priorities. Specifically, as stated in the budget documents, the budget reflects five goals: 1. address the nation's housing and economic crisis; 2. restore federal leadership on promoting affordable rental housing; 3. invest strategically in rural and metropolitan communities; 4. drive energy efficient housing and inclusive, sustainable growth; and 5. transform the way that HUD does business. While these goals are reflected throughout the budget, several new initiatives are proposed, and are summarized below. President Obama's Transformation Initiative requested the authority to transfer up to 1% of funding provided for most HUD accounts to fund activities related to the development of Research, Evaluation, and Performance Metrics; Program Demonstrations; Technical Assistance and Capacity Building; and Next-Generation Information Technology. HUD estimates that, at the requested funding level, the transfer authority would make $433.5 million available to the Transformation Initiative in FY2010. In addition, the budget requested $20 million in new appropriations to fund specific activities designed to address mortgage fraud, including fraud in the Federal Housing Administration (FHA) mortgage insurance programs. Both the House and Senate versions of H.R. 3288 , as well as P.L. 111-117 , supported the President's Transformation Initiative by including the $20 million requested for combating mortgage fraud and some transfer authority, although it is a more limited form of transfer authority than requested by the President. The Energy Innovation Fund is an Obama Administration proposal to "catalyze private sector investment in the energy efficiency of the Nation's housing stock." According to HUD's Congressional Budget Justifications, the $100 million fund would provide up to $50 million for a "Local Initiatives Fund." This fund would provide "a mix of incentive grants, demand-side subsidies, and supply-side leveraging to support the expansion or start-up" of 10 or more local energy retrofit funds. Another $25 million would be available to develop a new pilot energy efficient mortgage program in FHA's single family mortgage insurance program. The final $25 million would be available to develop a Multifamily Energy Pilot to fund energy efficiency improvements in certain HUD-insured multifamily rehabilitation projects. The House-passed bill included $50 million for the President's Energy Innovation Fund, half the amount requested. The bill did not include funding for the "Local Initiatives Fund," but did include funding for the Multifamily Energy Pilot and the energy efficient mortgage program at the requested levels. The Senate Committee-passed version of H.R. 3288 included funding for all three components of the President's Energy Innovation Fund, but at a lower funding level than requested. Specifically, the bill included $20 million each for the energy efficient mortgage and Multifamily Energy Pilot program and $35 million for the Local Initiatives Fund. P.L. 111-117 provided $50 million for the Energy Innovation Fund, and, like the House bill, allocated half for the single-family energy efficient mortgage program and half for the Multifamily Energy Pilot. It did not fund the Local Initiatives Fund. The Choice Neighborhood Initiative is an Obama Administration initiative that would provide competitive grants to revitalize severely distressed neighborhoods. The initiative would be modeled after the HOPE VI program, which provides competitive grants to public housing authorities (PHAs) to revitalize severely distressed public housing. The President's FY2010 budget proposed no new funding for HOPE VI, but requested $250 million for the new Choice Neighborhoods Initiative. In addition to PHAs, local governments, nonprofits, and for-profit developers would be eligible to compete for funds primarily aimed at the transformation, rehabilitation, and replacement of HUD public and assisted housing that cannot be funded through current annual formula or contract payments. According to HUD's Congressional Budget Justifications, in addition to addressing HUD-assisted housing, the program would be aimed at "supporting affordable housing and community development activities in surrounding communities and improving the lives of area residents by creating job opportunities, improving schools and providing work and rent incentives that promote family self-sufficiency." The House-passed version of H.R. 3288 and the Senate Committee-passed version of H.R. 3288 took different positions on the Choice Neighborhoods Initiative and HOPE VI. The House bill would continue to fund HOPE VI, whereas the Senate Committee bill would fund the new initiative, but with a set-aside of more than half of the funding for PHA-led projects. The final FY2010 funding bill, P.L. 111-117 , funded both, by providing $200 million for HOPE VI, with a set-aside of $65 million for a Choice Neighborhoods Initiative demonstration. The Housing and Economic Recovery Act of 2008 ( P.L. 110-289 ) established a Housing Trust Fund that would provide a permanent, dedicated source of funding for affordable housing activities outside of the annual appropriations process. P.L. 110-289 identified contributions from Fannie Mae and Freddie Mac as the dedicated funding source. However, Fannie Mae's and Freddie Mac's contributions to the Housing Trust Fund were indefinitely suspended in November 2008 by their conservator, the Federal Housing Finance Agency, due to Fannie's and Freddie's financial difficulties. The suspension of Fannie's and Freddie's contributions left the Housing Trust Fund without a source of funding. While P.L. 110-289 authorized funding other than the contributions from Fannie Mae and Freddie Mac to be appropriated or transferred to the Housing Trust Fund, no funding has yet been directed to the Housing Trust Fund. The President's budget proposed $1 billion in mandatory funding for the Housing Trust Fund, but a funding source has not been identified for this sum. Neither the House nor the Senate bills, or the final FY2010 funding bill, mentioned the Housing Trust Fund. The Section 8 tenant-based rental assistance account funds the Section 8 voucher program and is the largest account in the HUD budget. The Section 8 voucher program provides portable rental subsidies that low-income families use to reduce their housing costs in the private market. HUD currently funds more than two million Section 8 vouchers, which are administered at the local level by public housing authorities (PHAs). This account—the largest in HUD's budget—primarily funds the cost of renewing those vouchers each year, as well as the cost of administering the program. The FY2009 appropriations law provided just over $11 billion in new appropriations for renewals of Section 8 vouchers in calendar year (CY) 2009; in addition, an advance appropriation provided $4 billion for use in CY2009. However, because the FY2009 appropriations law also enacted a rescission of $750 million, a total of $14.284 billion was available to renew Section 8 vouchers in CY2009. As directed by Congress, HUD based the CY2009 allocations on the voucher utilization and cost data submitted by PHAs for FY2008. HUD used this same data to estimate PHAs' unspent reserves (Net Restricted Assets, or NRA). In some cases, HUD's estimates of costs (plus inflation), utilization, and NRA did not accurately represent PHAs' CY2009 costs, utilization, and NRA balances. In some cases, the inaccurate estimates resulted from inaccurately reported data; in some cases, the differences resulted from significant changes in the cost and leasing conditions of agencies between FY2008 and the start of CY2009. Regardless of the reason, some PHAs have found that their CY2009 funding is insufficient to cover the costs of all the vouchers they are currently using to serve families. HUD has estimated that as many as 15% of PHAs administering the voucher programs face such shortfalls. The Department is working with agencies to determine which ones are facing these shortfalls, and which ones can be assisted with the FY2009 $100 million renewal set-aside and $30 million administrative fee set-aside, and it is advising agencies as to how they can cut costs to stay within their budgets. If a PHA does not have sufficient funding to renew all of its vouchers, the PHA may have to stop issuing vouchers, and, at the extreme, some families may lose assistance. HUD has asked agencies that are facing shortfalls to contact the Department before terminating assistance. In response to concerns about the implications of these funding shortfalls, the second continuing resolution ( P.L. 111-88 ) permitted HUD to use $200 million of the advance appropriation provided in FY2009 for use in FY2010 to adjust PHAs' CY2009 budgets. For FY2010, the President requested $16.189 billion for voucher renewals, with no proposed rescissions. The House-passed version of H.R. 3288 included about $200 million above the President's requested level for renewals. The Senate Committee-passed version of H.R. 3288 included $150 million more for renewals than the President's request, but $50 million less than the House bill. P.L. 111-117 funded renewals at the Senate-requested level. Incremental vouchers is the term used to describe new vouchers. As noted earlier, most funding in the voucher program is devoted to renewing existing vouchers. However, the demand for vouchers far exceeds the supply of roughly two million vouchers, so low-income housing advocates regularly lobby for incremental vouchers to help serve additional families. In his FY2010 budget, the President did not request funding for new incremental vouchers. The FY2010 Congressional Budget Justifications note that the Department is focused on "fully implementing the FY2008 and FY2009 Appropriations." The House-passed version of H.R. 3288 included $75 million for new incremental vouchers for homeless veterans through the HUD-VA Supported Housing (HUD-VASH) program. The Senate Committee-passed version of H.R. 3288 included $75 million for HUD-VASH vouchers and $20 million for Family Unification Program vouchers—these vouchers are used by families who have been involved in the child welfare system. P.L. 111-117 included funding for both VASH vouchers and FUP vouchers. The public housing program provides publicly owned and subsidized rental units for very low-income families. Although no new public housing developments have been built for many years, Congress continues to provide funds to the more than 3,100 public housing authorities (PHAs) that own and maintain the existing stock of more than 1.2 million units. Through the Public Housing Operating Fund, HUD provides funds to PHAs to help fill the gap between tenants' contributions toward rent and the cost of ongoing maintenance, utilities, and administration of public housing. Through the Public Housing Capital Fund, HUD provides funding to PHAs for large capital projects and modernization needs. In FY2009, Congress provided $4.455 billion for the Operating Fund, which was sufficient to fund an estimated 90% of PHA budget eligibility. In FY2010, President Obama requested just under $4.600 billion, which HUD's Congressional Budget Justifications estimate would fully fund PHAs' budget needs. Several of the PHA industry groups have contended that HUD's estimates are incorrect and that to fully fund PHA budgets, the Operating Fund would need $5.050 billion in FY2010. Both the House-passed and Senate Committee-passed bills would increase funding above the President's requested level (to $4.800 billion and $4.750 billion respectively), but not to the level requested by advocates. P.L. 111-117 provided $4.775 billion for the Operating Fund. President Obama's FY2010 budget requested $2.244 billion for the Capital Fund. Of that amount, $2.199 billion would be available for formula grants. The amount requested is roughly equal to the estimated $2 billion in new capital needs that accrue every year in public housing. In addition to new needs, there is an estimated backlog of roughly $20 billion in unmet capital needs. Both the House-passed and Senate Committee-passed versions of H.R. 3288 would fund the Capital Fund at $2.5 billion, which is more than both the President's request and the FY2009 level. P.L. 111-117 adopted the House and Senate funding level, $2.5 billion. The Community Development Block Grant (CDBG) program is the largest source of federal financial assistance in support of state and local neighborhood revitalization, housing rehabilitation, and economic development activities. CDBG is part of the Community Development Fund (CDF) account, which has also funded other community development-related programs in past years, including the Economic Development Initiatives (EDI) and Neighborhood Initiative (NI) programs. For FY2010, the Administration's budget request proposed a $550 million increase in total CDF appropriations, including a request to "fully fund" the CDBG program. In addition, the budget request included $150 million to fund the Administration's proposed Sustainable Communities Initiatives, and $50 million to support activities previously funded under other HUD accounts—specifically, the Rural Innovation Fund (currently known as the Rural Housing and Economic Development Program), and the University Communities Fund, previously funded under a different account. The House-passed version of H.R. 3288 included $4.599 billion for CDF activities, including $4.167 billion for formula-based CDBG funds to state and local governments. The bill recommended $149 million more in CDF appropriations and $18 million less in CDBG formula-based funding than requested by the Administration. The difference in the amount requested by the Administration and that recommended by the House would be used to fund congressionally designated special projects (earmarks) under both the EDI ($151 million) and NI ($16 million) subaccounts. The Senate Committee-passed version of H.R. 3288 would take a similar tack, recommending an amount for CDBG formula-based funding that is $193 million less than requested by the Administration in order to fund the EDI and NI subaccounts. In addition, both the House-passed version of H.R. 3288 and the Senate Committee-passed version support the Administration's multi-pronged Sustainable Communities Initiative by recommending $150 million in new appropriations to fund the initiative, which would promote the regional integration of housing, transportation, energy, and environmental plans and strategies. P.L. 111-117 provided the same level of funding for the CDF as requested by the President and proposed by the Senate. Of that amount, $3.99 billion is designated for CDBG grants, $173 million is designated for EDI, $22 million is designated for NI, and $150 million is designated for the Sustainable Communities Initiative. The Brownfield Economic Development Initiative (BEDI) program is a competitive grant program that provides funds to assist communities with the redevelopment of abandoned, idled, and underused industrial and commercial facilities where expansion and redevelopment are burdened by real or potential environmental contamination. The Section 108 loan guarantee program allows states and entitlement communities to borrow against their annual CDBG allocation in order to help finance brownfield redevelopment activities. Although the previous Administration requested no new funding for BEDI and the Section 108 loan guarantee programs during previous budget cycles, arguing they were duplicative of other programs, Congress continued to fund the programs. The Obama Administration's FY2010 budget proposed to revamp the Section 108 loan guarantee program by eliminating the credit subsidy and instead charging a fee-based assessment to borrowers accessing the program. The House-passed version of H.R. 3288 would maintain the program's present structure, while the version reported by the Senate Appropriations Committee supports the Administration's proposal. P.L. 111-117 adopted the House proposal, funding Section 108 at $6 million, utilizing the previous structure. President Obama's FY2010 budget also proposed eliminating the separate appropriation for the BEDI program for FY2010, but noted that program activities could continue to be funded under the larger CDBG program. H.R. 3288 , as reported by the Senate Appropriations Committee, included no funding for the program. However, the House-passed version of the bill would appropriate $25 million for BEDI activities, returning the program to its pre-FY2007 funding level. P.L. 111-117 provided $18 million for BEDI. HUD's housing counseling program provides competitive grants to HUD-approved housing counseling agencies. Housing counseling agencies provide a wide range of counseling services to prospective home buyers, current homeowners, and other groups with specific housing concerns. Recently, Congress has also provided separate funding to the Neighborhood Reinvestment Corporation, commonly known as NeighborWorks America, specifically for foreclosure mitigation counseling. NeighborWorks distributes these funds to eligible housing counseling organizations through the National Foreclosure Mitigation Counseling Program (NFMCP). (Note that the funding for the NFMCP is not provided within HUD's budget; the Neighborhood Reinvestment Corporation receives a separate appropriation in Title III of the Transportation, HUD, and Related Agencies funding bill). The President's budget proposed $100 million in funding for HUD housing counseling in FY2010, a $35 million increase over the $65 million appropriated in FY2009. The President's budget also included $33.8 million in funding for the NFMCP. The House-passed version of H.R. 3288 included the same total amount of funding for housing counseling as the President's budget, but proposed to distribute the funding differently. The House bill would provide $75 million in funding for HUD's housing counseling program, which represents a $10 million increase over the FY2009 appropriation but is $25 million less than the President's budget request. The House bill would also provide $63.8 million for the NFMCP, a $30 million increase over the President's budget request. The Senate Committee-passed bill would provide a higher total amount of funding for housing counseling than either the House-passed bill or the President's budget request. Specifically, the Senate Committee-passed bill would provide $100 million for HUD Housing Counseling and $65 million for the NFMCP. P.L. 111-117 included $87.5 million for HUD housing counseling and $65 million for the NFMCP. The Federal Housing Administration (FHA) insures mortgage loans made by private lenders to eligible borrowers. The FHA home loan insurance programs are administered through two program accounts: the Mutual Mortgage Insurance/Cooperative Management Housing Insurance fund account (MMI/CMHI) and the General Insurance/Special Risk Insurance fund account (GI/SRI). The MMI/CMHI fund provides insurance for home mortgages. The GI/SRI fund provides insurance for more risky home mortgages, for multifamily rental housing, and for an assortment of special-purpose loans such as hospitals and nursing homes. In recent years, the cost of FHA in the annual appropriations acts has been negative, meaning that the account has, on net, brought in more than it costs, with the surplus used to offset the cost of the HUD budget. However, the President's FY2010 budget request, as estimated by the Congressional Budget Office (CBO), would require positive appropriations for the FHA account. This is in part due to the Home Equity Conversion Mortgage (HECM) program, which, because of the present housing market, has experienced lower-than-expected appreciation rates for homes. Under the President's budget request, HECMs would require $798 million in positive appropriations in FY2010. Both the House-passed and Senate Committee-passed versions of H.R. 3288 would require HUD to make changes to the HECM program to minimize the amount of positive credit subsidy required in the MMI fund. For example, both versions of H.R. 3288 would require an adjustment of the factors used to calculate the principal limit for HECMs. H.R. 3288 , as passed by the House, estimated that the FHA funds would not need the positive appropriations for HECMs assumed by the President's budget. Under the Senate Committee-passed version of H.R. 3288 , the positive subsidy requirement for HECMs would be $288 million, compared to $798 million under the President's budget. P.L. 111-117 included the House proposal to require the Secretary of HUD to administer the HECM program without a credit subsidy. The Government National Mortgage Association (Ginnie Mae) is the agency of HUD that guarantees the timely payment of principal and interest on securities that back mortgages insured by FHA and other government agencies. Increases in FHA activity results in an increase in Ginnie Mae activity, since Ginnie Mae backs nearly 97% of FHA-insured mortgages. The President's budget estimated that Ginnie Mae would provide $720 million in offsets that could be used to reduce the cost of the HUD budget, compared to only $193 million in FY2009. The American Recovery and Reinvestment Act of 2009 (ARRA; H.R. 1 / P.L. 111-5 ) On February 17, 2009, the President signed this measure (commonly referred to as "the economic stimulus act") into law. It included 461.8 billion for THUD agencies: $48.1 billion for DOT programs and $13.7 billion for HUD programs. The legislation included deadlines to encourage the expenditure of the money as quickly as feasible; while much of the funding was expended during FY2009, some will not be expended until FY2010 or even later The Department of Defense Appropriations Act, FY2010 (P.L. 111-118) Division B of this act, which was signed into law on December 19, 2009, included a provision extending the authorization of the surface transportation programs to February 28, 2010 (section 1008). The authorization, which was originally scheduled to expire on September 30, 2010, had previously been extended by the Continuing Appropriations Resolution, FY2010 (Division B of P.L. 111-68, sections 157-162). The Jobs for Main Street Act of 2009 (H.R. 2847) On December 16, 2009, the House of Representatives passed a substitute amendment to H.R. 2847 . Division A, the Jobs for Main Street Act of 2009, would provide $150 billion in supplemental emergency funding to stimulate the economy, and includes funding for both transportation and housing programs. It would provide $37.3 billion for DOT, with virtually all of that funding going to highway and transit grants, and would extend the authorization for DOT surface transportation programs to September 30, 2010. It would provide over $1 billion to HUD to capitalize the National Affordable Housing Trust Fund. (For more information, see CRS Report R40781, The Housing Trust Fund: Background and Issues , by [author name scrubbed].) It would also provide HUD with $1 billion for competitive grants through the Public Housing Capital Fund. The Senate has not yet taken action on the Jobs for Main Street Act of 2009. | President Obama requested a total of $123.1 billion for the agencies included in H.R. 3288, the Transportation, Housing and Urban Development, and Related Agencies Appropriations (THUD) bill for FY2010. This request represented an increase of approximately $14.1 billion (12.9%) over the $109.1 billion provided in the FY2009 THUD appropriations act (Division I of P.L. 111-8). The enacted legislation provided $122.1 billion, less than 1% ($977 million) below the President's request and 12% ($13.4 billion) more than the comparable FY2009 funding (not including the FY2009 emergency funding). The single largest new item in the budget request was $5 billion for a new independent federal agency—a national infrastructure bank—that would provide federal funding for, and promote investment from other sources in, infrastructure projects of national or regional significance. Neither the House nor the Senate funded this request; the conference report encourages the administration to pursue the creation of such a program through the regular authorization process. The FY2010 request for DOT totaled $72.4 billion, $5.2 billion (7.7%) more than the total of $67.2 billion in funding provided in the FY2009 THUD appropriations act (the House and Senate both reported the request as $77.4 billion, as they considered the $5 billion request for an infrastructure bank as part of the DOT request). The actual requested increase is somewhat less, as the reported funding level for FY2009 was reduced by a $3.5 billion rescission of contract authority which did not actually reduce the level of funding provided. The House-passed bill provides a total of $75.8 billion in funding for DOT, $3.4 billion (8%) more than the requested level. The Senate-passed bill provided $75.8 billion. The enacted legislation provided $75.7 billion, $3.3 billion (5%) more than the original DOT request. The FY2010 request for HUD totaled $45.5 billion, $4.0 billion (7.7%) more than the comparable amount of new funding provided in the regular annual appropriation for FY2009. The House-passed bill provided $47.1 billion, the Senate-passed bill provided $45.8, and the enacted legislation provided $46.1 billion,1% more than the requested amount. Throughout this report, the amounts being considered for FY2010 are compared to the amounts provided in the FY2009 THUD appropriations act. However, DOT and HUD also received significant amounts of supplemental funding in FY2009 through the economic stimulus act (the American Recovery and Reinvestment Act, P.L. 111-5/H.R. 1), which Congress passed in February of 2009. That act provided $48.1 billion in emergency supplemental funding for DOT and $13.7 billion for HUD, a total of $61.8 billion in additional funding. That represented an increase of 52% to the total new funding provided in the FY2009 THUD appropriations act. Not every office and program in the THUD bill received funding from that supplement, and not all of that additional funding was expended in FY2009. |
Following incidents of terrorism or mass violence in the United States, jurisdictions and individuals may be eligible to receive various types of victim assistance both directly from the Department of Justice (DOJ) and indirectly from DOJ through their respective state victim assistance agencies or other programs. While circumstances in some terrorism or mass violence incidents may make a jurisdiction or organization eligible for assistance from other federal departments, this report focuses solely on assistance available from DOJ's Office for Victims of Crime (OVC). As authorized by the Victims of Crime Act (VOCA), the OVC supports several federal programs that may assist victims of terrorism or mass violence. The OVC awards funds through formula and discretionary grants to states, local units of government, individuals, and other entities with the primary purpose of assisting victims. These programs are funded by the Crime Victims Fund (CVF)—an account within the U.S. Treasury that is not funded through traditional appropriations but largely through the collection of federal criminal fines. The Director of the OVC is authorized to set aside $50 million of CVF money in the Antiterrorism Emergency Reserve, which funds OVC-administered programs that support victims of terrorism or mass violence. This report examines CVF-funded assistance for victims of terrorism or mass violence. It includes discussion of programs that broadly cover crime victim assistance and programs that are specifically designed to address terrorism or mass violence. It also includes a discussion of how these programs have assisted victims of various incidents of terrorism or mass violence over the last several years. Several DOJ programs may be used to assist jurisdictions in responding to the needs of victims following incidents of terrorism or mass violence. Grant programs include the victim assistance and victim compensation formula grant programs and the Antiterrorism and Emergency Assistance Program (AEAP). Other programs and operations directly assist victims, including the Victim Assistance Program at the Federal Bureau of Investigation (FBI), victim witness assistance at the Offices of the U.S. Attorneys, the International Terrorism Victim Expense Reimbursement Program (ITVERP) and the Victim Reunification Travel Program at the OVC, and various supplemental grants to and agreements with agencies and organizations that provide assistance to victims of terrorism or mass violence. Victim assistance formula grant program funds may be used by states to immediately respond with victim services in the event of a large-scale incident such as the shooting that occurred in Charleston, SC, in June 2015. States use these funds to support crime victim assistance programs that provide direct services to crime victims. Eligible services, activities, and costs include the following: those that respond to the immediate emotional and physical needs (excluding medical care) of crime victims such as crisis intervention, mental health assistance, assistance with participation in criminal justice proceedings, forensic examinations, costs necessary and essential for providing direct services such as pro-rated costs of rent and transportation costs for victims to receive services, special services such as assisting victims in recovering property retained as evidence, personnel costs directly related to providing direct services, and restorative justice, which includes opportunities for crime victims to meet with perpetrators. Other allowable costs, such as training and advanced technologies, are listed in the Final Program Guidelines for the Victim Assistance Grant Program. Each year in support of victim assistance programs, states and territories receive a base amount plus the remaining funds available after all other CVF-funded programs have received funding—this remaining amount is distributed based on population. In FY2016, $2.22 billion in victim assistance grant funds was distributed to the states, territories, and the District of Columbia. In FY2015 and FY2016, victim assistance grants were substantially increased as the annual obligation cap on the CVF was tripled for FY2015 ($2.361 billion) and increased further in FY2016 ($3.042 billion). Victim assistance grant award project periods span several years. For example, the project period for FY2016 victim assistance grants is October 1, 2015, through September 30, 2019. Victim compensation formula grant funds may be used to help victims offset the costs of expenses related to incidents of terrorism or mass violence, including out-of-pocket expenses such as medical and mental health counseling expenses, lost wages, funeral and burial costs, and other costs (except property loss) authorized in a state's compensation statute. Victims are reimbursed for crime-related expenses that are not covered by other resources, such as private insurance. Maximum reimbursement amounts vary widely from state to state. For example, California set its maximum reimbursement at $63,000 on a single application while Virginia set its maximum award at $25,000. The OVC awards each eligible state victim compensation program an annual grant equal to 60% of what the state spent in state-funded benefits in the previous two years. Like victim assistance grants, victim compensation award project periods span several years. In FY2016, $125.4 million in victim compensation grant funds was distributed to the states, territories, and the District of Columbia. The Antiterrorism Emergency Reserve was established in P.L. 104-132 to meet the immediate and long-term needs of victims of terrorism or mass violence. The Director of the OVC was authorized to set aside $50 million of CVF money in the Antiterrorism Emergency Reserve to respond to the needs of victims of the September 11 terrorist attacks, and subsequently to replenish any amounts expended so that not more than $50 million is reserved in any fiscal year for any future victims of terrorism or mass violence. Of note, these funds do not fall under the annual obligation cap of the CVF, but rather funds retained in the CVF may be used to replenish the Antiterrorism Emergency Reserve. This reserve fund supports the Antiterrorism and Emergency Assistance Program (AEAP), the International Terrorism Victim Expense Reimbursement Program (ITVERP), the Crime Victim Emergency Assistance Fund, the Victim Reunification Program, and other activities in support of victims of mass violence or terrorism. In addition, the Antiterrorism Emergency Reserve supports other activities such as supplemental grants to other entities to provide emergency relief (e.g., crisis response efforts, assistance, compensation, training and technical assistance, and ongoing assistance, including during any investigation or prosecution) to victims of terrorist acts or mass violence occurring within the United States. The OVC may respond to incidents of terrorism or mass violence with grants from the AEAP. Following these incidents, the OVC verifies that an act of terrorism or mass violence has resulted in a significant number of victims being injured or killed. It then contacts the relevant state's VOCA administrative office and advises the administrator that AEAP resources may be available. In cases of terrorism or mass violence outside the United States, the OVC will determine which organizations or agencies within the United States may apply for funding. Eligible applicants include U.S. Attorneys' Offices; federal, state, and local governments (including state victim assistance and compensation programs); and nongovernmental victim service organizations. AEAP funds may be used for the following types of assistance: crisis response, consequence management, criminal justice support, crime victim compensation, and training and technical assistance. See Table A-1 for award amounts distributed under the AEAP from FY2014 through July 2016. In addition to the AEAP, the Antiterrorism Emergency Reserve funds several other programs and operations that support victims of terrorism or mass violence. These programs and operations include the following: The International Terrorism Victim Expense Reimbursement Program (ITVERP) —Through ITVERP, the OVC reimburses victims of international terrorism and their families for expenses related to medical and mental health care, a funeral and burial, repatriation of the victim's remains, property loss, and other expenses including emergency travel. Crime Victim Emergency Assistance Fund at the FBI —With support from this fund, the FBI's Office for Victim Assistance provides support and emergency assistance to victims of terrorism or mass violence. Victim Reunification Program —Through this program, the OVC assists parents whose children are illegally taken across U.S. borders by a spouse or biological parent. Support includes services such as payment of transportation expenses required to attend a court proceeding with the child, translation of documents related to court hearings and the reunification process, and counseling support to prepare the parents for reunification and minimize the trauma for the child. Interagency Agreements —The OVC contracts with and reimburses other agencies, including federal agencies, to provide assistance and compensation to victims of terrorism acts or mass violence occurring within the United States. Special Masters Claims —The OVC funds reimbursement for federal court special masters in certain terrorism-related civil lawsuits. Funds from the Antiterrorism Emergency Reserve have supported most of these listed activities over the last several years. See the Appendix for further details on use of these funds. This appendix includes award data for the past three fiscal years to illustrate how the Antiterrorism Emergency Reserve has been used to assist victims of terrorism or mass violence. Table A-1 includes awards made under the Antiterrorism and Emergency Assistance Program (AEAP) from FY2014 through July 2016. Table A-2 includes all other activities funded by the Antiterrorism Emergency Reserve from FY2014 through July 2016. | Following incidents of terrorism or mass violence in the United States, jurisdictions and individuals may be eligible to receive various types of victim assistance both directly from the Department of Justice (DOJ) and indirectly from DOJ through their respective state victim assistance agencies or other programs. While circumstances in some incidents may result in a jurisdiction's eligibility for assistance from other federal departments, such as Department of Education grants awarded to Newtown Public School District in recovery efforts from the Newtown, CT, elementary school shooting, this report focuses solely on assistance available from DOJ's Office for Victims of Crime (OVC)—the primary federal assistance available to victims of terrorism or mass violence. As authorized by the Victims of Crime Act (VOCA, P.L. 98-473), the OVC supports several federal programs that may assist victims of terrorism or mass violence. Grant programs include the victim assistance and victim compensation formula grant programs and the Antiterrorism and Emergency Assistance Program (AEAP). Other programs and operations directly assist victims, including the Victim Assistance Program at the Federal Bureau of Investigation (FBI), victim witness assistance at the Offices of the U.S. Attorneys, the International Terrorism Victim Expense Reimbursement Program (ITVERP), the Victim Reunification Travel Program, and various supplemental grants to and agreements with agencies and organizations that provide assistance to victims of terrorism or mass violence. These activities are funded by the Crime Victims Fund (CVF), an account within the U.S. Treasury that is not funded through traditional appropriations but largely through the collection of federal criminal fines. At the end of FY2015, the balance of the CVF was over $12 billion. The Director of the OVC is authorized to set aside $50 million of CVF money in the Antiterrorism Emergency Reserve, which funds operations that support victims of terrorism and mass violence. From FY2014 through July 2016, the OVC has distributed $42.2 million toward activities funded by the Antiterrorism Emergency Reserve in response to incidents including, but not limited to, the Boston Marathon bombing, Newtown school shooting, and Charleston church shooting. |
In the mid-1990s, the U.S. Bureau of the Census (Census Bureau) began developing and testing a new means of data collection called a "rolling sample" or "continuous measurement" survey that became the American Community Survey (ACS). Implemented nationwide in 2005 and 2006, the ACS currently collects data from a representative sample of about 295,000 housing units a month, totaling about 3.54 million a year (an increase from the 2005 to 2011 sample size of approximately 250,000 housing units monthly, totaling about 3 million annually). The data are aggregated over time to produce large enough samples for reliable estimates, with longer cumulations of data necessary in less populous areas. The Bureau issues one-year estimates for the most populous areas, those with at least 65,000 people; three-year estimates for areas with 20,000 or more people; and five-year estimates for areas from the most populous to those having fewer than 20,000 residents. Although conducted separately from the once-a-decade count of the whole U.S. population, the ACS is considered a part of the decennial census program because it replaced the census long form, which covered a representative sample of housing units every 10 years from 1940 through 2000. In the 2000 census, a set of basic questions on a short form went to most housing units; a sample of units—about 17% overall—received a long form containing the short-form questions and additional questions that collected detailed data on socioeconomic and housing characteristics. The data served myriad governmental, business, and research purposes and were used in program formulas that determined the annual allocation of various federal funds to states and localities. ACS data, which serve the same purposes but are much more current than the long-form estimates were, are used to distribute more than $450 billion a year in funding. Thus, the timeliness and quality of ACS data are important for many reasons, but especially to promote the equitable allocation of scarce public resources. Discussing in 2001 how the ACS evolved, the late Charles H. Alexander of the Census Bureau recalled that in the early 1990s [t]here was renewed Congressional interest in intercensal characteristics data ... and a "continuous measurement" alternative to the census long form was considered as part of the research for Census 2000, starting in 1992. [The] rolling sample design was eventually proposed for this purpose because it provided flexibility in making estimates, as well as the potential for efficient data collection.... "Continuous Measurement" was later renamed the "American Community Survey.... " The proposed ACS was not adopted for Census 2000, but after limited testing during 1996-1998, the ACS methodology was implemented in 36 counties for the years 1999-2001, so that ACS results could be compared to the 2000 census long form data. There was also a large-scale test in 2000, for a state-representative annual sample ... called the Census 2000 Supplementary Survey, of collecting long-form data separately from the census, using the ACS questionnaire. He explained that [f]or the main ACS objective, to replace the census long form as a source of detailed descriptive statistics, we plan to use 5-year ACS cumulations, for a data product similar to traditional long form "summary files". This is the shortest time period for which the ACS sampling error is judged to be reasonably close to that of the census long form. All sizes and types of geographic areas would be included on these 5-year data files.... For individual areas, the most prominently published data will be one-year averages for areas greater than 65,000 population, and 3-year averages for areas greater than 20,000, in addition to the 5-year averages for all areas. The Census Bureau had two main reasons for replacing the long form with the ACS. First was the intention to increase public acceptance of, and response to, the decennial enumeration by decoupling the count of the whole population from the sample-survey part of the census. The Bureau strives, never entirely successfully, to achieve a complete count because it is a constitutional requirement for apportioning seats in the U.S. House of Representatives, and because the data serve many other important national, state, and local purposes. According to a 2008 Government Accountability Office (GAO) report on the projected mail response rate of 69% for the 2010 census, the Bureau calculated that eliminating the long form and moving to a short-form-only census would add one percentage point to the 2000 census initial mail return rate of 65%. The second reason for adopting the ACS was to produce more timely information, which was particularly needed in program formulas used to distribute certain federal funds to states and localities. Detailed socioeconomic and housing data not only were collected just once a decade on the long form, but also were up to three years old by the time the Bureau processed and released them. In 1976, Congress authorized, but did not fund, a mid-decade census that would have provided more current data. The ACS could be viewed as substituting for the never-implemented mid-decade census as well as the long form. Before the ACS became fully operational, in 2005 and 2006, it underwent extensive development and testing, which began in the mid-1990s. The steps that led to full implementation are discussed briefly below. The Bureau's ACS designers decided, while developing a prototype of the survey, that it would have several features in common with the decennial census: survey questionnaires would be mailed to housing units, and completed questionnaires would be returned by mail; responses would be mandatory; and the Bureau would follow up, by telephone and, as necessary, in-person visits, with households that did not fill out and return their questionnaires. Unlike the census, however, the ACS would collect data continuously from independent monthly samples of the population and would aggregate the data over time to produce estimates that would be controlled to population and housing estimates. The designers "initially suggested" an ACS sample size of 500,000 housing units per month, but rejected it as prohibitively expensive and "determined that a monthly sample size of 250,000 would generate an acceptable level of reliability." Limited testing of ACS operations began in 1995 in Rockland County, New York; Brevard County, Florida; Multnomah County, Oregon; and Fulton County, Pennsylvania. In 1996, the Bureau extended testing to areas with varied geographic and demographic characteristics, including Harris County, Texas; Fort Bend County, Texas; Douglas County, Nebraska; Franklin County, Ohio; and Otero County, New Mexico. This testing led to further research into small-area estimation, estimation methods, nonresponse follow-up, weighting in ACS tests, item nonresponse, response rates, and the quality of data for rural areas. In 1998, operational testing expanded to Kershaw County, South Carolina; Richland County, South Carolina; and Broward County (which the Bureau substituted for Brevard County), Florida. Adding the two South Carolina counties enabled the Bureau to compare ACS test data with results from the 1998 dress rehearsal for the 2000 census, which included these counties. Testing was extended in 1999 to 36 counties in 26 states, "selected to represent different combinations of county population size, difficulty of enumeration, and 1990-1995 population growth," as well as "racial and ethnic diversity, migrant or seasonal populations, American Indian reservations, changing economic conditions, and predominant occupation or industry types." In addition, during 1999 and 2001, the 36 counties were test sites for enumerating residents of group quarters (GQs), such as college residence halls, residential treatment centers, skilled nursing facilities, group homes, military barracks, correctional facilities, and workers' dormitories; and facilities for homeless people. These tests, which concentrated on the methodology for visiting group quarters, selecting samples of residents, and conducting interviews, "led to modification of sampling techniques and revisions to data collection methods." Although the primary objective of this testing phase "was to determine the viability of the methodologies utilized, it also generated usable data." Data were released in 1999 on "demographic, social, economic, and housing topics." In 2000, the Bureau undertook a larger-scale test, or demonstration, originally called the "Census 2000 Supplementary Survey," to "assure Congress and other data users" that nationwide implementation of the ACS was feasible and that the rolling sample survey could produce information comparable in quality and reliability to long-form data. The demonstration was conducted in 1,239 of the nation's 3,141 counties, the 36 ACS test counties and 1,203 newly added counties. The number of housing units sampled annually increased from 165,000 in 1999 to 866,000 in 2000. From 2001 through 2004, the Bureau issued 11 reports analyzing various aspects of the demonstration phase. Overall, according to this analysis, the demonstration showed the ACS to be a success and supported proceeding with it, but with certain refinements. The demonstration's "planned tasks were completed on time and within budget, and the data collected met basic Census Bureau quality standards." The ACS "was well-managed, was achieving the desired response rates, and had functional quality control procedures." The ACS and census 2000 long-form estimates of economic characteristics were comparable. The same was true of social characteristics, except for the estimates of disability and ancestry. The analysis recommended further research concerning these discrepancies, and other research to reduce variance in ACS estimates below the county level of geography. Moreover, the analysis found that although the "ACS methodology was sound, its improvement needed to be an ongoing activity." At congressional direction, part of the demonstration involved a test of voluntary versus mandatory compliance with the ACS. The test and its results, which have implications for ACS response rates, survey costs, and data reliability, are discussed later in this report. Full implementation of the housing unit component of the ACS occurred in January 2005, with the survey's expansion to all 3,141 U.S. counties and coverage of approximately 250,000 housing units per month, for a total of about 3 million a year. In January 2006, with an annual sample of approximately 20,000 group quarters, the Bureau fully implemented this part of the ACS. In mid-2006, the Bureau began releasing, on its American FactFinder website, annual ACS population and housing unit profiles for geographic areas—including congressional districts—with 65,000 or more people. An estimate released in any given year is a period estimate, a cumulation of data collected in every month during the previous year. Thus, for example, the data issued in 2006 represent information gathered throughout 2005, not at a particular point in 2005. The latest one-year estimates, for 2013, were posted on September 18, 2014. The first three-year period estimates, for areas with at least 20,000 people, became available in 2008. They represent data collected in 2005, 2006, and 2007. The second three-year set, released in 2009, covers 2006 through 2008. The latest three-year estimates, for 2011 through 2013, were released on October 23, 2014. In areas with fewer than 20,000 people, generating an ACS sample large enough to provide estimates similar in accuracy to long-form estimates requires, as noted at the beginning of this report, data collection over a five-year period. The first five-year estimates, of data gathered from 2005 through 2009, were issued in 2010. Five-year data have been issued in every subsequent year, most recently on December 4, 2014, for 2009 through 2013. The many tables of ACS data shown in American FactFinder include, beside each estimate, the margin of sampling error associated with it. As the Bureau has explained, "a margin of error is the difference between an estimate and its upper or lower confidence bounds . Confidence bounds can be created by adding the margin of error to the estimate (for an upper bound) and subtracting the margin of error from the estimate (for a lower bound)." All published margins of error for the ACS are based on a 90% confidence level. That is, the data user can be 90% certain that the true value of an ACS estimate lies between its upper and lower confidence bounds. The Bureau gave the following illustration using a one-year estimate from 2007. The estimate for the percentage of children under age 18 below the poverty level in Mississippi "is 29.3% and the margin of error is +/- 1.2." The data user can be 90% "certain that the true value is between 28.1% and 30.5%. This is calculated by first subtracting the margin of error (1.2%) from the estimate (29.3%), giving the lower bound for the estimate (28.1%)." Then, to calculate the upper bound, the data user adds "the margin of error (1.2%) to the estimate (29.3%), to get 30.5%." Those who access ACS data tables in American FactFinder will see that the survey covers a broad array of topics, which are summarized in the Appendix to this report. The brief explanation or description after each topic was adapted from the ACS questionnaire. Although—as the Appendix indicates—the questionnaire is quite detailed, the items on it, like the predecessor long-form items, underwent a precise selection process. A 2006 policy statement by the Bureau pointed out that the Paperwork Reduction Act of 1995 (PRA) and its implementing regulations require federal agencies to obtain Office of Management and Budget (OMB) approval before collecting information from the public. On the long form, the Bureau could ask only for data that were mandatory: "a current federal law ... explicitly called for the use of decennial census data for a particular federal program"; required: "it was unequivocally clear that a federal law (or implementing regulation) required the use of specific data and the decennial census was the historical or only source of data"; or programmatic: "the data were necessary for Census Bureau operational needs." "In accordance with the PRA," the policy statement continued, "the OMB, in consultation with the Census Bureau, is responsible for approving new content for the ACS." Factors to be considered include frequency of data collection; the level of geography needed ... and whether any other source of data would meet the requestor's need in lieu of ... the ACS. The Census Bureau recognizes and appreciates the interests of federal partners and stakeholders in the collection of data on the ACS. The fact that respondents' participation ... is mandatory requires that the OMB will only approve, and the Census Bureau will only ask, necessary questions. On a periodic basis, the Census Bureau will reassess the questions contained on the ACS to ensure that this survey remains the appropriate vehicle for collection of these data. The OMB's responsibility under the PRA requires that practical utility of the data be demonstrated and that the respondent burden be kept to a minimum. As such, the Census Bureau will refer all agency requests for new content to the OMB. The Bureau's website reproduces each item from the ACS questionnaire and describes in general terms how the resulting data are used, including, as mentioned at the beginning of this report, in program formulas that determine the distribution of more than $450 billion a year in certain federal funds to states and localities. Below are several examples of these program uses, paraphrased from the Bureau's descriptions. Various federal agencies use information about disability status to develop programs and distribute funds, such as grants based on the number of elderly people with physical and mental disabilities and funds for mass transit systems to provide facilities for the handicapped. Income data are part of the federal allocation formulas for many programs. Among other purposes, these data are used to allocate funds for home energy aid; provide funds for housing assistance; identify localities eligible for grants to promote economic recovery and conduct job-training programs; provide local agencies with funds for food, health care, and legal services for the low-income elderly; allocate funds for food, health care, and classes in meal planning to low-income women with children; and distribute funds to counties and school districts to improve the education of children from low-income households. Data on veteran status are used to distribute funds to states and localities for veterans' employment and job training programs. Data on language are the basis for allocating grants to school districts to benefit children with limited English proficiency. Data about plumbing facilities are used as one variable in assessing the quality of housing stock; an additional use is to allocate federal housing subsidies. Tension is inherent between the amount, quality, timeliness, and geographic coverage of data that the ACS provides, and the public cost—in both dollars and respondent burden—of gathering the information. Larger samples can provide better data and better coverage across different levels of geography, but they are more expensive and involve more respondents. Gathering a large amount of data monthly and aggregating it over one-, three-, and five-year intervals yields detailed, relatively current information, but also at considerable cost. In a March 2009 Federal Register notice, the Bureau announced and sought public comments on its plans for releasing 2005 through 2009 ACS data products. According to the notice, the release was to "achieve a goal of the ACS to provide small area data similar to the data published after Census 2000, based on the long-form sample," but some who commented had a different assessment. As one observed, with a "fixed sample size of three million households annually, the ACS 5-year sample is considerably smaller than the 1-in-6 household sample of Census 2000.... The original ACS sample design was for three percent of households each year, a level that would have produced 5-year data for small geographic areas near the reliability and disclosure avoidance levels of Census 2000." Because the Bureau "did not receive a budget for a sample similar to that of the long form ... the 5-year data products cannot be as detailed for smaller geographic areas as they were in 2000." The correspondent called for the Bureau to acknowledge "openly" that, "given the smaller sample size, some ACS 5-year products cannot meet some user needs for detailed census tract and block group data." The issue of sample size, especially as it affects small-area data, is not new. It was discussed, for example, in a 2007 publication by the National Academy of Sciences' Committee on National Statistics and a 2004 GAO report. Moreover, a fixed sample size of the ACS would mean that as the U.S. population grew, with a corresponding increase in housing units, the proportion of units surveyed would decrease. This decrease could affect the quality of ACS data for all purposes, particularly for the equitable distribution of various federal funds to states and localities. In 2003, the Bureau reported that the fully implemented ACS would sample about 3 million of approximately 120 million housing units annually, or about 2.5% of all units. By 2010, when that year's census showed the number of housing units to be 131.7 million, 3 million units represented about 2.3% of the total. Of the Obama Administration's $1.267 billion appropriations request for the Bureau in FY2011, $44 million was to go toward enlarging the annual ACS sample size to about 3.54 million housing units, almost 2.7% of all units, "to improve the reliability of the ACS estimates at the tract level." The funds also were to "allow the Census Bureau to enhance field and telephone center data collection, conduct a 100 percent nonresponse follow-up operation in Remote Alaska and small American Indian, Alaska Native, and Native Hawaiian Homeland areas, and provide additional resources for the full review of the 3-year and 5-year data." In July 18, 2012, congressional testimony, then-Bureau Director Robert M. Groves confirmed that the ACS sample size had increased to about 3.54 million housing units a year. The ACS has encountered some public resistance, as did its long-form predecessor. One indication of the reaction to a mailed questionnaire from the Bureau is whether the recipients fill it out and mail it back before nonresponse follow-up begins. Long-form responses by mail tended to decrease over time, and the same has occurred with the ACS since 2000. A 2004 report by the National Academy of Sciences' Committee on National Statistics, Panel to Review the 2000 Census, cited a two-percentage-point difference between short-form and long-form mail return rates in 1980 (82% versus 80%), which widened to five percentage points in 1990 (76% versus 71%) and nine percentage points in 2000 (80% versus 71%). The 71% mail return rate for the long form in 1990 and 2000 represented a nine-percentage-point decrease from the 1980 rate of 80%. A 2009 evaluation by the Bureau found that ACS mail response rates dropped 5.8 percentage points over eight years (from 40.6% in 2000 to 34.8% in 2008). These rates, however, excluded questionnaires returned more than 25 days after being mailed out. When all the questionnaires were included, response rates were higher and the decrease over eight years was less (3.1 percentage points, from 59.7% in 2000 to 56.6% in 2008). Press reports, a poll, and a House subcommittee oversight hearing on the 2000 census reflected a degree of dissatisfaction with the 2000 census long form. In opening remarks at the hearing, the subcommittee chairman stated, Clearly the biggest controversy surrounding the census has been the perceived intrusiveness and the invasion of privacy of the long form.... While the long form has always been less popular than the short form, the attitudes toward the 2000 long form seem to be particularly intense despite the fact that it ... only differs by one new question from 1990. During the 1998 dress rehearsals, the long form response rate was between 10 and 15 percentage points lower than the short form.... From the first day that the forms were being received at millions of homes around the Nation, Members of Congress were receiving phone calls from constituents who were very upset about the long form. Every major newspaper in the Nation has written about the long form and the privacy issue. Electronic media from talk radio to television have weighed in.... The reason why there is a long form controversy is because millions of Americans aren't comfortable answering the questions.... The News Hour on PBS had an entire segment on the privacy issue and the long form almost 2 weeks ago. On 60 Minutes, one of the most popular news shows on television with almost 13 million viewers weekly, commentator Andy Rooney voiced to the Nation two Sundays ago his criticism of the long form. He concluded ... by saying, "I am not going to fill out the long form." Whereas the long form could attract criticism once a decade, however, the monthly survey can generate some negative attention more frequently. Among the comments reported by the media are that the ACS asks for too much detail and that certain questions—such as those about income, disability, and home plumbing facilities—invade respondents' privacy. Reluctant respondents may ask whether, and why, they must answer these and other questions. As noted previously, the ACS can ask only "necessary questions," and responses are mandatory. The decennial census is conducted under the authority of Title 13, United States Code , Sections 141 and 193. Section 141 authorizes a census of population every 10 years for House apportionment and within-state redistricting. This section also authorizes the Department of Commerce Secretary "to obtain such other census information as necessary." Section 193 provides that "[i]n advance of, in conjunction with, or after the taking of each census ... the Secretary may make surveys and collect such preliminary and supplementary statistics related to the main topic of the census as are necessary to the initiation, taking, or completion thereof." The Census Bureau considered long-form responses to be mandatory and has conducted the ACS as mandatory "since its inception" in the mid-1990s. Title 13, Section 221, provides for a fine of not more than $100 for refusal or neglect to answer questions; pursuant to Title 18, Sections 3559 and 3571, the Sentencing Reform Act of 1984, the possible fine has been adjusted to not more than $5,000. In addition, current and former Bureau employees are required to maintain the confidentiality of census data about individuals. Under Title 13, Section 214, the wrongful disclosure of information is punishable by a fine of not more than $5,000, or not more than five years' imprisonment, or both. Pursuant to Title 18, Sections 3559 and 3571, the possible fine has been adjusted to not more than $250,000. By late 2002, public complaints about the long form and congressional concern about the ACS had prompted some in Congress to inquire about the advisability of making responses to the latter survey voluntary. Shortly thereafter, the conferees on H.J.Res. 2 , P.L. 108-7 , the Consolidated Appropriations Resolution, 2003, included $1 million for the Bureau "to test the response rates of both a voluntary and a mandatory" ACS because "sufficient information is not available to [weigh] the benefits" of each approach. The conferees directed the Commerce Secretary to report to the Appropriations Committees as soon as the test results were available. Two reports about the test and its findings appear on the Bureau's website. The first one, issued in December 2003, "was prepared on an expedited basis to meet Congressional needs." A year later, the second report presented additional test results, with "greater detail for some of the measures included in the initial report." The discussion below focuses on the 2003 report. As the ACS is, the test of a voluntary ACS (hereinafter called the "ACS test") was a mail-out, mail-back operation in which interviewers followed up with nonresponding households by telephone and, when necessary, personal visits. The ACS test studied four experimental treatments of mailed questionnaires, two instructing recipients that responses were mandatory and two treating responses as voluntary. The 2003 report highlighted two main treatments, one mandatory and the other voluntary: the benchmark "2002 Current Mandatory approach" was "identical to the mail treatment used in prior years and provided a control to previous years"; the "Standard Voluntary treatment" used "a standard survey approach" to explain that responses were not required. The Bureau's sample design for the test divided the universe of approximately 140,000 housing units into two strata, high-response areas (HRAs) and low-response areas (LRAs), which were designated on the basis of "tract-level long form mail return rates from Census 2000." Data from the 2001 ACS indicated that people in the LRAs were younger, more likely to be Hispanic, more likely to be non-white, less likely to be college educated, and more likely to be renters than in the HRAs. The LRA stratum had more households with lower incomes, more that included "other relatives" or "nonrelatives," and more where languages "other than English" were spoken at home. The ACS test was conducted in March and April 2003. The tables in the report issued later that year compared the results from the Standard Voluntary treatment of test questionnaires (hereinafter, the "2003 voluntary survey") with those from the mandatory ACS for March and April 2002 (hereinafter, the "2002 mandatory ACS"), as discussed below. Key test results pertained to the mail cooperation rate. It was 20.7 percentage points lower overall for the 2003 voluntary survey than for the 2002 mandatory ACS (38.8% compared with 59.5%, a 34.8% decrease). In the HRAs, the decrease was 22.2 percentage points (42.4% versus 64.6%, a 34.4% drop). In the LRAs, the percentage-point decrease was less, 15.9 points, but the already low 2002 mail cooperation rate of 43.6% dropped to 27.7% in 2003 (a 36.5% decrease). Lower mail cooperation in the 2003 voluntary survey meant a heavier workload of nonresponse follow-up by telephone. Moreover, cooperation with telephone interviewers was lower when it was optional (66.5% overall in 2003 versus 80.7% in 2002, a 14.2 percentage-point or 17.6% decrease). Although the 2003 rates of telephone cooperation were almost identical in the HRAs and LRAs, cooperation decreased more from 2002 to 2003 in the HRAs (by 15.6 percentage points or 19%, from 82.1% to 66.5%) than in the LRAs (by 10.2 percentage points or 13.4%, from 76.4% to 66.2%). Personal visits for nonresponse follow-up closed "some, but not all" of the gap in mail and telephone cooperation between 2002 and 2003. As with telephone nonresponse follow-up, the workload of personal visits increased in 2003; responses decreased when they were optional; and the percentage-point decline in cooperation was greater in the HRAs than in the LRAs, suggesting that the voluntary approach had a greater negative effect on compliance in areas that usually tended to be cooperative. Overall response to personal visits was 89% in 2003, down from 95.6% a year earlier (a 6.6 percentage-point or 6.9% decline). In the HRAs, the 2003 response rate was 88.2% versus 95.7% in 2002 (a 7.5 percentage-point or 7.8% drop). The comparable figures for the LRAs were 90.7% versus 95.6% (a 4.9 percentage-point or 5.1% decrease). The Bureau observed that when ACS responses were voluntary instead of required, respondents tended to shift "from participating by mail to participating by telephone or personal visit follow-up." Because personal interviews are about 10 times more expensive than data collection by mail or telephone, survey costs rise as mail and telephone cooperation fall. Further, since the Bureau selects a subsample of ACS nonrespondents—not all nonrespondents—for personal visits, reliability of the data is a concern. A decrease in the percentage of responses by mail and telephone means "fewer total interviews and thus, a reduction in reliability." If the survey became voluntary, the Bureau concluded, maintaining the same data reliability as under the 2002 mandatory ACS would necessitate increasing the planned annual sample size from about 3 million to an estimated 3.7 million housing units, at an additional cost of at least $59.2 million per year in FY2005 dollars. The latter estimate reflected "direct data collection costs only"; it did not include the expense of hiring and training more ACS staff, and purchasing additional equipment. The Bureau subsequently, as of FY2011, re-estimated the annual cost of a voluntary ACS at $66.5 million. Two bills introduced in the 111 th Congress sought to make almost all ACS responses optional. They received no action beyond committee and subcommittee referrals. H.R. 3131 , to Make Participation in the American Community Survey Voluntary, except with Respect to Certain Basic Questions, was introduced on July 8, 2009, by Representative Ted Poe. The bill would have prohibited applying any criminal penalty to people who refused or willfully neglected to answer ACS inquiries, except those about the respondent's name and contact information, the date of the response, and the number of residents at the respondent's address. H.R. 5046 , the Census Clarification and Privacy Act, was introduced on April 15, 2010, by Representative Todd Akin. The measure called for a statement, on the front of the decennial census and ACS questionnaires, that the respondent was constitutionally required only to provide the number of people living at the residence, and that all other answers were optional. The bill also would have made penalties applicable only for refusing or willfully neglecting to answer this question on any census or survey conducted under Title 13, United States Code , Sections 141 or 193, or for falsely answering any question on any census or survey conducted under these sections. In the 112 th Congress, two bills would have made almost all ACS responses optional. A third, appropriations, bill passed the House with two amendments pertinent to the ACS. One would have prohibited funds from being used to enforce a penalty for ACS nonresponse; the other would have defunded the survey. H.R. 931 , to Make Participation in the American Community Survey Voluntary, except with Respect to Certain Basic Questions, was introduced on March 3, 2011, by Representative Poe. The bill, which was the same as H.R. 3131 from the 111 th Congress, was referred to the House Committee on the Judiciary, Subcommittee on the Constitution, and Subcommittee on Crime, Terrorism, and Homeland Security; and to the House Committee on Oversight and Government Reform, Subcommittee on Health Care, District of Columbia, Census, and the National Archives. This subcommittee held a hearing on March 6, 2012, about the pros and cons of a voluntary ACS. No further action occurred on H.R. 931 . S. 3079 , companion legislation to H.R. 931 , was introduced by Senator Rand Paul on May 10, 2012, and referred to the Senate Committee on Homeland Security and Governmental Affairs, where no further action occurred. Before the House passed H.R. 5326 , the Commerce, Justice, Science, and Related Agencies Appropriations Act, 2013, on May 10, 2012, it adopted two amendments that would have affected the ACS. The Poe amendment, which was similar to H.R. 931 , would have prohibited the use of funds to enforce a penalty for refusing or willfully neglecting to answer the questions on the ACS. An amendment offered by Representative Daniel Webster would have prohibited the use of funds to conduct the survey. The Senate did not take up H.R. 5326 or S. 2323 , its FY2013 CJS appropriations bill, which had no provisions similar to the Poe and Webster amendments. H.J.Res. 117 , P.L. 112-175 , the Continuing Appropriations Resolution, 2013, became law on September 28, 2012, without reference to the ACS. It provided funding for CJS entities until the March 26, 2013, enactment of H.R. 933 , P.L. 113-6 , the Consolidated and Further Continuing Appropriations Act, 2013, which funded CJS entities for the remainder of FY2013. Although P.L. 113-6 did not mention the ACS, the Senate explanatory statement noted that language in the two House amendments to H.R. 5326 , from the 112 th Congress, "prohibiting funding for the ACS or prohibiting penalties for non-compliance with the ACS" was not adopted. The Census Bureau, however, was "directed to provide a report to the Committees on Appropriations no later than 120 days after enactment of this Act on ... the steps being taken to ensure that the ACS is conducted as efficiently and unobtrusively as possible." The Department of Commerce was "directed to acquire an independent analysis of the costs and benefits of making compliance with the ACS voluntary. The results of this analysis shall be provided ... to the Committees on Appropriations no later than 180 days after enactment of this Act." Three bills that would have affected the ACS were introduced in the 113 th Congress, but saw no action beyond committee referrals and one subcommittee referral. Two companion proposals that resembled H.R. 3131 and H.R. 5046 from the 111 th Congress and H.R. 931 , S. 3079 , and the Poe amendment to H.R. 5326 in the 112 th Congress would have made all but a few ACS responses optional. A third bill would have prohibited the Commerce Secretary and the Census Bureau from conducting any surveys, including the ACS, and almost all censuses. The House passed a fourth, appropriations, bill with an amendment that would have prohibited using funds to enforce any penalties under Title 13, United States Code , Section 221, concerning the ACS. H.R. 1078 , to Make Participation in the American Community Survey Voluntary, except with Respect to Certain Basic Questions, and for Other Purposes, was introduced on March 12, 2013, by Representative Poe, and referred to the House Committee on Oversight and Government Reform. The legislation would have made optional most responses to "any survey authorized under" Title 13, U nited S tates Code , Section 193. The ACS, as previously mentioned, is conducted under this section and Section 141. H.R. 1078 would have required responses only to inquiries about the respondent's name and contact information, the date of the response, and the "number of people living or staying at the same address." The bill further specified that except for having to provide this information, "no person may be fined or otherwise compelled to answer questions in connection with the survey ... which is commonly referred to as the 'American Community Survey.'" S. 530 , the same as H.R. 1078 , was introduced on the same day by Senator Paul and referred to the Senate Committee on Homeland Security and Governmental Affairs. H.R. 1638 , the Census Reform Act of 2013, was introduced on April 18, 2013, by Representative Jeff Duncan. It was referred on that date to the House Committees on Oversight and Government Reform, Agriculture, and Appropriations. On May 3, 2013, the bill was referred to the Agriculture Committee's Subcommittee on Department Operations, Oversight, and Nutrition. H.R. 1638 would have repealed the authority of the Commerce Secretary and the Census Bureau to conduct the ACS and any other surveys or censuses except the decennial census. This census would have been limited to collecting "only ... information necessary for the tabulation of total population by States." The censuses that would have ended if H.R. 1638 had been enacted included the censuses of agriculture and governments as well as the economic census. H.R. 4660 , the Commerce, Justice, Science, and Related Agencies Appropriations Act, 2015, passed the House on May 30, 2014, with an amendment offered by Representative Poe that would have prohibited the use of funds to enforce Title 13, United States Code , Section 221, "with respect to the American Community Survey." Section 221(a) provides for a penalty for refusing or willfully neglecting to answer questions on censuses or surveys such as the ACS, and Section 221(b) provides for a penalty for giving false answers. The Poe amendment became Section 545 of the House-passed legislation. The Senate did not consider H.R. 4660 or pass S. 2437 , its FY2015 CJS appropriations bill. CJS entities, along with most other federal entities, are funded through September 30, 2015, under H.R. 83 , P.L. 113-235 , the Consolidated and Further Continuing Appropriations Act, 2015, which did not adopt Section 545 of H.R. 4660 . Noted below are several possible approaches for Congress regarding the ACS, given that the survey, fully implemented since 2005 and 2006, supplanted the long form in the 2010 census. Congress could support the status quo, providing oversight and funding of the ACS into the future. Oversight issues might include ACS methodology and any advisable improvements in it. Three other related issues are how large the ACS sample should be to ensure reliability of the data, particularly for small areas, as the U.S. population continues to grow; what funding levels would be necessary to achieve and maintain such a sample size; and what funding levels would be feasible, in view of federal budgetary constraints that could continue indefinitely. Two bills from the 111 th Congress, three from the 112 th Congress, and three from the 113 th Congress would have made completing the ACS questionnaire optional for respondents. Another congressional approach—because the test results discussed previously indicate that a voluntary survey might well lower response rates and raise costs—might involve inquiring into the extent and sources of public dissatisfaction with the ACS and exploring remedies short of voluntary responses. Possible questions to consider are how to explain more effectively why ACS data are collected and how best to engage the public in nonresponse follow-up. Congress could assess with the Bureau whether an advertising campaign, perhaps modeled on that for the 2010 census, might heighten awareness of the survey and its value to states and localities. A related consideration is whether the Bureau might enhance the appeal of the ACS by identifying on its website every federal program whose formula for distributing funds uses ACS data and what the data are, together with estimates of the funds provided each year to specific states and localities on the basis of the program formulas. Various Members of Congress from time to time have advised the Bureau to use the Internet as one means of collecting decennial census-related data. In July 18, 2012, congressional testimony, then-Bureau Director Robert M. Groves announced the Bureau's intention to offer an Internet response option for the 2020 census and, beginning in January 2013, for the ACS. Accordingly, as noted earlier in this report, the Bureau now sends a letter notifying most households selected to receive the ACS that they can access and complete the survey online. Congress could review with the Bureau the effects of this option on ACS response rates, survey costs, and public perception of the ACS. Congress could examine alternatives to the ACS. If the past is an accurate predictor, returning to an approximately 17% sample of U.S. housing units via the long form would depress decennial census response rates somewhat and complicate the count; this reprise also would generate less timely data than does the ACS. Congress could set as a priority research into whether administrative records might substitute for the ACS. Possible points to consider would be the operational feasibility of this approach, its expense, the quality and completeness of administrative records, privacy concerns, and acceptability to the public. The ACS is arguably an efficient means of gathering data for many purposes. Congress could direct that the Bureau and other federal statistical agencies expedite research into whether the ACS could replace certain other surveys. This research might involve identifying duplicative data collections, if any; estimating what savings, in both money and respondent burden, might occur from having the ACS substitute for these collections; and assessing any disadvantages of replacing them. The topics covered by the ACS are summarized below. Following each topic is a brief explanation or description of it, adapted from the ACS questionnaire. Demographic Characteristics Age: each person's age and date of birth Sex: male or female Hispanic origin: whether a person considers himself or herself to be of Hispanic or Latino ethnicity; if so, whether the person is Mexican, Puerto Rican, Cuban, Argentinean, Colombian, Salvadoran, etc. Race: a person's self-classification as white; black or African American; American Indian or Alaska Native, with the tribal name specified; Asian or Pacific Islander, with the specific group, such as Chinese or Samoan, named; belonging to more than one of these groups; or belonging to some other race, with the name specified Social Characteristics Ancestry: a self-classification based on the country from which each person, or the person's parents or ancestors, came; examples of ancestries include Jamaican, Korean, and Ukrainian Citizenship status: whether a person is a U.S. citizen, either by birth or by naturalization Disability status: whether a person has various physical or mental impairments, such as serious difficulty hearing, seeing, walking, dressing, bathing, concentrating, or remembering Educational attainment: the highest degree or level of schooling that a person has completed Fertility: whether a woman gave birth to any children in the past 12 months Field of degree: the major field of study for a bachelor's degree Grandparents as caregivers: whether a person has any grandchildren under age 18 living with him or her; if so, whether the person is responsible for their needs, and how long the person has had this responsibility Language: whether a person speaks a language other than English at home; if so, what the other language is and how well the person speaks English Marital status and marital history: whether a person currently is married, divorced, widowed, etc.; whether the person was married, divorced, or widowed within the past 12 months; how many times the person has been married; and the year when he or she last married Place of birth: either the U.S. state or the place outside the 50 states Relationship: the relationship of each person listed on the ACS form to the person filling out the form; examples are husband or wife, roomer or boarder, and foster child School enrollment: whether a person attended public or private school or college in the last three months; if so, the grade or level Residence one year ago and migration: whether a person moved from one residence to another in the past year; if so, what his or her previous address was Veterans: whether and when a person served on active duty in the U.S. military, whether the person has a service-connected disability rating; if so, what it is Year of entry: the year when a person born outside the United States came to live in this country Economic Characteristics Class of worker: whether a person employed during the past 12 months worked for a private for-profit company, a private nonprofit organization, or federal, state, or local government; was self-employed; or was an unpaid worker for a family business or farm Labor force status: whether a person worked for pay during the past week or was on layoff from a job, whether the person was actively looking for work in the past four weeks, and when the person last worked Health insurance coverage: whether a person currently is covered by any health insurance plan, such as through a current or former employer, Medicaid, or Medicare Income: income in the past 12 months from various sources, including wages and salary, interest and dividends, and public assistance Industry: the type of activity that occurred where a person was employed during the past 12 months, such as manufacturing, retail trade, or construction Occupation: the kind of work a person did during the past 12 months, such as nursing, personnel management, or accounting Place of work and journey to work: the location where a person worked in the past week; what mode of transportation the person used to commute to work; whether the person commuted with other people in an automobile, a truck, or a van; when the person usually left home to go to work; and how many minutes the commute took Poverty: determined from income data Work status: the number of weeks a person worked during the past year, and the number of hours he or she usually worked each week Housing Characteristics Home heating fuel: the fuel that is used most for heating the house, apartment, or mobile home Kitchen and plumbing facilities: whether the housing unit has a sink with a faucet, hot and cold running water, a stove or range, a refrigerator, a flush toilet, and a bathtub or shower Owner statistics: the owner's mortgage payments; condominium fees; real estate taxes; payments for utilities; and payments for fire, hazard, or flood insurance Ownership and use of computers and use of the Internet by household members; how they access the Internet Renter statistics: the renter's payments for rent and utilities Rooms and bedrooms: the number of rooms in the housing unit, excluding bathrooms; the number of bedrooms Sales of agricultural products from the property in the past 12 months Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp program): whether, in the past 12 months, anyone in the household received benefits from the program Telephone service available: whether the housing unit has telephone, including cell-phone, service Tenure: whether the housing unit is rented or owned, with or without a mortgage, by someone in the household Units in structure: whether the housing structure is a mobile home, a single-family detached house, a building with two apartments, etc. Value of home: the estimated dollar value of the home, the number of acres on which it is located, and whether the property includes a business or medical office Vehicles available: the number of motor vehicles kept at the home for household members' use Year householder moved into unit: the year the person in whose name the housing unit is rented or owned moved into the unit Year structure built: the year the housing structure was built | The American Community Survey (ACS), implemented nationwide in 2005 and 2006, is the U.S. Bureau of the Census's (Census Bureau's) replacement for the decennial census long form, which, from 1940 to 2000, gathered detailed socioeconomic and housing data from a representative population sample in conjunction with the once-a-decade count of all U.S. residents. Unlike the long form, with its approximately 17% sample of U.S. housing units in 2000, the ACS is a "rolling sample" or "continuous measurement" survey of about 295,000 housing units a month, totaling about 3.54 million a year (an increase from the 2005 to 2011 sample size of about 250,000 housing units monthly, totaling about 3 million annually). The data are aggregated to produce one-year, three-year, and five-year estimates. As were the long-form data, ACS estimates are used in program formulas that determine the annual allocation of certain federal funds, currently more than $450 billion, to states and localities. The ACS has several other features in common with the long form: the topics covered are largely the same; responses are required; and the Bureau may follow up, by telephone or in-person visits, with households that do not submit completed questionnaires. The ACS is conducted under the authority of Title 13, United States Code, Sections 141 and 193; so was the long form. Title 44, Section 3501, the Paperwork Reduction Act of 1995, and its implementing regulations require federal agencies to obtain Office of Management and Budget approval before collecting information from the public. On the long form, the Bureau could gather only data that were mandatory for particular programs, required by federal law or regulations, or needed for the Bureau's operations. Likewise, the ACS can collect only necessary information. The limited ACS sample size makes longer cumulations of data necessary to generate reliable estimates for less populous areas. Yearly estimates have been available since 2006, but only for geographic areas with 65,000 or more people. The first three-year period estimates were released in 2008 for areas with at least 20,000 people. The first five-year estimates became available in 2010 for areas from the most populous to those with fewer than 20,000 people. A concern noted by some data users is that the ACS sample size results in less detailed five-year data products for smaller geographic areas—census tracts and block groups—than were available every 10 years from the long form. A related issue is data quality, especially for small areas. Mandatory ACS responses are an ongoing concern for some Members of Congress and their constituents. A 2003 test showed a 20.7-percentage-point drop in the overall ACS mail cooperation rate when answers were optional. The Bureau estimated in 2003 and 2004 that maintaining data reliability if the survey were voluntary would necessitate increasing the planned annual sample size from about 3 million to 3.7 million housing units, for an extra $59.2 million a year in FY2005 dollars (re-estimated at $66.5 million per year, as of FY2011). In the 113th Congress, H.R. 1078 and S. 530 would have made almost all ACS responses optional. H.R. 1638 would have repealed the authority of the Department of Commerce Secretary and the Census Bureau, a Commerce Department agency, to conduct the ACS and any other surveys or censuses except the decennial census. The bills saw no action beyond referrals. H.R. 4660, to fund the Departments of Commerce and Justice, science agencies, and related agencies (CJS) in FY2015, passed the House with an amendment (Section 545) to prevent, for example, the enforcement of any penalty for ACS nonresponse. The bill did not become law. Instead, CJS entities are funded through September 30, 2015, by P.L. 113-235, which did not adopt Section 545. |
Title I, Part A, of the Elementary and Secondary Education Act (ESEA) authorizes federal aid to local educational agencies (LEAs) for the education of disadvantaged children. Title I-A grants provide supplementary educational and related services to low-achieving and other pupils attending pre-kindergarten through grade 12 schools with relatively high concentrations of pupils from low-income families. In recent years, they have also become a "vehicle" to which a number of requirements affecting broad aspects of public K-12 education for all pupils have been attached as a condition for receiving Title I-A grants. These include requirements for assessments of pupil achievement; adequate yearly progress (AYP) standards and determinations for schools, LEAs, and states; consequences for schools and LEAs that fail to make AYP for two consecutive years or more; plus teacher and paraprofessional qualifications. Title I-A is the largest federal elementary and secondary education assistance program, with services provided to (1) more than 90% of all LEAs; (2) approximately 52,000 (54% of all) public schools; and (3) approximately 16.5 million (34% of all) pupils, including approximately 188,000 pupils attending private schools. Three-fourths of all pupils served are in pre-kindergarten through grade 6, while only 8% of pupils served are in grades 10-12. The ESEA was initially adopted in 1965, and was most recently reauthorized and amended by the No Child Left Behind Act of 2001 (NCLB), P.L. 107-110 . NCLB authorized Title I-A through FY2007, and an automatic extension, through FY2008 was provided under the General Education Provisions Act (Title IV of P.L. 90-247, as amended). Currently, although the authorization for ESEA Title I-A has expired, appropriations have continued to be provided, and the program continues to be implemented under the policies established by the most recent authorization statute. The 111 th Congress is expected to consider proposals to extend and amend the ESEA. The focus of this report is on the formulas used to allocate Title I-A funds to states, LEAs, and schools. These formulas are used to allocate funds not only under the largest federal K-12 education program, but also several other ESEA and non-ESEA programs under which grants are made in proportion to ESEA Title I-A allocations. This report will not be updated. Another CRS report (CRS Report RL33731, Education for the Disadvantaged: Reauthorization Issues for ESEA Title I-A Under the No Child Left Behind Act , by [author name scrubbed] and [author name scrubbed]) discusses issues related to the accountability and other policies of ESEA Title I-A. Those interested in a more concise description of the ESEA Title I-A allocation formulas and review of reauthorization issues related to them than found in this report should refer to the final section of that report ( RL33731 ) . Additional CRS reports provide more detailed discussions and analyses of selected major aspects of the Title I-A program, including pupil assessments, accountability, and qualifications for teachers and paraprofessionals. Also, see CRS Report RL34721, Elementary and Secondary Education Act: An Analytical Review of the Allocation Formulas , for a description and analysis of all of the ESEA's allocation formulas, as well as a discussion of general allocation formula concepts and procedures. This report provides: (a) descriptions of the ESEA Title I-A allocation formulas; (b) a review of recent funding trends for Title I-A; and (c) analyses of major issues related to the Title I-A allocation formulas, divided into general categories of broad issues directly affecting all regions of the nation and issues that directly affect only a limited number of states or local educational agencies. In summary, major Title I-A reauthorization issues regarding allocation formulas are likely to include the following: Should annual variations in the poverty estimates used to calculate Title I-A grants be reduced through multi-year averaging or other methods? Annual variations in estimates of school-age children in poor families have been exceptionally large for a number of states. Several options are available to reduce the more extreme variations, if desired. Has the targeting of Title I-A funds on high poverty LEAs increased since 2001? Targeting of Title I-A funds on the highest poverty LEAs has increased since adoption of the NCLB, although shifts have been gradual and relatively marginal. Should the population weighting factors of the Targeted and Education Finance Incentive Grant (EFIG) formulas be modified to more equally favor LEAs with large numbers of school-age children in poor families and LEAs with high poverty rates? In some respects, the formula population weighting factors of the Targeted and EFIG formulas favor LEAs with large numbers of formula children over those with high school-age child poverty rates. Should the expenditure factor continue to play a major role in the Title I-A formulas? The expenditure factor has a major impact on the distribution of all Title I-A funds, and the rationale for using this factor may be questioned. At best, it is a crude and indirect measure of variations in the costs of providing public K-12 education. Should there be some consolidation of the four different allocation formulas? The allocation of portions of each year's Title I-A appropriation under four different allocation formulas is a result of legislative compromise, not design. Should the authorization level for Title I-A continue to be specified for future years, and if so, at what levels? An authorized appropriation level was specified in the ESEA only through FY2007. Should the effort factor in the EFIG formula be modified? The current effort factor has very limited impact and favors states where school-age children are a relatively small share of the total population. Should the equity factor in the EFIG formula be modified? The current equity factor might be broadened to consider additional categories of "high cost" pupils. Should the current provisions for intra-LEA allocation be reconsidered? The participation of middle and, especially, high schools in Title I-A programs is very low, and might be increased through modification of the requirements for allocation of funds within LEAs. Issues Affecting a Limited Number of States or LEAs: Should the remaining special constraints on grants to Puerto Rico, the cap on aggregate population weights in the Targeted Grant formula, be removed? Title I-A grants to Puerto Rico would be substantially higher if remaining special constraints were removed. Should the Temporary Assistance to Needy Families (TANF) formula factor be eliminated? This formula population factor is of little significance, and may remain primarily for historic and symbolic reasons. Should each county portion of New York City and other multi-county LEAs continue to be treated as separate LEAs under the Title I-A allocation formulas? This provision leads to substantially different treatment of Title I-A schools in different counties within New York City, and has mixed impact on total Title I-A grants to the City overall. Finally, a general introductory note regarding funding levels and allocations: Most references to appropriation levels, and all discussions and analyses of allocation patterns, in this report refer to those for FY2008 , the most recent year for which actual allocations were available at the time this report was prepared. Therefore, there will be only marginal reference to FY2009 appropriations or allocations for Title I-A, whether provided under the American Recovery and Reinvestment Act ( P.L. 111-5 ) or regular FY2009 omnibus appropriations legislation ( P.L. 111-8 ). For the allocation of funds to states and LEAs, ESEA Title I-A has four separate formulas: the Basic, Concentration, Targeted, and Education Finance Incentive Grant (EFIG) formulas. Once these funds reach LEAs, they are no longer treated separately; they are combined and used without distinction for the same program purposes. A primary rationale for using four different formulas to allocate a share of the funds for a single program is that the formulas have distinct allocation patterns, providing varying shares of allocated funds to different types of localities (e.g., LEAs with high poverty rates, or states with comparatively equal levels of spending per pupil among their LEAs), as is discussed later in this report. In addition, some of the formulas contain elements—such as the equity and effort factors in the EFIG formula—that are deemed to have important incentive effects or to be significant symbolically in addition to their impact on allocation patterns. There is also a historical explanation: the Targeted and EFIG formulas, in particular, were initially proposed as replacements for the Basic plus Concentration Grant formulas; that is, each of the Targeted and EFIG formulas was originally intended to be the Title I-A formula. But in subsequent deliberations, these formulas were ultimately authorized to supplement, but not replace, the Basic and Concentration Grant formulas, and implicitly to complement each other. The discussion below describes the characteristics of the Title I-A allocation formulas as these have been amended by NCLB. The description immediately below is similar to that in a report on all of the ESEA program allocation formulas, CRS Report RL34721, Elementary and Secondary Education Act: An Analytical Review of the Allocation Formulas , by [author name scrubbed]. The formulas are described in three different formats: First, the general characteristics of all four formulas are introduced in very brief, narrative form. Second, selected characteristics of the four formulas are summarized in tabular format in Table 1 . Third, each of the four formulas is described individually, and in greater detail, including a mathematical expression of each formula. While numerous complications and special features are associated with the Title I-A allocation formulas, each of them has the same underlying structure. For each formula, a maximum grant is calculated by multiplying a "population factor," consisting primarily of estimated numbers of school-age children in poor families, by an "expenditure factor" based on state average per pupil expenditures for public K-12 education. In some formulas, additional factors are multiplied by the population and expenditure factors. Then these maximum grants are reduced to equal the level of available appropriations for each formula, taking into account a variety of state and LEA minimum grant or "hold harmless" provisions. Only LEAs meeting minimum numbers and/or percentages of children counted in the population factor may receive grants. Under Title I-A, funds are allocated to LEAs via state educational agencies (SEAs). Annual appropriations legislation specifies portions of each year's appropriation to be allocated under four different formulas; once funds reach LEAs, the amounts allocated under the four formulas are combined and used jointly. Under three of the formulas—Basic, Concentration, and Targeted Grants—funds are calculated initially at the LEA level, and state total grants are the total of allocations for LEAs in the state, adjusted to apply state minimum grant provisions. Under the fourth formula, Education Finance Incentive Grants, allocations are first calculated for each state overall, with state totals subsequently suballocated by LEA using a different formula. The discussion below describes the characteristics of the Title I-A allocation formulas as these have been amended by NCLB. These characteristics are summarized in Table 1 . In the discussion below, each of the four ESEA Title I-A allocation formulas is discussed separately. Basic Grants are the original Title I-A formula, authorized and implemented each year since FY1966. It is also the formula under which the largest proportion of funds is allocated (47% of FY2008 appropriations), and under which the largest proportion of LEAs participate (approximately 94% in FY2008), largely due to its low LEA eligibility threshold (see below). However, since all post-FY2001 increases in Title I-A appropriations have been provided for the Targeted and Education Finance Incentive Grant formulas (see below), the proportion of Title I-A funds allocated under the Basic Grant formula has been declining steadily since FY2001, when it was 84% of FY2001 appropriations. Compared to some of the other Title I-A formulas, the Basic Grant formula is relatively straightforward. Grants are based on each LEA's share, compared to the national total, of a population factor multiplied by an expenditure factor, subject to available appropriations, an LEA minimum or "hold harmless," and a state minimum. These formula factors are described below, followed by a mathematical expression of the formula. Population factor —Children aged 5-17: (a) in poor families, according to the latest available estimates for LEAs from the Census Bureau's Small Area Income and Poverty Estimates (SAIPE) program (these constitute approximately 96% of all formula children for FY2008); (b) in institutions for neglected or delinquent children or in foster homes (approximately 3.9% of all formula children for FY2008) ; and (c) in families receiving Temporary Assistance for Needy Families (TANF) payments above the poverty income level for a family of four (less than 0.1% of all formula children for FY2008). Each element of the population factor is updated annually. Eligibility threshold —In order for an LEA to be eligible for a Basic Grant, the number of children counted in the population factor must constitute 10 or more such children and more than 2% of the total school-age population in the LEA. Expenditure factor —State average per pupil expenditure for public K-12 education, subject to a minimum of 80% and a maximum of 120% of the national average, further multiplied by 0.40. The expenditure factor is the same for all LEAs in the same state. LEA minimum grant or "hold harmless" level —If sufficient funds are appropriated, each LEA is to receive a minimum of 85%, 90%, or 95% of its previous year grant, depending on the LEA's school-age child poverty rate, assuming that the LEA continues to meet the Basic Grant formula's eligibility thresholds. Minimum state grant — Each state is to receive a minimum of up to 0.25% of total Basic Grant appropriations if total Basic Grant funding is equal to or less than the FY2001 level (as has been the case each year since FY2001 thus far), and up to 0.35% of total Basic Grant appropriations in excess of the FY2001 amount, if any. A state may not, as a result of the state minimum provision, receive more than the average of: (1) 0.25% of the total FY2001 amount for state grants plus 0.35% of any amount above the FY2001 level, and (2) 150% of the national average grant per formula child, multiplied by the number of formula children in the state. Ratable reduction — After maximum grants are calculated, if appropriations are insufficient to pay the maximum amounts (as has been the case every year beginning with FY1967), these amounts are reduced by the same percentage for all LEAs, subject to LEA hold harmless and state minimum provisions , until they equal the aggregate level of appropriations. Fiscal requirements —There are three Title I-A fiscal accountability requirements, which are applicable to total LEA grants under all four formulas: (1) maintenance of effort: recipient LEAs must provide, from state and local sources, a level of funding (either aggregate or per pupil) in the preceding year that is at least 90% as high as in the second preceding year; (2) Title I-A funds must be used so as to supplement, and not supplant , state and local funds that would otherwise be available for the education of disadvantaged pupils in Title I-A participating schools; (3) comparability: services provided with state and local funds in schools participating in Title I-A must be comparable to those in non-Title I-A schools of the same LEA. Treatment of Puerto Rico, Outlying Areas, and the Bureau of Indian Affairs —With one possible exception, Puerto Rico is treated the same as a state under the Basic Grant formula. Grants to schools operated or supported by the Bureau of Indian Affairs, the Outlying Areas of Guam, American Samoa, the Virgin Islands, and the Commonwealth of the Northern Mariana Islands, as well as a competitive grant to the Outlying Areas plus certain Freely Associated States are provided via reservation of 1% of total Title I-A appropriations. Further adjustments by SEAs of LEA grants as calculated by the U.S. Department of Education ( ED ) — Among ESEA programs, a distinctive aspect of Title I-A is that after calculation of LEA grants by ED, applying the methods discussed herein, SEAs make a number of adjustments before determining the final amounts that LEAs actually receive. These adjustments are made to the total of Title I-A grants to LEAs under all four formulas combined. These adjustments include (1) reservation of 4% of state total allocations to be used for school improvement grants; (2) reservation of 1% of state total allocations under all formulas for ESEA Title I, Part A, plus Title I, Parts C and D (discussed below), or $400,000, whichever is greater, for state administration; (3) optional reservation of up to 5% of any statewide increase in total Part A grants over the previous year for academic achievement awards to participating schools that significantly reduce achievement gaps between disadvantaged and other pupil groups and/or exceed adequate yearly progress standards for two consecutive years or more; (4) adjustment of LEA grants to provide funds to eligible charter schools or to account for recent LEA boundary changes; and (5) optional use by states of alternative methods to reallocate all of the grants as calculated by ED among the state's small LEAs (defined as those serving an area with a total population of 20,000 or fewer persons). Basic Grant Allocation Formula — Step 1: Grant 1 = ( PF * EF ) or L_HH, whichever is greater In Step 1, the population factor is multiplied by the expenditure factor for each eligible LEA. If this is less than the LEA's hold harmless level, the latter amount is used. Step 2: Grant 2 = ( ( Grant 1 / ∑ Grant 1 ) * APP ) or L_HH, whichever is greater In Step 2, the amount for each LEA in Step 1 is divided by the total of these amounts for all eligible LEAs in the nation, then multiplied by the available appropriation. Again, if this is less than the LEA's hold harmless level, the latter amount is used. Step 3: Grant 3 = (Grant 2 * S_MIN_ADJ * L_HH_ADJ) or L_HH, whichever is greater In Step 3, the amount for each LEA in Step 2 is adjusted through application of the state minimum grant provision and by a factor to account for the aggregate costs of raising affected LEAs to their hold harmless level, given a fixed total appropriation level. The state minimum grant adjustment is upward in the smallest states, where total grants are increased through application of the minimum, and downward in all other states, where funds are reduced in order to pay the costs of applying the minimum. The LEA hold harmless adjustment is downward for all LEAs except those at their hold harmless level. Again at this stage, if this is less than the LEA's hold harmless level, the latter amount is the LEA's grant. Step 4: Final Grant = Grant 3 * SCH_IMP_ADJ * S_ADMIN_ADJ * AWD_ADJ * OTR_ADJ In the final step of calculating LEA grants under all Title I-A allocation formulas, LEA grants as calculated in Step 3 are further adjusted for the school improvement and state administration reservations, possible state reservations for achievement awards, and other possible adjustments (such as for grants to charter schools) discussed above. Where: PF = Population factor EF = Expenditure factor L_HH = LEA minimum or "hold harmless" level APP = Appropriation S_MIN_ADJ = State minimum adjustment (proportional increase (in small states) or decrease (in other states) to apply the statewide minimum grant) L_HH_ADJ = LEA minimum or "hold harmless" adjustment (proportional decrease, in LEAs not benefitting from the LEA "hold harmless," to apply the LEA minimum grant) SCH_IMP_ADJ = Reservation by SEA for school improvement grants S_ADMIN_ADJ = Reservation by SEA for state administration AWD_ADJ = Possible reservation by SEA for achievement awards OTR_ADJ = Other possible adjustments by the SEA ∑ = Sum (for all eligible LEAs in the nation) The Concentration Grant formula is essentially the same as that for Basic Grants, with one major exception—it has a much higher LEA eligibility threshold. There are also differences regarding the LEA hold harmless and state minimum grant provisions. While the Title I-A statute has included Concentration Grant formulas (with varying provisions and sometimes under different names) since 1970, the current version dates from 1988 ( P.L. 100-297 ). A relatively small (10% of FY2008 appropriations) and declining (from 14% in FY2001) proportion of Title I-A appropriations is allocated under the Concentration Grant formula. Approximately 50% of LEAs receive Concentration Grants (FY2008). As with Basic Grants, Concentration Grants are based on each eligible LEA's share, compared to the national total, of a population factor multiplied by an expenditure factor, subject to available appropriations, an LEA minimum or "hold harmless," and a state minimum. These formula factors are described below, followed by a mathematical expression of the formula. Population factor —Same as Basic Grants (see above). Eligibility threshold —In order for an LEA to be eligible for a Concentration Grant, the number of children counted in the population factor must exceed either 6,500 such children or 15% of the total school-age population in the LEA. Expenditure factor —Same as Basic Grants (see above). LEA minimum grant or "hold harmless" level —The hold harmless rates for Concentration Grants are the same as those for Basic Grants. However, unlike Basic Grants and all of the other Title I-A formulas, the hold harmless applies to all LEAs that received grants for the previous year, even if they do not currently meet one of the Concentration Grant formula's eligibility thresholds, unless they fail to meet one of the thresholds for 4 consecutive years. That is, an LEA that is eligible to receive a Concentration Grant in one year can continue to receive a Concentration Grant for three succeeding years, even if it does not meet either of the eligibility thresholds in those succeeding years. Minimum state grant — The Concentration Grant state minimum is a modified version of the Basic Grant minimum. Each state is to receive a minimum of up to 0.25% of total Concentration Grant appropriations if total Concentration Grant funding is equal to or less than the FY2001 level (as has been the case each year since FY2001 thus far), and up to 0.35% of total Concentration Grant appropriations in excess of the FY2001 amount, if any. A state may not, as a result of the state minimum provision, receive more than the average of: (1) 0.25% of the total FY2001 amount for state grants plus 0.35% of the amount above this, and (2) the greater of (i) 150% of the national average grant per formula child, multiplied by the number of formula children in the state, or (ii) $340,000. Ratable reduction — Same as Basic Grants (see above). Fiscal requirements —Same as Basic Grants (see above). Treatment of Puerto Rico, Outlying Areas, and the Bureau of Indian Affairs —Same as Basic Grants (see above). Further adjustments by SEAs of LEA grants as calculated by ED — With one exception, these are the same as for Basic Grants. The exception is that in states where the state total number of children counted in the population factor constituted less than 0.25% of the national total of such children as of the date of enactment of the NCLB, SEAs may allocate Concentration Grants among all LEAs with a number or percentage of children counted in the population factor that is greater than the state average for that year (not just LEAs meeting the 6,500 or 15% thresholds). Concentration Grant Allocation Formula — The mathematical expression of the Concentration Grant formula is the same as that for Basic Grants (above), with one exception. As discussed immediately above, in states where the number of children counted in the population factor constituted less than 0.25% of the national total of such children as of the date of enactment of the NCLB, the state total is to be allocated on the basis of the population factor among the LEAs that are to receive grants. These LEAs may include, at state discretion, either those LEAs in the state meeting the Concentration Grant eligibility criteria described above, or all LEAs in the state with a number or percentage of children counted in the population factor that is greater than the state average. In either case, for states where the number of children counted in the population factor constituted less than 0.25% of the national total of such children as of the date of enactment of the NCLB only (after state totals have been determined): LEA Grant = ( PF / ∑ PF * ALL ) or L_HH, whichever is greater Where: PF = Population factor ALL = State total allocation L_HH = LEA minimum or "hold harmless" level ∑ = Sum (for all eligible LEAs in the state) Targeted Grants were initially authorized in 1994, but no funds were appropriated for them until FY2002, after the formula was slightly modified by the NCLB. Beginning in FY2002, all increases in Title I-A appropriations have been allocated as either Targeted or Education Finance Incentive Grants (below). Thus, Targeted Grants constitute a substantial (21% of FY2008 appropriations) and growing portion of total Title I-A grants. They are allocated among a large majority of LEAs (87% in FY2008). The allocation formula for Targeted Grants is essentially the same as that for Basic Grants, except for significant differences related to how children in the population factor are counted. For Targeted Grants, the poor and other children counted in the formula are assigned weights on the basis of each LEA's school-age child poverty rate and number of school-age children in poor families. As a result, LEAs receive higher grants per child counted in the formula , the higher their poverty rate and/or number. There is also a somewhat higher LEA eligibility threshold for Targeted Grants than for Basic Grants. Aside from these two differences, Targeted Grants are, like Basic Grants, based on each eligible LEA's share, compared to the national total, of a population factor multiplied by an expenditure factor, subject to available appropriations, an LEA minimum or "hold harmless," and a state minimum. These formula factors are described below, followed by a mathematical expression of the formula. Population factor —The children counted for calculating Targeted Grants are the same as for Basic Grants (see above). However, for Targeted Grants, LEA-specific weights are applied to these child counts to produce a weighted child count that is used in the formula. Children counted in the formula are assigned weights on the basis of each LEA's number of school-age children in poor families and on the basis of each LEA's school-age child poverty rate. As a result, an LEA would receive higher grants per child counted in the formula , the higher its poverty rate or number. The weighting factors are applied in the same manner nationwide; formula children in LEAs with the highest poverty rates have a weight of up to four, and those in LEAs with the highest numbers of such children have a weight of up to three, compared to a weight of one for formula children in LEAs with the lowest poverty rate and number of such children (see Table 2 , below). The higher of its two weighted child counts (on the basis of numbers and percentages) is actually used in the formula for calculating grants for each LEA. There are five ranges associated with each of the number and percentage weighting scales. These steps, or quintiles, were based on the actual distribution of Title I-A population factor children among the nation's LEAs, according to the latest available data in 2001 (at the time that the NCLB was being considered). Based upon those data, one-fifth of the national total of population factor children were in LEAs in each of the five numbers ranges and, separately, each of the five percentage ranges. The Targeted Grant population factor weights are applied in a stepwise manner, rather than the highest relevant weight being applied to all population factor children in the LEA, and the greater of the two weighted child counts for each LEA is the number actually used to calculate the Targeted Grant. For example, assume an LEA has 2,000 population factor children, the total school-age population is 10,000, and therefore the population factor percentage is 20%. The population factor figure used to calculate Targeted Grants would be determined as follows: Numbers Scale: Step 1: 691 * 1.0 = 691 The first 691 population factor children are weighted at 1.0. Step 2: (2,000 - 691) = 1,309 * 1.5 = 1,963.5 For an LEA with a total number of population factor children falling within the second step of the numbers scale, the number of population factor children above 691 (the maximum for the first step) is weighted at 1.5. Total (Numbers Scale) = 2,654.5 The weighted population factor counts from Steps 1 and 2 are combined. Percentage Scale: Step 1: 15.58% * 10,000 = 1,558 * 1.0 = 1,558 A number of population factor children constituting up to 15.58% of the LEA's total school-age population is weighted at 1.0. Step 2: (20% - 15.58%) = 4.42% * 10,000 = 442 * 1.75 = 773.5 For an LEA with a population factor percentage falling within the second step of the percentage scale, the number of population factor children above 15.58% of the LEA's total school-age population (the maximum for the first step) is weighted at 1.75. Total (Percentage Scale) = 2,331.5 The weighted population factor counts from Steps 1 and 2 are combined. Since the numbers scale weighted count of 2,654.5 exceeds the percentage scale weighted count of 2,331.5, the numbers scale count would be used as the population factor for this LEA in the calculation of Targeted Grants. Eligibility threshold —In order for an LEA to be eligible for a Targeted Grant, the number of children counted in the population factor (with no weights applied) must constitute 10 or more such children and 5% or more of the total school-age population. Expenditure factor —Same as Basic Grants (see above). LEA minimum grant or "hold harmless" level —Same as Basic Grants (see above). Minimum state grant — Each state is to receive a minimum of up to 0.35% of all Targeted Grant appropriations. A state may not, as a result of the state minimum provision, receive more than the average of: (1) 0.35% of total state grants, and (2) 150% of the national average grant per formula child, multiplied by the number of formula children in the state. (In the latter calculation, population factor child counts are not weighted.) Ratable reduction — Same as Basic Grants (see above). Fiscal requirements —Same as Basic Grants (see above). Treatment of Puerto Rico, Outlying Areas, and the Bureau of Indian Affairs —Same as Basic Grants (see above), with the additional provision that for Puerto Rico (only), a cap of 1.82 is placed on the aggregate weight applied to the population factor under the Targeted Grant formula. Further adjustments by SEAs of LEA grants as calculated by ED: Same as Basic Grants (see above). Targeted Grant Allocation Formula — Same as Basic Grants (see above), except that the population factor (PF) would be the weighted child count, as described above. The EFIG formula is in several ways significantly different from the other Title I-A allocation formulas. As with Targeted Grants, EFIG Grants were initially authorized in 1994, but no funds were appropriated for them until FY2002, after the formula was (in the case of EFIG) considerably modified by the NCLB. Beginning in FY2002, all increases in Title I-A appropriations have been allocated as either EFIG or Targeted Grants. Thus, as with Targeted Grants, EFIG Grants constitute a substantial (21% of FY2008 appropriations) and growing portion of total Title I-A grants. They are allocated among a large majority of LEAs (87% in FY2008). The distinctive elements of the EFIG formula begin with the fact that the first stage in the process of calculating grants is based on data for states as a whole, not LEAs. LEA grants are determined in a separate, later stage of the allocation process. A second major difference is that the EFIG formula includes not only a population factor and an expenditure factor, but also two unique factors. These are an effort factor, based on average per pupil expenditure for public K-12 education compared to personal income per capita for each state compared to the nation as a whole, and an equity factor, based on variations in average per pupil expenditure among the LEAs in each state. A third distinctive feature of the EFIG formula is that while population factor child counts are not weighted when calculating state total grants, they are weighted in the separate process of suballocating state total grants among LEAs. This intra-state allocation process is based on the same number and percentage scales as used for Targeted Grants, although the weights attached to each point on those scales varies among states, based on the state's equity factor. A final difference between the EFIG Grant and other Title I-A formulas is that the expenditure factor is modified through application of slightly more narrow floor and ceiling constraints for EFIG Grants. Thus, state total EFIG Grants are based on each state's share, compared to the national total, of a population factor multiplied by an expenditure factor, an effort factor, and an equity factor, adjusted by a state minimum. Then, each LEA's share of the state total EFIG Grant is based on a weighted population factor count for the LEA, compared to the total for all LEAs in the state, adjusted by an LEA hold harmless provision. These formula factors are described below, followed by a mathematical expression of the formula. Population factor —In the first-stage calculation of state total EFIG Grants, this factor is the same as for Basic Grants (see above). In the second-stage suballocation of state total grants among LEAs, as under all stages of the allocation process for Targeted Grants, weights are applied to child counts before they are actually used in the formula. This process is the same as for Targeted Grants with respect to the number and percentage scales used, and use of the greater of the two weighted child counts to calculate LEA grants. However, for EFIG Grants only, the weights attached to each point on the number and percentage scales differs, depending on the state's equity factor (described below). This variation is illustrated in Table 3 , below. As indicated in Table 3 , the weights rise more rapidly as the numbers and percentages of population factor children increase in states with higher equity factors. For states with an equity factor below 0.10, the weights are the same as for Targeted Grants. For states with equity factors between 0.10 and 0.20, or above 0.20, the maximum weights are 50% higher, and twice as high, respectively, as for Targeted Grants. As is discussed below, states with higher equity factors have relatively high degrees of variation in average per pupil expenditure among the state's LEAs. Factors Not Found in Other ESEA Program Formulas —As noted above, the EFIG formula has two additional factors not found in any other ESEA program allocation formula. Effort Factor —The effort factor is based on a comparison of state average per pupil expenditure (APPE) for public elementary and secondary education with state personal income per capita (PCI). More specifically, it is the ratio of APPE to PCI for each state divided by the ratio of APPE to PCI for the nation. The resulting index number is greater than 1.0 for states where the ratio of expenditures per pupil for public elementary and secondary education to personal income per capita is greater than average for the nation as a whole, and below 1.0 for states where the ratio is less than average for the nation as a whole. Narrow bounds of 0.95 and 1.05 are placed on the resulting multiplier, so that its influence on state grants is rather limited and its importance is largely symbolic. Equity Factor —The equity factor is based upon a measure of the average disparity in average per pupil expenditure among the LEAs of a state called the coefficient of variation (CV). The CV is expressed as a decimal proportion of the state average per pupil expenditure. In the CV calculations for this formula, an extra weight (1.4 vs. 1.0) is applied to estimated counts of children from poor families. The effect is that grants would be maximized for a state where expenditures per pupil from a poor family are 40% higher than expenditures per pupil from a non-poor family. Typical state equity factors range from 0.0 (for the single-LEA jurisdictions of Hawaii, Puerto Rico, and the District of Columbia, where by definition there is no variation among LEAs), to approximately 0.25 for a state with high levels of variation in expenditures per pupil among its LEAs; the equity factors for most states fall into the 0.10 - 0.20 range. In calculating grants, the equity factor is subtracted from 1.30 to determine a multiplier to be used in calculating state grants. As a result, the lower a state's expenditure disparities among its LEAs, the lower is its CV and equity factor, the higher is its multiplier and its grant under the EFIG formula. Conversely, the greater a state's expenditure disparities among its LEAs, the higher is its CV and equity factor, and the lower is its multiplier and its grant under the EFIG formula. Eligibility threshold —Same as Targeted Grants (see above). Expenditure factor —State average per pupil expenditure for public K-12 education, subject to a minimum of 85% (not 80%, as in the other Title I-A formulas) and a maximum of 115% (not 120%, as in the other Title I-A formulas) of the national average, further multiplied by 0.40. The expenditure factor is the same for all LEAs in each state. LEA minimum grant or "hold harmless" level —Same as Basic Grants (see above), with one exception. The hold harmless is not taken into consideration in the initial calculation of state total grants. Therefore, it is possible (and has occurred in a small number of instances) that state total grants are insufficient to fully pay hold harmless amounts to all LEAs in the state. In that case, each LEA gets a proportional share of its hold harmless amount. Minimum state grant — Same as Targeted Grants (see above). Ratable reduction — Same as Basic Grants (see above). Fiscal requirements —Same as Basic Grants (see above). Treatment of Puerto Rico, Outlying Areas, and the Bureau of Indian Affairs —Same as Basic Grants (see above). Further adjustments by SEAs of LEA grants as calculated by ED — Same as Basic Grants (see above). Education Finance Incentive Grant Allocation Formula — Stage 1: Calculation of State Total EFIG Allocations Step 1: State Grant 1 = PF * EF * EFF * (1.30 - EQ) In Step 1, the population factor is multiplied by the expenditure factor, the effort factor, and 1.30 minus the equity factor for each state. Step 2: State Grant 2 = ( ( State Grant 1 / ∑ State Grant 1 ) * APP * S_MIN_ADJ ) or S_MIN, if greater In Step 2, the amount for each state in Step 1 is divided by the total of these amounts for all eligible states in the nation, then multiplied by the available appropriation, adjusted through application of the state minimum grant provision. The state minimum grant adjustment is upward in the smallest states, where total grants are increased through application of the minimum, and downward in all other states, where funds are reduced in order to pay the costs of applying the minimum. Stage 2: Calculation of LEA EFIG Allocations Step 1: LEA Grant 1 = ( ( PF / ∑ PF ) * S_ALL ) or L_HH, whichever is greater In Step 1, the population factor for each eligible LEA is divided by the total population factor for all eligible LEAs in the state . If this is less than the LEA's hold harmless level, the latter amount is used. Step 2: LEA Grant 2 = ( LEA Grant 1 * L_HH_ADJ ) or L_HH, whichever is greater In Step 2, the amount for each LEA in Step 1 is adjusted through application of a factor to account for the aggregate costs of raising affected LEAs in the state to their hold harmless level, given a fixed total state allocation level. The LEA hold harmless adjustment is downward for all LEAs except those at the hold harmless level. Step 3: Final LEA Grant = LEA Grant 2 * SCH_IMP_ADJ * S_ADMIN_ADJ * AWD_ADJ * OTR_ADJ In the final step of calculating LEA grants under all Title I-A allocation formulas, LEA grants as calculated in Step 2 are further adjusted for the school improvement and state administration reservations, possible state reservations for achievement awards, and other possible adjustments (such as for grants to charter schools) discussed above. Where: PF = Population factor EF = Expenditure factor EFF = Effort factor EQ = Equity factor APP = Appropriation S_MIN_ADJ = State minimum adjustment (proportional increase (in small states) or decrease (in other states) to apply the statewide minimum grant) S_MIN = State minimum S_ALL = State total allocation L_HH = LEA minimum or "hold harmless" level L_HH_ADJ = LEA minimum or "hold harmless" adjustment (proportional decrease, in LEAs not benefitting from the LEA "hold harmless," to apply the LEA minimum grant) SCH_IMP_ADJ = Reservation by SEA for school improvement grants S_ADMIN_ADJ = Reservation by SEA for state administration AWD_ADJ = Possible reservation by SEA for achievement awards OTR_ADJ = Other possible adjustments by the SEA ∑ = Sum (for all states in the nation in Stage 1, and for all eligible LEAs in the state in Stage 2) Under ESEA Title I-A, two different mechanisms are authorized for the generation of funds for School Improvement activities. Whatever the source, these funds are to be targeted on schools that are identified as being in need of improvement, corrective action, or restructuring because they have failed to make AYP for two consecutive years or more. First, states are to reserve 4% of their total Title I-A LEA grants, under the four formulas described above, for School Improvement activities. Second, the ESEA authorizes a separate appropriation for state School Improvement Grants. These funds are allocated to states in proportion to state total grants under ESEA Title I, Parts A, C (State Agency Migrant Program—see below), and D (State Agency Neglected, Delinquent, or At-Risk Program—see below). At least 95% of each state's funds from either source (the reservation or the separate appropriation) is to be allocated to LEAs for schools identified as being in need of improvement, corrective action, or restructuring. The funds are allocated at state discretion—there is no statutory intrastate allocation formula for School Improvement funds, beyond the general direction that they are to be directed to LEAs with schools identified as being in need of improvement, corrective action, or restructuring. Title I grant factor —Funds are allocated to states in proportion to total grants under Title I, Parts A, C, and D. School Impro vement Grant Allocation Formula — State Grant = [ ( T1A + T1C + T1D ) / ∑ ( T1A + T1C + T1D ) ] * APP Each state (including Outlying Areas and the Bureau of Indian Affairs) receives a School Improvement Grant equal to its proportional share of total grants under ESEA Title I, Parts A, C, and D. Where: T1A = State total grant under ESEA Title I, Part A T1C = State total grant under ESEA Title I, Part C T1D = State total grant under ESEA Title I, Part D APP = Appropriation (separate) for School Improvement Grants ∑ = Sum (for all states) Unlike other federal elementary and secondary education programs, most Title I-A funds are allocated to individual schools, although LEAs retain substantial discretion to control the use of a significant share of Title I-A grants at a central district level. While there are several rules related to school selection, LEAs must generally rank their public schools by their percentage of pupils from low-income families, and serve them in rank order. All participating schools must generally have a percentage or number of children from low-income families that is higher than the LEA's average, or 35%, whichever of these two figures is lower , although LEAs have the option of setting school eligibility thresholds higher than the minimum in order to concentrate available funds on a smaller number of schools. Once schools are selected, Title I-A funds are allocated among them (and reserved for services to private school pupils) in proportion to their number of pupils from low-income families. In a large majority of cases, the data used to determine which pupils are from low-income families for the distribution of funds to schools are not the same as those used to identify school-age children in poor families for purposes of calculating allocations to states and LEAs. This is because data are not typically available on the number of school-age children enrolled in a school, or living in a residential school attendance zone, with income below the standard federal poverty threshold. Such "population in poverty" estimates, as used in the standard formulas for allocation of funds to states and LEAs (discussed above), are usually available only for LEAs, counties, and states. Thus, LEAs must use available proxies for low-income status. The Title I-A statute allows LEAs to use the following low-income measures: (a) eligibility for free and reduced-price school lunches; (b) eligibility for Temporary Assistance to Needy Families (TANF); or (c) eligibility for Medicaid. At the level of individual schools, the most commonly used criterion for determining whether pupils are from low-income families is eligibility for free and reduced-price school lunches. According to the most recent relevant data, approximately 90% of LEAs receiving Title I-A funds use free/reduced-price school lunch data—sometimes alone, sometimes in combination with other authorized criteria—to select Title I-A schools and allocate funds among them. The income eligibility thresholds for free and reduced-price lunches are higher than the poverty levels used in the allocation formulas to states and LEAs: 130% of poverty for free lunches, 185% for reduced-price lunches. After data have been compiled on the percentage or number of pupils from low-income families who are either enrolled in a LEA's public schools or residing in the attendance areas served by such schools, available Title I-A funds are allocated among these schools in rank order, beginning with the highest poverty schools, until no further funds are available. LEAs may choose to consider only schools of selected grade levels (e.g., only elementary schools) in determining eligibility for grants, as long as all schools with 75% or more of pupils from low-income families receive grants. Funds are allocated among schools in proportion to their number of pupils from low-income families, although grants to eligible schools per pupil from a low-income family need not be equal for all schools. LEAs may choose to provide higher grants per child from a low-income family to schools with higher percentages of such pupils (e.g., higher grants per child to a school where 70% of pupils are from low-income families than to a school where 40% of pupils are from low-income families). If a LEA provides Title I-A funds to schools with low-income pupil percentages below 35%, then it must provide a minimum amount of funds per child from a low-income family—equal to at least 125% of the LEA's Title I-A grant per child from a low-income family—to each participating school. In the 2004-2005 school year, an estimated 56% of all public schools in the nation received Title I-A grants. This included 82% of public schools in the highest quartile with respect to their percentage of pupils in low-income families, declining to 37% of schools in the lowest quartile. Elementary schools (70%) are much more likely than secondary schools (39%) to receive Title I-A grants. Similarly, the share of funds to be used by each recipient LEA to serve educationally disadvantaged pupils attending private schools is determined on the basis of the number of children from low-income families living in the residential areas served by public schools selected to receive Title I-A grants. LEAs may use for this purpose either the same source of data used to select and allocate funds among public schools (i.e., usually free/reduced-price school lunch data) or one of a specified range of alternatives. Information on the Title I-A appropriations for FY2007-2009, plus the Administration budget request for FY2010 may be found in Table 4 , below. The table is preceded by brief descriptions of appropriations for FY2008 and FY2009 plus the FY2010 request. The Administration's budget for FY2008 requested $13,909,900,000 for Title I-A LEA grants, an increase of $1,071,775,000 (8.3%) over the FY2007 appropriation, plus a separate appropriation of $500 million for school improvement grants, a fourfold increase over FY2007. All of the increase in LEA grants would have been devoted to Targeted Grants (along with a $62.5 million reduction in EFIG grants). P.L. 110-161 , the Consolidated Appropriations Act for FY2008, provided a total of $13,898,875,000 for Title I-A grants to LEAs, plus a separate appropriation of $491,265,000 for school improvement grants. As in the recent past, the funding level for Concentration Grants was the same for FY2008 as for FY2007, and equal amounts were appropriated for the Targeted and EFIG formulas ($2,967,949,000 for each). All of an across-the-board reduction for Title I-A was applied to Basic Grants, reducing funds under that formula to $6,597,946,000. For FY2009, regular appropriations are provided under P.L. 111-8 , an omnibus appropriations act. Under P.L. 111-8 , total regular FY2009 appropriations for grants to LEAs are $14,492,401,000. The FY2009 funding for Basic and Concentration Grants is the same as for FY2008, while Targeted and EFIG grants each receive $3,264,712,000. In addition, $545,633,000 is separately appropriated for School Improvement Grants. In addition to regular FY2009 appropriations legislation for ED, the American Recovery and Reinvestment Act of 2009 (ARRA) , P.L. 111-5 , provides a total of $13 billion in additional FY2009 appropriations for Title I-A—$10 billion for grants to LEAs and $3 billion for School Improvement Grants. These funds are in addition to amounts provided in regular FY2009 appropriations legislation. Half of the additional grants to LEAs will be allocated under the Targeted Grant formula and half under the Education Finance Incentive Grant formula. On May 7, 2009, the Obama Administration released its detailed budget recommendations for FY2010. For ESEA Title I-A, the Administration requested a total of $12,992,401,000 for grants to LEAs, a reduction of $1,500,000,000 (10.4%) from the FY2009 amount. All of this reduction would be applied to Basic Grants, which would decline from $6,597,946,000 for FY2009 to $5,097,946,000 for FY2010. At the same time, for School Improvement Grants under Title I-A, the Administration requested a $1,000,000,000 increase, from $545,633,000 for FY2009 to $1,545,633,000 for FY2010. On July 24, 2009, the House passed H.R. 3293 , to provide FY2010 appropriations for the Departments of Labor, Health and Human Services, and Education and Related Agencies. As passed by the House, H.R. 3293 would provide $14,492,401,000 for Title I-A grants to LEAs, $1,500,000,000 more than the Administration request for Basic Grants but the same as requested for all other formulas, and $545,633,000, the same as the Administration request, for School Improvement Grants. The Senate Committee on Appropriations reported its version of H.R. 3293 on July 30, 2009. As reported by the Senate Committee on Appropriations, H.R. 3293 would provide $13,792,401,000 for Title I-A grants to LEAs, $800,000,000 more than the Administration request for Basic Grants but the same as requested for all other formulas, and $545,633,000, the same as the Administration request for School Improvement Grants. Table 4 , below, shows total Title I-A appropriations for FY2009-FY2010. FY2008 (school year 2008-2009) grants are the latest available actual allocations under Title I-A. Overall, the FY2008 funding level for Title I-A is 8.3% above the FY2007 level. This contrasts with the period of FY2005-2007, when aggregate funding for Title I-A LEA grants was essentially constant. Due largely to the comparatively large increase in Title I-A funding for FY2008, all states except one (Wisconsin, where grants declined by 1.3%) received higher total grants for FY2008 than for FY2007. At the LEA level, approximately 61% of all LEAs nationwide that received Title I-A grants for both FY2007 and FY2008 received larger grants for FY2008, while 39% received lower grants for FY2007. LEAs receiving lower Title I-A grants for FY2008 than in FY2007 have been experiencing reductions in their estimated number of school-age children in poor families; these include LEAs of all sizes and degrees of poverty concentration, in contrast to the FY2002-FY2006 period when a large majority of large or high-poverty LEAs experienced grant increases, while a majority of LEAs overall were losing funds. Tables 5-8 provide a series of analyses of the distribution of Title I-A funds among the states, as well as different types or categories of LEAs. Each table is preceded by a brief description of the information provided in the table. Subsequently, these tables will be referred to in the course of a series of analyses of possible Title I-A formula reauthorization issues. Table 5 , below, shows state average FY2008 Title I-A grants per child counted in the Title I-A allocation formulas. Separate amounts are provided for each of the four formulas, plus a Title I-A total. The substantial variation in these amounts reflect a combination of factors, many of which are analyzed in detail in the final section of this report. These factors include: State minimum grant provisions—Under all formulas, average grants per formula child are much higher for the smallest (in population) states. Expenditure factor—Under all formulas, but especially with respect to Basic Grants, average grants per formula child are much higher for states with high expenditure factors (e.g., Connecticut, Massachusetts, New Jersey, or New York) than for states with low factors (e.g., Alabama, Arkansas, Mississippi, or Utah). Targeting on LEAs with large numbers of school-age children in poor families—With the exception of the smallest states (where average grants per formula child are high regardless of poverty rates), average grants per child under the Concentration, Targeted, and Education Finance Incentive Grant (EFIG) formulas are higher for several states containing LEAs with very high numbers of school-age children in poor families (e.g., Illinois, Michigan, New York, or Pennsylvania) than for other states. In contrast, states with large numbers of LEAs with high poverty rates (e.g., Alabama, Arkansas, Mississippi, New Mexico) are below the national average, primarily due to low expenditure factors for these states. Equity factor—Several states with especially favorable equity factors (e.g., the District of Columbia, Hawaii, West Virginia, and Wisconsin) receive relatively high average grants per formula child under the EFIG formula. However, many key formula factors operate in opposite directions, largely cancelling each other out. For example, California has LEAs with very large numbers of school-age children in poor families, but also a relatively low expenditure factor, resulting in an average Targeted Grant per formula child that is approximately the same as the national average. Table 6 , below, provides each state's percentage share of the funds allocated under each of the Title I-A formulas, as well as total Title I-A grants, for FY2008. The distinctive feature here is that while these shares are similar under all formulas for most states, some states receive substantially higher or lower shares under some formulas than under the other formulas. Focusing on those states where the highest share of grants under any formula is one-third or more above its lowest share, there are 19 states where the share of funds received under one of the four formulas is substantially different from the others. These include: Seven small states where the share under the Targeted and/or EFIG formulas is much greater than under Basic or Concentration Grants, due to the higher state minimum under the former formulas (Alaska, Delaware, New Hampshire, North Dakota, South Dakota, Vermont, and Wyoming); Four states with relatively low poverty rates where the share of Basic Grants is substantially higher than under any other formula (Connecticut, Minnesota, New Jersey, and Wisconsin); Two states with many LEAs with relatively high poverty rates where shares are substantially higher under Concentration Grants than the other formulas (Louisiana and West Virginia); One state where the share of Targeted Grants is substantially higher than under the other formulas, due to the impact of one very large LEA (Nevada); and Five states where the share of EFIG Grants is substantially higher than under the other formulas, due primarily to relatively favorable equity factors (Iowa, Kansas, Nebraska, Utah, and Washington). Table 7 , below, provides average Title I-A grants per formula child, by formula and total, for LEAs in five illustrative categories. It must be emphasized that these are limited numbers of LEAs in each category, selected to concretely illustrate certain patterns of Title I-A allocations. They are not necessarily representative of all LEAs in each category. (The following Table 8 provides summary data for all LEAs in each of 12 standard categories of localities.) The illustrative categories for Table 7 are: LEAs with very large numbers of formula children, LEAs with very high percentages of formula children, LEAs in minimum grant states, LEAs with relatively large numbers, but relatively low percentages, of formula children, and LEAs with low numbers and percentages of formula children. Distinctive allocation patterns illustrated in Table 7 , all of which will be discussed further in the issue analyses at the end of this report, include the following: Grants per formula child are much higher than average under the Targeted and EFIG grant formulas for the selected LEAs with very large numbers of formula children; The selected LEAs with very high percentages of formula children receive higher than average grants per formula child under the Targeted and EFIG formulas, but much lower than the LEAs with very large numbers of formula children, partially due to their treatment under these formulas but primarily because they are located in states with low expenditure factors; The selected LEAs in minimum grant states receive higher grants per formula child than LEAs in any other category under all formulas except possibly Concentration Grants; The selected LEAs with relatively large numbers, but relatively low percentages , of formula children receive Concentration, Targeted, and EFIG grants per formula child that are above the national average, in spite of their low formula child percentages; and The selected LEAs with low numbers and percentages of formula children receive grants per formula child that are well below average under all formulas except Basic Grants. The last of the data tables in this report section, Table 8 , displays the distribution of total school-age population, Title I-A formula children, and Title I-A grants (by formula and total) among LEAs in 12 standard locale categories. (Note that Puerto Rico is excluded from this analysis.) These categories are based on the "urban-centric" locale codes developed by the National Center for Education Statistics (NCES). The final column (Column J) in Table 8 shows the percentage difference between the share of total Title I-A grants going to LEAs in that category (Column I) and the share of Title I-A formula children (Column D). This figure indicates the aggregate size and direction of variations in the distribution of Title I-A formula children and the distribution of Title I-A grants. For example, if the amount in Column J were large and positive, this would indicate that LEAs in that category receive a substantially higher share of Title I-A funds than their share of the children counted in the Title I-A formulas. Conversely, if the amount in Column J were large and negative, this would indicate that LEAs in that category receive a substantially smaller share of Title I-A funds than their share of the children counted in the Title I-A formulas. As shown in Table 8 , applying an arbitrary threshold of +/- 10% or more to indicate substantial differences in shares of grants versus formula children, the following patterns are illustrated: The urban group as a whole (locale codes 11-13) receives substantially higher shares of grants than their share of formula children (+13.8%) with virtually all of this differential occurring with respect to the large city groups of LEAs (code 11) with a difference of +25.3%. In addition, whether substantial or not, the direction of the difference is negative for all locale code groups except large city (11) and midsize city (12). The town (codes 31-33) and rural (codes 41-43) LEA groups as a whole receive substantially lower shares of grants than their share of formula children. The suburban (codes 21-23) LEA group receives lower shares of grants than its share of formula children, although the difference does not exceed the 10% threshold with respect to the large suburban group (code 21) or the suburban codes overall (codes 21-23). The remainder of this report describes and analyzes a number of issues that may arise in the context of efforts to amend and reauthorize the ESEA during the 111 th Congress. As noted earlier, all the factors used to calculate Title I-A grants are now updated each year. This includes the primary formula factor, estimated numbers of school-age children in poor families, which constitute approximately 96% of all children counted in the Title I-A allocation formulas. The poverty estimates for Title I-A are from the Census Bureau's Small Area Income and Population Estimates (SAIPE) program, which provides estimates of poor and total children aged 5-17 for LEAs, counties, and states. Under the provisions of the Improving America's Schools Act (IASA) of 1994 ( P.L. 103-382 ), use of SAIPE estimates replaced the previous practice of relying on data from the decennial Census surveys that were updated only once every 10 years. As amended by the IASA in 1994, the Title I-A statute provided that beginning in FY1997, the Secretary of Education "shall" use updated population data prepared by the Census Bureau "unless the Secretary [of Education] and the Secretary of Commerce determine that use of the updated population data would be inappropriate or unreliable, taking into consideration the recommendations" of a series of studies of the updating methodology to be conducted by the National Academy of Sciences (NAS). In March 1997, a NAS panel recommended use of a combination of 1990 census and income year (IY)1993 updated population estimates in allocating FY1997 (1997-1998) grants. In a later report, the panel recommended use of a slightly revised set of IY1993 SAIPE estimates as the sole basis for calculating FY1998 grants, and ED followed this recommendation as well. Finally, beginning with FY1999 grants, the NAS panel recommended that ED use the latest available SAIPE estimates of school-age children in poor families and that grants be calculated by ED on the basis of LEA, not county, population data, and ED has followed these recommendations. The latest available poverty estimates from SAIPE are used to calculate each year's Title I-A grants. The SAIPE estimates are updated every year. As of this writing, the latest SAIPE data are for income year 2007; these estimates were initially published in December 2008, and will be used to calculate FY2009 Title I-A allocations. For IY1993 through IY1999 (FY1997-2002 Title I-A grants), these estimates were updated every two years. Since IY1999 (Title I-A grants from FY2003 through the present), they have been updated annually. There is a two-year gap in the income year for SAIPE estimates used to calculate FY2009 Title I-A grants (IY2007) versus FY2008 grants (IY2005) because Census has reduced the time required to develop the SAIPE estimates (previously the gap was three years). SAIPE is not a survey of households separate from other federal surveys conducted by the Census Bureau or other agencies. SAIPE data are indirect estimates, produced through statistical modeling of data from the most recent decennial census, other Census Bureau household surveys, primarily the American Community Survey (ACS), and administrative records, such as federal income tax returns, Food Stamp and Supplemental Security Income program participation, and income data from the Bureau of Economic Analysis of the Department of Commerce. The provision for use of population updates was added to Title I-A in an attempt to distribute funds on the basis of the latest available, reliable data on the distribution of school-age children in poor families among states and localities, and to try to minimize the considerable disruption that had occurred previously with the introduction of new population data only once every 10 years. However, somewhat unexpectedly, the updates themselves have caused significant shifts in allocation shares among states and regions. With the publication of each set of SAIPE estimates, shifts in the estimated number of school-age children in poor families have generally been relatively modest for most states, but there have always been a number of states (and LEAs) with quite substantial estimated shifts over a one- or two-year period. Table 9 provides data from the last four series of SAIPE estimates that have been, or will be, used to calculate Title I-A grants, those for income years 2003 (FY2006), 2004 (FY2007), 2005 (FY2008) and 2007 (FY2009). It provides each state's estimated number of school-age children in poor families, and the percentage change in this estimated number from the previous year. As seen in Table 9 , for many states there is a substantial degree of year-to-year variation in these poverty estimates. For IY2004 compared to IY2003, the national aggregate poverty estimate increased by 0.3%, virtually no change at all, while the estimates for individual states ranged from -28.7% to +32.4%. Comparing IY2005 with IY2004, while the national aggregate poverty estimate increased by 3.8%, the estimates for individual states ranged from -9.3% to +27.6%. Finally, comparing IY2007 with IY2005, the national poverty estimate declined by 3.1%, while the estimates for individual states varied from -22.6% to +12.7%. Not only is the range in annual shifts in SAIPE poverty estimates for the states overall quite large; these estimates also fluctuate quite substantially from year to year for a number of individual states. As is illustrated in Table 10 , below, the estimates for several states have fluctuated widely in recent years, at a time when the estimated aggregate change was relatively small. While several of these are states with relatively small populations (e.g., Alaska, Montana, New Hampshire, and Vermont), this group also includes such relatively large states as Florida and Wisconsin, as well as the moderate size states of Hawaii and West Virginia. During the initial period of use of the SAIPE poverty estimates, special provisions were added to FY1997-2001 appropriations legislation for Title I-A to limit the impact of the updates. As was discussed above, in all years, the Title I-A authorizing statute provides for "hold harmless" rates of 85-95% of the previous year grant, applied at the LEA level. The FY1997-2001 appropriations acts for ED provided for higher 100% hold harmless rates, applied either at the state or the state plus LEA levels. These high hold harmless rates were applied during a period when there was little or no growth in aggregate Title I-A funding and substantial shifts in the estimated number of school-age children in poor families for many states and LEAs. As a result of 100% hold harmless rates and little growth in total appropriations, state and LEA funding shares remained quite static during this FY1997-2001 period. Beginning with FY2002, the 100% hold harmless rates were dropped from annual appropriations acts for Title I-A. This shift was facilitated by a combination of significantly increased total funding (an increase of 18% for FY2002 compared to FY2001), and initial funding of two formulas (the Targeted Grant and EFIG formulas) that resulted in each state (although not each LEA) receiving an increase in Title I-A funds for FY2002. As the rate of annual appropriations increases declined over the period of FY2003-2007, not only a substantial number of LEAs, but also (beginning with FY2004 ) a number of states experienced annual reductions in Title I-A grants. Finally, for FY2008, Title I-A appropriations rose by 8.3%, and only one state received a smaller allocation for FY2008 than for FY2007. Concern about the variability of the SAIPE poverty estimates for many states may lead to proposals to limit resulting decreases in Title I-A grants, beyond the effects of the statutory hold harmless provisions for LEAs. The remainder of this section of the report provides a discussion and analysis of four possible options for limiting year-to-year reductions in Title I-A grants resulting from fluctuations in poverty estimates. One option might be a return to higher (100%) hold harmless rates in annual appropriations legislation, applied at either the LEA or state level, as occurred between FY1997 and 2001. This would have the effect of eliminating reductions in Title I-A grants overall, while limiting increases to states or LEAs with rising estimated numbers of school-age children in poor families. If there were little or no increase in total Title I-A appropriations, this would result in a static geographic distribution of funds, as occurred between FY1997 and FY2001. A variation of this option would address the particular problems of LEAs that have experienced dramatic shifts in funding from one year to the next as their school-age child poverty rate varies by small amounts around the Targeted Grant and EFIG formula child eligibility threshold of 5.0%. Large swings in funding make it exceptionally difficult to use Title I-A funds efficiently. The four-year phase-out of hold-harmless provisions, now applied only to Concentration Grants, might be extended to Targeted and EFIG grants. A second alternative for limiting the impact of large variations in annual poverty estimates would be to combine the most recent poverty estimates with the estimates for one or more immediately preceding years, in order to make the transition to the most recent estimates more gradual for states or LEAs where estimated changes are relatively large. This could be accomplished by using the average of the poverty estimates for the last two or even three years in the Title I-A allocation formulas. Table 11 , below, illustrates the estimated impact of this approach on grants for FY2008. Actual FY2008 Title I-A grants under current law (i.e., based on IY2005 poverty estimates) are compared to estimates under an alternative formula using the average of the latest and the second most recent poverty estimates (i.e., those for IY2005 and IY2004) as the poverty population factor. The estimated FY2008 grants based on the average (two-year) poverty estimates are compared to actual grants for FY2008 (Column E) and FY2007 (Column G), along with a comparison of actual grants for FY2008 compared to FY2007 (Col. F). As mentioned earlier, with a relatively substantial (8.3%) funding increase for FY2008 over FY2007, under current law only one state (Wisconsin) received a lower grant for FY2008 than for FY2007 (a reduction of 1.3%). For the other states, the rate of increase for FY2008 over FY2007 ranged from 0.1% to 20.8% (Column F). As seen in Table 11 (Column G), under the alternative formula, all states are estimated to have received higher grants for FY2008 compared to FY2007, with increases ranging from 1.8% to 16.1%. Thus, as expected, the range in variation from previous year (FY2007) grants is somewhat less under the alternative formula (1.8% to 16.1%) than under current law (-1.3% to 20.8%). Comparing estimated FY2008 grants under the alternative formula to actual FY2008 grants (Column E of Table 11 ), estimated differences range from -4.3% (Maine) to 5.9% (Nevada). A third approach, illustrated in Table 12 , would be to use the greater of: (i) the latest poverty estimate, or (ii) the average of the latest and the previous year estimate for each LEA. Under this alternative, if the latest poverty estimate is higher than the one for the previous year for an LEA, then only the latest estimate is used in calculating grants. Alternatively, if the latest poverty estimate for an LEA is lower than the one for the previous year, then the average of the latest and the immediately preceding estimate is used. As a result, areas with estimated increases in poverty receive "credit" for that increase, while losses are cushioned for LEAs with estimated decreases in poverty. This would have a more limited impact on grants than the use of the average of the poverty estimates for the last two years for all LEAs. As seen in Table 12 (Column G), under this alternative formula, all states are estimated to have received higher grants for FY2008 compared to FY2007, with increases ranging from 0.5% to 19.9%. This range of variation falls in between the wider range under current law (-1.3% to 20.8%—Column F) and the somewhat more narrow range under the alternative formula discussed in option 2 (1.8% to 16.1%). Comparing estimated FY2008 grants under the alternative formula to actual FY2008 grants (Column E of Table 12 ), estimated differences fall within the relatively narrow range of -1.5% (Puerto Rico) to 2.5% (Connecticut). Those concerned about the impact of frequent, sometimes quite large, variations in poverty estimates and subsequent Title I-A grants on program operations might support the use of two-year averages for poverty data, as reflected in the alternative formulas of Tables 11 and 12 . Given the underlying reliance of the SAIPE estimation process on sample survey data, the reliability of the estimates should be increased through combination of estimates for multiple years. The most recent poverty estimates would still be used, but introduced more gradually. States and LEAs would be allowed more time to adjust to either increases or decreases in allocations, and program stability would be enhanced. However, opponents of a shift from the current practice of always using the latest available poverty estimates would argue that averaging poverty estimates over two years, or choosing the greater of the latest estimates or a two-year average for each LEA, would delay implementation of updates. Under current practice, estimates based on income for calendar year 2007 will be applied to grants for FY2009, the 2009-2010 school year; thus, there is a two- to three-year lag between the income year and the program year. Use of one of the alternatives discussed above under Options 2 and 3 would add, in part, another year to this time lag. Further, the most severe negative impacts of reductions in poverty estimates are already limited by the LEA hold harmless provisions, under which grants may not fall below 85-95% of the previous year amount, with high poverty LEAs offered the greatest degree of protection. Finally, if the SAIPE process is deemed to provide reliable poverty estimates, that are preferable to those from other sources, some ask why should not the latest available estimates be used in calculating Title I-A grants? Another option, given that annual shifts in poverty estimates have thus far been especially large for a small number of states, would be to place a limit on the size of these shifts. Either a floor, or a floor and ceiling, might be placed on the annual percentage change in either each state's estimated number, or on each state's share of the national total estimated number, of school-age children in poor families. For example, it might be provided that no state's percentage share of the national total estimated number of school-age children in poor families could decline by more than 10% compared to the previous year. If the estimated decline were greater than 10%, the estimate used in the Title I-A allocation formulas would be set at the level representing a 10% percentage share reduction. This example is based on state percentage shares, rather than the estimated number, of school-age children in poor families in order to adjust for nationwide increases or decreases in these estimates. Also, as mentioned earlier (footnote 37 ), given a fixed annual total appropriation for Title I-A, changes in each state's percentage share of the total estimated number of school-age children in poor families are more closely related to trends in allocations than are changes in the estimated number of such children. Such a provision—a 10% limit on reductions in state share of poverty estimates—would have affected one state for FY2005, four states for FY2006, nine states for FY2007, and four states for FY2008. Grants to those states would have increased, while those to most other states would have declined. For many years, a primary issue regarding the Title I-A allocation formulas has been the extent to which funds are targeted on high-poverty LEAs. Over 90% of the nation's LEAs receive grants under ESEA Title I-A, largely because the eligibility thresholds for three of the four allocation formulas, as described above, are relatively low. In general, all LEAs receive Title I-A grants except those that have extraordinarily low school-age poverty rates or have extremely few pupils. A few LEAs (including certain charter schools that are treated as separate LEAs under state law) are eligible for relatively small Title I-A grants, but choose not to participate in the program, at least in part because the responsibilities accompanying participation are perceived to exceed the value of the prospective grants. Table 13 , below, presents the distribution of Title I-A grants among LEAs grouped by poverty rate quintile. Each quintile contains LEAs with one-fifth of the nation's total estimated number of school-age children in poor families, on the basis of the Census Bureau IY2005 population estimates used in calculating FY2008 grants. Table 13 lists the percentage share (of the national total) of Title I-A grants that are allocated to LEAs in each poverty quintile. These data are provided separately for each of the four Title I-A allocation formulas, as well as for total grants for FY2008. As illustrated in Table 13 and Figure 1 , below, the share of Title I-A funds allocated to LEAs in various poverty rate ranges varies significantly among the four allocation formulas. For Basic Grants, the share is similar for each quintile of LEAs, varying only within the narrow range of 19.2%-21.1%. For Concentration Grants, the share of funds allocated to LEAs in each poverty rate range is again similar, with the exception of the lowest-poverty quintile, which receives a much lower share (4.0% of total grants vs. 23.1%-25.2% for the other four quintiles). This reflects the eligibility threshold for Concentration Grants (formula child rate of at least 15% or 6,500 formula children). Overall, the primary pattern for both Basic and Concentration Grants is relatively constant shares of funds for all quintiles of LEAs meeting minimum eligibility thresholds. In other words, grants per poor and other child counted in the Title I-A allocation formulas are approximately the same for all LEAs meeting the initial eligibility criteria for Basic and Concentration Grants, whether those LEAs have high, average, or somewhat below average school-age child poverty rates. The pattern of distribution of grants under the Targeted and EFIG formulas is somewhat different. Under each of these formulas, the share of total grants increases steadily from the lowest to the second-highest poverty rate quintile, then is approximately constant for the 4 th and 5 th quintiles. While this partly reflects the slightly higher eligibility threshold for these formulas in comparison to Basic Grants (5% vs. 2% formula child rate), it primarily results from the structure of these formulas. Under both the Targeted and EFIG (within-state) formulas, the grant per formula child continuously increases as either the LEA's school-age child poverty rate, or its total number of children counted in the Title I-A formulas, increases. The share of funds going to LEAs in the 5 th quintile (highest poverty rates) under each of these formulas is not substantially higher than the share going to LEAs with the second highest poverty rates (4 th quintile) primarily because of the strong influence of high numbers of formula children on the allocation of funds, the influence of the expenditure factor, and the cap placed on Targeted Grant formula population weights for Puerto Rico. Overall, the share of funds allocated to LEAs in the top two poverty rate quintiles is substantially higher under the Concentration (49.1%), Targeted (49.1%), and especially the EFIG (51.0%) Grant formulas than under the Basic Grant formula (40.0%). As a result, as long as all additional funds (i.e., amounts in excess of the previous year appropriation) continue to be allocated under the Targeted and EFIG Grant formulas, as has been the case each year from FY2002-2009, the degree of targeting on high poverty LEAs for total Title I-A grants would increase. Thus, overall targeting on high poverty LEAs has increased since the enactment of the NCLB. While noteworthy, at least by historical standards, these shifts are nevertheless relatively marginal. For example, the share of total Title I-A funds allocated to LEAs in the two highest poverty rate quintiles rose from 42.3% for FY2002 (when Targeted and EFIG Grants were first funded and Basic Grants constituted 69% of total Title I-A LEA grant appropriations) to 45.2% for FY2008 (when Basic Grants constitute 48% of total Title I-A LEA grant appropriations). Another way to evaluate trends in targeting is to compare the share of grants actually allocated to LEAs in the top two poverty rate quintiles for FY2008 with an estimate of this share if FY2008 funds were allocated in the same manner as in the last pre-NCLB year of FY2001, when 84% of Title I-A appropriations was allocated under the Basic Grant formula and 16% under Concentration Grants. Applying that fund distribution from FY2001, 40.6% of FY2008 funds would have gone to LEAs in the top two poverty rate quintiles versus 45.2% for FY2008 actual grants. A partial reason why increases in targeting, measured as above, are relatively marginal is that allocations under the Targeted and EFIG Grant formulas are highly influenced by the number, as well as the percentage, of formula children in each LEA, while this sort of targeting analysis identifies high poverty LEAs only in terms of their percentage of formula children. If "high poverty" LEAs were defined as those with either high percentages or high numbers of Title I-A formula children, the estimated increase in targeting would be slightly greater. For example, defining "high poverty" LEAs as those in one of the top two quintiles in the statutory Targeted and EFIG Grant formulas (i.e., 7,852 or more formula children, or a formula child percentage of 30.16% or higher), 53.4% of actual FY2008 grants went to such "high poverty" LEAs compared to an estimated 47.9% under the FY2001 distribution (84% Basic Grants and 16% Concentration Grants). This difference, of 5.5 percentage points, is slightly higher than the 4.6 percentage point differential based on poverty rates alone. Finally, while debates regarding the targeting of Title I-A funds have primarily focused on shifting fund distribution toward areas with the greatest concentrations of poverty, some have been concerned about declines in the share of funds going to relatively low poverty LEAs. While low poverty LEAs may be assumed to have less need for Title I-A assistance in general, they are experiencing declines in funding at a time when they are subject to substantial and increasing requirements applicable to all LEAs that participate in Title I-A. In particular, LEAs with a school-age child poverty rate of between 2.0% and 5.0% are generally eligible only for Basic Grants, funding for which has declined by 8.0% in nominal terms since enactment of the NCLB, from $7,169,471,000 for FY2001 to $6,597,946,000 for FY2008. As is discussed above, both the Targeted and the EFIG Grant formulas are designed to allocate to LEAs increased amounts of aid per formula child as either their school-age child poverty rate or their total number of formula children rises. The scales of steadily increasing weights applied to LEA formula child counts would appear to favor LEAs with high poverty rates, because relatively higher weights are assigned to LEAs with high poverty rates than to those with high numbers of formula children. For example, in the Targeted Grant formula, the highest weight assigned on the basis of numbers is 3.0 while the maximum weight assigned on the basis of poverty rates is 4.0. However, in practice, these formulas tend to favor LEAs with either high numbers of formula children as well as those with high poverty rates, and in some respects may seem to favor LEAs with moderately large numbers of formula children over those with moderately high poverty rates. The major reasons for this effect are that (a) a very large LEA will have a much larger share of its formula children weighted at the highest point in the scale than will a LEA with a very high school-age child poverty rate, and (b) LEAs with moderately large numbers of formula children are treated at least as favorably as LEAs with marginally lower numbers of formula children but much higher school-age child poverty rates. One way to view the level of targeting provided under the Targeted and EFIG Grant formulas is to examine the average grant per formula child for high poverty LEAs versus state averages. Table 14 , below, provides the Title I-A grant per formula child, by formula, for the 15 LEAs in the nation with the largest number of formula children for FY2008. The table also provides these statistics for the LEA with the highest poverty rate in these states plus the state average grants per formula child, by formula. LEAs are compared with others in the same state to adjust for variations in grants per child arising from statewide factors including the expenditure factor used in all formulas plus the effort and equity factors of the EFIG formula. As seen in Table 14 , Basic and Concentration Grants per formula child are approximately the same for all LEAs in the same state (assuming minimum LEA eligibility criteria are met); variations in grants per formula child result primarily from hold harmless effects. However, LEAs that are among the 15 largest in the nation receive much higher grants per formula child than other LEAs in the same state under the Targeted and EFIG Grant formulas. Targeted Grants per formula child are in many cases more than twice as high as the average for all other LEAs in the state for the largest LEA in the states shown in Table 14 , while EFIG Grants per formula child are in some cases more than three times as high. In most cases, the Targeted and EFIG Grants per formula child are higher than the state average for LEAs in each state having the highest poverty rate , although not as high as for the LEA with the largest number of formula children. This reflects a general pattern whereby the Targeted and EFIG Grant formulas are favorable to LEAs with both high numbers of formula children and high poverty rates, but generally somewhat more favorable to the former. A major reason for this pattern is that LEAs with large numbers of formula children are often able to apply relatively high weights to higher proportions of their formula children than are smaller LEAs with relatively high percentages of formula children. This can be illustrated by the following comparison of Los Angeles, California, a LEA with a very high number of formula children, with the Hidalgo Independent LEA in Texas, that has one of the highest school-age child poverty rates in the nation. The following table shows the number and percentage share of each LEA's formula children for FY2008 to which various weights are applied under the number and percentage scales for Targeted Grants. After each calculation is made for each LEA, the greater of the two is selected for use in the formula; therefore, the numbers scale is ultimately applicable to Los Angeles and the percentage scale to Hidalgo. As indicated below, a large majority of the total formula child count for Los Angeles (85.6%) falls in the highest weight category (3.0) on the numbers scale, while a much smaller percentage of Hidalgo's formula children (39.3%) falls in the highest weight category (4.0) on the percentage scale. Another perspective on the impact of the Targeted and EFIG Grant formulas on different types of LEAs is provided in Table 16 , below. It again focuses on different types of LEAs in the same state, to eliminate the influence of statewide formula factors, especially the expenditure factor. The table compares state average grants per formula child, by formula, with grants per formula child to three types of LEAs: (1) LEAs with relatively large numbers, but relatively low percentages, of formula children, (2) LEAs with relatively large numbers and above-average percentages of formula children, and (3) LEAs with percentages of formula children that are among the highest in the state. LEAs in these categories are compared in three states—Florida, Maryland, and Virginia—that have a number of LEAs in each of these categories. The general pattern seen in Table 16 for these states is that LEAs in both of the first two categories—LEAs with relatively large numbers, but relatively low percentages, of formula children and LEAs with relatively large numbers and above-average percentages of formula children—invariably receive Targeted, EFIG, and total grants per formula child that are significantly above the state average. LEAs that have the state's highest percentages of formula children also receive higher than average grants in Virginia, but not in Florida or Maryland. This is another reflection of the way in which even moderately high numbers of formula children can substantially influence the distribution of Targeted and EFIG Grants, even for LEAs that have very low school-age child poverty rates by national standards. Thus, while the Targeted and EFIG Grant formulas cannot be said to be sharply biased against relatively small LEAs with high poverty rates, LEA size (in terms of numbers of formula children) can be said to have somewhat greater influence on allocation patterns than poverty rates. If desired, an adjustment for this pattern could be accomplished through changes in the weights associated with different ranges of LEA formula child numbers and rates. For example, the formula child percentage scale could be left as is under the Targeted Grant formula, while revising the formula child number scale to top out at 2.0 or 2.5, instead of 3.0, with comparable changes made to the three sets of weighting scales used for EFIG Grants. Alternatively, LEAs with relatively large numbers of formula children could be required to have minimum poverty rates in order to benefit from the full formula child weight on the numbers scale. For example, if an LEA has a formula child rate of less than 20% (approximately the national average), its numbers scale weight could be multiplied by its formula child percentage divided by 20%. The state expenditure factors, while little noticed, have a major impact on the distribution of Title I-A grants. As discussed above, they are the same statewide, with no consideration of local variations; they likely provide little incentive to increase state spending on K-12 education; and they reflect differences in ability to raise revenues at least as much as differences in costs. Perhaps the best argument for continuing them is that they partially, roughly, and indirectly compensate for the lack of a geographical cost adjustment for the poverty population factor income thresholds. As was discussed earlier, the Title I-A expenditure factor for a given fiscal year is equal to state current expenditures for public elementary and secondary education per pupil in average daily attendance in the third preceding fiscal year. This amount is multiplied by a "federal share" of 0.4. Floor and ceiling constraints are placed on this calculation. For three of the four formulas—Basic, Concentration, and Targeted Grants—these are 80% and 120%, respectively, of the national average. For the fourth formula—Education Finance Incentive Grants—the floor and ceiling are 85% and 115%, respectively, of the national average. Until recently, the expenditure factor floor was adjusted for one jurisdiction, Puerto Rico, that is otherwise treated as a state in the Title I-A formulas. Table 17 , below, presents state expenditure factors that were used in calculating Title I-A grants for FY2008 (school year 2008-2009). As seen in Table 17 , among the 50 states and the District of Columbia (i.e., excluding Puerto Rico), the FY2008 expenditure factor ranges from $2,956 to $4,435, a ratio of 1.5 to 1, for all formulas except EFIG Grants, and from $3,141 to $4,250, a ratio of 1.35 to 1, for the EFIG formula. In effect, the expenditure factor acts as a "weight" applied to each formula's population factor, resulting in grants per formula child that are 50% higher in states at the expenditure factor ceiling than for states at the floor under Basic, Concentration, and Targeted Grants, and 35% higher under EFIG Grants, when all other relevant factors are held constant. The Title I-A allocation formulas have included an expenditure factor since the program was initiated in 1965 (P.L. 89-10). Proponents of inclusion of the expenditure factor in the Title I-A allocation formulas have argued that this serves four policy goals: It recognizes and compensates for differences in the costs of providing public elementary and secondary education in different areas of the Nation, by providing higher grants per child to areas with higher educational costs. It provides an incentive for states and LEAs to increase spending for public elementary and secondary education, since Title I-A grants would be increased in response to increases in state and local spending. It rewards states that spend relatively high amounts per pupil for public K-12 education. Since no geographic cost of living adjustment is applied to the income thresholds used to calculate estimated numbers of school-age children in poor families, and since (it is argued) such costs of living tend to be correlated with variations in average expenditures per pupil, the expenditure factor helps to treat different regions of the nation more fairly than a reliance on poverty data alone. There are limits associated with each of these rationales. A difficulty with the first rationale is that the expenditure factor is based on levels of state and local spending , and is not a measure or index of the costs of providing public elementary and secondary education in the various states. A cost index would measure the relative costs of providing a standardized service in different states or localities. In contrast, the Title I-A expenditure factor measures the average level of expenditures per pupil in each state for public elementary and secondary education services which may vary substantially in nature and quality. State average differences in expenditures per pupil are likely to vary in part due to underlying differences in the costs of providing similar educational services, but also in response to such factors as differences in ability to pay for educational services; the relative priority that a state's population places on elementary and secondary education (as opposed to other public services or tax limitation); the nature of the services provided; and even the relative share of a state's total population that consists of school-age children and youth. Further, since the Title I-A expenditure factor is the same for all LEAs in each state, it could not account for the potentially large differences in the costs of providing public education among the LEAs within states. With respect to the second rationale for inclusion of the expenditure factor in the ESEA Title I-A allocation formulas, it is true that for many states, future Title I-A grants would increase in response to an increase in the level of state and local expenditures per pupil for public elementary and secondary education. However, several considerations are likely to significantly limit the impact of the Title I-A expenditure factor as a potential incentive to raise state and local public education spending, including the following. An increase in state and local expenditures per pupil would lead to an increase in Title I-A grants only if the rate of increase in expenditures per pupil were greater than the national average increase in expenditures per pupil over the relevant time period. For example, if the national average level of expenditures per pupil increased by 4% from one year to the next, a state would have to increase its level of expenditures per pupil by more than 4% in order to experience any increase in Title I-A grants. If a state's expenditure factor were already significantly more than 120%, or significantly below 80%, of the national average (115% and 85% for EFIG Grants), then an increase in state and local spending might have no effect on the state's Title I-A expenditure factor. For example, if a substantial increase in state and local spending were to increase a state's expenditure factor from 70% to 75%, or from 125% to 130%, of the national average, there would be no significant effect on Title I-A grants to the state. Since the expenditure factor is the same for all LEAs in each state, and is based on aggregate state and local source spending within the state, it is likely to provide little incentive for individual LEAs to increase their level of spending, since such increases might have very little impact on aggregate state expenditures per pupil. Even if the relative level (in comparison to other states) of a state's expenditure factor were to increase, and the state fell between the floor and ceiling parameters, so an increase would have a direct impact on the state's expenditure factor as used in the Title I-A formulas, the amount of the consequent increase in Title I-A grants would likely be very small in comparison to the size of the increase in state and local spending. For example, if California (a state at 86% of the national average for FY2008) were to have increased its average expenditure per pupil for 2005-2006 (the year upon which the expenditure factor for FY2008 grants was based) by $100, and if all other relevant factors (such as the expenditure factors for other states) remained constant, then estimated total Part A grants to California for FY2008 would increase by $10.7 million. This is equivalent to only 1.7% of the $635 million in additional spending of state and local funds that would have been necessary to increase the expenditure factor for California by $100 per pupil for that year. It seems unlikely that such a relatively small "bonus," with a three-year time lag, would provide substantial motivation to states and LEAs in deciding whether to increase their level of spending for public elementary and secondary education. Regarding the third rationale noted above, the current expenditure factor certainly does reward states with relatively high levels of spending for public K-12 education per pupil. However, it does not reward effort—expenditures relative to each state's fiscal capacity, i.e., its ability to raise revenues. Finally, with respect to the fourth rationale for the current expenditure factor, it is true that the income thresholds used to determine whether or not a family is poor vary only by family size, not by the state or locality in which the family resides. As a result, it can be reasonably argued that the number of school-age children in poor families is underestimated in areas with high living costs, and possibly overestimated in areas with relatively low living costs. Proposals have been made to incorporate a geographic cost of living adjustment to the poverty thresholds, but none of these has yet been adopted by the Federal Government. Nevertheless, there is no widely-accepted measure of variation in state or local costs of living, and no definitive evidence that such costs are closely associated with variations in state average expenditures per pupil. Some policy analysts have expressed concerns about the Title I-A expenditure factor, partly because of the limits on the factor's rationale discussed above, and partly because of its "disequalizing" effect, since on average it provides higher grants per formula child to states with relatively high average levels of income than to states with relatively lower income levels. The simplest alternative to the current Title I-A expenditure factor provision would be to eliminate the factor completely—i.e, use the national average expenditure per pupil as the expenditure factor for all states. This would follow the example of the other very large federal K-12 education program—the state grant program under Part B of the Individuals with Disabilities Education Act (IDEA)—under which the national average is used as an expenditure factor for all states. Table 18 , below, shows the estimated impact on FY2008 Title I-A grants of totally eliminating a (varying) expenditure factor—i.e., using the national average as the expenditure factor for all states, the District of Columbia, and Puerto Rico. This allocation formula change would significantly affect the estimated level of grants to most states. While there would be no estimated change in grants to states receiving the minimum grant amount under all four formulas (Alaska, Delaware, New Hampshire, North Dakota, South Dakota, Vermont and Wyoming), grants to many states would change substantially. Estimated grants would rise by 10% or more for such relatively low expenditure factor states as Alabama, Nevada, North Carolina, Oklahoma, and Tennessee ; while they would decline by 10% or more for relatively high expenditure factor states such as Connecticut, Maine, Maryland, Massachusetts, Nebraska, New Jersey, and Pennsylvania. It is worth noting that the "dividing line" between gaining and losing states as a result of eliminating the expenditure factor would not actually be the national average expenditure factor, but rather would be somewhat below that, typically approximately 93-95% of the national average. In other words, losing states would include not only all those with average expenditures per pupil above the national average, but also those with expenditures slightly below the average. This is because the national average is, in effect, an average weighted on the basis of the total school-age population in each state, whereas it would be the national average weighted by each state's number of poor and other children counted in the Title I-A formulas that would be relevant to Part A grants. Since many of the states with the greatest concentrations of poor school-age children also tend to have relatively low expenditure factors, the average expenditure factor weighted according to poor children is below the national average weighted according to total school-age children. A second alternative to the current Title I-A expenditure factor would involve substituting a cost index for it. This would be conceptually appropriate, assuming that the primary purpose of the expenditure factor is to reflect differences in costs. The major obstacle is the lack of an official, or otherwise widely accepted, index for state or local variations in the costs of providing public elementary and secondary education. Nevertheless, serious efforts have been made to develop such an index, and the results of one such recent project are shown in Table 19 , below. Table 19 compares the current Title I-A expenditure factor (with both sets of floors and ceilings, 80-120% and 85-115%) with a Comparable Wage Index (CWI) that has been developed as a measure for comparing educational costs across states and localities. Both the expenditure factor and the CWI are expressed as index numbers with a national average value of 1.00. No floor or ceiling has been applied to the CWI (as it falls beyond the bounds of 0.80-1.20 in extremely few cases), while the two current combinations of floor and ceiling have been applied to the Title I-A expenditure factor. The CWI attempts to measure state and local differences in the costs of providing public K-12 education by focusing on the primary source of such costs, salaries for teachers and other professional staff. Further, in order to minimize the influence of factors that can be influenced by SEA and LEA policies, the CWI is based on wages paid to individuals in professions with similar educational requirements outside of K-12 education. Thus, the focus is on the competitive labor market conditions faced by local school systems in hiring and retaining staff. As can be seen in columns E and F of Table 19 , there are numerous substantial differences in relative state values (i.e., state value compared to the national average) for the Title I-A expenditure factors versus the CWI. This has at least two implications: (a) use of the CWI as a substitute for the current expenditure factor would result in very substantial shifts in Title I-A grants among the states; and (b) to the extent that the CWI may be considered to be an appropriate measure of the relative costs of providing public K-12 education, the correlation between this measure and the expenditure factor is very limited. There are several states where the expenditure factor is above the national average but the CWI is below average (Alaska, Hawaii, Kansas, Maine, Michigan, Nebraska, New Hampshire, Ohio, Pennsylvania, Vermont, Wisconsin, and Wyoming), and a smaller number of other states with a relatively low expenditure factor but a CWI that is at or above the national average (California and Washington). It is also clear that variations among the states with respect to the CWI are less than variations in the expenditure factor, even with the application of floors or ceilings to the latter but not the former. Only two states (Montana and South Dakota) have a CWI index for 2005 that is below .80, and only the District of Columbia has a CWI index above 1.20. In order to reflect not only interstate, but also intrastate, differences in costs, the CWI has been calculated for individual LEAs, as well as states. However, the CWI is the same for all LEAs in the same metropolitan area. The current Title I-A expenditure factor could also be calculated for and applied to all individual LEAs, rather than being applied only at the state level. Since major, if secondary, rationales for the current Title I-A expenditure factor are to provide an incentive for increased spending for public K-12 education or to reward high levels of expenditures, a third alternative to the current factor might be an effort index. This would reward high levels of expenditures for public K-12 education relative to each state's fiscal capacity—i.e., its ability to pay. An effort index is included in the Title I-A Education Finance Incentive Grant formula. It is based on a three-year average of expenditures per pupil relative to personal income per capita for the state compared to the national average. However, in addition to affecting only one of the four Title I-A formulas, this factor is quite limited in its impact, as a floor of 0.95 and a ceiling of 1.05 are placed on the effort index (compared to a national average of 1.0). A K-12 education expenditure effort index that is more broad than the one used in the EFIG formula is illustrated in Table 20 , below. It is based upon total state and local expenditures for public K-12 education relative to a measure of Total Taxable Resources (TTR) , not just personal income, compiled by the U.S. Department of Commerce. The TTR index is a comprehensive measure of the relative ability of state and local governments to raise revenues. Since, unlike the CWI-based cost index, the TTR-based effort index varies among the states approximately as widely as the Title I-A expenditure factor if left unconstrained (from 0.68 for Delaware to 1.43 for Vermont), separate comparisons are made between the two current versions of the expenditure factor and versions of the effort factor using the same limits (80%/120% and 85%/115% of the national average). Thus, Column E represents the percentage difference between the TTR-based effort index with 80% and 120% limits (Col. C of Table 20 ) and the expenditure factor with the same limits (Col. B of Table 19 ), and Column F represents the percentage difference between the TTR-based effort index with 85% and 115% limits (Col. D of Table 20 ) and the expenditure factor with those limits (Col. C of Table 19 ). Again, as indicated in Columns E and F of Table 20 , there are in many cases notable differences between the relative level of state effort, according to this measure, and of the state expenditure factor (which is not repeated in Table 20 —see Table 19 ). States where the effort index is much higher (at least 10% in one or both comparisons) than the expenditure index include Alabama, Arizona, Arkansas, Georgia, Idaho, Indiana, Louisiana, Michigan, Mississippi, Montana, New Mexico, Oklahoma, South Carolina, Texas, Utah, and West Virginia. Many of these are Southern and Western states with relatively low expenditure factors but also with relatively low total taxable resources. In contrast, states where the effort index is much lower (again, at least 10% in one or both comparisons) than the expenditure index include Colorado, Connecticut, Delaware, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, New Hampshire, Virginia, and Wyoming, plus the District of Columbia. Many of these states have expenditure factors that are above the national average, but also have relative levels of total taxable resources that exceed the national average to a substantially greater degree. Although there are differences among the four Title I-A allocation formulas, and each of them has a somewhat distinctive distributional pattern, it may be questioned whether each formula serves a sufficiently distinct role and purpose as to justify its continued use. This potential issue will be noted only briefly here, but there may be interest in some degree of consolidation of the four Title I-A LEA allocation formulas. It has never been directly intended that portions of Title I-A appropriations be allocated under four different formulas. The four-formula strategy has resulted from compromises over proposals to replace previous proposals with a single new formula. At the least, the use of four different allocation formulas for portions of each year's Title I-A appropriations leads to complication and occasional confusion. Historically, the Tile I-A program has tended to have one formula under which almost all LEAs qualify, Basic Grants, and one or more formulas that are targeted more on LEAs relatively high percentages and/or numbers of school age children in poor families. This pattern could be resumed through either selection of one of the remaining three formulas—Concentration, Targeted, and EFIG Grants—or some new formula combining elements of these, as the second, more targeted, formula. For example, the Concentration, Targeted and EFIG Grant formulas be combined into a single formula through application of the effort and equity factors to the Targeted Grant formula, incorporating the Targeted Grant formula's child weighting factors, along with a higher eligibility threshold, as under Concentration Grants. Since the enactment of the NCLB, a great deal of attention has been paid to the level of funding appropriated for Title I-A in comparison to the amount authorized. Over the decades since enactment of the original ESEA in 1965, the typical pattern of ESEA authorizing statutes has been to specify an authorized level of appropriations only for the first year of the authorization period (if at all) for Title I-A, and to simply authorize "such sums as may be necessary" for the remaining years. The NCLB broke with this pattern, specifying authorization amounts for Title I-A for each of FY2002-2007. The question of authorized funding levels is closely linked to concepts of "full funding" for this program. For Title I-A, many program advocates have argued that the "full funding" level should be based on maximum payment calculations under the Basic Grant allocation formula, even in years when no authorization level was explicitly specified. As discussed earlier in this report, the Title I-A Basic Grant formula establishes a maximum payment based on poor and other "formula children" multiplied by a state expenditure factor. The total of these maximum payments is understood by a number of analysts to represent the "full funding" level for Part A. In contrast, at least during periods when Title I-A authorizations are explicitly specified in statute (e.g., FY2002-2007), many argue that these authorization amounts are the only meaningful concepts of "full funding" for Title I-A. There is a link between the two alternative "full funding" concepts for Title I-A. In the NCLB, Title I-A appropriations authorization levels were specified for each of FY2002-FY2007. Under the automatic extension provisions of the General Education Provisions Act, the FY2007 authorization applied to FY2008 as well. The FY2007 amount was set at a level approximately equal to the level of maximum Basic Grants as of FY2001 (the year preceding enactment of NCLB). Thus, the implicit goal was for funding to increase from the then-current appropriation level to the then-current maximum payment level for Basic Grants over the period of FY2002-2007. In practice, over the FY2002-FY2007 period, the appropriation for Title I-A was below the authorized amount each year, with the gap between authorization and appropriation increasing each year. In addition, by the end of the period to which the NCLB authorizations applied (FY2008), maximum Basic Grants had grown from approximately $25 billion to an estimated $33.2 billion. Thus, the practical impact of specifying authorization amounts for each year may be questioned. In addition, any authorization levels for the Title I-A program thus far may be deemed to be somewhat arbitrary, since there is no precise way to specify the level of additional spending necessary to raise the achievement of low-achieving pupils to a proficient level. At the same time, specified authorizations do provide a goal for those seeking increased funding, and express the judgment of those involved in the authorizing process of an appropriate level of funding. Finally, if authorization issues are to be specified for future years, there may be proposals to link implementation of certain Title I-A requirements to the provision of authorized (or some other specified) levels of appropriations, or even to appropriate the authorized amounts in reauthorization legislation. Table 21 , below, provides appropriations for FY2001-FY2009 compared to authorization levels for Title I-A overall, where applicable. Under the automatic extension provisions for the General Education Provisions Act, the Title I-A authorization level for FY2008 was the same as the FY2007 level. For fiscal years beyond FY2008, there is no specific authorization level for Title I-A, until new authorization legislation is enacted. For FY2002, the Title I-A authorization was $13.5 billion, and the appropriation was $10.35 billion. This FY2002 appropriation level represented a substantial increase of 17.0% over the FY2001 level for Title I-A. Appropriations also increased significantly, by 14.0%, for FY2003 compared to FY2002. Appropriations continued to increase, but at a declining rate, for FY2004 compared to FY2003 (5.6%). Funding was essentially flat over the period of FY2004-FY2007 for Title I-A. Finally, for FY2008, funding for Title I-A increased by 8.3% over FY2007. For FY2009, regular appropriations are 4.3% over those for FY2008. However, the additional amounts provided under the American Recovery and Reinvestment Act (ARRA) represent a much larger increase, the specific size of which depends on the extent to which these additional funds are considered as FY2009 or FY2010 amounts. Another trend is that over the period of FY2002-FY2007, appropriations represented a decreasing share of authorizations for Title I-A each year, although this proportion rose somewhat in FY2008. For FY2002, the first year under the NCLB, the appropriation for Title I-A was 76% of the amount authorized. By FY2007, the appropriation represented 51% of the Title I-A authorization. For FY2008, this proportion rose to 57%. If the model of the NCLB were to be followed in reauthorization legislation, and if the latter were to be enacted during FY2009, then explicit authorization levels might increase in steps from the FY2009 appropriation to the estimated FY2008 maximum Basic Grant level of $33.2 billion. An alternative approach might involve stepwise movement toward a level of maximum Basic Grants as projected for the last year of the new authorization period, rather than the year preceding the new authorization period. The second approach would undoubtedly yield substantially higher authorization levels. As discussed above, the effort factor used in the Title I-A EFIG formula is based on a comparison of state average per pupil expenditure (APPE) for public elementary and secondary education with state personal income per capita (PCI). More specifically, it is the ratio of APPE to PCI for each state divided by the ratio of APPE to PCI for the nation. The resulting index number is greater than 1.0 for states where the ratio of expenditures per pupil for public elementary and secondary education to personal income per capita is greater than average for the nation as a whole, and below 1.0 for states where the ratio is less than average for the nation as a whole. Narrow bounds of 0.95 and 1.05 are placed on the resulting multiplier. There are two potential issues related to the current structure of this effort factor. First, the rather narrow bounds on the effort factor mean that its impact is quite limited and mostly symbolic. This could be resolved by expanding the bounds, perhaps to the same range (compared to the national average) as the expenditure factor (0.85-1.15 for EFIG grants, 0.80-1.20 for the other three formulas. Second, as noted above, it is based on individual factors—i.e., average per pupil expenditure and personal income per capita . An alternative structure would be based on aggregate measures—e.g., total state and local expenditures for public K-12 education and total personal income (or Total Taxable Resources, as discussed earlier with respect to the expenditure factor) in each state. While the concepts are similar, the two different measures of effort have substantially different implications for which states may be considered to exert high versus low levels of effort. The differences are primarily based on state demographic patterns. In many of the states with high expenditures per pupil the share of the population that is school-age (5-17) is relatively low, and vice-versa. Thus, an individual measure of effort tends to favor states with relatively few school-age children, many of them in the northeastern and north central regions, while an aggregate measure would tend to favor states where comparatively high shares of the population are of school age, most of which are in the south and west. The difference between individual and aggregate measures of effort is illustrated in Table 22 below. It compares an effort measure based on individual factors to one based on aggregate factors for each state. In order to illustrate the maximum possible effect of using each type of index, the effort measures in Table 22 are shown with no bounds. As seen in Table 22 , the differences between individual and aggregate measures of state effort are often quite substantial. For the District of Columbia and states such as Hawaii, Delaware, New York, Rhode Island, Montana, Pennsylvania, and Maine, the aggregate measure of effort is much lower than the individual measure. In contrast, for states such as Utah, Texas, Alaska, and California, the aggregate measure of effort is much higher than the individual measure. However, the impact of the differences depend heavily on whether the bounds on the EFIG formula effort factor remain narrow; if the bounds continue to be 0.95-1.05, then most of the differences seen in Table 22 would be irrelevant, because most states would be held at either the 0.95 floor or the 1.05 ceiling if either effort concept were applied. As was discussed above, the EFIG formula equity factor is based upon a measure of the average disparity in average per pupil expenditure among the LEAs of a state called the coefficient of variation (CV). The CV is expressed as a decimal proportion of the state average per pupil expenditure. In the CV calculations for this formula, an extra weight (1.4 vs. 1.0) is applied to estimated counts of children from poor families. The effect is that grants would be maximized for a state where expenditures per pupil from a poor family are 40% higher than expenditures per pupil from a non-poor family. Typical state equity factors range from 0.0 (for the single-LEA jurisdictions of Hawaii, Puerto Rico, and the District of Columbia, where by definition there is no variation among LEAs), to approximately 0.25 for a state with high levels of variation in expenditures per pupil among its LEAs; the equity factors for most states fall into the 0.10 - 0.20 range. In calculating grants, the equity factor is subtracted from 1.30 to determine a multiplier to be used in calculating state grants. As a result, the lower a state's expenditure disparities among its LEAs, the lower is its CV and equity factor, the higher is its multiplier and its grant under the EFIG formula. Conversely, the greater a state's expenditure disparities among its LEAs, the higher is its CV and equity factor, and the lower is its multiplier and its grant under the EFIG formula. There are two potential issues regarding the current structure of this factor. The first is whether there should be adjustments not only for school-age children in poor families, but also for other "high cost" groups of pupils, particularly LEP pupils and pupils with disabilities. In the past, a constraint here has been the availability of data. Although that may have been resolved, concerns about the consistency of data remain. As discussed above, estimates of the number of school-age children in poor families are prepared annually by the Census Bureau through the Small Area Income and Poverty Estimates program. Data on LEP pupils and pupils with disabilities by LEA are now compiled and published by ED through the National Center for Education Statistics' Common Core of Data program. However, the system for reporting these data, by LEA and state, raises concerns about consistency across the nation, especially with respect to LEP pupils. In addition, if weights for LEP pupils and pupils with disabilities were to be included in the calculation of state equity factors, questions would arise regarding the appropriate weights to apply and possible adjustment for the fact that many pupils exhibit two or more of these characteristics. A second potential issue regarding the current structure of the EFIG formula equity factor is whether alternative concepts of equity should be applied in place of the coefficient of variation. While the CV is one of the most commonly used measures of school finance equity within states, other measures are also frequently employed. A review of alternative measures of school finance equity among the LEAs in each state is beyond the scope of this report. A report published in 2000 by the national Center for Education Statistics provides a review of major alternative school finance equity concepts with data for states applying each of these measures. As was discussed above, in the allocation of Title I-A funds to individual schools, LEAs must generally rank their public schools by their percentage of pupils from low-income families, and serve them in rank order. All participating schools must generally have a percentage or number of children from low-income families that is higher than the LEA's average, or 35%, whichever of these two figures is lower , although LEAs have the option of setting school eligibility thresholds higher than the minimum in order to concentrate available funds on a smaller number of schools. LEAs can generally choose to focus Title I-A services on selected grade levels (e.g., only in elementary schools), but they must usually provide services in all schools, whatever their grade level, where the percentage of pupils from low-income families is 75% or more. Once schools are selected, Title I-A funds are allocated among them (and reserved for services to private school pupils) in proportion to their number of pupils from low-income families, although grants to eligible schools per pupil from a low-income family need not be equal for all schools. LEAs may choose to provide higher grants per child from a low-income family to schools with higher percentages of such pupils. If a LEA provides Title I-A funds to schools with low-income pupil percentages below 35%, then it must provide a minimum amount of funds per child from a low-income family—equal to at least 125% of the LEA's Title I-A grant per child from a low-income family—to each participating school. The primary issue that has arisen with respect to intra-LEA allocation of Title I-A funds is whether an equitable share of funds is being allocated to middle and high schools. In the 2004-2005 school year, an estimated 56% of all public schools in the nation received Title I-A grants. Elementary schools (70%) are much more likely than secondary schools (39%) to receive Title I-A grants. Reports on student participation by grade levels indicate that a large majority of participants (73%) are in prekindergarten through grade 6, while only 18% are in grades 7-9 and 9% in grades 10-12. The relatively low share of Title I-A funds being allocated to middle and high schools has resulted from two factors. First, LEAs have tended to use their discretion to focus funds on selected grade levels (after all schools with 75% or more from low-income families are served) to concentrate assistance on schools serving pupils at grades K-6. Second, both because they tend to serve larger, less homogeneous populations than elementary schools, and because older students are less likely to participate in the free and reduced-price school lunch programs, the percentage of pupils from low-income families tends to be lower for middle and especially high schools than for elementary schools. The low Title I-A participation rates for middle and high schools is of concern both because resources may not be equitably distributed in relation to student need, and because corrective actions and other consequences for failure to meet adequate yearly progress standards need only be applied, under federal law, to schools that participate in Title I-A. Thus, there has been increased interest in proposals intended to increase the share of Title I-A funds being allocated to middle and high schools. In its ESEA reauthorization proposal released in early 2007, the Bush Administration proposed that Title I-A funding increases be distributed such that "Districts will have to give their high schools at least 90 percent of the high schools' proportionate share of the increased funds." Details on exactly how this policy would be implemented were not published. Another alternative would be to emphasize, encourage, or perhaps even require use of a school selection option that is currently sanctioned by ED policy guidance—use of the "feeder school" concept to increase Title I-A funding for middle and high schools. Under current policy guidance, LEAs may project low-income pupil rates for middle and high schools based on the rates for elementary or (in the case of high schools) middle schools whose graduates attend those secondary schools. For example, if all of a middle school's students come from two elementary schools in the same LEA, and those elementary schools have an average (weighted by enrollment) of 60% of their pupils from low-income families, then the middle school may also be deemed to have a 60% low income pupil percentage, even if the directly measured percentage for the middle school is lower than that. In recent decades, Puerto Rico has been treated as a state in the Title I-A allocation formulas, but with a few special provisions that resulted in Puerto Rico receiving grants that were somewhat lower than it would receive if it were treated fully as a state. The most significant of these constraints placed a limit on Puerto Rico's expenditure factor that was lower than the minimum expenditure factor for any state. However, the NCLB provided for a gradual phase-out of this constraint, and this was fully implemented with respect to FY2008 grants. Two special constraints on Title I-A grants to Puerto Rico remain, each of which affects only one of the four allocation formulas. First, the effort factor under the EFIG formula is set at the minimum level (0.95) for Puerto Rico. However, this provision has limited (if any) impact. As was discussed above, the effort factor has such a limited range (0.95-1.05) that its effect on the grant to any state is marginal. Nevertheless, if the calculated effort factor for Puerto Rico were higher (up to the limit of 1.05), removing this constraint would increase EFIG grants to Puerto Rico. Of potentially greater significance for Puerto Rico is the second current constraint on its grant. Under the Targeted Grant formula, a cap is placed on the net, aggregate weight applied to Puerto Rico's formula child count. This cap, of 1.82, was intended to provide to Puerto Rico a share of total Targeted Grants that was equivalent to its share of funds under the previously funded Basic and Concentration Grant formulas. It is substantially lower than the weight that would be applied to Puerto Rico's Targeted Grant formula child count if unconstrained. If unconstrained, the net aggregate formula child weight for Puerto Rico under the Targeted Grant formula would be approximately 2.94, resulting in an increase in the Targeted Grant to Puerto Rico of approximately 60%, and a consequent decrease in the Targeted Grants to the states and the District of Columbia. As noted earlier, the TANF population factor is now extremely small (less than 0.1% of all formula children). It may be questioned whether any formula factor that affects only a small minority of LEAs and states, and is comparatively small even when counted, should continue to be included in the Title I-A formulas. For FY2008, only 542 of the nation's LEAs (4.1% of all LEAs receiving Title I-A grants) have any children counted under the TANF factor. Children counted under the TANF factor constitute 1% or more of all Title I-A formula children in 148 of the nation's LEAs, and in no case do they constitute more than 12% of total Title I-A formula children. All but five of the LEAs where TANF children constitute 1% or more of all formula children are in the states of New York or Ohio, and all but two of these LEAs (Columbus, Ohio, and New York County, New York) are small. The significance of this formula factor is essentially historic. In the early years of the Title I-A program, formula children included those in poor families school-age children in families whose income exceeded the poverty level as a result of payments under the Aid to Families with Dependent Children (AFDC, now TANF) program. During a period in the early 1970s, the children counted under the AFDC factor actually exceeded those counted under the "poverty" factor. However, after 1974 amendments to Title I-A, the AFDC/TANF children have constituted a rapidly declining minority of all Title I-A formula children. With the exception of three areas of the Nation, each LEA is treated as a single entity by ED in calculating total grants to be allocated to the LEA under Title I-A . In addition, in all except these three areas, Title I-A funds are allocated within each LEA in a manner that treats schools with similar characteristics (e.g., their percentage of pupils from low-income families, among schools at the same grade level) consistently LEA-wide. In almost all cases, Section 1113 of Title I-A requires that schools be selected to receive Title I-A grants using a single poverty standard, based on the percentage of pupils from low-income families, which is the same throughout the LEA. Also in almost all cases, LEAs are required either to allocate to participating schools equal amounts of Title I-A funds per child from a low-income family, or to allocate varying amounts per low-income child only if this results in providing higher amounts per low-income child to schools with higher percentages of pupils from low-income families. In other words, in every LEA except three special cases, there is a single, LEA-wide policy to determine which schools may participate in Title I-A and the level of Title I-A funds per low-income child that will be allocated to participating schools. Under the provisions of ESEA Title I, Part A, Section 1124(c)(2), an exception to this general policy is made for one class of LEAs—those which serve two or more counties in their entirety . There are three such areas in the Nation: (1) New York City, a single, citywide LEA that serves five counties (Bronx, Kings (Brooklyn), New York (Manhattan), Queens, and Richmond (Staten Island)) in their entirety; (2) the state of Hawaii, a single statewide LEA that serves all of the state's five counties (Hawaii, Honolulu, Kalawao, Kauai, and Maui); and (3) the Williamsburg/James City County LEA in Virginia, that serves a county plus an independent city that is treated as if it were a county in ED's allocation procedures. For these three LEAs, each county (or independent city) is treated as if it were a separate LEA in the calculation of LEA total grants by ED. In the allocation of Title I-A funds to these LEAs, each county unit is treated by ED and the SEA as if it were a separate LEA. The separately-calculated grants under the four Part A formulas are combined into a single, total grant to the LEA. Then, in the allocation of most of these funds to individual eligible schools, instead of applying consistent policies LEA-wide, these three LEAs must insure that the share of the LEA's total grant that is allocated to schools in each county is the same as the county's share of the school-age population counts used by ED in calculating the LEA's total grant. Thus, for example, if one county in a multi-county LEA has 30% of the children counted in calculating the Title I-A allocations for the LEA, then 30% of the Title I-A funds which the LEA allocates to individual schools must be allocated to eligible schools in that county. The multi-county LEA provision was added to Title I-A in the 1994 Improving America's Schools Act (IASA, P.L. 103-382 ), and was extended without revision by the No Child Left Behind Act of 2001 (NCLBA, P.L. 107-110 ). Prior to adoption of the IASA, Title I-A grants were calculated by ED by county, and SEAs suballocated county totals to LEAs. Each county in these multi-county LEAs was treated as a separate entity in the allocation of funds to , although not within , LEAs. The IASA provided that, beginning in FY1999, if certain conditions were met, ED would begin calculating grants by LEA. The multi-county LEA provision was adopted, in part, to preserve the former policy of treating each county separately (at least in the allocation of funds to the LEA) after that transition. Further, with respect to the allocation of funds to schools within these multi-county LEAs, the IASA provision addressed the concern expressed by some that schools in certain counties were receiving a share of Title I-A grants which was substantially lower than the share of LEA total grants generated by their formula population counts. The implementation of this provision has generated significant debate only with respect to New York City; therefore the remainder of this discussion will deal specifically with that LEA. The multi-county LEA provision has a relatively small, but potentially significant, impact on the total level of funding to the New York City LEA. As shown in Table 23 , total (combining all four formulas) estimated grants to the New York City LEA for FY2008 would be somewhat higher if it were treated as a single LEA in the calculation of LEA grants by ED. This difference is due to the Targeted Grant formula and, to a lesser extent, the Education Finance Incentive Grant formula, under both of which the LEA's estimated total grant would be higher if New York City were treated as a single LEA. Under each of these formulas, LEAs receive higher grants per formula child, the higher is their total number of formula children or their formula child percentage (compared to total school age population). Thus, under each of these formulas, the total grant to New York City would be somewhat higher if citywide numbers of formula children were combined. However, for FY2008, these increases in Targeted and EFIG Grants are almost totally offset by estimated deceases in Basic and Concentration Grants to New York City if it were treated as a single LEA. The reason for this is that Basic and Concentration Grants are at a hold harmless level for FY2008 for all Boroughs except Richmond under current law, and for the City overall if treated as a single LEA. As was discussed above, hold harmless percentages (85%, 90%, or 95%) vary among LEAs depending on their poverty rate. When treated as one LEA, the hold harmless rate for New York City is 90%, but if treated as five LEAs, Bronx and New York counties qualify for the higher 95% hold harmless rate. Thus, in periods when the estimated number of formula children is declining significantly for New York City, as is the case for FY2008, the City receives higher grants under the Basic and Concentration Grant formulas when treated as five LEAs rather than one. In contrast, if the City's share of the Nation's estimated number of formula children were steady or increasing, it would receive the same amount under Basic and Concentration Grants, and substantially more under Targeted and EFIG Grants, if treated as a single LEA. With respect to the allocation of funds to schools, it would be theoretically possible for the affected LEAs to comply with the multi-county LEA provision of Title I-A by either establishing varying school eligibility thresholds in each county, then allocating the same dollar amount per low-income child to each eligible school, or by setting the same eligibility threshold for schools LEA-wide and allocating varying amounts per low-income child to eligible schools in each county, or a combination of these two types of adjustments. Between 1995 and 2003, New York City, in consultation with ED staff, applied a standard school eligibility threshold citywide, varying only the allocation per low-income child to comply with the Title I-A county provision. As a result, allocations per low-income pupil in Title I-A-eligible schools varied widely among the City's counties. However, beginning with the 2003-2004 school year, again in consultation with ED staff, New York City has employed a combination of variations in school eligibility thresholds and allocations per low-income child in order to comply with the county provision. As seen in Table 24 , in the 2008-2009 school year, both the Title I-A funds per low-income pupil and school eligibility thresholds vary among the five counties in New York City. As shown in Table 24 , the school eligibility threshold is slightly lower for Queens county (55.71%), and much lower for Richmond county (37.84%), than for the other 3 counties in New York City (60.00%). At the same time, the amount allocated to schools in each county, per child from a low-income family attending an eligible school, varies from a high of $1,274.33 for New York county to $906.77 for Queens county. The last 2 columns of Table 24 also show the estimated effects of applying a standard school eligibility threshold and grant per child from a low-income family citywide. For purposes of illustration, the same total amount is allocated to schools as for 2008-2009 actual grants; i.e., there is no attempt to reflect the effects of potentially increased total grants to New York City if it were treated as a single LEA (as discussed above). It is assumed that a standard school eligibility threshold of 60.0% is applied citywide, with a resulting standard grant per child from a low-income family of $1,765.32. As a result, the amount allocated to schools in Richmond county is estimated to decline by approximately 49% and the amount to Kings county by 11%, while the estimated amounts to the other 3 counties would increase by 2% for Queens county, 3% for Bronx county, and 9% for New York county. The primary basis for this variation—between actual grants based on current policy versus estimated grants if the Title I-A multi-county LEA provision were eliminated—is the difference in the distribution among New York City's counties of: (a) total school-age children in poor families , versus (b) school-age children from low-income families who live in areas of concentrated poverty. In general, all LEAs receive Title I-A grants on the basis of all of their children in poor families, but funds are allocated only to schools serving areas of concentrated poverty. As shown in Table 24 , for FY2008 (school year 2008-2009), Richmond County has 3.6% of the total school-age children in poor families used by ED in calculating Title I-A grants. However, it has only an estimated 1.5% of the City's total low-income pupils living in areas of concentrated poverty and attending public schools meeting a citywide standard for Title I-A eligibility of 60.0%. In contrast, Queens County has 15.4% of the total school-age children in poor families used by ED in calculating Title I-A grants, but 19.4% of the City's total low-income pupils living in areas of concentrated poverty and attending schools meeting the citywide standard for Title I-A eligibility. Arguments in favor of the current special rule regarding multi-county LEAs include: The individual counties of New York City have been treated as separate entities in the allocation of Title I-A funds to (although not always within) the City ever since the program was initiated in 1965 (previous to implementation of the current multi-county LEA policy, grants were calculated nationwide by county). Under this provision, schools in each county receive a share of funds which is proportional to their number of school-age children in poor families. As the largest LEA in the Nation, New York City is a special case, and it is appropriate to divide it into its primary constituent parts in the allocation of Title I-A grants. Arguments opposing this special rule—i.e., in favor of treating New York City and the other two affected LEAs in the same manner as all other LEAs in the Nation—include: New York City is a single LEA, and similarly situated schools should be treated the same wherever they may be located within the City. Eliminating this special provision would, overall, increase targeting by shifting funds away from the New York City county with the lowest school-age child poverty rate (Richmond), while increasing funds to two of the counties with the highest poverty rates (Bronx and New York) The City overall would receive increased Title I-A funds if it were treated as a single LEA in the national allocation formulas. | Title I, Part A, of the Elementary and Secondary Education Act (ESEA) authorizes federal aid to local educational agencies (LEAs) for the education of disadvantaged children. Title I-A grants provide supplementary educational and related services to low-achieving and other pupils attending pre-kindergarten through grade 12 schools with relatively high concentrations of pupils from low-income families. In recent years, they have also become a "vehicle" to which a number of requirements affecting broad aspects of public K-12 education for all pupils have been attached as a condition for receiving Title I-A grants. These include requirements for assessments of pupil achievement; adequate yearly progress (AYP) standards and determinations for schools, LEAs, and states; consequences for schools and LEAs that fail to make AYP for two consecutive years or more; plus teacher and paraprofessional qualifications. The ESEA was initially adopted in 1965, and was most recently reauthorized and amended by the No Child Left Behind Act of 2001 (NCLB), P.L. 107-110. Currently, although the authorization for ESEA Title I-A has expired, appropriations have continued to be provided, and the program continues to be implemented under the policies established by the most recent authorization statute. The 111th Congress is expected to consider proposals to extend and amend the ESEA. For the allocation of funds to states and LEAs, Title I-A has four separate formulas: the Basic, Concentration, Targeted, and Education Finance Incentive Grant (EFIG) formulas. Once these funds reach LEAs, they are no longer treated separately; they are combined and used without distinction for the same program purposes. While there are numerous complications and special features associated with the Title I-A allocation formulas, each has the same underlying structure. For each formula, a maximum grant is calculated by multiplying a "population factor," consisting primarily of estimated numbers of school-age children in poor families, by an "expenditure factor" based on state average per pupil expenditures for public K-12 education. In some formulas, additional factors are multiplied by the population and expenditure factors, and/or the population factor is modified to direct increased funds to LEAs with concentrations of poverty. Major Title I-A reauthorization issues regarding allocation formulas are likely to include the following: Should annual variations in the poverty estimates used to calculate Title I-A grants be reduced through multi-year averaging or other methods? Has the targeting of Title I-A funds on high poverty LEAs increased since 2001? Should the population weighting factors of the Targeted and Education Finance Incentive Grant (EFIG) formulas be modified to more equally favor LEAs with large numbers of school-age children in poor families and LEAs with high poverty rates? Should the expenditure factors continue to play a major role in the Title I-A formulas? Should there be some consolidation of the four different allocation formulas? Should the authorization level for Title I-A continue to be specified for future years, and if so, at what levels? Should the effort factor in the EFIG formula be modified? Should the equity factor in the EFIG formula be modified? Should the current provisions for intra-LEA allocation be reconsidered? Should the remaining special constraints on grants to Puerto Rico, the cap on aggregate population weights in the Targeted Grant formula, be removed? Should the Temporary Assistance to Needy Families (TANF) formula factor be eliminated? And finally, should each county portion of New York City and other multi-county LEAs continue to be treated as separate LEAs under the Title I-A allocation formulas? This report will not be updated. |
Taiwan formally calls itself the Republic of China (ROC), tracing its political lineage to the ROC set up in 1912 after the revolution that started on October 10, 1911, in China to overthrow the Qing Dynasty. The ROC uses October 10 to commemorate the national day, celebrated as "Double Ten." The ROC does not recognize the People's Republic of China (PRC) founded in Beijing by the Communist Party of China (CPC) in 1949. The PRC claims that the ROC ceased to exist in 1949 and that Taiwan is a province of "one China." (The Qing Empire had incorporated Taiwan as a full province in 1885-1895, when more settlers moved from China to the island.) The PRC and ROC do not recognize each other or two Chinas. The ROC refers to the other side of the strait as the "mainland." The PRC opposes recognition of the ROC and seeks unification of Taiwan with the mainland as a part of "one China," without renouncing the use of force. In any case, since 1949, the ROC has governed only on Taiwan, and the PRC has ruled mainland China. Previously called Formosa, Taiwan never has been ruled by the CPC or as a part of the PRC, and until 1945, had never been ruled by the ROC. In Taiwan after World War II, October 25, 1945, or "Retrocession Day," marked the ROC's claim of "recovering" Formosa from Japan. However, upon Japan's surrender, that was the first time that the ROC's military forces had occupied the island of Formosa. When the Qing Empire ceded in perpetuity Formosa to Japan under the Treaty of Shimonoseki of 1895, the ROC was not yet in existence. Moreover, the colony's people did not have a say in self-determination of their status or identity. The Kuomintang (KMT), or Nationalist Party of China, has contended that the ROC claimed Formosa at Japan's surrender in August 1945, with no country challenging the island's status. The ROC under KMT forces led by Chiang Kai-shek retreated to Taipei in 1949, when the Communist forces led by Mao Zedong took over mainland China. Taiwan's people have faced social, ethnic, linguistic, and political issues of whether to identify with Taiwan or China, with two major groups of local "Taiwanese" and "Mainlanders" (people who retreated to Taiwan with the KMT forces and their descendants). One of the first major powers to support reforms and the new republic of progressive leaders in early 20 th century China, the United States recognized the ROC from 1913 until the end of 1978. The United States then shifted to recognize the PRC, with its capital in Beijing, under the U.S. "one China" policy. By the early 1970s, the United States had looked to switch the diplomatic recognition to the PRC, while figuring out a framework to sustain engagement with Taiwan. Since 1979, the Taiwan Relations Act (TRA), P.L. 96-8 , has governed policy toward Taiwan. Paying particular attention to congressional influence on policy, Part I of this CRS Report discusses the U.S. "one China" policy concerning Taiwan since the United States (under President Nixon) began in 1971 to reach understandings with the People's Republic of China (PRC) government in Beijing, which has insisted on its "one China" principle . Part II comprehensively reviews the evolution of policies as affected by legislation and articulated in key statements by Washington, Beijing, and Taipei. On an overview of U.S. policy on Taiwan, see CRS Report R41952, U.S.-Taiwan Relationship: Overview of Policy Issues . On U.S. security assistance to Taiwan, see CRS Report RL30957, Taiwan: Major U.S. Arms Sales Since 1990 . Ties or tension across the Taiwan Strait affect international security (with potential U.S. military intervention), U.S.-Taiwan engagement, and U.S.-PRC contacts. In the 1990s, some Members in Congress pushed for changes in policy toward Taiwan. Questions about the "one China" policy arose again after Taiwan President Lee Teng-hui characterized cross-strait relations as "special state-to-state ties" on July 9, 1999. Beijing responded vehemently with calls for Lee to retract the perceived deviation from the "one China" position and reiterated long-standing threats to use force if necessary to prevent a declaration of independence by Taiwan. The PRC also opposed U.S. military intervention. The Clinton Administration responded that Lee's statement was not helpful and reaffirmed the "one China" policy. Some questioned whether the TRA requires U.S. defense of Taiwan against an attack from the People's Liberation Army (PLA), China's military. Senator Jesse Helms, chairman of the Foreign Relations Committee, at a July 21, 1999, hearing, said that Lee "created an opportunity to break free from the anachronistic, Beijing-inspired one-China policy which has imprisoned U.S. policy toward China and Taiwan for years." Representative Benjamin Gilman, chairman of the International Relations Committee, wrote in a September 7, 1999, letter to Clinton that it is a "common misperception" that we conceded officially that Beijing is the capital of the "one China" that includes Taiwan. He wrote, "under no circumstances should the United States move toward Beijing's version of 'one China.'" Since 2001, some congressional leaders have stressed continuity in maintaining the "one China" policy. During the George W. Bush Administration, leaders of the House and Senate stressed support for Taiwan as a democracy, rather than its independent status. Moreover, Members voiced concerns about cross-strait tension arising from actions taken by both Beijing and Taipei. Senator Richard Lugar, chairman of the Foreign Relations Committee, wrote in May 2001 that "for many years, successive U.S. administrations have affirmed that there is one China and that the people on Taiwan and the people of China should work out a plan for peaceful unification." He also referred to a debate on the nature of the U.S. obligation to "defend democracy in Taiwan" and to prevent a "forceful military unification of Taiwan and China." Representative Henry Hyde, chairman of the International Relations Committee, spoke in Beijing in December 2002 and dismissed notions that U.S. support for Taiwan was geared toward containing or dividing China. He said that "the bedrock of the very strong support for Taiwan in the U.S. Congress" is the shared experience as democracies. Moreover, Hyde highlighted Taiwan's significance as a model of a "Chinese democracy" that proved democracy is compatible with Chinese culture. U.S. views were shaped by developments in Taiwan and concern about cross-strait tension. On August 3, 2002, President Chen Shui-bian of the Democratic Progressive Party (DPP) gave a speech using the phrase "one country on each side" of the strait, surprising Washington even before the first anniversary of the terrorist attacks on September 11, 2001. Leading up to the presidential election on March 20, 2004, Chen advocated holding the first referendums (on the same day as the election) and drafting a new constitution with a timetable. Though symbolic steps, Beijing reacted with alarm and warnings. On the eve of his visit to Washington, PRC Premier Wen Jiabao warned on November 22, 2003, that China would "pay any price to safeguard the unity of the motherland." On November 29, President Chen surprisingly announced that he would use one provision in the referendum law passed by the opposition-dominated legislature two days earlier and hold a referendum on China's threats on the day of the presidential election. During his meeting with Premier Wen in the Oval Office on December 9, 2003, President Bush stated that he opposed Chen's efforts to change the status quo, drawing criticisms that Bush sided with Beijing's belligerence. The Taiwan Caucus in the House wrote a letter to President Bush, criticizing his stance as a victory for the authoritarian regime of the PRC at the expense of Taiwan's democratic reforms. On the TRA's 25 th anniversary , the House International Relations Committee held a hearing on April 21, 2004. After congratulating President Chen Shui-bian on his re-election in March 2004, the Administration further clarified U.S. policy toward Taiwan and warned of "limitations" in U.S. support for constitutional changes in Taiwan. At that hearing on the TRA, Representative James Leach, chairman of the House International Relations Subcommittee on Asia and the Pacific, stated that Taiwan has the unique situation in which it can have de facto self-determination only if it does not attempt to be recognized with de jure sovereignty. He urged Taiwan's people to recognize that they have greater security in "political ambiguity." He called for continuity, saying that "together with our historic 'one China' policy," the TRA has contributed to ensuring peace and stability in the Taiwan Strait. In his second inaugural address on May 20, Chen responded to U.S. concerns, excluding sovereignty issues and a referendum from his plan for a new constitution by 2008. Leach represented the United States at Chen's inauguration. At a subcommittee hearing on June 2, 2004, Leach praised Chen's address as "thoughtful, statesmanlike, and helpful" as well as "constructive" for dialogue with Beijing. Later, to mark the 25 th anniversary of the TRA on April 10, 2004, the House voted on July 15, 2004, to pass H.Con.Res. 462 (Hyde) to reaffirm "unwavering commitment" to the TRA. Some in Congress also had concerns about challenges to U.S. interests in reducing tensions and fostering dialogue across the strait. In March 2005, China adopted an "Anti-Secession Law." On March 16, the House passed (424-4) H.Con.Res. 98 (Hyde) to express grave concern about the "Anti-Secession Law," and the House Taiwan Caucus heard a briefing by Taipei's Representative. On April 6, 2005, the House International Relations Subcommittee on Asia and the Pacific held a hearing on China's "Anti-Secession Law." President Chen announced on February 27, 2006, that he will "terminate" the National Unification Council and Guidelines. Senator John Warner, chairman of the Armed Services Committee, told Admiral William Fallon, Commander of the Pacific Command, at a committee hearing on March 7, 2006, that "if conflict were precipitated by just inappropriate and wrongful politics generated by the Taiwanese elected officials, I'm not entirely sure that this nation would come full force to their rescue if they created that problem." In July 2007, Representative Tom Lantos, chairman of the House Foreign Affairs Committee, said that it was impractical for Taiwan to seek membership in the U.N. A convergence emerged rhetorically among the PRC, Taiwan, and the United States on cross-strait "peaceful development" after Ma Ying-jeou became president in Taiwan in May 2008 and cross-strait tension reduced (partly due to a resumption of dialogue). As Taiwan and the PRC became closer, U.S.-Taiwan engagement strengthened. Congressional concerns included issues about whether and how the United States and Taiwan might strengthen political, defense, and economic cooperation, partly to sustain U.S. interests in security, democracy, and prosperity in Taiwan and its international space. On March 24, 2009, the House passed (by voice vote) H.Con.Res. 55 (Berkley), and 30 Senators sent a letter to President Barack Obama to mark the TRA's 30 th anniversary . On June 16 and October 4, 2011, the House Foreign Affairs Committee, chaired by Representative Ileana Ros-Lehtinen, held hearings on "Why Taiwan Matters." At the latter hearing with an official panel, Ros-Lehtinen stressed adherence to President Reagan's Six Assurances to Taipei. Assistant Secretary of State for East Asian and Pacific Affairs Kurt Campell used his testimony for a rare reaffirmation of the Six Assurances, reiterating in particular the assurance of not having any prior consultation with the PRC on U.S. arms sales to Taiwan. The Administration and Congress supported Taiwan's inclusion in the Visa Waiver Program (VWP) . Congress passed legislation in support of Taiwan's participation in the International Civil Aviation Organization (ICAO). The chairmen of the House Foreign Affairs and Senate Foreign Relations Committees, Representative Ed Royce and Senator Robert Menendez, introduced bills to direct the Secretary of State to develop a strategy to obtain observer status for Taiwan at ICAO. Signed by President Obama, H.R. 1151 (Royce) became P.L. 113-17 on July 12, 2013. Among other legislation for consideration, Representative Ileana Ros-Lehtinen, chair of the House Foreign Affairs Committee, introduced, on September 14, 2011, the Taiwan Policy Act ( H.R. 2918 ) to enhance ties with Taiwan in comprehensive ways. On August 1, 2013, the House Foreign Affairs Committee approved the Taiwan Policy Act of 2013, H.R. 419 (Ros-Lehtinen). On March 14, 2014, the House Foreign Affairs Committee held a hearing to mark the 35 th anniversary of the enactment of the TRA . On April 3, the Senate Foreign Relations Subcommittee on East Asian and Pacific Affairs held a hearing on the TRA. In response to Senator Marco Rubio, Assistant Secretary of State for East Asian and Pacific Affairs Daniel Russel did not clearly reaffirm the Six Assurances. After the hearing, Russel clarified to reporters that the Administration remained committed to the Six Assurances as well as the TRA and three Joint Communiques. On April 7, the House agreed (by voice vote) to pass H.R. 3470 , which combines H.Res. 494 (to affirm the TRA) and the Naval Vessel Transfer and Arms Export Control Amendments Act (to authorize the transfer by sale of up to four excess U.S. Navy Perry-class frigates to Taiwan, among other stipulations). On April 9, 52 Senators, led by Senators Menendez and James Inhofe, sent a letter to President Obama to mark the TRA. Broad policy issues include whether to review U.S. policy in view of significant changes since the last Taiwan Policy Review in 1994. Some observers have said that the improved cross-strait engagement and reduction of tension since 2008 help U.S. attention to shift to expanding cooperation with a rising China. Others have argued that the self-imposed restrictions on the relationship with Taiwan go beyond the TRA (which did not stipulate "unofficial" ties), the reality of official contacts, or the U.S.-PRC joint communiques. They also have concerns that the restrictions undermine critical communication with and denigrate Taiwan, undermining U.S. leverage and interests. An overall issue is whether to pursue further normalization of the relationship and expand engagement with Taiwan, including in the defense, diplomatic, and economic domains. Congress could examine the State Department's restrictions on contacts between Executive Branch officials and Taiwan's officials in the "Guidelines on Relations with Taiwan" to carry out an "unofficial" relationship. A related issue has been whether to resume and continue visits by Cabinet-rank officials to Taiwan. On the 20 th anniversary of the Taiwan Policy Review of 1994, Representative Ed Royce, Chairman of the House Foreign Affairs Committee, led a total of 29 Members to send a letter, on September 23, 2014, to Secretary of State John Kerry, calling for expanding engagement with Taiwan. The Members stated that "in view of the fact that there is now a fully free and democratic Taiwan, we feel strongly that there is a need today to undertake a new and thorough Taiwan Policy Review, laying the basis for further expanding relations with Taiwan and thereby enhancing continued peace and stability in the region." The State Department, on October 14, acknowledged that, under the TRA, the United States maintains commercial, cultural, and other ties with Taiwan's people, dropping an insistence of the State Department that the bilateral cooperation is "unofficial." The Department's letter cited the "one China" policy as based on the three U.S.-PRC Joint Communiques and the TRA but did not cite the Six Assurances. The State Department acknowledged that it continually reviews and improves the interactions with Taiwan but did not refer to specific ways of improving cooperation. The Obama Administration's strategic " rebalancing " of comprehensive diplomatic, defense, and economic priorities to the Asia-Pacific raised issues about Taiwan's roles and whether the strategy considers Taiwan's security role narrowly in the Taiwan Strait or more broadly in the region. At a hearing in October 2011, Assistant Secretary of State Campbell testified that the United States sought a "rebalancing" of comprehensive priorities to focus more on the Asia-Pacific region. He stated that "a critical part of that overarching strategy is building a comprehensive, durable, and unofficial relationship between the United States and Taiwan." Campbell stressed that "the bedrock of that relationship is our security relationship." After not mentioning Taiwan in an article in Foreign Policy on "America's Pacific Century" in October 2011, Secretary of State Hillary Clinton gave a speech on the same subject the next month in Honolulu and added that the United States has a strong relationship with Taiwan as an "important security and economic partner." At a conference of defense ministers in Singapore in June 2012, Defense Secretary Leon Panetta discussed the strategic refocus to Asia and mentioned Taiwan by saying that the United States strongly supports the efforts of both the PRC and Taiwan to improve the cross-strait relationship. He added that "we have an enduring interest in peace and stability across the Taiwan Strait." Assistant Secretary of State for Economic and Business Affairs Jose Fernandez visited Taipei in August, and he spoke about economic exchanges with Taiwan in the context of the rebalancing toward Asia. In sum , Congress has exercised important roles in legislating and overseeing the TRA of 1979, as Congress and the President have recalibrated the U.S. "one China" policy over the decades. Since the early 1990s, U.S. interests in the military balance as well as Taiwan's security and democracy have faced continued challenges due to the PRC's military modernization, moves perceived by Beijing as promoting de jure independence under the Democratic Progressive Party (DPP)'s president (2000-2008), and resistance in Taiwan by the Kuomintang (KMT) party to raising defense spending and strengthening self-defense. Moreover, since 2000, political polarization in Taiwan has raised the importance of U.S. policy toward Taiwan for fostering U.S. interests there. These interests include sustainable stability, U.S.-PRC engagement, Taiwan's democracy, peace, and prosperity (with a global impact), and economic ties with a major trading partner—ultimately a "peaceful resolution" of the dispute over Taiwan. At the same time, the dominance of partisan politics in Taiwan has reduced U.S. leverage to advance some U.S. priorities. The United States also has monitored how the KMT and DPP in Taipei have handled disputes with the Communist Party of China (CPC) in Beijing over Taiwan's status, "one China," and cross-strait ties. Five key documents stand out among U.S. policy statements on Taiwan. Among these, since 1979, the Taiwan Relations Act (TRA) has had bipartisan support in guiding policy with a firm foundation and flexible framework for the maintenance of the relationship with Taiwan. Shanghai Communique of 1972 Normalization Communique of 1979 Taiwan Relations Act (TRA) ( P.L. 96-8 ) of 1979 Six Assurances to Taipei of 1982 August 17 Communique (on arms sales) of 1982. (See excerpts of these and other statements in Part II of this CRS report.) Despite apparently consistent formal statements and closed-door assurances since the end of World War II (and the end of Taiwan's status as a colony of Japan that began in 1895), the "one China" question has been left somewhat ambiguous and subject to different interpretations among Washington, Beijing, and Taipei. The concept of "one China" has been complicated by the co-existence of the PRC on the mainland and the ROC on Taiwan since 1949, while they have not recognized each other. Taiwan was never ruled by the CPC or as part of the PRC. Moreover, the political and strategic context of those key statements has experienced significant changes. After political liberalization began in 1986, Taiwan became a democracy, with a new basis for the government's legitimacy and greater say by voters about Taiwan's status. The PRC's Tiananmen Crackdown of 1989 dramatically proved the limits to liberal change on the mainland. The original strategic rationale for U.S.-PRC rapprochement faded with the end of the Cold War. In May 2000, the DPP's Chen Shui-bian became President of the ROC, ousting the KMT as the ruling party in Taiwan for the first time in 55 years. Under the DPP, the government in Taipei made greater use of the name "Taiwan" (vs. "ROC"). The KMT reemphasized "ROC" in 2008 and pursued closer ties with "mainland China." The two sides held the first formal meeting since 1949 between officials in charge of cross-strait affairs on February 11, 2014. Taipei's Mainland Affairs Council (MAC) Minister Wang Yu-chi met with Beijing's Taiwan Affairs Office (TAO) Director Zhang Zhijun in Nanjing, the ROC's capital before KMT forces retreated to Taiwan. There are complications about the language in the key statements. First, "China" was not defined in the three joint communiques. In the Normalization Communique, the United States recognized the PRC government as the sole legal government of China, but the PRC has never ruled Taiwan and other islands under the control of the ROC government. The PRC's late paramount leader Deng Xiaoping's 1984 proposal of "one China, two systems" sought to define Taiwan as a Special Administrative Region under the PRC after unification. On the other hand, "Taiwan" was defined in Section 15(2) of the TRA essentially to be the islands of Taiwan and the Pescadores, plus the people, entities, and governing authorities there. Second, there has been disagreement as to whether Taiwan's status actually was resolved or determined. In secret talks in 1972, President Nixon assured PRC Premier Zhou Enlai that the United States viewed the status of Taiwan as "determined" to be part of one China. The PRC's December 1978 statement on normalization of diplomatic relations with the United States said that the Taiwan question "has now been resolved between the two countries." However, the U.S. statement of December 1978 on normalization stated the expectation that the Taiwan question "will be settled" peacefully by the Chinese themselves. The TRA of 1979 also stipulated the U.S. expectation that the future of Taiwan "will be determined" by peaceful means. A Representative who managed the legislation for the TRA as the chairman of the House Foreign Affairs Subcommittee on Asian and Pacific Affairs, Lester Wolff, wrote that "in no sense of the word, through the TRA and/or other relevant documents including the Shanghai Communique, has Congress of the United States ever attempted, except to support self-determination for the people of Taiwan, to determine the final destiny of Taiwan." President Reagan's 1982 statement on arms sales to Taiwan declared that "the Taiwan question is a matter for the Chinese people, on both sides of the Taiwan Strait, to resolve." Under U.S. policy, "settlement" or "resolution"—not stated as "unification" or "reunification"—of the Taiwan question is left open to be determined peacefully and with a shift to stress a resolution by both sides of the strait (rather than involving the United Nations (U.N.) or another country). In a rare public statement on this U.S. stance, in August 2007, a National Security Council official said that "the position of the United States Government is that the ROC—Republic of China—is an issue undecided ... for many, many years." Third, the questions of the PRC's possible use of force, U.S. arms sales to Taiwan, and possible U.S. help in Taiwan's self-defense were left contentious and critical for U.S. interests. Washington consistently has stated its strong interest that there be a peaceful settlement, but the PRC has not renounced its claimed sovereign right to use force if necessary. Washington has not promised to end arms sales to Taiwan, although the Mutual Defense Treaty of 1954 was terminated on December 31, 1979. In the surprise announcements of December 1978 on diplomatic recognition, the United States stated its interest in a peaceful resolution, but the PRC countered that Taiwan is China's internal affair. President Reagan agreed to the 1982 Communique on reducing U.S. arms sales to Taiwan—premised on the PRC's declared policy of peaceful unification. In the early 1990s, the PLA began to build up its theater missile force and to acquire modern arms, especially from Moscow. The 1979 TRA states that the United States will provide necessary defense articles and services to Taiwan for its sufficient self-defense, and will consider with "grave concern" any non-peaceful means to determine Taiwan's future. In deciding on that language in 1979, Members of Congress debated whether the wording on U.S. military intentions was clear or ambiguous. Since the mid-1990s, a new debate has arisen over how to deter conflict in the Taiwan Strait, including whether ambiguity or clarity in U.S. statements about a possible military role serves U.S. interests in preventing conflict or provocations from either Beijing or Taipei. There have been issues about whether and how U.S. statements of intentions might be clarified to specify the conditions under which the U.S. military might help to defend Taiwan and the U.S. stance on Taiwan's sovereignty or efforts to change its declared political status. Questions also have persisted about the extent of the U.S. defense commitment to Taiwan, given President Clinton's 1996 deployment of two aircraft carriers near Taiwan, President Bush's initial statement in 2001 of doing "whatever it took to help Taiwan defend herself," and Taiwan's budgetary limitations in self-defense capabilities. Apart from questions about the language in the key statements on "one China," policy questions have arisen about whether successive Administrations have changed the U.S. position since 1971 to adapt to changing circumstances and whether such shifts have advanced U.S. interests. Successive Administrations have generally maintained that "long-standing" U.S. policy has been consistent. Some in Congress and others, however, have contended that U.S. policy has changed in some important areas. There also are issues as to whether any elements of the "one China" policy should be reviewed for modification. The "one China" policy has evolved to cover three issue areas: sovereignty, use of force, and cross-strait dialogue. One issue area for U.S. policy concerns sovereignty, including Taiwan's juridical status, future unification vs. independence, referendums, a new constitution, and international participation. The U.S. "one China" policy has differed from the PRC's principle on "one China," and there have been questions about whether U.S. policy is one of support, non-support, or opposition to unification or independence. In short, U.S. policy has stressed the process (peaceful resolution, cross-strait dialogue, with the assent of Taiwan's people, and no provocations or unilateral changes by either side) rather than the outcome (e.g., unification, independence, confederation). At the same time, the ROC, or Taiwan, has continued to assert its sovereignty, seeking membership or observership in the United Nations or other international organizations. Even while recognizing the ROC government and its "jurisdiction" over Taiwan, on the eve of the Nixon Administration's contacts with PRC leaders in Beijing, the State Department testified to Congress in 1969 and 1970 that the juridical matter of the status of Taiwan remained undetermined. The State Department also wrote that In neither [the Japanese Peace Treaty of 1951 nor the Treaty of Peace between the Republic of China and Japan of 1952] did Japan cede this area [of Formosa and the Pescadores] to any particular entity. As Taiwan and the Pescadores are not covered by any existing international disposition, sovereignty over the area is an unsettled question subject to future international resolution. Both the Republic of China and the Chinese Communists disagree with this conclusion and consider that Taiwan and the Pescadores are part of the sovereign state of China. The United States recognizes the Government of the Republic of China as legitimately occupying and exercising jurisdiction over Taiwan and the Pescadores. However, accounts of President Nixon's secret talks with PRC Premier Zhou Enlai in China in 1972 reported that Nixon made promises on the question of Taiwan in return for diplomatic normalization that went beyond the communique issued at the end. The Carter Administration later called the promises: "Nixon's Five Points." Also, according to Assistant Secretary of State Stanley Roth's March 1999 testimony, Nixon pledged no U.S. support for Taiwan independence (second time after Kissinger's 1971 promise): "We have not and will not support any Taiwan independence movement." With the release on December 11, 2003, of declassified memoranda of conversation of the secret talks between Nixon and Zhou, there was confirmation that Nixon stated as first of Five Principles that "there is one China, and Taiwan is a part of China. There will be no more statements made—if I can control our bureaucracy—to the effect that the status of Taiwan is undetermined." The United States did not explicitly state its own position on the status of Taiwan in the three U.S.-PRC Joint Communiques. In 1972, while still recognizing the ROC, the Nixon Administration declared that it "acknowledges" that "all Chinese on both sides of the Taiwan Strait" maintain that there is one China and Taiwan is a part of China, and that the United States did not challenge that position. After shifting diplomatic recognition to the PRC, the United States, in 1979 and 1982, again "acknowledged the Chinese position" of one China and Taiwan is part of China. However, the 1982 communique further stated that the United States has no intention of pursuing a policy of "two Chinas" or "one China, one Taiwan," while President Reagan's accompanying statement said that "the Taiwan question is a matter for the Chinese people, on both sides of the Taiwan Strait, to resolve." The TRA did not discuss the "one China" concept. In 1994, the Clinton Administration stated after its Taiwan Policy Review that the United States had "acknowledged" the Chinese position on one China and that "since 1978, each Administration has reaffirmed this policy." Despite these apparent similarities in U.S. policy statements, some contend that the U.S. position, since originally formulated in 1972, has adopted the PRC's "one China" principle—rather than steadily maintaining neutrality and equal distance from Beijing and Taipei. In 1982, Senator John Glenn criticized both the Carter and Reagan Administrations: The ambiguous formulation agreed upon in the 1979 joint communique went considerably further in recognizing the PRC's claim to Taiwan. Although the word "acknowledged" remained, the object of our acknowledgment shifted noticeably. We no longer just acknowledged that both Chinas asserted the principle that there was one China, but instead acknowledged the Chinese position that there is but one China. By dropping the key phrase "all Chinese on either side of the Taiwan Strait maintain" one could interpret that we had moved from the position of neutral bystander noting the existence of a dispute, to a party accepting the Chinese assertion that there is one China. Clearly, this was the PRC's interpretation.... More recently, Peking's threats to downgrade relations with the United States, unless Washington agreed to end all arms sales to Taiwan, prompted President Reagan to write to China's Communist Party Chairman, Hu Yaobang, in May 1982, and assure him that, "Our policy will continue to be based on the principle that there is but one China.... " We now assert that it is our policy, U.S. policy, that there is but one China, and although not stated, indicate implicitly that Taiwan is a part of that one China. The use of the qualifier "acknowledged" has been dropped altogether.... I do not believe that anyone can dispute that the U.S. policy toward China and Taiwan has changed dramatically over the last 10 years. Let me reiterate one more time, in 1972, we acknowledged that the Chinese on both sides of the Taiwan Strait maintained that there was but one China. Today it is U.S. policy that there is but one China. Despite this remarkable shift over time, the State Department, at each juncture, has assured us that our policy remained essentially unchanged. In August 1995 (earlier than the first public statements showed in 1997), President Clinton sent a secret letter to PRC President Jiang Zemin to state that the United States: (1) would "oppose" Taiwan independence; (2) would not support "two Chinas" or one China and one Taiwan; and (3) would not support Taiwan's admission to the U.N. The opposition to Taiwan independence seemed to go beyond the promises made by former National Security Advisor Henry Kissinger and President Nixon in 1971 and 1972 of no U.S. support for Taiwan independence. Later, that wording was apparently changed from opposition to a neutral stance of non-support. This letter reportedly formed the basis of what were later known publicly as the "Three Noes." At the 1997 Clinton-Jiang summit in Washington, the two leaders issued a joint statement which included a U.S. position: "the United States reiterates that it adheres to its 'one China' policy and the principles set forth in the three U.S.-China joint communiques." While that joint statement did not include the "Three Noes," the Administration designated the State Department's spokesperson to say two days later that "we certainly made clear that we have a one-China policy; that we don't support a one-China, one-Taiwan policy. We don't support a two-China policy. We don't support Taiwan independence, and we don't support Taiwanese membership in organizations that require you to be a member state." While in China for a summit in June 1998, President Clinton chose an informal forum to declare: "I had a chance to reiterate our Taiwan policy, which is that we don't support independence for Taiwan, or two Chinas, or one Taiwan-one China. And we don't believe that Taiwan should be a member in any organization for which statehood is a requirement." Some questioned whether the "Three Noes," especially as it was publicly declared by the U.S. President while in the PRC, was a change in U.S. policy. U.S. non-support for a one China, one Taiwan; or two Chinas can be traced to the private assurances of the Nixon Administration in the early 1970s. However, the Clinton Administration, beginning with its Taiwan Policy Review of 1994, added non-support for Taipei's re-entry into the U.N., which became an issue after Taipei launched its bid in 1993. In response to President Clinton's "Three Noes," concerned Members in both the Senate and the House nearly unanimously passed resolutions in July 1998, reaffirming the U.S. commitment to Taiwan. The Clinton Administration, nonetheless, argued that the "Three Noes" did not represent a change in policy. Testifying before the Senate Foreign Relations Committee on March 25, 1999, Assistant Secretary of State Stanley Roth stated that "every point made there [in the "Three Noes"] had been made before by a previous Administration and there was no change whatsoever." In a written response to a question from Senator Helms, Roth cited as precedents for the "Three Noes" a 1971 statement by Kissinger, a 1972 statement by Nixon, a 1979 statement by Deputy Secretary of State Warren Christopher, and President Reagan's 1982 Communique. On April 25, 2001, when President George W. Bush stated the U.S. commitment to Taiwan as an obligation to use "whatever it took to help Taiwan defend herself," he also said that "a declaration of independence is not the one China policy, and we will work with Taiwan to make sure that that doesn't happen." Visiting Beijing in February 2002, Bush said that U.S. policy on Taiwan was unchanged, but he emphasized U.S. commitment to the TRA and a peaceful resolution, along with opposition to provocations by either Beijing or Taipei. After Taiwan President Chen Shui-bian said on August 3, 2002, that there is "one country on each side" of the Taiwan Strait, the U.S. National Security Council (NSC) stated, in a second response, that "we do not support Taiwan independence." With Jiang Zemin at his side at a summit in Crawford, TX, in October 2002, President Bush himself stated that "we do not support independence." However, there have been questions about whether the Bush Administration adjusted U.S. policy after President Chen Shui-bian surprised the United States in August 2002 with a speech on "one country on each side" and a call for a holding referendums. Specifically, there was the issue of whether President Bush gave assurances, at closed meetings starting at that summit in October 2002, to PRC President Jiang Zemin and later President Hu Jintao that the United States was "against" or "opposed" (vs. non-support of) unilateral moves in Taiwan toward independence and/or the status of Taiwan independence, in the interest of stability in the Taiwan Strait. A position in "opposition" to Taiwan independence would represent a shift in policy focus from the process to the outcome and go beyond President Nixon's "Five Principles," which expressed the neutral stance of "non-support" for Taiwan independence. But U.S. opposition to Taiwan independence would be consistent with President Clinton's secret letter reportedly sent in 1995 to PRC leader Jiang Zemin, as the basis for the "Three Noes." U.S. opposition would also conflict with the stance of the government of Taiwan, which, under the DPP, argued that Taiwan is already independent, as evident since the first democratic presidential election in 1996. After Chen, during campaigns for Taiwan's presidential election in March 2004, advocated holding referendums and adopting a new constitution by 2008—moves that could have implications for Taiwan's sovereignty and cross-strait stability, the Bush Administration called on Chen to adhere to his pledges ("Five Noes") in his inaugural address of 2000 (including not promoting a referendum to change the status quo). On September 28, 2003, Chen started his call for a new constitution for Taiwan (with a draft constitution by September 28, 2006; a referendum on the constitution on December 10, 2006; and enactment of the new constitution on May 20, 2008). National Security Advisor Condoleezza Rice said on October 14, 2003, that "nobody should try unilaterally to change the status quo." A White House official said in an interview on November 26, 2003, that "Taiwan shouldn't be moving towards independence; and mainland China shouldn't be moving towards the use of force or coercion." Then, Chen announced on November 29—two days after the opposition-dominated legislature passed a restrictive law authorizing referendums—that he would still use one provision to hold a "defensive referendum" on election day. Chen argued that the referendum would be a way for Taiwan's people to express their opposition to the PLA's missile threat and would have nothing to do with the question of unification or independence. Nonetheless, Administration officials had concerns about the volatile course of current and future political actions in Taiwan (with elections, referendums, and a new constitution), reforms geared for governance vs sovereignty, and unnecessary effects on stability, given U.S. commitments to help Taiwan's self-defense. The Administration added a new, clearer stance on December 1, 2003, when the State Department expressed U.S. "opposition" to any referendum that would change Taiwan's status or move toward independence. On the same day, the Senior Director of Asian Affairs at the NSC, James Moriarty, reportedly was in Taiwan to pass a letter from Bush to Chen with concerns about "provocations." Apparently needing a public, stronger, and clearer U.S. message to Taiwan, Bush appeared next to visiting PRC Premier Wen Jiabao at the White House on December 9, 2003, and stated an opposition to any unilateral decision by China or Taiwan to change the status quo, as well as opposition to efforts by Taiwan's President Chen to change the status quo, in response to a question about whether Chen should cancel the referendum. However, Bush did not make public remarks against the PRC's threats toward democratic Taiwan. Bush also did not counter Wen's remarks that Bush reiterated "opposition" to Taiwan independence. Bush raised questions about whether he miscalculated the willingness of Chen to back down during his re-election campaign and risked U.S. credibility, since Chen responded defiantly that he would hold the "anti-missile, anti-war" referendums as planned and that his intention was to keep Taiwan's current independent status quo from being changed. American opinions were divided on the Bush Administration's statements toward Taiwan. Some saw Chen as advancing a provocative agenda of permanent separation from China while trying to win votes, and supported Bush's forceful stance against Chen's plan for referendums. Others criticized President Bush for being one-sided in appeasing a dictatorship at the expense of Taiwan's democracy while failing to warn against and even possibly inviting aggression from Beijing. The co-chairmen of the Congressional Taiwan Caucus in the House wrote a letter to President Bush, criticizing his stance as a victory for the authoritarian regime of the PRC at the expense of Taiwan's democratic reforms. Some critics argued for a new approach, saying that the "one China" policy became "irrelevant" and that there were national security interests in preventing the "unification" of Taiwan with China. In contrast, another opinion advocated the continuation of arms sales to Taiwan with no position on its independence and staying out of any conflict in the Taiwan Strait. Still, uncertainty remained about the Bush Administration's implementation of U.S. policy on questions such as options to recalibrate policy in exercising leverage over Taipei or Beijing; capacity to maintain the delicate balance in preventing provocations by either side of the strait rather than swerving to one side or another; perceptions in Taipei and Beijing of mixed messages from Washington; the U.S. stance on referendums and a new constitution in Taiwan; definition of "status quo"; deference to democracy in Taiwan; Taiwan's long-standing, de facto independence from China; stronger separate national identity in Taiwan; a proactive U.S. political role (such as urging dialogue, facilitating talks, or mediating negotiations) in addition to proactive pressures on defense; the extent of the U.S. commitment to assist Taiwan's self-defense; the increasing PLA threat; and U.S. worries about Taiwan's defense spending, acquisitions, and the will to fight. On January 16, 2004, Chen gave the wording for the two questions, saying that the referendums will ask citizens (1) whether the government should acquire more missile defense systems if the Chinese Communists do not withdraw missiles and renounce the use of force against Taiwan, and (2) whether the government should negotiate with the Chinese Communists on a framework for cross-strait peace and stability. Chen also promised that if re-elected, he will maintain "the status quo of cross-strait peace." On the election day of March 20, 2004, the two referendums failed to be considered valid when 45% of eligible voters cast ballots (less than the 50% needed). After the election in March 2004, the White House sent the Senior Director for Asian Affairs, Michael Green, to Taiwan to urge President Chen to exclude sovereignty-related issues from constitutional changes. In testimony by Assistant Secretary of State James Kelly on April 21, 2004, the Administration warned Chen of "limitations" in U.S. support for constitutional changes. In his inaugural address on May 20, 2004, Chen responded to a number of U.S. concerns. In President Chen's second term, President Bush did not support Taiwan's independence or membership in the U.N. and opposed unilateral changes to the "status quo." Leading up to Taiwan's presidential election on March 22, 2008, Bush Administration officials expressed opposition to referendums on Taiwan's membership in the U.N. that were held on the same day. One issue has concerned the appropriate U.S. response to requests from Taiwan's president to enter the United States for visits or transits; to visit Washington, DC; to hold public events; and to meet with Executive Branch officials and Members of Congress. Congress has expressed strong support for granting such visits. Since 1994, the U.S. response has evolved from initially denying Lee Teng-hui entry into the United States to relaxing restrictions on "transits" for stops by Chen Shui-bian, and back to strict conditions for Chen's transits in May 2006. In May 1994, the Clinton Administration allowed President Lee Teng-hui to make a refueling stop and rest in Hawaii but denied him a visa. In 1995, Lee received a visa to visit Cornell University, his alma mater. (Beijing responded with PLA exercises and missile launches in 1995 and 1996.) The Administration acknowledged that Congress's view was an important factor in the reversal. In August 2000, the Clinton Administration allowed the newly-elected President Chen Shui-bian to transit in Los Angeles, but, according to Taiwan's Foreign Ministry, Washington and Taipei had an understanding that Chen would not hold public events. Representative Sam Gejdenson organized a meeting between Chen and about 15 Members of Congress (some of whom were in town for the Democratic National Convention), but Chen told them he was "unavailable." In 2001, in granting President Chen "private and unofficial" transits through New York (May 21-23) and Houston (June 2-3) en route to and from Latin America, the Bush Administration took a different position on such meetings. As the State Department spokesperson said, "we do believe that private meetings between Members of Congress and foreign leaders advance our national interests, so [Chen] may have meetings with Members of Congress." On the night of May 21, 2001, 21 Representatives attended a dinner with Chen in New York, and Representative Tom DeLay later hosted Chen in Houston. In 2003, while considering his safety, comfort, convenience, and dignity, the Bush Administration again granted President Chen's requests for transits to and from Panama through New York (October 31-November 2) and Anchorage (November 4-5). Some Members of Congress personally welcomed Chen, including 16 Members who were already in New York and met with him. No Administration officials met with Chen, other than AIT officials based in Washington. Deputy Assistant Secretary of State Randall Schriver reportedly canceled a planned meeting with Chen in New York, and Deputy Secretary of State Richard Armitage talked with Chen by phone. Chen Shui-bian enjoyed extended transits through Honolulu and Seattle in August-September 2004, though these were less high-profile than that in New York. In January 2005, Chen stopped in Guam on the way back to Taiwan from Palau and the Solomon Islands. In September 2005, the Bush Administration allowed Chen to stop one day in Miami on his way to Latin America and in San Francisco on his return to Taiwan. The Congressional Human Rights Caucus, via teleconference, awarded Chen a human rights award while he was in Miami. However, in May 2006, the Bush Administration was not pleased at repeated statements from President Chen Shui-bian and responded by tightening restrictions on his proposed U.S. stops so that they would be strict transits (with no activities), conditions similar to those for Lee Teng-hui in 1994. Chen requested stops in San Francisco and New York for his visit to Latin America, but President Bush countered with transits in Honolulu and Anchorage, and Chen refused those U.S. cities. Representatives Thomas Tancredo and Dana Rohrabacher sent a letter on May 5, 2006, to Secretary of State Condoleezza Rice, questioning the decision's consistency with legislation; possible linkage to ties with Beijing; use of "humiliating" conditions on the transits; reversal of policy despite President Bush's affirmation of a consistent policy; impact on future U.S. stops; and implication for "playing politics" given the contrast with Deputy Secretary of State Robert Zoellick's high-level meeting in Washington with the opposition KMT chairman, Ma Ying-jeou, two months earlier. In September 2006, the Administration allowed Chen to stop in Guam, but he had to switch to a civilian aircraft instead of his "Air Force One" that flew him to Palau. In January 2007, the Administration allowed President Chen to stop overnight in San Francisco and to refuel in Los Angeles on his way to and from Nicaragua. In response to restrictions on Chen's transits, Representative Dana Rohrabacher and 14 other Members wrote a letter to House Speaker Nancy Pelosi on January 12, 2007, calling for the removal of all restrictions on bilateral high-level visits with Taiwan. A week later, Representative Tancredo criticized (in extension of remarks) Mexico's ban of Chen's plane from Mexican airspace on his way to Los Angeles, a move similar to U.S. treatment toward Taiwan. In August 2007, the Administration restricted Chen's transits to 50-minute refueling stops in Anchorage on his way to and from Central America, with no overnight stays. For his last U.S. transit in January 2008, the Bush Administration allowed Chen to stop in Anchorage for two hours to refuel and rest. After Ma Ying-jeou won the election on March 22, 2008, he expressed a desire to visit the United States before his inauguration in May (after which U.S. policy would allow only transits). But the Bush Administration denied his request. President Ma later "transited" in the United States, where he sometimes met with Members of Congress and joined public activities (in Los Angeles, Austin, and San Francisco in 2008; in San Francisco and Honolulu in 2009; in San Francisco and Los Angeles in 2010; in New York and Los Angeles in 2013; in Los Angeles in January 2014; and Honolulu and San Francisco in June-July 2014). The United States, with congressional backing, has voiced some support for Taiwan's quest for "international space" (representation at international organizations), including "meaningful participation" in certain international organizations on transnational issues. Some advocates view such participation as preserving a democratic government's international presence and promoting the interests of Taiwan's people, while others support Taiwan's separate identity or independence. The Clinton Administration's 1994 Taiwan Policy Review promised to support Taiwan's membership in organizations where statehood is not a prerequisite and to support opportunities for Taiwan's voice to be heard in organizations where its membership is not possible. The focus of Taiwan's international participation was at the World Health Organization (WHO), and the annual meetings in May in Geneva of its governing body, the World Health Assembly (WHA). On May 11, 2001, President Bush wrote to Senator Frank Murkowski, agreeing that the Administration should "find opportunities for Taiwan's voice to be heard in organizations in order to make a contribution, even if membership is impossible," including concrete ways for Taiwan to benefit from and contribute to the WHO. On April 9, 2002, Representatives in the House formed a Taiwan Caucus, and, as its first action, it wrote a letter on April 19, 2002, to the President, seeking support for Taiwan's participation in the WHO. With worldwide attention on the severe acute respiratory syndrome (SARS) epidemic, Secretary of Health and Human Services Tommy Thompson expressed support for Taiwan in a speech at the WHA on May 19, 2003, saying that "the need for effective public health exists among all peoples" and "that's why the United States has strongly supported Taiwan's inclusion in efforts against SARS and beyond." By the meeting of the WHA in 2005, Taiwan lamented that the United States did not speak up and that the WHO signed a Memorandum of Understanding (MOU) with the PRC to govern the WHO's technical exchanges with Taiwan. Still, the Bush Administration "applauded" the WHO and China for taking steps in 2005 to increase Taiwan's participation in WHO conferences. Taiwan did not gain observer status at the WHA in May 2008, even as the KMT's Ma Ying-jeou was inaugurated as President after Chen Shui-bian's terms ended. In January 2009, the WHO included Taiwan in the International Health Regulations (IHR) which entered into force in 2007. President Ma shifted Taiwan's focus to the WHA meeting (rather than the WHO). In its required report submitted to Congress on April 1, 2009, the State Department stated that it supported Taiwan's observership in the WHA and welcomed the decrease in politicization over Taiwan's participation in the WHO due to improvements in cross-strait ties over the past year. Taiwan's Minister of Health participated for the first time as an observer at the WHA in May 2009. However, there are concerns that the invitation required the PRC's approval, came under the WHO-PRC MOU, and was ad hoc (only for a KMT President). Indeed, the State Department's report to Congress in April 2010 acknowledged that the WHA invited Taiwan in 2009 after the PRC "agreed to Taiwan's participation." The State Department also expressed support, assessing that Taiwan's participation in the WHA was a "positive development" and could provide a model for Taiwan's participation as an "observer" in other U.N. bodies. In its report to Congress of April 2011, the State Department stated that it worked for Taiwan's observership at the WHA again in 2010 and has sought regular invitations from the WHO to Taiwan every year. However, in May 2011, a secret WHO Memorandum dated September 14, 2010, came to light, showing that the WHO had an "arrangement with China" to implement the IHR for the "Taiwan Province of China." That month in Geneva, Secretary of Health and Human Services Kathleen Sebelius protested to the WHO that no U.N. body has a right to determine unilaterally Taiwan's status. President Ma decided to be more flexible than his DPP predecessor in pressing Taiwan's bid to rejoin the U.N., which it left in 1971 (as the ROC). On August 14, 2008, Taiwan submitted instead a letter (via some countries with which Taiwan has diplomatic relations) to allow Taiwan to "participate meaningfully" in U.N. specialized agencies. Deputy Assistant Secretary of State David Shear stated in March 2010 that "the United States is a strong, consistent supporter of Taiwan's meaningful participation in international organizations." He also stated that "Taiwan should be able to participate in organizations where it cannot be a member, such as the World Health Organization, the International Civil Aviation Organization, and other important international bodies whose activities have a direct impact on the people of Taiwan." Taiwan has sought status as an observer in the WHO, International Civil Aviation Organization (ICAO), and U.N. Framework Convention on Climate Change (UNFCCC). Under President Obama, on December 22, 2011, the State Department nominated Taiwan as a candidate for the Visa Waiver Program (VWP), though there is no diplomatic recognition of Taiwan. On October 2, 2012, the Secretary of Homeland Security designated Taiwan in the VWP, effective on November 1. Taiwan's citizens may travel to the United States for business or tourism for up to 90 days without a visa. Taiwan became the 37 th country to join the VWP. For implementation of domestic laws, Section 4(b)(1) of the TRA provides that "whenever the laws of the United States refer or relate to foreign countries, nations, states, governments, or similar entities, such terms shall include and such laws shall apply with respect to Taiwan." During the 103 rd Congress , Congress passed and President Clinton signed (on April 30, 1994) the Foreign Relations Authorization Act for FY1994 and FY1995 ( P.L. 103-236 ) that, inter alia , directed the State Department to register foreign-born Taiwanese-Americans as U.S. citizens born in Taiwan (rather than China); and called for the President to send Cabinet-level officials to Taiwan and to show clear U.S. support for Taiwan in bilateral and multilateral relationships. After the Administration denied President Lee Teng-hui a visa in May 1994, the Senate, from July to October, passed amendments introduced by Senator Brown to ensure that Taiwan's President can enter the United States on certain occasions. Two amendments (for S. 2182 and H.R. 4606 ) that passed were not retained, but the amendment to the Immigration and Nationality Technical Corrections Act of 1994 was enacted. Upon signing it into law ( P.L. 103-416 ) on October 25, 1994, President Clinton said that he construed Section 221 as expressing Congress's view. Later, Congress overwhelmingly passed the bipartisan H.Con.Res. 53 expressing the sense of Congress that the President should promptly welcome a private visit by President Lee Teng-hui to his alma mater, Cornell University, and a transit stop in Anchorage, Alaska, to attend a conference. The House passed the resolution by 396-0 on May 2, and the Senate passed it by 97-1 on May 9, 1995 (with Senator Johnston voting Nay and Senators Moynihan and Warner not voting). During the 106 th Congress , in 1999, Congress legislated a requirement for semi-annual reports on such U.S. support, in Section 704 of the Foreign Relations Authorization Act for FYs 2000 and 2001 ( P.L. 106-113 ). Also in 1999, Congress passed legislation ( P.L. 106-137 ) requiring a report by the Secretary of State on efforts to support Taiwan's participation in the WHO. In January 2000, the State Department submitted the report, saying that the United States does not support Taiwan's membership in organizations, such as the U.N. or WHO, where statehood is a requirement for membership, but that it supports any arrangements acceptable to the WHO membership to allow for Taiwan to participate in the work of the WHO. In October 2000, the House and Senate passed H.Con.Res. 390 , expressing the sense of Congress that the State Department's report failed to endorse Taiwan's participation in international organizations and that the United States should fulfill the commitment of the Taiwan Policy Review to more actively support Taiwan's participation in international organizations. In the 107 th Congress , on May 17, 2001, Members agreed without objection to H.Con.Res. 135 to welcome President Chen Shui-bian upon his visit. Congress enacted legislation, P.L. 107-10 , authorizing the Secretary of State to initiate a U.S. plan to obtain observer status for Taiwan at the annual summit of the WHA in May 2001 in Geneva. Then, Representative Sherrod Brown and Senator Torricelli introduced H.R. 2739 and S. 1932 to amend the law to target the May 2002 meeting. H.R. 2739 was passed and enacted as P.L. 107-158 on April 4, 2002. As enacted on September 30, 2002, the Foreign Relations Authorization Act for FY2003 ( P.L. 107-228 ) authorized—at the Bush Administration's request—U.S. departments or agencies (including the Departments of State and Defense) to assign or detail employees to the American Institute in Taiwan (AIT), the non-profit corporation (with offices in Washington and Taipei) that has handled the U.S.-Taiwan relationship in the absence of diplomatic ties since 1979 under the TRA. (Personnel at AIT were technically "separated" from government service for a period of time, raising issues about employment status, benefits, recruitment, etc.) The legislation also expressed the sense of Congress that AIT and the residence of its director in Taipei should publicly display the U.S. flag "in the same manner as United States embassies, consulates, and official residences throughout the world." In the 108 th Congress , the House and Senate passed S. 243 to authorize the Secretary of State to initiate a U.S. plan to obtain observer status for Taiwan at the WHA in May 2003. Upon signing the bill as P.L. 108-28 on May 29, 2003, President Bush stated that "the United States fully supports the overall goal of Taiwan's participation in the work of the WHO, including observership" but considered the act to be consistent with the "one China" policy. On October 30, 2003, the House passed H.Con.Res. 302 (416-0) to welcome President Chen to the United States. On April 21 and May 6, 2004, the House and Senate passed H.R. 4019 and S. 2092 in support of Taiwan's efforts to gain observer status in the WHO and to make it an annual requirement to have an unclassified report from the Secretary of State on the U.S. plan to help obtain that status for Taiwan. An implication of this change was the end of annual focused congressional statements and votes. In signing S. 2092 into law ( P.L. 108-235 ) on June 14, 2004, President Bush stated that the United States fully supported the participation of Taiwan in the work of the WHO, including observer status. However, he also declared that his Administration shall construe the reporting requirement by using his authority to "withhold information" which could impair foreign relations or other duties of the executive branch. While the State Department initially stopped short of publicly supporting Taiwan's observership in ICAO, Congress supported that goal. In July 2010, the House passed H.Con.Res. 266 (Berkley) to express the sense of Congress that Taiwan should be accorded observer status in ICAO. In the 112 th Congress, in September 2011, the Senate agreed to S.Con.Res. 17 (Menendez) with the same sense of Congress. The House also agreed to S.Con.Res. 17 in September 2012. In the 113 th Congress , on June 18 and 19, 2013, the House and Senate, respectively, passed H.R. 1151 (Royce) and S. 579 (Menendez), to direct the Secretary of State to develop a strategy to obtain observer status for Taiwan at the triennial ICAO Assembly next held in September-October 2013 in Montreal, Canada. The House passed H.R. 1151 (by 424-0). The Senate passed H.R. 1151 (by unanimous consent) on June 27. President Obama signed the bill into law ( P.L. 113-17 ) on July 12. He issued a statement of support for Taiwan's participation at ICAO, while construing the act to be consistent with the "one China" policy. On August 28, the State Department submitted a report as required by Section 1(c) of the legislation. The State Department told Congress of U.S. support for "observer status" for Taiwan in all of the meetings of ICAO. The report pointed to the ICAO Council, which meets regularly, in contrast to the ICAO Assembly, which meets triennially. The State Department noted that U.S. support for Taiwan in ICAO is consistent with the "one China" policy and the TRA. The PRC has never renounced its claimed right to use force in what it sees as an internal problem and, moreover, has voiced more explicitly and demonstrated clearly its willingness to use force for political if not military objectives—despite its announced policy of "peaceful unification." Since the early 1990s, the PRC has purchased advanced arms from the Soviet Union/Russia and built up its missile force. In December 1992 and March 1993, top PRC ruler Jiang Zemin and Premier Li Peng warned of "drastic" or "resolute" measures to prevent Taiwan's independence. Jiang reportedly ordered the PLA in January 1993 to win "high-tech local wars" focused on the Taiwan Strait. Taiwan's Ministry of National Defense reported that the CPC's Central Military Commission (CMC) decided at a meeting in June 1993 to focus the PLA against Taiwan. In the Taiwan Strait Crisis of 1995-1996, the PRC launched provocative military exercises, including missile "test-firings," to express displeasure with President Lee Teng-hui's private visit to the United States and to intimidate voters before Taiwan's first democratic presidential election. President Clinton deployed two aircraft carrier battle groups near Taiwan in March 1996. The United States believed that the PLA accelerated its buildup since the crisis. The PRC raised tension again in 1999, after Lee said the cross-strait relationship was "special state-to-state ties." In February 2000, on the eve of another presidential election in Taiwan, the PRC issued its second White Paper on Taiwan, reaffirming the peaceful unification policy but adding a new precondition for the use of force. As one of " Three Ifs ," the PRC warned that even if Taiwan indefinitely refuses to negotiate a peaceful settlement, the PRC would be compelled to use force to achieve unification. No deadline was issued. The White Paper warned the United States not to sell arms to Taiwan or pursue any form of alliance with Taiwan, including cooperation in missile defense. Before the presidential election in 2004, a PRC official on Taiwan affairs who was a PLA major general issued a threat, on November 18, 2003, to use force against what Beijing perceives as the "open promotion of Taiwan independence." Deputy Secretary of State Richard Armitage responded by saying that "there's an election and campaign going on in Taiwan, and I think one shouldn't over-emphasize comments that are made in the heat of an election" and that the United States "has full faith that the question of Taiwan will be resolved peacefully." Concerned about the PRC's provocations, President Bush did not support DPP President Chen (2000-2008) nor Taiwan's independence or membership in the U.N. President Bush also opposed referendums on membership in the U.N. during Taiwan's presidential election on March 22, 2008. For that election, President Bush sent two aircraft carriers near Taiwan, whose largely symbolic referendums were nonetheless targets of the PRC's belligerent condemnation. The referendums failed to be valid, and the KMT's Ma Ying-jeou won as president. (See CRS Report RL34441, Security Implications of Taiwan's Presidential Election of March 2008 , by Shirley Kan.) Since the 1950s, the United States government, with a critical congressional role, has expressed the consistent position for a peaceful resolution of the Taiwan question. Implementation of U.S. policy included the U.S.-ROC Defense Treaty of 1954 and the Formosa Resolution , P.L. 84-4 . After termination of the treaty, Congress passed and President Carter signed the TRA of 1979, adding U.S. commitment to assist Taiwan's self-defense and a potential U.S. role in maintaining peace in the strait. The TRA left the U.S. obligation to help defend Taiwan somewhat ambiguous and did not bind future U.S. decisions. Section 2(b)(4) states that the United States will consider with "grave concern" any non-peaceful means to determine Taiwan's future. The TRA also excluded the islands off the mainland (e.g., Quemoy and Matsu) in its security coverage over Taiwan. Nonetheless, the Section 2(b)(6) of the TRA declares it to be policy to maintain the U.S. capacity to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan [emphasis added]. In 1982, President Reagan signed the Joint Communique on reducing arms sales to Taiwan, but he also stated in public and internal clarifications that U.S. arms sales will continue in accordance with the TRA and with the full expectation that the PRC's approach to the resolution of the Taiwan issue will continue to be peaceful. President George H. W. Bush decided in September 1992 to sell 150 F-16 fighters to Taiwan, citing concerns about the cross-strait military balance. On March 10 and 11, 1996, the Clinton Administration announced decisions to deploy two aircraft carrier battle groups to waters off Taiwan, after the PRC announced renewed PLA exercises that would include further missile "test-firings" toward Taiwan and Congress introduced legislation on helping to defend the ROC. President Clinton demonstrated that there might be grave consequences, as well as grave concern, to non-peaceful efforts to determine Taiwan's future. However, the Joint Statement at the 1997 Clinton-Jiang summit did not mention the TRA. In April 2001, President George W. Bush publicly stated the U.S. commitment to Taiwan as an obligation to do "whatever it took to help Taiwan defend herself" [emphasis added]. Visiting two allies then China in February 2002, the President, in Tokyo, cited the U.S. commitment to Taiwan in the context of support for five regional allies (Japan, South Korea, Australia, Philippines, and Thailand)—to applause from the Diet, or Japan's legislature. Then, in Beijing, Bush emphasized U.S. commitments to the TRA and a peaceful settlement of the Taiwan question, while voicing opposition to provocations from either side. However, indicating concerns about miscalculations of U.S. views in Taiwan, Deputy Assistant Secretary of Defense Richard Lawless told Taiwan's Deputy Defense Minister Chen Chao-min in February 2003 that, while the President said we will do whatever it takes to help Taiwan defend itself, Taiwan "should not view America's resolute commitment to peace and stability in the Taiwan Strait as a substitute for investing the necessary resources in its own defense." In November 2003, with concerns about PRC threats and Taiwan President Chen Shui-bian's efforts to hold referendums, Deputy Secretary of State Richard Armitage said that the TRA is not a defense treaty. Armitage added that the TRA guides policy in providing Taiwan "sufficient defense articles for her self-defense" and "also requires the United States to keep sufficient force in the Asia Pacific area to be able to keep the area calm." Armitage reaffirmed that the U.S. commitment to assist Taiwan's self-defense, with no defense treaty, "doesn't go beyond that in the Taiwan Relations Act, and we have good, competent military forces there." President Bush appeared with PRC Premier Wen Jiabao in the Oval Office on December 9, 2003, and stated U.S. opposition to any unilateral decisions made by the leader of Taiwan to change the status quo. In April 2004, Assistant Secretary of State James Kelly further clarified U.S. policy after Chen Shui-bian's re-election in March and warned Taiwan not to dismiss PRC statements as "empty threats" and warned of "limitations" to U.S. support for constitutional changes in Taiwan. At the same time, Assistant Secretary of Defense for International Security Affairs Peter Rodman warned Beijing that its attempt to use force would "inevitably" involve the United States. In September 2005, the Defense Department further clarified the mutual obligations under the TRA and limits to the U.S. ability to assist Taiwan. Deputy Under Secretary of Defense Richard Lawless issued a speech, stressing the TRA's focus on Taiwan's self-defense. He declared that, inherent in the intent and logic of the TRA is the expectation that Taiwan will be able to mount a viable self-defense. For too long, the Taiwan Relations Act has been referenced as purely a U.S. obligation.... Under the TRA, the U.S. is obligated to "enable" Taiwan to maintain a sufficient self-defense, but the reality is, it is Taiwan that is obligated to have a sufficient self-defense. There is an explicit expectation in the TRA that Taiwan is ready, willing, and able to maintain its self-defense. Taiwan must fulfill its unwritten, but clearly evident obligations under the Taiwan Relations Act by appropriately providing for its own defense while not simply relying on the U.S.' capacity to address a threat in the Strait. The TRA requires both parties to do their part to deter aggression or coercion vis-a-vis Taiwan. Aside from the issue of whether the U.S. strategy on assisting Taiwan's self-defense should be ambiguous or clear in a policy seeking deterrence towards Beijing and Taipei, a third view advocates the removal of any defense commitment (implicit or explicit) while continuing to sell weapons for Taiwan's self-defense. Despite the absence of diplomatic and alliance relations, U.S. arms sales to Taiwan have been significant. A related issue has been whether to pursue normalization of ties with Taiwan. After tensions in the Taiwan Strait in 1995-1996, the Pentagon under the Clinton Administration quietly expanded the sensitive military relationship with Taiwan to levels unprecedented since 1979. These broader exchanges reportedly have increased attention to so-called "software" (discussions over strategy, logistics, command and control, and plans in the event of an invasion of Taiwan). The George W. Bush Administration continued and expanded the closer military ties at different levels. In April 2001, President Bush announced he would drop the 20-year-old annual arms sales talks used with Taiwan's military in favor of normal, routine considerations of Taiwan's requests on an as-needed basis. Then, the Bush Administration granted a visa for ROC Defense Minister Tang Yiau-ming to visit the United States to attend a private conference held by the U.S.-Taiwan Business Council on March 10-12, 2002, in St. Petersburg, FL, making him the first ROC defense minister to come to the United States on a non-transit purpose since 1979. Also in 2002, the Bush Administration requested legislation to authorize the assignment of personnel from U.S. departments and agencies to AIT, with implications for the assignment of active-duty military personnel to Taiwan for the first time since 1979. (See the discussion below of the Foreign Relations Authorization Act for FY2003.) One objective was to select from a wider range of personnel, without excluding those on active duty. The first active-duty defense attaché since 1979, an Army Colonel began his duty in Taipei in August 2005 with civilian clothes and a status similar to military attaches assigned to Hong Kong, except that military personnel in Hong Kong may wear uniforms at some occasions. While allowing military representatives in Taiwan, the Administration maintained a ban on visits by U.S. general and flag officers to Taiwan, under the State Department's "Guidelines on Relations with Taiwan." Although there has been much interest among U.S. academic circles and think tanks in pursuing talks with China on its military buildup and increased U.S. security assistance to Taiwan, a catalyst for this debate among policy makers arose out of the U.S.-PRC summit in Crawford, TX, on October 25, 2002. As confirmed to Taiwan's legislature by its envoy to Washington, C.J. Chen, and reported in Taiwan's media, PRC leader Jiang Zemin offered in vague terms a freeze or reduction in China's deployment of missiles targeted at Taiwan, in return for restraints in U.S. arms sales to Taiwan. President Bush reportedly did not respond to Jiang's linkage. Policy considerations include the TRA (under which the United States has based its defense assistance to Taiwan on the threat that it faces), the 1982 Joint Communique (which discussed reductions in U.S. arms sales to Taiwan premised on the PRC's peaceful unification policy), and the 1982 "Six Assurances" to Taiwan (which said the United States did not agree to hold prior consultations with the PRC on U.S. arms sales to Taiwan). On April 21, 2004, Assistant Secretary of State James Kelly testified to the House International Relations Committee that if the PRC meets its stated obligations to pursue a peaceful resolution of the Taiwan issue and matches its rhetoric with a military posture that bolsters and supports peaceful approaches to Taiwan, "it follows logically that Taiwan's defense requirements will change." Since the 1990s, particularly given the PLA's provocative exercises and missile launches in 1995-1996, Congress has asserted its role vis-a-vis the President in determining arms sales under Section 3(b) of the TRA, and in exercising its oversight of the TRA, including Section 2(b)(6) on the U.S. capacity to resist any resort to force or other forms of coercion against Taiwan. In the 103 rd Congress , Congress passed and President Clinton signed the Foreign Relations Authorization Act for FY1994-FY1995 ( P.L. 103-236 ) that, inter alia , declared that Section 3 of the TRA (i.e., on arms sales) takes primacy over statements (i.e., the 1982 joint communique). During the 104 th Congress , in early 1996, Congress became increasingly concerned about provocative PLA exercises held the previous summer and again on the eve of Taiwan's presidential election in March 1996 (with "test-firings" of M-9 short-range ballistic missiles to target areas close to the two Taiwan ports of Kaohsiung and Keelung). Introduced by Representative Chris Cox on March 7, passed by the House on March 19, and passed by the Senate on March 21, 1996, H.Con.Res. 148 expressed the sense of Congress that the United States should assist in defending the ROC. On March 13, 1996, during markup of H.Con.Res. 148 in the House International Relations Subcommittee on Asia and the Pacific, Delegate Eni Faleomavaega noted that House and Senate resolutions prompted the Clinton Administration to deploy the USS Independence and USS Nimitz carriers. The resolution cited Section 3(c) of the TRA, which directs the President to inform Congress promptly of any threat to the security or the social or economic system of the people on Taiwan and to determine the U.S. response along with Congress. However, on March 14, 1996, Assistant Secretary of State for East Asian and Pacific Affairs Winston Lord told the subcommittee that "however serious, the present situation does not constitute a threat to Taiwan of the magnitude contemplated by the drafters of the Taiwan Relations Act" and that "if warranted by circumstances, we will act under Section 3(c) of the TRA, in close consultation with the Congress." In the 105 th Congress , the FY1999 National Defense Authorization Act (NDAA) ( P.L. 105-261 ) required the Secretary of Defense to study the U.S. missile defense systems that could protect and could be transferred to "key regional allies," defined in the conference report as Japan, South Korea, and Taiwan. In addition, the conference report ( H.Rept. 105-746 of the FY1999 Defense Appropriations Act, P.L. 105-262 ) required a report from the Pentagon on the security situation in the Taiwan Strait, in both classified and unclassified forms. In the 106 th Congress , the FY2000 NDAA ( P.L. 106-65 ) enacted a requirement for the Pentagon to submit annual reports on PRC military power and the security situation in the Taiwan Strait. In asserting its role in decision-making on arms sales to Taiwan, Congress passed language, introduced by Senator Lott, in the FY2000 Foreign Operations Appropriations Act (in Div. B of P.L. 106-113 ), requiring the Secretary of State to consult with Congress to devise a mechanism for congressional input in determining arms sales to Taiwan. Again, in the FY2001 Foreign Operations Appropriations Act (§581 of P.L. 106-429 ), Congress passed the Taiwan Reporting Requirement, requiring the President to consult on a classified basis with Congress 30 days prior to the next round of arms sales talks. (Those consultations took place on March 16, 2001.) In addition to examining arms sales, Congress looked closer at U.S. military deployments. The Consolidated Appropriations Act for FY2000 ( P.L. 106-113 ) required a report on the operational planning of the Defense Department to implement the TRA and any gaps in knowledge about PRC capabilities and intentions affecting the military balance in the Taiwan Strait. In the 107 th Congress , the NDAA for FY2002 ( P.L. 107-107 ), enacted December 28, 2001, authorized the President to transfer (by sale) the four Kidd-class destroyers to Taiwan (§1011), under Section 21 of the AECA. Also, Section 1221 of the act required a section in the annual report on PRC military power (as required by P.L. 106-65 ) to assess the PLA's military acquisitions and any implications for the security of the United States and its friends and allies. The scope of arms transfers to be covered was not limited to those from Russia and other former Soviet states, as in the original House language ( H.R. 2586 ). The Foreign Operations Appropriations Act for FY2002 ( P.L. 107-115 ), as enacted on January 10, 2002, brought unprecedented close coordination between the executive and legislative branches on arms sales to Taiwan. Section 573 required the Departments of State and Defense to provide detailed briefings (not specified as classified) to committees (including those on appropriations) within 90 days of enactment and not later than every 120 days thereafter during FY2002. The briefings were to cover U.S.-Taiwan discussions on potential sales of defense articles or services. Some Members in the House and Senate called for ensuring regular and high-level consultations with Taiwan and a role for Congress in determining arms sales to Taiwan, after President Bush announced on April 24, 2001, that he would drop the annual arms talks process with Taiwan in favor of normal, routine considerations on an "as-needed" basis. Enacted as P.L. 107-228 , the Foreign Relations Authorization Act for FY2003 authorized—at the Bush Administration's request—the Department of State and other departments or agencies (including the Department of Defense) to detail employees to AIT (Section 326); required that Taiwan be "treated as though it were designated a major non-NATO ally" (Section 1206); required consultations with Congress on U.S. security assistance to Taiwan every 180 days (Section 1263); and authorized the sale to Taiwan of the four Kidd-class destroyers (Section 1701). Section 326, amending the Foreign Service Act of 1980, had significant implications for the assignment of government officials to Taiwan, including active-duty military personnel for the first time since 1979. In signing the bill into law on September 30, 2002, President Bush issued a statement that included his view of Section 1206 (on a "major non-NATO ally"). He said that "Section 1206 could be misconstrued to imply a change in the 'one China' policy of the United States when, in fact, that U.S. policy remains unchanged. To the extent that this section could be read to purport to change United States policy, it impermissibly interferes with the President's constitutional authority to conduct the Nation's foreign affairs." Nonetheless, the Acting Under Secretary of Defense for Acquisition, Technology, and Logistics, Michael Wynne, submitted a letter to Congress on August 29, 2003, that designated Taiwan as a "major non-NATO ally." The House-passed FY2003 NDAA contained Section 1202 seeking to require the Defense Secretary to implement a comprehensive plan to conduct combined training and exchanges of senior officers with Taiwan's military and to "enhance interoperability" with Taiwan's military. The language was similar to that of Section 5(b) in the Taiwan Security Enhancement Act (TSEA) proposed in the 106 th Congress. The Senate's version did not have the language. As enacted on December 2, 2002, P.L. 107-314 contained a revised section (1210) requiring a Presidential report 180 days after the act's enactment on the feasibility and advisability of conducting combined operational training and exchanges of senior officers with Taiwan's military. (Military exchanges may take place in the United States, but U.S. flag/general officers may not visit Taiwan.) In the 110 th Congress , the House Foreign Affairs Committee approved, on September 26, 2007, H.Res. 676 (Ros-Lehtinen) that noted the Bush Administration's lack of response to Taiwan's interest in buying F-16C/D fighters and that urged the Administration to determine security assistance "based solely" upon the legitimate defense needs of Taiwan (citing Section 3(b) of the TRA). The House passed H.Res. 676 on October 2, 2007. The House also passed H.R. 6646 on September 23, 2008. Some Members suspected that Bush had a "freeze" on arms sales to Taiwan until notifications to Congress on October 3, 2008. In the 111 th Congress , Senator John Cornyn introduced on July 23, 2009, an amendment to the NDAA for FY2010 to require President Obama to report on an assessment of Taiwan's air force, in examining Taiwan's need for new F-16C/D fighters. In conference, the Senate Armed Services Committee receded on the section to require in the legislation for a Presidential report on Taiwan's air force and U.S. options. Still, the conference report ( H.Rept. 111-288 ) directed the Defense Secretary to submit an assessment to Congress on Taiwan's air defense. The bill was enacted as P.L. 111-84 on October 28, 2009. Secretary Gates submitted an unclassified study to Congress in February 2010. The Obama Administration later submitted on September 22, 2011, the Defense Department's comprehensive, classified report on Taiwan's air power. In the 112 th Congress , Members passed the NDAA for FY2013 ( P.L. 112-239 ) with Section 1281 to express the sense of Congress that the President should take steps to address Taiwan's shortfall in fighters, whether through the sale of F-16C/D aircraft or other aircraft of similar capability. The conference report for the FY2013 NDAA required a briefing on Taiwan's air force by April 15. In the 113 th Congress , the House, on June 14, 2013, passed H.R. 1960 (McKeon), the FY2014 NDAA, with Section 1265 to direct the President to sell 66 F-16C/D fighters (approved as language offered by Representative Gerald Connolly for amendments en bloc). The Senate Armed Services Committee's report of June 20 ( S.Rept. 113-44 ) for the FY2014 NDAA, S. 1197 , extended the deadline to July 15, 2013, for the Defense Department to brief on Taiwan's air power and requested a classified report on Taiwan's air force by December 1. The briefing took place on July 17. The House-Senate agreement on the NDAA of December 10 did not include Section 1265, while calling on the President to continue to take steps to enable Taiwan's air force to contribute to a "sufficient" self-defense capability. The Defense Department delivered a classified report on Taiwan's air force to Congress on January 3, 2014. On April 7, 2014, the House passed H.R. 3470 (Royce), which incorporated H.Res. 494 and was renamed the Taiwan Relations Act Affirmation and Naval Vessel Transfer Act of 2014 (which would, inter alia , authorize transfers by sale of up to four excess U.S. Navy Perry-class frigates to Taiwan). ( H.Res. 494 (Royce) would affirm the importance of the TRA on its 35 th anniversary of enactment.) On December 4 and 10, respectively, the Senate and House passed S. 1683 (Menendez) to authorize transfers of frigates to Taiwan (by sale) and Mexico. S. 1683 became P.L. 113-276 on December 18. Representative Forbes introduced language in the House Armed Services Committee's report on the FY2015 NDAA, H.R. 4435 to direct the Missile Defense Agency (MDA) to report by October 1, 2014, on any benefits and associated costs and security requirements of integrating Taiwan's early warning radar with other U.S. missile defense and sensor systems to improve U.S. missile defense capabilities. In December 2014, Congress passed the FY2015 NDAA ( H.R. 3979 ; enacted as P.L. 113-291 ). Section 1256 retained the previous House-passed H.R. 4435 's requirement for the Defense Secretary to report on Taiwan's maritime capabilities but expanded the scope of the report to cover its self-defense capabilities. The FY2015 NDAA also retained the language of the Senate Armed Services Committee's S. 2410 and H.R. 4435 in Section 1259A to express the sense of Congress that the United States should consider opportunities to help enhance the maritime capabilities and nautical skills of Taiwan's navy to contribute to Taiwan's self-defense and to regional peace and stability; and that the PRC and Taiwan should be afforded opportunities to participate in (not just observe) the humanitarian assistance and disaster relief (HA/DR) portions of future multilateral exercises, such as RIMPAC. The final legislation dropped a section in the House-passed bill to require a sale of F-16C/D fighters. President Nixon in 1972, President Carter in 1978, and President Reagan in 1982 publicly stated the U.S. expectation that "the Chinese" themselves will settle the Taiwan question. Reagan also gave "Six Assurances" to Taiwan. The assurances, made just before the United States and the PRC issued the August 17, 1982, Joint communique, included assurances that Washington will not mediate between Taipei and Beijing, and will not pressure Taipei to negotiate with Beijing. One policy question concerns the extent of U.S. encouragement of cross-strait dialogue and the U.S. role in any talks or negotiations to resolve the Taiwan question. As Taipei and Beijing's economic relationship grew to significant levels by the early 1990s and the two sides began to talk directly through quasi-official organizations, the Clinton Administration increasingly voiced its support for the cross-strait dialogue, encouraging Taipei in particular. Like a bystander, the State Department said in its Taiwan Policy Review of 1994 that "the United States applauds the continuing progress in the cross-strait dialogue." After talks broke off and military tensions flared, however, the Administration, after 1996, privately and publicly urged both sides to hold this dialogue as an added part of a more proactive U.S. policy. In July 1996, National Security Advisor Anthony Lake visited China and planned a meeting (later canceled) with Wang Daohan, head of the PRC's organization for cross-strait talks. At the 1997 U.S.-PRC summit, President Clinton urged for a peaceful resolution "as soon as possible" and that "sooner is better than later." In March 1999, Assistant Secretary of State Stan Roth raised the possibility of "interim agreements" between Beijing and Taipei, after several prominent former Clinton Administration officials made similar proposals. Roth's mention of possible "interim agreements" raised concerns in Taipei that it was a proposal by the Clinton Administration to pressure Taipei into negotiating with Beijing. Roth's remarks came in the context of suggestions to reduce cross-strait tensions issued by former or future Clinton Administration officials. In January 1998, a delegation of former officials led by former Defense Secretary William Perry had visited Beijing and Taipei, reportedly passing a message from the PRC that it was willing to resume talks with Taiwan. The February 21, 1998, Washington Post reported that the delegation was part of the Administration's effort to have a "track two" dialogue with Beijing and Taipei and to encourage resumption of cross-strait talks. At a February 1998 conference in Taipei, Kenneth Lieberthal (a University of Michigan professor who later joined the NSC as the Senior Director for Asian Affairs in August 1998) had proposed a 50-year "interim arrangement" in which the PRC (as "China") would renounce the use of force against Taiwan, and the ROC (as "Taiwan, China") would agree not to declare independence ( Reuters , March 1, 1998). In the March 8, 1998, Washington Post , Joseph Nye (former Assistant Secretary of Defense for International Security Affairs) had proposed a "three-part package" that would include a clarification that Washington would not recognize or defend Taiwan independence but also would not accept the use of force against Taiwan, and a "one country, three systems" approach. Also in March 1998, former National Security Advisor Anthony Lake had visited Taiwan and reportedly encouraged resumption of cross-strait talks. In Foreign Affairs (July/August 1998), Chas Freeman (former Assistant Secretary of Defense for International Security Affairs) had urged Washington to encourage Beijing and Washington to defer negotiations on their long-term relationship for a certain period, such as 50 years, and to reevaluate arms sales to Taiwan. In February-March 1999, Perry had led another delegation, including retired Admiral Joseph Prueher (later nominated in September 1999 to be ambassador to Beijing), and the group made suggestions to the PRC and Taiwan on how to reduce cross-strait tensions, according to Notes from the National Committee (Winter/Spring 1999). Later, on September 5, 1999, Deputy Assistant Secretary of State Susan Shirk reportedly mentioned "one country, three systems" as a possible approach for "one China." In July 1999, the Clinton Administration's stance on cross-strait dialogue culminated in the President's articulation of a new phrase: that U.S. policy has "three pillars" (one China, peaceful resolution, and cross-strait dialogue). Nonetheless, recognizing Taiwan's newly established status as a democracy, President Clinton in February 2000 added the U.S. expectation that the cross-strait dispute be resolved not only peacefully but also "with the assent" of Taiwan's people. The George W. Bush Administration began after Chen Shui-bian of the DPP became President in May 2000. The Administration indicated that it would not pressure Taipei to hold cross-strait dialogue, re-emphasizing the "Six Assurances" given to Taipei by President Reagan in 1982. At a hearing in March 2001, Secretary of State Colin Powell assured Senator Jesse Helms that the "Six Assurances" remained U.S. policy and that the Administration would not favor consulting the PRC on arms sales to Taiwan. On June 12, 2001, Assistant Secretary of State James Kelly testified to the House International Relations Subcommittee on East Asia and the Pacific that U.S. arms sales to Taiwan make a peaceful cross-strait resolution more likely. He said that "the central question is how cross-strait relations can move from a focus on the military balance toward a focus on ways to begin resolving differences between Taipei and Beijing." While calling for a resumption of direct dialogue, economic cooperation, and mutual understanding, Kelly also said that "the PRC cannot ignore the elected representatives of the people of Taiwan." While visiting Taiwan at about the same time that PRC Vice Premier Qian Qichen signaled a new receptive policy toward the ruling DPP in Taiwan, Richard Bush, chairman of AIT, said on January 28, 2002, that "the United States favors and encourages dialogue but has no intention of serving as a mediator in this dispute or of pressuring Taiwan to negotiate." He added that "it does not seem constructive for one side to set pre-conditions for a resumption of dialogue that the other side even suspects would be tantamount to conceding a fundamental issue before discussion begins." In March 2002, Assistant Secretary of State Kelly told attendees at a conference that the Bush Administration would continue to uphold the "Six Assurances," meaning no U.S. mediation and no pressure on Taiwan to go to the bargaining table. In testimony at a hearing in April 2004, after Chen Shui-bian's re-election in the March election, Kelly again reaffirmed the "Six Assurances," but explicitly warned that "a secure and self-confident Taiwan is a Taiwan that is more capable of engaging in political interaction and dialogue with the PRC, and we expect Taiwan will not interpret our support as a blank check to resist such dialogue." He urged both Beijing and Taipei to pursue dialogue "as soon as possible" and "without preconditions." Moreover, the George W. Bush Administration started by emphasizing deterrence and approved Taiwan's requests for major arms in 2001. In 2004, National Security Advisor Condoleezza Rice did urge Beijing to resume cross-strait talks and offered a vague U.S. role "to further dialogue if it is helpful." Though the Administration repeatedly stated that Beijing should talk to the duly-elected leaders in Taipei, the Administration continued the approach of non-mediation in any talks. In 2005, in answer to Representative Leach about a U.S. role as "facilitator," Deputy Assistant Secretary of State Randall Schriver vaguely testified that good U.S. relations with Beijing and Taipei allow Washington to "assist the two sides in getting to the negotiating table on mutually agreeable terms." In 2005, the KMT and CPC agreed on a party-to-party platform of cross-strait "peaceful development." After the KMT's Ma Ying-jeou became president in Taiwan in 2008, CPC General Secretary Hu Jintao issued a policy toward Taiwan of "peaceful development." A related issue was whether the United States should encourage or play another role in the increasing cross-strait dialogues that would include confidence-building measures (CBMs). In September 2009, Deputy Secretary of State James Steinberg stated that the Administration "encouraged" the PRC and Taiwan to explore CBMs that would lead to closer ties and greater stability across the strait. His encouragement of CBMs raised expectations of an active U.S. role and injected new U.S. pressure in a sensitive domestic debate in Taiwan over whether such CBMs were premature and would serve Taiwan's security interests. President Obama held a summit in Beijing in November 2009 with Hu Jintao, and they issued the first U.S.-PRC Joint Statement in 12 years since the Clinton-Jiang Joint Statement of 1997. In the statement, the United States did not use "encouragement" of cross-strait CBMs. In the 2009 Joint Statement, the United States declared that it welcomed the "peaceful development" of relations across the Taiwan Strait and looked forward to efforts by both sides to increase dialogues and interactions in economic, political, and other fields, and develop more positive and stable cross-strait relations. AIT Chairman Ray Burghardt clarified at a news conference in Taipei on November 24, 2009, that the Joint Statement should not be interpreted as putting pressure on Taiwan to negotiate with the PRC. The Obama Administration also reaffirmed the Six Assurances to Taipei. As discussed above, Assistant Secretary of State Kurt Campbell testified at a hearing of the House Foreign Affairs Committee in October 2011. Campbell testified that the "Taiwan Relations Act plus the so-called Six Assurances and Three Communiques form the foundation of our overall approach." As enacted on September 30, 2002, the Foreign Relations Authorization Act for FY2003 ( P.L. 107-228 ), reaffirmed President Clinton's February 2000 condition for settling Taiwan's status and expressed the sense of Congress that any resolution of the Taiwan question must be peaceful and "include the assent of the people of Taiwan." In short, since 1971, U.S. Presidents—both secretly and publicly—have continued to articulate a "one China" policy in understandings with the PRC. Nonetheless, policy makers have continued to face unresolved issues, while the political and strategic context of the policy has changed dramatically since the early 1970s. Congressional oversight of successive Presidents has watched for any new agreements with Beijing and any shift in the U.S. stance closer to that of Beijing's "one China" principle —on questions of sovereignty, arms sales, or dialogue. Since the 1990s, successive Administrations also have shown more explicit opposition—through arms sales, force deployments, deeper U.S.-Taiwan military ties, and public statements—to PRC efforts to use force or coercion to determine Taiwan's future. Not recognizing the PRC's claim over Taiwan or Taiwan as a sovereign state, U.S. policy has considered Taiwan's status as unsettled. U.S. policy leaves the Taiwan question to be resolved by the people on both sides of the strait: a "peaceful resolution" with the assent of Taiwan's people and without unilateral changes. In other words, U.S. policy focuses on the process of resolution of the Taiwan question, not any set outcome. This approach, however, encounters challenges from Taiwan as it denies being an ambiguous non-entity and asserts a sovereign status, as the ROC under the KMT or Taiwan under the DPP. Even as the United States has opposed a unilateral change from Beijing or Taipei to the status quo, the meaning of "status quo" remains a question. Some say that instead of a "status quo," the situation in the Taiwan Strait has changed significantly, including the shifting military balance to favor the PRC and the rapid rapprochement and extensive engagement—beyond détente—between the PRC and Taiwan under the CPC and KMT's dialogues, particularly since 2008. There has been no comprehensive review of U.S. policy since 1994. Some said that a U.S. strategy or a policy review might be needed to seek positive objectives and sustain U.S. security, political, and economic interests with Taiwan or with the PRC. For a hearing on January 13, 2009, on Hillary Clinton's confirmation to be Secretary of State, the Senate Foreign Relations Committee asked a question for the record about whether the Administration would hold another Taiwan Policy Review, but she did not answer the question. Still, Admiral Robert Willard, Commander of the Pacific Commander (PACOM) in Honolulu, initiated in January 2010 reviews of approaches toward the PRC and toward Taiwan (among other concerns like North Korea) by "Strategic Focus Groups (SFGs)," narrower efforts than a review by the Obama Administration. In any examination of U.S. policy or strategy, whether through recalibrations or review, Congress and the Administration face critical issues under the rubric of the "one China" policy, including: Is the Administration adhering to the TRA in making available defense articles and defense services in such quantity as might be necessary to enable Taiwan to maintain a "sufficient" self-defense capability? How are internal as well as cross-strait political, economic, and military trends serving or undermining U.S. interests and leverage over Beijing and Taipei? What are the implications for U.S. interests and policies of the significant engagement (including the CPC-KMT cooperation) across the Taiwan Strait? What are likely outcomes (e.g., unsettled status, unification, independence, confederation, commonwealth), and what are impacts on U.S. interests? What are the implications of strategies conducted by Beijing and Taipei? Are policy elements of diplomacy and deterrence balanced? Should Washington change any assurances or positions? Should U.S. policy positions (support, non-support, opposition) be clarified to deter provocations from Beijing or Taipei (e.g., on use of force or coercion)? Should the United States proactively deepen its role (e.g., facilitation, mediation) to encourage cross-strait negotiation and/or appoint a special envoy/coordinator? How should defense policies be carried out to increase U.S. leverage in Taiwan, strengthen its self-defense, deter conflict, and counter coercion? What is the extent of the U.S. commitment to help Taiwan's self-defense? How might the United States support Taiwan in its participation in international organizations and preservation of international space—distinct from the PRC? How well are U.S. policies coordinated with those of allies, including European countries in NATO, Japan, South Korea, Philippines, and Australia? In Part II below, this CRS Report provides excerpts from key statements on "one China" as articulated by Washington, Beijing, and Taipei, in addition to the three Joint Communiques and the TRA, since the United States first reached understandings with the PRC in 1971. Based on unclassified citations and consultations, the highlights also give a comprehensive look at significant statements and contexts in Washington, Beijing, as well as Taipei. This compilation identifies new, major (not all) elements in the policies of the governments. The statements also include accounts of presidential assurances. The three perspectives on "one China" are placed in chronological order under successive U.S. Administrations. The texts are placed in italics. July 9, 1971 Our military presence in Taiwan at this moment is composed of two elements, the two-thirds of it which is related to activities in other parts of Asia [the Vietnam War] and the one-third of it which is related to the defense of Taiwan . We are prepared to remove that part related to activities other than to the defense of Taiwan , that's two-thirds of our force ... within a specified brief period of time after the ending of the war in Indochina . We are prepared to begin reducing our other forces on Taiwan as our relations improve, so that the military questions need not be a principal obstacle between us. I may say, incidentally, that these are personal decisions of President Nixon which have not yet been discussed with our bureaucracy or with Congress, and so should be treated with great confidence. As for the political future of Taiwan, we are not advocating a "two Chinas" solution or a "one China, one Taiwan" solution . [On Zhou Enlai's question of whether the United States would support the Taiwan independence movement]: We would not support this. August 2, 1971 Representation in an international organization need not prejudice the claims or views of either government . Participation of both in the United Nations need not require that result . Rather it would provide governments with increased opportunities for contact and communication . It would also help promote cooperation on common problems which affect all of the member nations regardless of political differences . The United States accordingly will support action at the General Assembly this fall calling for seating the People's Republic of China . At the same time, the United States will oppose any action to expel the Republic of China or otherwise deprive it of representation in the United Nations. February 22, 1972 Principle one. There is one China , and Taiwan is a part of China . There will be no more statements made—if I can control our bureaucracy—to the effect that the status of Taiwan is undetermined. Second, we have not and will not support any Taiwan independence movement. Third, we will, to the extent we are able, use our influence to discourage Japan from moving into Taiwan as our presence becomes less, and also discourage Japan from supporting a Taiwan independence movement. I will only say here I cannot say what Japan will do, but so long as the U.S. has influence with Japan—we have in this respect the same interests as the Prime Minister's government—we do not want Japan moving in on Taiwan and will discourage Japan from doing so. The fourth point is that we will support any peaceful resolution of the Taiwan issue that can be worked out. And related to that point, we will not support any military attempts by the Government on Taiwan to resort to a military return to the Mainland. Finally, we seek the normalization of relations with the People's Republic. We know that the issue of Taiwan is a barrier to complete normalization, but within the framework I have previously described, we seek normalization and we will work toward that goal and will try to achieve it. February 24, 1972 With regard to Taiwan , I do not believe a permanent American presence—whatever happens in our meetings—is necessary to American security .... My goal is the withdrawal of our remaining forces, not just two-thirds, but all forces, including the remaining one-third .... It must be consistent with ... the so-called Nixon Doctrine. Under that Doctrine, we are cutting our forces in Korea .... Two-thirds will go, hopefully as soon as we can finish our Vietnam involvement. My plan also is one which reduces the one-third and withdraws it during the period I have the power to act. But I cannot do it before January of next year. It has to be over a period of four years. Now if someone asks me when I return, do you have a deal with the Prime Minister that you are going to withdraw all American forces from Taiwan , I will say "no." But I am telling the Prime Minister that it is my plan .... February 27, 1972 The Chinese reaffirmed its position: The Taiwan question is the crucial question obstructing the normalization of relations between China and the United States; the Government of the People's Republic of China is the sole legal government of China; Taiwan is a province of China which has long been returned to the motherland; the liberation of Taiwan is China's internal affair in which no other country has the right to interfere; and all U.S. forces and military installations must be withdrawn from Taiwan. The Chinese Government firmly opposes any activities which aim at the creation of "one China , one Taiwan ," "one China , two governments," "two Chinas," and "independent Taiwan " or advocate that "the status of Taiwan remains to be determined." The U.S. side declared: The United States acknowledges that all Chinese on either side of the Taiwan Strait maintain there is but one China and that Taiwan is a part of China . The United States Government does not challenge that position. It reaffirms its interest in a peaceful settlement of the Taiwan question by the Chinese themselves. With this prospect in mind, it affirms the ultimate objective of the withdrawal of all U.S. forces and military installations from Taiwan . In the meantime, it will progressively reduce its forces and military installations on Taiwan as the tension in the area diminishes. November 12, 1973 As for the question of our relations with Taiwan , that is quite complex. I do not be lieve in a peaceful transition.... They are a bunch of counter-revolutionaries [the Nationalists on Taiwan ]. How could they cooperate with us? I say that we can do without Taiwan for the time being, and let it come after "100 years." August 12, 1974 To the People's Republic of China , whose legendary hospitality I enjoyed, I pledge continuity in our commitment to the principles of the Shanghai communique. The new relationship built on those principles has demonstrated that it serves serious and objective mutual interests and has become an enduring feature of the world scene. December 15, 1978 As of January 1, 1979, the United States of America recognizes the People's Republic of China as the sole legal government of China . In the future, the American people and the people of Taiwan will maintain commercial, cultural and other relations without official government representation and without diplomatic relations. The Administration will seek adjustments to our laws and regulations to permit the maintenance of commercial, cultural, and other non-governmental relationships in the new circumstances that will exist after normalization. The United States is confident that the people of Taiwan face a peaceful and prosperous future. The United States continues to have an interest in the peaceful resolution of the Taiwan issue and expects that the Taiwan issue will be settled peacefully by the Chinese themselves. December 16, 1978 As is known to all, the Government of the People's Republic of China is the sole legal government of China and Taiwan is a part of China . The question of Taiwan was the crucial issue obstructing the normalization of relations between China and the United States . It has now been resolved between the two countries in the spirit of the Shanghai Communique and through their joint efforts, thus enabling the normalization of relations so ardently desired by the people of the two countries. As for the way of bringing Taiwan back to the embrace of the motherland and reunifying the country, it is entirely China 's internal affair. December 29, 1978 The Republic of China is an independent sovereign state with a legitimately established government based on the Constitution of the Republic of China . It is an effective government, which has the wholehearted support of her people. The international status and personality of the Republic of China cannot be changed merely because of the recognition of the Chinese Communist regime by any country of the world. The legal status and international personality of the Republic of China is a simple reality which the United States must recognize and respect. January 1, 1979 Taiwan has been an inalienable part of China since ancient times .... Taiwan's separation from the motherland for nearly 30 years has been artificial and against our national interests and aspirations, and this state of affairs must not be allowed to continue.... Unification of China now fits in with the direction of popular feeling and the general trend of development. The world in general recognizes only one China , with the Government of the People's Republic of China as the sole legal government. The recent conclusion of the China-Japan Treaty of Peace and Friendship and the normalization of relations between China and the United States show still more clearly that no one can stop this trend.... We place great hopes on the 17 million people on Taiwan and also the Taiwan authorities. The Taiwan authorities have always taken a firm stand of one China and opposed an independent Taiwan . This is our common stand and the basis for our cooperation.... The Chinese Government has ordered the People's Liberation Army [PLA] to stop the bombardment of Quemoy and other islands as of today. A state of military confrontation between the two sides still exists along the Taiwan Strait . This can only create artificial tension. We hold that first of all this military confrontation should be ended through discussion between the Government of the People's Republic of China and the Taiwan authorities so as to create the necessary prerequisites and a secure environment for the two sides to make contacts and exchanges in whatever area.... January 1, 1979 The United States of America recognizes the Government of the People's Republic of China as the sole legal Government of China . Within this context, the people of the United States will maintain cultural, commercial, and other unofficial relations with the people of Taiwan . The Government of the United States of America acknowledges the Chinese position that there is but one China and Taiwan is part of China . Enacted April 10, 1979 Section 2(b) It is the policy of the United States (1) to preserve and promote extensive, close, and friendly commercial, cultural, and other relations between the people of the United States and the people on Taiwan, as well as the people on the China mainland and all other peoples of the Western Pacific area; (2) to declare that peace and stability in the area are in the political, security, and economic interests of the United States , and are matters of international concern; (3) to make clear that the United States decision to establish diplomatic relations with the People's Republic of China rests upon the expectation that the future of Taiwan will be determined by peaceful means; (4) to consider any effort to determine the future of Taiwan by other than peaceful means, including by boycotts or embargoes, a threat to the peace and security of the Western Pacific area and of grave concern to the United States; (5) to provide Taiwan with arms of a defensive character; and (6) to maintain the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan. Sec. 3(a) In furtherance of the policy set forth in section 2 of this Act, the United States will make available to Taiwan such defense articles and defense services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capability. (b) The President and the Congress shall determine the nature and quantity of such defense articles and services based solely upon their judgment of the needs of Taiwan , in accordance with procedures established by law. Such determination of Taiwan 's defense needs shall include review by United States military authorities in connection with recommendations to the President and the Congress. (c) The President is directed to inform the Congress promptly of any threat to the security or the social or economic system of the people on Taiwan and any danger to the interests of the United States arising therefrom. The President and the Congress shall determine, in accordance with constitutional processes, appropriate action by the United States in response to any such danger. Sec. 4(b)(1) Whenever the laws of the United States refer or relate to foreign countries, nations, states, governments, or similar entities, such terms shall include and such laws shall apply with respect to Taiwan. Sec. 15(2) The term "Taiwan" includes, as the context may require, the islands of Taiwan and the Pescadores, the people on those islands, corporations and other entities and associations created or organized under the laws applied on those islands, and the governing authorities on Taiwan recognized by the United States as the Republic of China prior to January 1, 1979, and any successor governing authorities (including political subdivisions, agencies, and instrumentalities thereof). September 30, 1981 Now, I would take this opportunity to elaborate on the policy concerning the return of Taiwan to the motherland for the realization of peaceful unification [proclaimed on New Year's Day 1979]: 1. In order to bring an end to the unfortunate separation of the Chinese nation as early as possible, we propose that talks be held between the Communist Party of China and the Kuomintang [Nationalist Party] of China on a reciprocal basis so that the two parties will cooperate for the third time to accomplish the great cause of national unification. The two sides may first send people to meet for an exhaustive exchange of views. 2. It is the urgent desire of the people of all nationalities on both sides of the strait to communicate with each other, reunite with their relatives, develop trade and increase mutual understanding. We propose that the two sides make arrangements to facilitate the exchange of mail, trade, air and shipping services, and visits by relatives and tourists as well as academic, cultural, and sports exchanges, and reach an agreement thereupon. 3. After the country is reunified, Taiwan can enjoy a high degree of autonomy as a special administration region, and it can retain its armed forces. The central government will not interfere with local affairs in Taiwan . 4. Taiwan 's current socio-economic system will remain unchanged, so will its way of life and its economic and cultural relations with foreign countries. There will be no encroachment on the proprietary rights and lawful right of inheritance over private property, houses, land and enterprises, or on foreign investments. 5. People in authority and representative personages of various circles in Taiwan may take up posts of leadership in national political bodies and participate in running the state. 6. When Taiwan's local finance is in difficulty, the central government may subsidize it as is fit for the circumstances. 7. For people of all nationalities and public figures of various circles in Taiwan who wish to come and settle on the mainland, it is guaranteed that proper arrangements will be made for them, that there will be no discrimination against them, and that they will have the freedom of entry and exit. 8. Industrialists and businessmen in Taiwan are welcome to invest and engage in various economic undertakings on the mainland, and their legal rights, interests, and profits are guaranteed. 9. The unification of the motherland is the responsibility of all Chinese. We sincerely welcome people of all nationalities, public figures of all circles, and all mass organizations in Taiwan to make proposals and suggestions regarding affairs of state through various channels and in various ways. Taiwan 's return to the embrace of the motherland and the accomplishment of the great cause of national unification is a great and glorious mission history has bequeathed on our generation .... We hope that the Kuomintang authorities will stick to their one-China position and their opposition to "two Chinas" and that they will put national interests above everything else, forget previous ill will and join hands with us in accomplishing the great cause of national unification and the great goal of making China prosperous and strong, so as to win glory for our ancestors, bring benefit to our posterity, and write a new and glorious page in the history of the Chinese nation! April 5, 1982 Clearly, the Taiwan issue had been a most difficult problem between our governments .... The United States firmly adheres to the positions agreed upon in the Joint Communique on the establishment of diplomatic relations between the United States and China . There is only one China . We will not permit the unofficial relations between the American people and the people of Taiwan to weaken our commitment to this principle. July 14, 1982 In negotiating the third Joint Communique with the PRC, the United States: 1. has not agreed to set a date for ending arms sales to Taiwan; 2. ha s not agreed to hold prior consultations with the PRC on arms sales to Taiwan; 3. will not play any mediation role between Taipei and Beijing ; 4. has not agreed to revise the Taiwan Relations Act; 5. has not altered its position regarding sovereignty over Taiwan ; 6. will not exert pressure on Taiwan to negotiate with the PRC. July 26, 1982 I want to point out that this decision [on a joint communique] is based on a PRC decision only to use peaceful means to resolve the Taiwan issue. On this point, the U.S. will not only pay attention to what the PRC says, but also will use all methods to achieve surveillance of PRC military production and military deployment. The intelligence attained would be brought to your attention. If there is any change with regard to their commitment to peaceful solution of the Taiwan issue, the U.S. commitments would become invalidated. August 17, 1982 In the Joint Communique on the Establishment of Diplomatic Relations on January 1, 1979, issued by the Government of the United States of America and the Government of the People's Republic of China, the United States of America recognized the Government of the People's Republic of China as the sole legal government of China, and it acknowledged the Chinese position that there is but one China and Taiwan is part of China. The question of United States arms sales to Taiwan was not settled in the course of negotiations between the two countries on establishing diplomatic relations. The Chinese government reiterates that the question of Taiwan is China 's internal affair. The Message to the Compatriots in Taiwan issued by China on January 1, 1979, promulgated a fundamental policy of striving for peaceful unification of the Motherland. The Nine-Point Proposal put forward by China on September 30, 1981 represented a further major effort under this fundamental policy to strive for a peaceful solution to the Taiwan question. The United States Government attaches great importance to its relations with China, and reiterates that it has no intention of infringing on Chinese sovereignty and territorial integrity, or interfering in China's internal affairs, or pursuing a policy of "two Chinas" or "one China, one Taiwan." The United States Government understands and appreciates the Chinese policy of striving for a peaceful resolution of the Taiwan question as indicated in China's Message to Compatriots in Taiwan issued on January 1, 1979 and the Nine-Point Proposal put forward by China on September 30, 1981. The new situation which has emerged with regard to the Taiwan question also provides favorable conditions for the settlement of United States-China differences over the question of United States arms sales to Taiwan . Having in mind the foregoing statements of both sides, the United States Government states that it does not seek to carry out a long-term policy of arms sales to Taiwan, that its arms sales to Taiwan will not exceed, either in qualitative or in quantitative terms, the level of those supplied in recent years since the establishment of diplomatic relations between the United States and China, and that it intends to reduce gradually its sales of arms to Taiwan, leading over a period of time to a final resolution. In so stating, the United States acknowledges China 's consistent position regarding the thorough settlement of this issue. August 17, 1982 Regarding future U.S. arms sales to Taiwan , our policy, set forth clearly in the communique [issued on the same day], is fully consistent with the Taiwan Relations Act. Arms sales will continue in accordance with the act and with the full expectation that the approach of the Chinese Government to the resolution of the Taiwan issue will continue to be peaceful. We attach great significance to the Chinese statement in the communique regarding China 's "fundamental" policy, and it is clear from our statements that our future actions will be conducted with this peaceful policy fully in mind. The position of the United States Government has always been clear and consistent in this regard. The Taiwan question is a matter for the Chinese people, on both sides of the Taiwan Strait , to resolve. We will not interfere in this matter or prejudice the free choice of, or put pressure on, the people of Taiwan in this matter. At the same time, we have an abiding interest and concern that any resolution be peaceful. I shall never waver from this fundamental position. August 17, 1982 The U.S. willingness to reduce its arms sales to Taiwan is conditioned absolutely upon the continued commitment of China to the peaceful solution of the Taiwan-PRC differences. It should be clearly understood that the linkage between these two matters is a permanent imperative of U.S. foreign policy. In addition, it is essential that the quantity and quality of the arms provided Taiwan be conditioned entirely on the threat posed by the PRC. Both in quantitative and qualitative terms, Taiwan 's defense capability relative to that of the PRC will be maintained. August 17, 1982 In the joint communique, the Chinese Government reiterates in clear-cut terms its position that "the question of Taiwan is China 's internal affair." The U.S. side also indicates that it has no intention of infringing on Chinese sovereignty and territorial integrity, or interfering in China 's internal affairs, or pursuing a policy of "two Chinas" or "one China , one Taiwan ." August 18, 1982 [On the August 17, 1982, communique], let me recapitulate and emphasize a few key features; then I'll take your questions. First, the document must be read as a whole , since the policies it sets forth are interrelated [original emphasis]. Second, as I have previously noted, the communique contains a strong Chinese statement that its fundamental policy is to seek to resolve the Taiwan question by peaceful means ( Para 4) [original emphasis] .... Third, the U.S. statements concerning future arms sales to Taiwan (Para 6) are based on China 's statements as to its fundamental peaceful policy for seeking a resolution to the Taiwan question and on the "new situation" created by those statements ( Para 5) [original emphasis] .... Fourth, we did not agree to set a date certain for ending arms sales to Taiwan and the statements of future U.S. arms sales policy embodied in the Communique do not provide either a time frame for reductions of U.S. arms sales or for their termination .... We see no mediation role for the U.S. nor will we attempt to exert pressure on Taiwan to enter into negotiations with the PRC .... There has been no change in our long-standing position on the issue of sovereignty over Taiwan . The communique (Para 1) in its opening paragraph simply cites that portion of the joint communique on the establishment of diplomatic relations between the U.S. and the P.R.C. in which the U.S. "acknowledged the Chinese position on this issue" (i.e., that there is but one China and Taiwan is a part of China) .... It has been reported in the press that the Chinese at one point suggested that the Taiwan Relations Act be revised. We have no plans to seek any such revisions .... [Para 9] should not be read to imply that we have agreed to engage in prior consultations with Beijing on arms sales to Taiwan . [original emphasis] June 26, 1983 After reunification with the mother land, the Taiwan special administrative region will assume a unique character and may practice a social system different from that of the mainland . It will enjoy independent judicial power, and there will be no need to go to Beijing for final adjudication. What is more, it may maintain its own army, provided it does not threaten the mainland . The mainland will not station anyone in Taiwan . Neither troops nor administrative personnel will go there . The party, governmental, and military systems of Taiwan will be administered by the Taiwan authorities themselves. A number of posts in the central government will be made available to Taiwan. February 22, 1984 There are many disputes in the world that always require solutions. I have had the belief for many years that, no matter what solutions are used to solve these problems, don't use means of war, but use peaceful ways. Our proposal for unification between the mainland and Taiwan is fair and reasonable. After unification, Taiwan will still be allowed to engage in its capitalism, while the mainland implements socialism, but there will be one unified China . One China , two systems. The Hong Kong problem will also be treated the same: one China , two systems. June 22, 1984 If we cannot resolve peacefully [the Hong Kong and Taiwan questions], then can only use force to resolve, but this would be disadvantageous to all sides . Achieving national unification is the nation's wish, if not unified in 100 years, then unified in 1,000 years. In how to resolve this problem, I think it would only be through "one country, two systems." October 31, 1984 We proposed "one country, two systems" to resolve the problem of national unification, and that is a kind of peaceful coexistence . We resolved the Hong Kong problem, permitting Hong Kong to preserve the capitalist system with no change for 50 years . This principle also applies to the Taiwan problem . Taiwan differs from Hong Kong and would be able to keep its military. … Taiwan could keep its capitalism, and Beijing would not assign people to Taiwan . February 25, 1989 We remain firmly committed to the principles set forth in those three joint communiques that form the basis of our relationship. And based on the bedrock principle that there is but one China , we have found ways to address Taiwan constructively without rancor. We Americans have a long, historical friendship with Chinese people everywhere. In the last few years, we've seen an encouraging expansion of family contacts and travel and indirect trade and other forms of peaceful interchange across the Taiwan Strait , reflecting the interests of the Chinese people themselves. And this trend, this new environment, is consistent with America 's present and longstanding interest in a peaceful resolution of the differences by the Chinese themselves. March 14, 1991 [Unification is] to establish a democratic, free, and equitably prosperous China .... It should be achieved in gradual phases under the principles of reason, peace, parity, and reciprocity .... [In the short term,] to enhance understanding through exchanges between the two sides of the Strait and eliminate hostility through reciprocity; and to establish a mutually benign relationship by not endangering each other's security and stability while in the midst of exchanges and not denying the other's existence as a political entity while in the midst of effecting reciprocity. August 1, 1992 Both sides of the Taiwan Strait agree that there is only one China . However, the two sides of the Strait have different opinions as to the meaning of "one China ." To Peking, "one China " means the "People's Republic of China (PRC)," with Taiwan to become a "Special Administration Region" after unification. Taipei, on the other hand, considers "one China " to mean the Republic of China (ROC), founded in 1911 and with de jure sovereignty over all of China . The ROC, however, currently has jurisdiction only over Taiwan , Penghu, Kinmen, and Matsu . Taiwan is part of China, and the Chinese mainland is part of China as well. September 2, 1992 I'm announcing this afternoon that I will authorize the sale to Taiwan of 150 F-16A/B aircraft, made right here in Fort Worth .... This sale of F-16s to Taiwan will help maintain peace and stability in an area of great concern to us, the Asia-Pacific region, in conformity with our law. In the last few years, after decades of confrontation, great strides have been made in reducing tensions between Taipei and Beijing . During this period, the United States has provided Taiwan with sufficient defensive capabilities to sustain the confidence it needs to reduce those tensions. That same sense of security has underpinned Taiwan 's dramatic evolution toward democracy. My decision today does not change the commitment of this Administration and its predecessors to the three communiques with the People's Republic of China . We keep our word: our one-China policy, our recognition of the PRC as the sole legitimate government of China . I've always stressed that the importance of the 1982 communique on arms sales to Taiwan lies in its promotion of common political goals: peace and stability in the area through mutual restraint. November 3, 1992 Taipei's SEF: On November 3, a responsible person of the Communist Chinese ARATS said that it is willing to "respect and accept" SEF's proposal that each side "verbally states" its respective principles on "one China ." Beijing's ARATS: At this working-level consultation in Hong Kong, SEF representatives suggested that each side use respective verbal announcements to state the one China principle. On November 3, SEF sent a letter, formally notifying that "each side will make respective statements through verbal announcements." ARATS fully respects and accepts SEF's suggestion. March 15, 1993 We advocate that both sides hold talks as soon as possible on bringing hostility between the two sides of the Taiwan Strait to an end and gradually fulfilling peaceful unification .... The forces advocating Taiwan independence on and off the island have resurged in recent years. Certain international forces have also deliberately created obstacles to impede China 's peaceful unification. They cannot but arouse serious concern by the Chinese Government and all the Chinese people. We are resolutely opposed to any form of two China's or one China and one Taiwan; and we will take all necessary drastic measures to stop any activities aimed at making Taiwan independent and splitting the motherland. April 27-29, 1993 PRC (Wang Daohan): There are many questions that need to be solved because contacts between the two sides of the strait began only after a separation of more than 40 years. We have said repeatedly that as long as both sides sit down to talk, we can discuss any question. Proper methods for solving problems will be found as long as the two organizations observe the spirit of mutual respect, consult on equal footing, seek truth from facts, and seek common ground while reserving differences. Taiwan (Koo Chen-fu): There exist not only the same geographical, historical, and cultural origins between the two sides, but also a "blood is thicker than water" sentiment shared by our people. President Lee Teng-hui's proclamation that: " Taiwan 's relationship with the entire Chinese people cannot be severed" could not have said it more clearly. Taiwan: The subjects discussed in the Koo-Wang Talks were planned by the government in accord with the goals of the short-term phase in the Guidelines for National Unification .... The Koo-Wang Talks were obviously in no way political .... During the talks, SEF delegates steadfastly upheld the principle of parity in such matters as meeting procedures, conference site, seating, as well as the topics and scope of discussion. This made it impossible for the other side to slight the fact that the ROC is an equal political entity. August-September 1993 [In 1991], we accepted the fact that the nation was divided and that, prior to the unification of China , the political authority of both the ROC government and the Chinese communists exist. Both the ROC government and the Chinese communists exercise political authority in the areas under their de facto control. Each is entitled to represent the residents of the territory under its de facto control and to participate in the activities of the international community .... It is now the fixed policy and goal of the government and the opposition parties in the ROC to participate in the United Nations .... August 31, 1993 There is only one China in the world, Taiwan is an inalienable part of China , and the seat of China 's central government is in Beijing . This is a universally recognized fact as well as the premise for a peaceful settlement of the Taiwan question. The Chinese government is firmly against any words or deeds designed to split China 's sovereignty and territorial integrity. It opposes "two Chinas," "one China , one Taiwan ," "one country, two governments," or any attempt or act that could lead to "independence of Taiwan ." The Chinese people on both sides of the strait all believe that there is only one China and espouse national unification. Taiwan 's status as an inalienable part of China has been determined and cannot be changed. "Self-determination" for Taiwan is out of the question. Peaceful unification is a set policy of the Chinese Government. However, any sovereign state is entitled to use any means it deems necessary, including military ones, to uphold its sovereignty and territorial integrity. The Chinese Government is under no obligation to undertake any commitment to any foreign power or people intending to split China as to what means it might use to handle its own domestic affairs. It should be pointed out that the Taiwan question is purely an internal affair of China and bears no analogy to the cases of Germany and Korea which were brought about as a result of international accords at the end of the Second World War. July 5, 1994 It is an incontrovertible historical fact that the ROC has always been an independent sovereign state in the international community since its founding in 1912. However, relations between the two sides of the Taiwan Strait are not those between two separate countries, neither are they purely domestic in nature. In order to ensure that cross-strait relations develop toward benign interaction, the ROC government has formulated the concept of a "political entity" to serve as the basis of interaction between the two sides. The term "political entity" has extensive meaning, it can refer to a country, a government, or a political organization. At the current stage of cross-Strait interaction, only when we set aside the "sovereignty dispute" will we untie the knots that have bound us for more than the past 40 years and progress smoothly toward unification .... The ROC Government is firm in its advocacy of "one China " and is opposed to "two Chinas" or "one China , one Taiwan ." But at the same time, given that division and divided rule on the two sides of the Taiwan Strait is a long-standing political fact, the ROC Government also holds that the two sides should be fully aware that each has jurisdiction over its respective territory and that they should coexist as two legal entities in the international arena. As for their relationship with each other, it is that of two separate areas of one China and is therefore "domestic" or "Chinese" in nature .... The ROC Government takes "one China , two equal political entities" as the structure for handling cross-strait relations and hopes that cross-strait relations will develop in the direction of being peaceful, pragmatic, and sensible. .. The CPC [Communist Party of China ] should dismiss any misgivings it has concerning the ROC Government's determination to achieve unification. What the CPC authorities should give urgent consideration to is how, given the fact that the country is divided under two separate governments, we can actively create favorable conditions for unification and gradually bring the two different "political entities" together to form "one China." ... At the same time, the Chinese people cannot strive for unification just for the sake of unification; instead, unification should be realized under a reasonable and benign political, economic, and social system and way of living. Therefore, we hold that the two sides of the strait should go all out to build a democratic, free, equally wealthy, and united China .... September 7, 1994 U.S. policy toward Taiwan is governed, of course, by the Taiwan Relations Act of 1979. Three communiques with the People's Republic of China (the Shanghai Communique of 1972, the Normalization Communique of 1979, and the Joint Communique of 1982) also constitute part of the foundation. In the joint communique shifting diplomatic relations to the PRC 15 years ago, the United States recognized "the Government of the People's Republic of China as the sole legal Government of China ." The document further states that "Within this context, the people of the United States will maintain cultural, commercial, and other unofficial relations with the people of Taiwan ." The United States also acknowledged "the Chinese position that there is but one China and Taiwan is part of China ." These formulations were repeated in the 1982 communique. Since 1978, each Administration has reaffirmed this policy. The policy has been essential in maintaining peace, stability, and economic development on both sides of the Taiwan Strait and throughout the region .... We have made absolutely clear our expectation that cross-strait relations will evolve in a peaceful manner. We neither interfere in nor mediate this process. But we welcome any evolution in relations between Taipei and Beijing that is mutually agreed upon and peacefully reached .... In the end, it is only the two parties themselves, Taiwan and the PRC, that will be able to resolve the issues between them. In this regard, the United States applauds the continuing progress in cross-strait dialogue .... We will continue to provide material and training to Taiwan to enable it to maintain a sufficient self-defense capability, as mandated by the Taiwan Relations Act .... Within this framework, the President has decided to enhance our unofficial ties with Taiwan .... the Administration strongly opposes Congressional attempts to legislate visits by top leaders of the "Republic of China " to the U.S . ... Recognizing Taiwan 's important role in transnational issues, we will support its membership in organizations where statehood is not a prerequisite, and will support opportunities for Taiwan 's voice to be heard in organizations where its membership is not possible. We do not seek and cannot impose a resolution of differences between Taiwan and the People's Republic of China . Nor should we permit one to manipulate us against the other. January 30, 1995 1. We must firmly oppose any words or actions aimed at creating an "independent Taiwan " and the propositions "split the country and rule under separate regimes," two Chinas over a certain period of time," etc., which are in contravention of the principle of one China . 2. We do not challenge the development of non-governmental economic and cultural ties by Taiwan with other countries .... However, we oppose Taiwan's activities in "expanding its living space internationally," which are aimed at creating "two Chinas" or "one China, one Taiwan." ... 3. It has been our consistent stand to hold negotiations with the Taiwan authorities on the peaceful unification of the motherland .... I suggest that, as the first step, negotiations should be held and an agreement reached on officially ending the state of hostility between the two sides in accordance with the principle that there is only one China .... 4. We should strive for the peaceful unification of the motherland, since Chinese should not fight fellow Chinese. Our not undertaking to give up the use of force is not directed against our compatriots in Taiwan but against the schemes of foreign forces to interfere with China's unification and to bring about the "independence of Taiwan." ... 5. Great efforts should be made to expand the economic exchanges and cooperation between the two sides of the Taiwan Strait ... 6. People on both sides of the Taiwan Strait should inherit and carry forward the fine traditions of Chinese culture. 7. The 21 million compatriots in Taiwan, whether born there or in other provinces, are all Chinese... We also hope that all political parties in Taiwan will adopt a sensible, forward-looking, and constructive attitude and promote the expansion of relations between the two sides .... 8. Leaders of Taiwan authorities are welcome to pay visits in appropriate capacities. We are also ready to accept invitations from the Taiwan side to visit Taiwan .... The affairs of the Chinese people should be handled by ourselves, something that does not take an international occasion to accomplish .... April 8, 1995 1. The fact that the Chinese mainland and Taiwan have been ruled by two political entities in no way subordinate to each other had led to a state of division between the two sides and separate governmental jurisdictions, hence, the issue of national unification .... Only by facing up to this reality can both sides build greater consensus on the "one China " issue and at the earliest possible date. 2. In Taiwan, we have long taken upon ourselves the responsibility for safeguarding and furthering traditional Chinese culture, and advocate that culture be the basis for exchanges between both sides to help promote the nationalistic sentiment for living together in prosperity and to foster a strong sense of brotherliness .... 3. We will continue to assist the mainland in developing its economy and upgrading the living standards of its people based upon our existing investments and trade relations. As for trade and transportation links with the mainland, the agencies concerned have to make in-depth evaluations as well as careful plans since these are very complicated issues .... 4. I have indicated on several occasions that if leaders on both sides could meet with each other on international occasions in a natural manner, this would alleviate the political confrontation between both sides and foster a harmonious atmosphere for developing future relations .... It is our firm belief that the more international organizations both sides join on an equal footing, the more favorable the environment will become for the growth of bilateral relations and for the process of peaceful unification .... 5. We believe the mainland authorities should demonstrate their goodwill by publicly renouncing the use of force and refrain from making any military move that might arouse anxiety or suspicion on this side of the Taiwan Strait, thus paving the way for formal negotiations between both sides to put an end to the state of hostility .... 6. Hong Kong and Macau are integral parts of the Chinese nation ... Post-1997 Hong Kong and post-1999 Macau are naturally a matter of great concern to us. In this regard, the ROC government has reiterated its determination to maintain normal contact with Hong Kong and Macau, further participate in affairs related to Hong Kong and Macau, and provide better services to our compatriots there .... May 22, 1995 President Clinton has decided to permit Lee Teng-hui to make a private visit to the United States in June for the express purpose of participating in an alumni reunion event at Cornell University , as a distinguished alumnus. The action follows a revision of Administration guidelines to permit occasional private visits by senior leaders of Taiwan , including President Lee. President Lee will visit the U.S. in a strictly private capacity and will not undertake any official activities. It is important to reiterate that this is not an official visit. The granting of a visa in this case is consistent with U.S. policy of maintaining only unofficial relations with Taiwan . It does not convey any change in our relations with or policies towards the People's Republic of China , with which we maintain official relations and recognize as the sole legal government of China . We will continue to abide by the three communiques that form the basis of our relations with China . The United States also acknowledges the Chinese position that there is but one China , and Taiwan is a part of China .... August 1995 At a meeting in Brunei in August 1995, Secretary of State Warren Christopher reportedly delivered a letter from President Clinton to Chinese President Jiang Zemin. In the letter, which has not been made public, Clinton is said to have assured Jiang that the United States would (1) "oppose" Taiwan independence; (2) would not support "two Chinas," or one China and one Taiwan; and (3) would not support Taiwan's admission to the United Nations. March 14, 1996 Our fundamental interest on the Taiwan question is that peace and stability be maintained and that the PRC and Taiwan work out their differences peacefully. At the same time, we will strictly avoid interfering as the two sides pursue peaceful resolution of differences. The Taiwan Relations Act (TRA) of 1979 forms the legal basis of U.S. policy regarding the security of Taiwan .... However serious, the present situation does not constitute a threat to Taiwan of the magnitude contemplated by the drafters of the Taiwan Relations Act. The PRC pressure against Taiwan to date does not add up to a "threat to the security or the social or economic system" of Taiwan .... We will continue to work closely with you, and if warranted by circumstances, we will act under Section 3(c) of the TRA, in close consultation with the Congress. Overall U.S. China policy, including the Taiwan question, is expressed in the three joint communiques with the PRC as follows: —The United States recognizes the Government of the PRC as "the sole legal Government of China ." —The U.S. acknowledges the Chinese position that "there is but one China and Taiwan is part of China ." In 1982, the U.S. assured the PRC that it has no intention of pursuing a policy of "two Chinas" or "one China , one Taiwan ." —Within this context, the people of the U.S. will maintain cultural, commercial, and other unofficial relations with the people of Taiwan . —The U.S. has consistently held that resolution of the Taiwan issue is a matter to be worked out peacefully by the Chinese themselves. April 17, 1996 Clinton: Yes, we discussed Taiwan and China extensively, as well as the recent tension in the strait. It is obvious that our partnership is designed to try to preserve the peace for all peoples in this region. And I believe that I can say we both agree that, while the United States clearly observes the so-called one China policy, we also observe the other aspects of the agreement we made many years ago, which include a commitment on the part of both parties to resolve all their differences in a peaceable manner. And we have encouraged them to pursue that. Therefore, we were concerned about those actions in the Taiwan Strait . May 17, 1996 Since 1972, the foundation for deepening engagement between our nations has been the "one China " policy that is embodied in the three joint communiques between the United States and the People's Republic of China .... The United States strongly believes that resolution of the issues between the PRC and Taiwan must be peaceful. We were gravely concerned when China 's military exercises two months ago raised tensions in the Taiwan Strait . Our deployment of naval forces to the region was meant to avert any dangerous miscalculations. We are encouraged that both sides have now taken steps to reduce tensions. On the eve of the inauguration next Monday of Taiwan 's first democratically elected President, it is timely to reflect on the enduring value of our "one China " policy for both the PRC and Taiwan and on our common interest and responsibility to uphold it. I want to tell you publicly today what we have been saying privately to the leaders in Beijing and Taipei in recent weeks. To the leadership in Beijing , we have reiterated our consistent position that the future relationship between Taiwan and the PRC must be resolved directly between them. But we have reaffirmed that we have a strong interest in the region's continued peace and stability and that our "one China " policy is predicated on the PRC's pursuit of a peaceful resolution of issues between Taipei and Beijing . To the leadership in Taiwan , we have reiterated our commitment to robust unofficial relations, including helping Taiwan maintain a sufficient self-defense capacity under the terms of the Taiwan Relations Act. We have stressed that Taiwan has prospered under the "one China " policy. And we have made clear our view that as Taiwan seeks an international role, it should pursue that objective in a way that is consistent with a "one China " policy. We have emphasized to both sides the importance of avoiding provocative actions or unilateral measures that would alter the status quo or pose a threat to peaceful resolution of outstanding issues. And we have strongly urged both sides to resume the cross-strait dialogue that was interrupted last summer. May 20, 1996 The Republic of China has always been a sovereign state. Disputes across the Strait center around system and lifestyle; they have nothing to do with ethnic or cultural identity. Here in this country, it is totally unnecessary or impossible to adopt the so-called course of " Taiwan independence." For over 40 years, the two sides of the Strait have been two separate jurisdictions due to various historical factors, but it is also true that both sides pursue eventual national unification .... December 23-28, 1996 The Republic of China has been a sovereign state since 1912. Following the establishment of the Chinese communist regime in 1949, both sides of the Taiwan Strait became co-equal political entities .... The development of relations with the mainland must be based on safeguarding the survival and development of the Republic of China .... The Republic of China is a sovereign state that must actively promote foreign relations and raise its profile at international activities in its pursuit of national survival and development. Taiwan is not a part of the "People's Republic of China ," and the ROC government opposes dealing with the cross-strait issue through the "one country, two systems" scheme. The government should reduce the possibility of confrontation with the mainland by establishing sound mainland policies, and should actively make use of regional and global security and cooperation mechanisms to assure the security of Taiwan . At this point, ROC accession to such international bodies as the World Trade Organization, the International Monetary Fund, and the World Bank, should continue to be actively pursued. ROC admission to the United Nations should be actively pursued as a long-term objective through flexible responses to changes in the international situation. October 29, 1997 A key to Asia's stability is a peaceful and prosperous relationship between the People's Republic of China and Taiwan . I reiterated America 's longstanding commitment to a one China policy. It has allowed democracy to flourish in Taiwan and provides a framework in which all three relationships can prosper—between the United States and the PRC, the United States and Taiwan, and Taiwan and the People's Republic of China. I told President Jiang that we hope the People's Republic and Taiwan would resume a constructive cross-strait dialogue and expand cross-strait exchanges. Ultimately, the relationship between the PRC and Taiwan is for the Chinese themselves to determine—peacefully. First of all, I think the most important thing the United States can do to facilitate a peaceful resolution of the differences is to adhere strictly to the one China policy we have agreed on, to make it clear that within the context of that one China policy, as articulated in the communiques and our own laws, we will maintain friendly, open relations with the people of Taiwan and China; but that we understand that this issue has to be resolved and resolved peacefully, and that if it is resolved in a satisfactory way, consistent with statements made in the past, then Asia will be stronger and more stable and more prosperous. That is good for the United States . And our own relations with China will move on to another stage of success. I think the more we can encourage that, the better off we are. But I think in the end, since so much investment and contact has gone on in the last few years between Taiwan and China, I think the Chinese people know how to resolve this when the time is right, and we just have to keep saying we hope the time will be right as soon as possible. Sooner is better than later. October 29, 1997 China stresses that the Taiwan question is the most important and sensitive central question in China-U.S. relations, and that the proper handling of this question in strict compliance with the principles set forth in the three China-U.S. joint communiques holds the key to sound and stable growth of China-U.S. relations. The United States reiterates that it adheres to its "one China " policy and the principles set forth in the three U.S.-China joint communiques. October 31, 1997 We certainly made clear that we have a one-China policy; that we don't support a one-China, one-Taiwan policy. We don't support a two-China policy. We don't support Taiwan independence, and we don't support Taiwanese membership in organizations that require you to be a member state. We certainly made that very clear to the Chinese. June 27, 1998 President Jiang: The Taiwan question is the most important and the most sensitive issue at the core of China-U.S. relations. We hope that the U.S. side will adhere to the principles set forth in the three China-U.S. joint communiques and the joint China-U.S. statement, as well as the relevant commitments it has made in the interest of a smooth growth of China-U.S. relations. President Clinton: I reaffirmed our longstanding one China policy to President Jiang and urged the pursuit of cross-strait discussions recently resumed as the best path to a peaceful resolution. In a similar vein, I urged President Jiang to assume a dialogue with the Dalai Lama in return for the recognition that Tibet is a part of China and in recognition of the unique cultural and religious heritage of that region. June 30, 1998 I had a chance to reiterate our Taiwan policy, which is that we don't support independence for Taiwan , or two Chinas, or one Taiwan-one China . And we don't believe that Taiwan should be a member in any organization for which statehood is a requirement. So I think we have a consistent policy. Our only policy has been that we think it has to be done peacefully. That is what our law says, and we have encouraged the cross-strait dialogue. And I think eventually it will bear fruit if everyone is patient and works hard. August 3, 1998 The path to a democratic China must begin with a recognition of the present reality by both sides of the Taiwan Strait. And that reality is that China is divided, just as Germany and Vietnam were in the past and as Korea is today. Hence, there is no "one China" now. We hope for this outcome in the future, but presently it does not exist. Today, there is only "one divided China," with Taiwan and the mainland each being part of China. Because neither has jurisdiction over the other, neither can represent the other, much less all of China. October 14, 1998 Taiwan: It has been nearly 50 years since the two sides of the Taiwan Strait became two equal entities under divided rule and not subordinate to each other. A "divided China " is not only a historical fact, but also a political reality. Taiwan: China 's unification hinges upon the democratization of the Chinese mainland. Only when the Chinese mainland has achieved democracy can the two sides of the Taiwan Strait talk about unification. PRC: Mr. Wang said that Taiwan 's political status can be discussed under the one China principle. On this point, both Mr. Jiang Zemin and Mr. Qian Qichen had similar comments to the effect that anything can be put on the table under the one China principle. Therefore, on the question of one China, this will be our consistent stand before the two sides across the strait are reunified: there is only one China across the strait, Taiwan is part of China, and Chinese sovereignty and territorial integrity are indivisible .... Now, the Government of the People's Republic of China is universally acknowledged internationally as the only legitimate government representing China . In spite of this, the two sides should still negotiate on equal footing under the principle that there is but one China . The issue of whether the talks are between central or local authorities can be left aside. March 24, 1999 Insisting on peaceful resolution of differences between the PRC and Taiwan will remain U.S. policy in the future just as surely as it has been our policy over the past twenty years. Our belief, which we have stated repeatedly, is that dialogue between the PRC and Taiwan fosters an atmosphere in which tensions are reduced, misperceptions can be clarified, and common ground can be explored. The exchange of visits under the SEF/ARATS framework, currently rich in symbolism but still nascent in substance, has the potential to contribute to the peaceful resolution of difficult substantive differences. Clearly, this will not be easy, but this Administration has great confidence in the creativity of the people of Taiwan and the people of the mainland, working together, to identify the necessary human contacts and the most comfortable processes to give the dialogue real meaning. Using a phrase that has garnered much favor in Washington of late, I could imagine that "out of the box" thinking within this dialogue might contribute to interim agreements, perhaps in combination with specific confidence building measures, on any number of difficult topics. But, as the U.S. has steadfastly held, we will avoid interfering as the two sides pursue peaceful resolution of differences, because it is only the participants on both sides of the strait that can craft the specific solutions which balance their interests while addressing their most pressing concerns. July 9, 1999 The fact that disregarding the reality that the two sides of the Taiwan Strait are under separate administrations of different governments, the Chinese communist authorities have been threatening us with force is actually the main reason why cross-strait ties cannot be improved thoroughly .... Since the PRC's establishment, the Chinese communists have never ruled Taiwan , Penghu, Kinmen, and Matsu, which have been under the jurisdiction of the Republic of China .... Since our constitutional reform in 1991, we have designated cross-strait ties as nation-to-nation, or at least as special state-to-state ties, rather than internal ties within "one China " between a legitimate government and a rebellion group, or between central and local governments .... July 21, 1999 Clinton [on whether the United States is obligated to defend Taiwan militarily if it abandons the one China policy and would continue to provide military aid if Taiwan pursues separatism]: Well, let me say first of all, a lot of those questions are governed by the Taiwan Relations Act, which we intend to honor. Our policy is clear: We favor the one China policy; we favor the cross-strait dialogues. The understanding we have had all along with both China and Taiwan is that the differences between them would be resolved peacefully. If that were not to be the case, under the Taiwan Relations Act we would be required to view it with the gravest concern .... Clinton [on delaying a Pentagon delegation's visit to Taiwan]: I didn't think this was the best time to do something which might excite either one side or the other and imply that a military solution is an acceptable alternative. If you really think about what's at stake here, it would be unthinkable. And I want—I don't want to depart from any of the three pillars. I think we need to stay with one China ; I think we need to stay with the dialogue; and I think that no one should contemplate force here. August 1, 1999 President Lee's remarks concerning the nature of the cross-strait relationship were based on the necessity of protecting national interests and dignity. From the political, historical, and legal perspectives, he merely clarified an existing fact. He by no means twisted or exaggerated the truth, nor did he exclude the goal of unifying both sides of the Strait as a new, democratic China .... Taiwan and the Chinese mainland have always differed in their definition of "one China ." Thus, in 1992, ... the two sides eventually reached an agreement on "one China , with each side being entitled to its respective interpretation." ... However, Beijing has unilaterally abandoned this agreement in recent years .... In the framework of the 1992 agreement, whereby each side is entitled to its respective interpretation, we have always maintained that the "one China " concept refers to the future rather than the present. The two sides are not yet unified, but are equals, ruled separately. We both exist concurrently. Therefore, the two sides can be defined as sharing a "special state-to-state relationship," prior to unification .... September 11, 1999 Clinton [on his message concerning Taiwan]: My message is that our policy has not and will not change. We favor one China . We favor a peaceful approach to working out the differences. We favor the cross-strait dialogue. Our policy has not changed and it will not change. Jiang [on whether the PRC will maintain its threat to use military force against Taiwan]: Our policy on Taiwan is a consistent one. That is, one, peaceful unification, one country-two systems. However, if there were to be any foreign intervention, or if there were to be Taiwan independence, then we would not undertake to renounce the use of force. February 21, 2000 On October 1, 1949, the Central People's Government of the PRC was proclaimed, replacing the government of the Republic of China to become the only legal government of the whole of China and its sole legal representative in the international arena, thereby bringing the historical status of the Republic of China to an end .... so the government of the PRC naturally should fully enjoy and exercise China's sovereignty, including its sovereignty over Taiwan .... The Chinese government is actively and sincerely striving for peaceful unification. To achieve peaceful unification, the Chinese government has appealed time and again for cross-strait negotiations on the basis of equality and the One China principle .... The Chinese government has also proposed that dialogue (that includes political dialogue) may start first, which may gradually move on to procedural consultations for political negotiation (to resolve issues for formal negotiation, such as the name, topics for discussion, and format), then political negotiation may begin. Political negotiation may be carried out step-by-step .... However, since the early 1990s, Lee Teng-hui has gradually deviated from the One China principle... In military affairs, the Taiwan authorities have bought large quantities of advanced weapons from foreign countries and sought to join the TMD system, attempting to covertly establish certain forms of military alliance with the United States and Japan .... Facts prove that a serious crisis still exists in the situation of the Taiwan Strait . To safeguard the interests of the entire Chinese people, including compatriots in Taiwan, and maintain the peace and development of the Asia-Pacific region, the Chinese government remains firm in adhering to "peaceful unification, one country/two systems;" upholding the eight propositions put forward by President Jiang Zemin for the development of cross-strait relations and the acceleration of the peaceful unification of China; and doing its utmost to achieve the objective of peaceful unification. However, if a grave turn of events occurs leading to the separation of Taiwan from China in any name, or if there is foreign invasion and occupation of Taiwan, or if Taiwan authorities indefinitely refuse to peacefully resolve the cross-strait unification problem through negotiations, then the Chinese government will only be forced to adopt all possible drastic measures, including the use of force, to safeguard China's sovereignty and territorial integrity, and fulfill the great cause of China's unification .... Countries maintaining diplomatic relations with China must not sell arms to Taiwan or enter into any forms of military alliance with Taiwan ... or help Taiwan to produce weapons .... February 24, 2000 We'll continue to reject the use of force as a means to resolve the Taiwan question. We'll also continue to make absolutely clear that the issues between Beijing and Taiwan must be resolved peacefully and with the assent of the people of Taiwan . May 20, 2000 Today, as the Cold War has ended, it is time for the two sides to cast aside the hostilities left from the old era. We do not need to wait further because now is a new opportunity for the two sides to create an era of reconciliation together. The people across the Taiwan Strait share the same ancestral, cultural, and historical background. While upholding the principles of democracy and parity, building upon the existing foundations, and constructing conditions for cooperation through goodwill, we believe that the leaders on both sides possess enough wisdom and creativity to jointly deal with the question of a future "one China ." I fully understand that as the popularly elected 10 th -term President of the Republic of China , I must abide by the Constitution, maintain the sovereignty, dignity, and security of our country, and ensure the well-being of all citizens. Therefore, as long as the CCP regime has no intention to use military force against Taiwan, I pledge that during my term in office, I will not declare independence, I will not change the national title, I will not push forth the inclusion of the so-called "state-to-state" description in the Constitution, and I will not promote a referendum to change the status quo in regards to the question of independence or unification. Furthermore, the abolition of the National Unification Council or the Guidelines for National Unification will not be an issue. July-August 2000 With regard to cross-strait relations, the one China principle we stand for is that there is only one China in the world; the mainland and Taiwan all belong to one China; and China's sovereignty and territorial integrity are indivisible. December 31, 2000 I have always felt that the people on both sides of the Taiwan Strait came from the same family and that they all pursue the same goals of peaceful coexistence and mutual prosperity. Since both sides with to live under the same roof, we should be more understanding and helpful rather than harming or destroying each other .... The integration of our economies, trade, and culture can be a starting point for gradually building faith and confidence in each other. This, in turn, can be the basis for a new framework of permanent peace and political integration. April 25, 2001 On ABC: [If Taiwan were attacked by the PRC, the United States has an obligation to use] whatever it took to help Taiwan defend herself. On CNN: Well, I think that the Chinese must hear that ours is an administration, like other administrations, that is willing to uphold the spirit of the ... Taiwan Relations Act. And I'll do so. However, I think it's important for people to also note that mine is an administration that strongly supports the one China policy, that we expect any dispute to be resolved peacefully. And that's the message I really want people to hear. But as people have seen, that I'm willing to help Taiwan defend herself, and that nothing has really changed in policy, as far as I'm concerned. This is what other presidents have said, and I will continue to say so .... I have said that I will do what it takes to help Taiwan defend herself, and the Chinese must understand that. Secondly, I certainly hope Taiwan adheres to the one China policy. And a declaration of independence is not the one China policy, and we will work with Taiwan to make sure that that doesn't happen. We need a peaceful resolution of this issue. January 24, 2002 The refusal to accept the principle of one China and recognize the "1992 consensus" by the leader of the Taiwan authorities is the crucial reason leading to a deadlock in cross-strait relations and also the root cause of instability of the situation and possible danger in the Taiwan Strait .... We hold that political differences must not interfere with economic and trade exchanges between the two sides of the strait .... We are willing to hear opinions from people in Taiwan on the establishment of a mechanism for economic cooperation and the promotion of economic relations between the two sides .... The Democratic Progressive Party should think more about the welfare of the people in Taiwan , thoroughly discard its " Taiwan independence party platform," and develop cross-strait relations with a sincere attitude. We believe that the broad masses of the DPP are different from the minority of stubborn " Taiwan independence" elements. We welcome them to come, in appropriate capacities, to sightsee, visit, and increase their understanding . February 21, 2002 Jiang: President Bush emphasized that the United States upholds the one China policy and will abide by the three Sino-U.S. joint communiques. Bush: As [President Jiang] mentioned, we talked about Taiwan . The position of my government has not changed over the years. We believe in the peaceful settlement of this issue. We will urge there be no provocation. The United States will continue to support the Taiwan Relations Act. August 3, 2002 I would like to take a moment here to make a few calls for your consideration: (1) During these past few days, I have said that we must seriously consider going down Taiwan 's own road .... What does " Taiwan 's own road" mean? ... Taiwan's own road is Taiwan's road of democracy, Taiwan's road of freedom, Taiwan's road of human rights, and Taiwan 's road of peace. (2) Taiwan is our country, and our country cannot be bullied, diminished, marginalized, or downgraded as a local entity. Taiwan does not belong to someone else, nor is it someone else's local government or province. Taiwan also cannot become a second Hong Kong or Macau, because Taiwan is a sovereign independent country. Simply put, it must be clear that Taiwan and China are each one country on each side [yibian yiguo] of the strait. (3) China has never renounced the use of force against Taiwan and continues to suppress Taiwan in the international community .... China's so-called "one China principle" or "one country, two systems" would change Taiwan 's status quo. We cannot accept this, because whether Taiwan 's future or status quo should be changed cannot be decided for us by any one country, any one government, any one political party, or any one person. Only the 23 million great people of Taiwan have the right to decide Taiwan 's future, fate, and status. If the need arises, how should this decision be made? It is our long-sought ideal and goal, and our common idea: a referendum .... I sincerely call upon and encourage everyone to seriously consider the importance and urgency of legislation for holding referendums. October 25, 2002 Bush: On Taiwan , I emphasized to the President that our one China policy, based on the three communiques and the Taiwan Relations Act, remains unchanged. I stressed the need for dialogue between China and Taiwan that leads to a peaceful resolution of their differences .... The one China policy means that the issue ought to be resolved peacefully. We've got influence with some in the region; we intend to make sure that the issue is resolved peacefully and that includes making it clear that we do not support independence. Jiang: We have had a frank exchange of views on the Taiwan question, which is of concern to the Chinese side. I have elaborated my government's basic policy of peaceful unification and one country, two systems, for the settlement of the Taiwan question. President Bush has reiterated his clear-cut position, that the U.S. government abides by the one China policy. June 1, 2003 U.S. : On Taiwan , the President repeated our policy of a one-China policy, based on the three communiques, the Taiwan Relations Act, no support for Taiwan independence. The Chinese basically accepted that, and said, okay, that's positive. They did say that they have concerns about forces on Taiwan moving towards independence. The President said, we don't support independence. PRC : President Hu reiterated China 's principled stand on the Taiwan issue .... Bush said that the U.S. government will continue to follow the "one China " policy, abide by the three U.S.-China joint communiques, oppose " Taiwan independence," and that this policy has not changed and will not change. September 28, 2003 If we consider the 1996 direct presidential election as the most significant symbol of Taiwan becoming a sovereign, democratic country, then, in 2006, this "complete" country will be 10 years old. Going through 10 years of practical experience, we must consider what we should seek next as a sovereign, democratic country. I must say that, in the next phase, we should further seek the deepening of democracy and a more efficient constitutional system, in order to lead Taiwan 's people to face the rigorous challenges of the new century. October 19, 2003 Bush : President Hu and I have had a very constructive dialogue .... Hu : President Bush reiterated his government's position of adhering to the one China policy, the three China-U.S. joint communiques, and his opposition to Taiwan independence. October 31, 2003 The hastening of a new Taiwan constitution will determine whether or not our democracy can come into full bloom. This, strengthened and supplemented by the institutions of direct democracy, such as referendums, will be a necessary step in advancing Taiwan 's human rights and the deepening of its democracy. One must not be misled by the contention that holding referendums or re-engineering our constitutional framework bears any relevance to the "Five Noes" pledge presented in my inaugural speech. Neither should matters concerning Taiwan 's constitutional development be simplistically interpreted as a political debate of unification versus independence. December 1, 2003 We oppose any attempt by either side to unilaterally change the status quo in the Taiwan Strait . We also urge both sides to refrain from actions or statements that increase tensions or make dialogue more difficult to achieve. Therefore, we would be opposed to any referenda that would change Taiwan 's status or move toward independence. The United States has always held, and again reiterates, that cross-strait dialogue is essential to peace and stability in the Taiwan Strait area. President Chen pledged in his inaugural address in the year 2000 not to declare independence, not to change the name of Taiwan 's government, and not to add the "state-to-state" theory to the constitution, and not to promote a referendum to change the status quo on independence or unification. We appreciate President Chen's pledge in 2000, and his subsequent reaffirmations of it, and we take it very seriously. December 9, 2003 Bush [on whether Taiwan's President should cancel the referendum planned for March 20, 2004]: The United States Government's policy is one China , based upon the three communiques and the Taiwan Relations Act. We oppose any unilateral decision by either China or Taiwan to change the status quo. And the comments and actions made by the leader of Taiwan indicate that he may be willing to make decisions unilaterally to change the status quo, which we oppose. Wen: On many occasions, and just now in the meeting as well, President Bush has reiterated the U.S. commitment to the three Sino-U.S. Joint Communiques, the one China principle, and opposition to Taiwan independence. We appreciate that. In particular, we very much appreciate the position adopted by President Bush toward the latest moves and developments in Taiwan —that is, the attempt to resort to referendums of various kinds as an excuse to pursue Taiwan independence. We appreciate the position of the U.S. government. April 21, 2004 The United States does not support independence for Taiwan or unilateral moves that would change the status quo as we define it. For Beijing , this means no use of force or threat to use force against Taiwan . For Taipei , it means exercising prudence in managing all aspects of cross-strait relations. For both sides, it means no statements or actions that would unilaterally alter Taiwan 's status .... The President's message on December 9 of last year during PRC Premier Wen Jiabao's visit reiterated the U.S. Government's opposition to any unilateral moves by either China or Taiwan to change the status quo .... The United States will fulfill its obligations to help Taiwan defend itself, as mandated in the Taiwan Relations Act. At the same time, we have very real concerns that our efforts at deterring Chinese coercion might fail if Beijing ever becomes convinced Taiwan is embarked on a course toward independence and permanent separation from China , and concludes that Taiwan must be stopped in these efforts .... The United States strongly supports Taiwan 's democracy, ... but we do not support Taiwan independence. A unilateral move toward independence will avail Taiwan of nothing it does not already enjoy in terms of democratic freedom, autonomy, prosperity, and security .... While strongly opposing the use of force by the PRC, we must also acknowledge with a sober mind what the PRC leaders have repeatedly conveyed about China 's capabilities and intentions .... It would be irresponsible of us and of Taiwan 's leaders to treat these statements as empty threats .... We encourage the people of Taiwan to regard this threat equally seriously. We look to President Chen to exercise the kind of responsible, democratic, and restrained leadership that will be necessary to ensure a peaceful and prosperous future for Taiwan .... As Taiwan proceeds with efforts to deepen democracy, we will speak clearly and bluntly if we feel as though those efforts carry the potential to adversely impact U.S. security interests or have the potential to undermine Taiwan 's own security. There are limitations with respect to what the United States will support as Taiwan considers possible changes to its constitution .... Our position continues to be embodied in the so-called "Six Assurances" offered to Taiwan by President Reagan. We will neither seek to mediate between the PRC and Taiwan nor will we exert pressure on Taiwan to come to the bargaining table. Of course, the United States is also committed to make available defensive arms and defensive services to Taiwan in order to help Taiwan meet its self-defense needs. We believe a secure and self-confident Taiwan is a Taiwan that is more capable of engaging in political interaction and dialogue with the PRC, and we expect Taiwan will not interpret our support as a blank check to resist such dialogue .... War in the Strait would be a disaster for both sides and set them back decades, and undermine everything they and others in the region have worked so hard to achieve. We continue to urge Beijing and Taipei to pursue dialogue as soon as possible through any available channels, without preconditions .... The United States is committed to make available defensive arms and defensive services to Taiwan in order to help Taiwan meet its self-defense needs .... The PRC has explicitly committed itself publicly and in exchanges with the United States over the last 25 years to a fundamental policy "to strive for a peaceful resolution of the Taiwan question." If the PRC meets its obligations, and its words are matched by a military posture that bolsters and supports peaceful approaches to Taiwan , it follows logically that Taiwan 's defense requirements will change .... May 20, 2004 The constitutional re-engineering project aims to enhance good governance and increase administrative efficiency, to ensure a solid foundation for democratic rule of law, and to foster long-term stability and prosperity of the nation .... By the time I complete my presidency in 2008, I hope to hand the people of Taiwan and to our country a new constitution — one that is timely, relevant, and viable—as my historic responsibility and my commitment to the people. In the same context, I am fully aware that consensus has yet to be reached on issues related to national sovereignty, territory, and the subject of unification/independence; therefore, let me explicitly propose that these particular issues be excluded from the present constitutional re-engineering project. Procedurally, we shall follow the rules set out in the existing Constitution and its amendments .... If both sides are willing, on the basis of goodwill, to create an environment engendered upon "peaceful development and freedom of choice," then in the future, the Republic of China and the People's Republic of China —or Taiwan and China —can seek to establish relations in any form whatsoever. We would not exclude any possibility, so long as there is the consent of the 23 million people of Taiwan .... Today, I would like to reaffirm the promises and principles set forth in my inaugural speech in 2000. Those commitments have been honored. They have not changed over the past four years, nor will they change in the next four years .... October 25, 2004 There is only one China . Taiwan is not independent. It does not enjoy sovereignty as a nation, and that remains our policy, our firm policy. And it is a policy that has allowed Taiwan to develop a very vibrant democratic system, a market economic system, and provided great benefits to the people of Taiwan . And that is why we think it is a policy that should be respected and should remain in force and will remain in force, on the American side, it is our policy that clearly rests on the Three Communiques. To repeat it one more time: we do not support an independence movement in Taiwan . February 19, 2005 [A common strategic objective is] "to encourage the peaceful resolution of issues concerning the Taiwan Strait through dialogue." March 4, 2005 1. Never sway in adhering to the one China principle. 2. Never give up efforts to seek peaceful reunification. 3. Never change the principle of placing hope on the Taiwan people. 4. Never compromise in opposing " Taiwan independence" secessionist activities. March 14, 2005 If the separatist forces of "Taiwan independence" use any name or any means to cause the fact of Taiwan's separation from China, or a major incident occurs that would lead to Taiwan's separation from China, or the possibilities of peaceful unification are completely exhausted, the country may adopt non-peaceful means and other necessary measures to safeguard national sovereignty and territorial integrity . April 29, 2005 Hu Jintao and Lien Chan issued a joint press statement to summarize their agreement on goals: (1) resume cross-strait negotiation on the basis of the "1992 Consensus;" (2) cease hostilities, conclude a peace agreement, and launch military confidence building measures (CBMs); (3) comprehensively expand economic engagement; (4) negotiate Taiwan's international participation including in the WHO; (5) set up party-to-party platform. June 8, 2005 If China were to invade unilaterally, we would rise up in the spirit of the Taiwan Relations Act. If Taiwan were to declare independence unilaterally, it would be a unilateral decision, that would then change the U.S. equation, the U.S. look at what the ... the decision-making process. My attitude is, is that time will heal this issue. And therefore we're trying to make sure that neither side provokes the other through unilateral action. February 27, 2006 The National Unification Council will cease to function. No budget will be earmarked for it, and its personnel must return to their original posts. The National Unification Guidelines will cease to apply. April 20, 2006 Bush: We spent time talking about Taiwan , and I assured the President my position has not changed. I do not support independence for Taiwan . Hu: During the meeting, I stressed the importance of the Taiwan question to Mr. President. Taiwan is an inalienable part of Chinese territory, and we maintain consistently that under the basis of the one China principle, we are committed to safeguard peace and stability in the Taiwan Strait, and to the promotion of the improvement and development of cross-strait relations .... We will by no means allow Taiwan independence. President Bush gave us his understanding of Chinese concerns. He reiterated the American positions and said that he does not hope that the moves taken by the Taiwan authorities to change the status quo will upset the China-U.S. relationship, which I am highly appreciative. October 17, 2006 The United States does not support Taiwan independence. We oppose unilateral changes to the status quo by either side. February 9, 2007 We do not support administrative steps by the Taiwan authorities that would appear to change Taiwan 's status unilaterally or move toward independence. The United States does not, for instance, support changes in terminology for entities administered by the Taiwan authorities. President Chen's fulfillment of his commitments will be a test of leadership, dependability, and statesmanship, as well as ability to protect Taiwan 's interests, its relations with others, and to maintain peace and stability in the Strait. June 19, 2007 The United States opposes any initiative that appears designed to change Taiwan 's status unilaterally. This would include a referendum on whether to apply to the United Nations under the name Taiwan . While such a referendum would have no practical impact on Taiwan 's U.N. status, it would increase tensions in the Taiwan Strait . Maintenance of peace and stability across the Taiwan Strait is of vital interest to the people of Taiwan and serves U.S. security interests as well. Moreover, such a move would appear to run counter to President Chen's repeated commitments to President Bush and the international community. We urge President Chen to exercise leadership by rejecting such a proposed referendum. September 21, 2007 The United States supports Taiwan 's meaningful participation in international organizations whenever appropriate. Such involvement is in the interest of the 23 million people of Taiwan and the international community, and we urge all UN members to set aside preconditions and work creatively toward this goal. Consistent with our long-standing One China policy, the United States does not support Taiwan 's membership in international organizations where statehood is a requirement, so it cannot support measures designed to advance that goal. We believe that efforts to urge UN membership for Taiwan will detract from our goal of advancing Taiwan 's involvement in international society. May 20, 2008 I sincerely hope that the two sides of the Taiwan Strait can seize this historic opportunity to achieve peace and co-prosperity. Under the principle of "no unification, no independence, and no use of force," as Taiwan 's mainstream public opinion holds it, and under the framework of the ROC Constitution, we will maintain the status quo in the Taiwan Strait . In 1992, the two sides reached a consensus on "one China , respective interpretations." Many rounds of negotiation were then completed, spurring the development of cross-strait relations. I want to reiterate that, based on the "1992 Consensus," negotiations should resume at the earliest time possible.… We will also enter consultatons with mainland China over Taiwan 's international space and a possible cross-strait peace accord.… In resolving cross-strait issues, what matters is not sovereignty but core values and way of life. December 31, 2008 Hu Jintao made six proposals: (1) Abide by the "one China" principle and enhance political mutual trust; (2) advance economic cooperation and common development; (3) promote Chinese culture and strengthen the spiritual bond; (4) strengthen people-to-people exchanges, with the DPP putting an end to "Taiwan independence" separatist activities; (5) safeguard national sovereignty and consult on foreign affairs, including Taiwan's participation in the activities of international organizations; (6) end the state of hostility and reach a peace agreement, including exploring the establishment of a mechanism of mutual trust for military security. November 17, 2009 We also applauded the steps that the People's Republic of China and Taiwan have already taken to relax tensions and build ties across the Taiwan Strait . Our own policy, based on the three U.S.-China communiqués and the Taiwan Relations Act, supports the further deve lopment of these ties— ties that are in the interest of both sides as well as the broader region and the United States. November 17, 2009 The United States and China underscored the importance of the Taiwan issue in U.S.-China relations. China emphasized that the Taiwan issue concerns China's sovereignty and territorial integrity, and expressed the hope that the United States will honor its relevant commitments and appreciate and support the Chinese's side position on this issue. The United States stated that it follows its One China policy and abides by the principles of the three U.S.-China Joint Communiques. The United States welcomes the peaceful development of relations across the Taiwan Strait and looks forward to efforts by both sides to increase dialogues and interactions in economic, political, and other fields, and develop more positive and stable cross-s trait relations. April 30, 2010 We will continue to reduce the risks so that we will purchase arms from the United States , but we will never ask the Americans to fight for Taiwan . January 19, 2011 Both sides underscored the importance of the Taiwan issue in U.S.-China relations . The Chinese side emphasized that the Taiwan issue concerns China 's sovereignty and territorial integrity, and expressed the hope that the U.S. side will honor its relevant commitments and appreciate and support the Chinese side's position on this issue. The U.S. side stated that the United States follows its one China policy and abides by the principles of the three U.S.-China Joint Communiqués . The United States applauded the Economic Cooperation Framework Agreement between the two sides of the Taiwan Strait and welcomed the new lines of communications developing between them. The United States supports the peaceful development of relations across the Taiwan Strait and looks forward to efforts by both sides to increase dialogues and interactions in economic, political, and other fields, and to develop more positive and stable cross-Strait relations. May 20, 2012 According to our Constitution, the sovereign territory of the Republic of China includes Taiwan and the mainland . At present, the ROC government has authority to govern only in Taiwan, P enghu, Kinmen, and Matsu . In other words, over the past two decades, the two sides of the Taiwan Strait have been defined as " one Republic of China, two areas. " May 24, 2012 [The principle of the "1992 Consensus; One China, Respective Interpretations"] is based on the concept of "mutual non-recognition of sovereignty and mutual non-denial of governing authority." This concept is inspired by the German experience. The relationship between East Germany and West Germany was primarily based on the Basic Treaty of 1972 . Both sides used "supreme power" instead of " sovereignty " and distinguished between " sovereignty " and " governing authority." June 13, 2013 Laws and institutions on both sides of the Strait support the one China principle and use the one China framework to determine that the relationship between the two sides is n ot state-to-state . September 26, 2014 On major issues involving the nation's reunification and the Chinese nation's long-term development, our position is clear-cut and firm, and there will be no compromise and wavering. Since 1949, although the two sides of the Strait have not been reunited, the fact that the mainland and Taiwan belong to one China has never been changed, nor will it change. The return to unity between the two sides means the end of political confrontation, not a recreation of territory and of sovereignty. "Peaceful reunification and one country, two systems" is our basic principle to resolve the Taiwan issue. | Despite broadly consistent statements, the U.S. "one China" policy concerning Taiwan remains somewhat ambiguous and subject to different interpretations. Apart from questions about what the policy entails, issues have arisen about whether U.S. Presidents have stated clear positions and have changed or should change policy, affecting U.S. interests in security and democracy. This CRS Report, updated through the 113th Congress, analyzes the "one China" policy since U.S. Presidents began in 1971 to reach understandings with the People's Republic of China (PRC). Taiwan calls itself the Republic of China (ROC) and does not recognize the PRC. There are three sets of issues: sovereignty over Taiwan; PRC use of force or coercion against Taiwan; and cross-strait dialogue. The United States recognized the ROC until the end of 1978 and has maintained non-diplomatic engagement with Taiwan after recognition of the PRC in 1979. The State Department claims an "unofficial" relationship with Taiwan. The United States did not explicitly state Taiwan's status in the U.S.-PRC Joint Communiques of 1972, 1979, and 1982. The United States "acknowledged" the "one China" position of both sides of the Taiwan Strait. Since 1971, U.S. Presidents—both secretly and publicly—have articulated a "one China" policy in understandings with the PRC. Congressional oversight has watched for any new agreements and any shift in the U.S. stance closer to that of Beijing's "one China" principle—on questions of sovereignty, arms sales, or dialogue. Not recognizing the PRC's claim over Taiwan or Taiwan as a sovereign state, U.S. policy has considered Taiwan's status as unsettled. With added conditions, U.S. policy leaves the Taiwan question to be resolved by the people on both sides of the strait: a "peaceful resolution" with the assent of Taiwan's people and without unilateral changes. In short, U.S. policy focuses on the process of resolution of the Taiwan question, not any set outcome. The Taiwan Relations Act (TRA) of 1979, P.L. 96-8, has governed U.S. policy in the absence of a diplomatic relationship or a defense treaty. The TRA stipulates the expectation that the future of Taiwan "will be determined" by peaceful means. The TRA specifies that it is U.S. policy, among the stipulations: to consider any non-peaceful means to determine Taiwan's future "a threat" to the peace and security of the Western Pacific and of "grave concern" to the United States; "to provide Taiwan with arms of a defensive character;" and "to maintain the capacity of the United States to resist any resort to force or other forms of coercion" jeopardizing the security, or social or economic system of Taiwan's people. The TRA provides a congressional role in determining security assistance "necessary to enable Taiwan to maintain a sufficient self-defense capability." President Reagan also offered "Six Assurances" to Taipei in 1982, partly to continue arms sales. Policy makers have continued to face unresolved issues, while the political and strategic context of the policy has changed dramatically since the 1970s. Since the early 1990s, U.S. interests in the military balance as well as Taiwan's security and democracy have been challenged by the PRC's military buildup (particularly in missiles) and potential coercion, moves perceived by Beijing for Taiwan's de jure independence under the Democratic Progressive Party's (DPP's) president (2000-2008), and resistance in Taiwan by the Kuomintang (KMT) party to investing in self-defense. After the KMT's Ma Ying-jeou became President in May 2008, Taipei and Beijing reduced tension and resumed talks—beyond seeking detente. With President Obama since 2009, a rhetorical convergence emerged about "peaceful development" of cross-strait ties. However, disagreements remain about the PRC's goal of political talks for unification, Taiwan's status, Taiwan's self-defense, and U.S. arms sales and other cooperation with Taiwan. On September 23, 2014, 29 Members of the House sent a letter to Secretary of State John Kerry, calling for a new Taiwan Policy Review (after 20 years) to examine expanded engagement with Taiwan. |
The Financial Services and General Government (FSGG) appropriations bill includes funding for more than two dozen independent agencies primarily in Title V. These agencies perform a wide range of functions, including the management of federal real property, the regulation of financial institutions and markets, and mail delivery. This report focuses on funding for those independent agencies in Title V of the FSGG appropriations bill. It also addresses general provisions that apply government-wide, which appear in Title VII, and provisions on Cuba sanctions, which appear in Title I. In addition, the FSGG bill funds the Department of the Treasury (Title I), the Executive Office of the President (EOP; Title II), the judiciary (Title III), and the District of Columbia (Title IV). It typically funds mandatory retirement accounts in Title VI, which also contains general provisions applying to the FSGG agencies. The FSGG bills also occasionally address other issues, particularly those involving financial regulation, in additional titles. Although financial services are a major focus of the bills, FSGG appropriations bills do not fund many financial regulatory agencies, which are instead funded outside of the appropriations process. The FSGG bill has existed in its current form since the 2007 reorganization of the House and Senate Committees on Appropriations. The House and Senate FSGG bills fund the same agencies, with one exception. The Commodity Futures Trading Commission (CFTC) is funded through the Agriculture appropriations bill in the House and the FSGG bill in the Senate. In this report, the CFTC funding is generally included in the combined totals of funding for FSGG independent agencies. On May 23, 2017, President Trump submitted his FY2018 budget request, with a total of approximately $3.1 billion for the independent agencies funded through the FSGG appropriations bill, including $330 million for the CFTC. On July 18, 2017, the House Committee on Appropriations reported the Financial Services and General Government Appropriations Act, 2018 ( H.R. 3280 , H.Rept. 115-234 ). FY2018 funding for the FSGG independent agencies in the reported bill would have been $253 million, with another $248 million for the CFTC included in the Agriculture appropriations bill ( H.R. 3268 , H.Rept. 115-232 ). The combined total of $501 million would have been about $2.6 billion below the President's FY2018 request with most of this difference in the funding for the General Services Administration (GSA). The text of nearly all of H.R. 3280 was included as Division D of H.R. 3354 when it was considered by the House of Representatives beginning on September 6, 2017. The bill was amended numerous times, with the FSGG independent agencies totaling $488 million after the amendments. Most of the independent agency funding changes on the floor were decreases in GSA funding and increases in the Small Business Administration (SBA) funding. H.R. 3354 passed the House on September 14, 2017. The Senate Committee on Appropriations released an FY2018 chairmen's recommended FSGG draft bill along with an explanatory statement on November 20, 2017. Funding in the recommended bill totaled $593 million for the FSGG independent agencies, about $2.5 billion below the President's FY2018 request with most of this difference in funding for the GSA. With the end of FY2017 approaching and no permanent FY2018 appropriations bills enacted, Congress passed, and the President signed, H.R. 601 / P.L. 115-56 . Division D of this act provided for continuing appropriations through December 8, 2017, generally termed a continuing resolution (CR). P.L. 115-56 provided funding for most FSGG agencies based on the FY2017 funding rate. In addition, the CR contained a number of deviations or "anomalies" from the general formula. The FSGG anomalies focused on decreasing funding related to the presidential transition, which had been increased in FY2017. Four additional CRs were enacted—on December 8, 2017 ( P.L. 115-90 ), December 22, 2017 ( P.L. 115-96 ), January 22, 2018 ( P.L. 115-120 ), and February 9, 2018 ( P.L. 115-123 ). P.L. 115-123 also included an additional $127 million for the GSA and $1.66 billion for the SBA, largely to address disaster costs from hurricanes in 2017. The Consolidated Appropriations Act, 2018 ( H.R. 1625 / P.L. 115-141 ) was enacted on March 23, 2018. The bill, originally focused on eradication of human trafficking and amended with the appropriations measure, passed in the House on March 22, 2018, and passed in the Senate on March 23, 2018. The Congressional Record for March 22, 2018, included an Explanatory Statement which is to have the same effect as a joint explanatory statement of a conference committee. FSGG appropriations are included in Division E, with the CFTC funded in the Agriculture appropriations in Division A. Additional legislative language affecting financial regulation is in Division S, Titles VIII and IX. FY2018 enacted appropriations in both P.L. 115-141 and P.L. 115-123 totaled $4.7 billion for the FSGG agencies, $1.6 billion above the original request, with much of this difference resulting from the emergency funding for the SBA. The GSA, the Federal Communications Commission (FCC), and the Election Assistance Commission (EAC) also had substantial funding differences between requested and enacted amounts. Most of the EAC funding was for grants to states for the election reform program. Table 1 shows the status of FSGG appropriations measures at key points in the appropriations process. Table 2 lists the broad amounts requested by the President and included in the various FSGG bills, largely by title. Specific columns in Table 2 are FSGG agencies' enacted amounts for FY2017, the President's FY2018 request, the FY2018 amounts from H.R. 3354 as passed by the House, the FY2018 amounts from the Senate Appropriations chairmen's draft bill, and the enacted amounts combined from P.L. 115-141 and P.L. 115-123 . The FSGG appropriations bill provides funding for more than two dozen independent agencies, performing a wide range of functions. Table 3 details FSGG agencies' enacted amounts for FY2017, the President's FY2018 request, the FY2018 amounts from H.R. 3354 as passed by the House, the FY2018 amounts from the Senate Appropriations chairmen's draft bill, and the enacted amounts combined from P.L. 115-141 and P.L. 115-123 . The Commodity Futures Trading Commission is the independent regulatory agency charged with oversight of derivatives markets. The CFTC's functions include oversight of trading on the futures exchanges, oversight of the swaps markets, registration and supervision of futures industry personnel, self-regulatory organizations and major participants in the swaps markets, prevention of fraud and price manipulation, and investor protection. Although most futures trading is now related to financial variables, such as interest rates, currency prices, and stock indexes, congressional authorization jurisdiction remains vested in the House and Senate Agriculture Committees because of the market's historical origins as an adjunct to agricultural markets. Appropriations for the CFTC are under the jurisdiction of the Agriculture Appropriations Subcommittee in the House and the Financial Services and General Government Appropriations Subcommittee in the Senate. Following the financial crisis of 2008, concerns over the largely unregulated nature of the over-the-counter swaps markets led to various reforms passed in Title VII of the Dodd-Frank Wall Street and Consumer Protection Act. This act brought the bulk of the previously unregulated over-the-counter swaps markets under CFTC jurisdiction, as well as the previously regulated futures and options markets. Passage of the Dodd-Frank Act resulted in the CFTC's oversight of the economically significant swaps markets with an estimated notional value of roughly $240 trillion in the United States. This newly regulated market comes on top of the CFTC's prior jurisdiction over the futures and options markets, with an estimated $34 trillion notional value in the United States. The President requested $250 million for the CFTC in FY2018, the same as appropriated in FY2017. H.R. 3354 as passed by the House included $248 million, and the Senate draft bill would have appropriated $250 million. P.L. 115-141 appropriated $249 million for the CFTC. The Consumer Product Safety Commission (CPSC) is a federal regulatory agency whose mission is to reduce consumers' risk of harm from the use of a wide array of products. In carrying out its statutory responsibilities, the commission creates mandatory safety standards; works with industries to develop voluntary safety standards; bans products it deems unsafe when other options are not feasible; monitors the recall of defective products; informs and educates consumers about product hazards; conducts research on and develops testing methods for product safety; collects and publishes for public use a host of data on injuries and product hazards; and collaborates with state and local governments to establish uniform domestic product regulations. The Trump Administration requested $123 million in appropriations for the commission in FY2018, $3 million less than the amount appropriated for FY2017. The reduction reflected two proposed adjustments to the enacted FY2017 budget: (1) $1.3 million less in funding in FY2018 for the Virginia Graeme Baker Pool and Spa Safety Act's (VGBPSA's) grant program, and (2) $1.7 million less in salaries and expenses from an anticipated loss of 22 full-time employees in FY2018, relative to the CPSC's full-time workforce in FY2017. The CPSC's budget request would have been allocated among four strategic goals: $5.5 million to develop and maintain an "effective" workforce; $78.1 million to prevent the use of unsafe products by consumers; $31.3 million to respond to emerging product hazards by conducing field research on potential hazards among consumer products and coordinating recall efforts; and $8.1 million to communicate with consumers, companies, and other interested parties about consumer product safety matters. H.R. 3354 as passed by the House included the requested $123 million for the CPSC in FY2018. Contrary to the Administration's wishes, $1.3 million of that amount was designated for new VGBPSA grants. The House Appropriations Committee's report on the bill noted that the committee "expects" the CPSC to maintain the FY2017 level of grant funding ($1.3 million) in FY2018. The committee also admonished the commission not to adopt two proposed rules, one dealing with voluntary recalls that would affect small firms and the other with the public disclosure of information about product hazards. Two administrative provisions concerning the CPSC were included in the bill. Section 501 would have barred the commission from using appropriated funds to "finalize, implement, or enforce" a proposed rule on the safety of recreational off-highway vehicles until the National Academy of Sciences has completed a study on the matter. Section 502 would have prohibited the use of funds for "finalizing any rule" related to injuries from the use of blade saws. The Senate draft bill would have appropriated $123 million for the CPSC. P.L. 115-141 appropriated $126 million for the CPSC and included Section 501 but not Section 502. The Election Assistance Commission (EAC) was established under the Help America Vote Act of 2002 (HAVA). The commission provides grant funding to states to meet HAVA requirements and for election reform programs; provides for testing and certifying voting machines; publishes studies of election issues; and promulgates voluntary guidelines for voting systems standards with respect to HAVA's requirements. Although the commission was not given new rulemaking authority under HAVA, the law transferred responsibilities for the National Voter Registration Act (NVRA), including rulemaking authority, from the Federal Election Commission (FEC) to the EAC. The Department of Justice has enforcement responsibility under HAVA. The President's budget request for FY2018 included $9.2 million for the EAC, $400,000 less than appropriated in FY2017. Of this request, $1.5 million would be transferred to the National Institute of Standards and Technology (NIST) to support work on testing guidelines for voting system hardware and software. H.R. 3354 as passed by the House included $7 million for the EAC, with $1.5 million transferred to NIST for election reform activities. The Senate draft bill would have provided $9.2 million for the EAC. P.L. 115-141 appropriated $10.1 million directly for the EAC, with $1.5 million to be transferred to NIST. In addition, $380 million was appropriated "to make payments to States for activities to improve the administration of elections for Federal office." The Federal Communications Commission (FCC) is an independent federal agency with its five members appointed by the President, subject to confirmation by the Senate. It was established by the Communications Act of 1934 and is charged with regulating interstate and international communications by radio, television, wire, satellite, and cable. Since 2009, the FCC's entire budget is derived from regulatory fees collected by the agency rather than through a direct appropriation. The fees, often referred to as "Section (9) fees," are collected from license holders and certain other entities (e.g., cable television systems) and deposited into an FCC account. The law gives the FCC authority to review the regulatory fees and to adjust the fees to reflect changes in its appropriation from year to year. For FY2018, the FCC requested a budget of $322 million, all to be derived from regulatory fees, approximately $34.5 million less than enacted for FY2017. H.R. 3354 as passed by the House included $322 million as requested, with a cap of $111.15 million for the administration of spectrum auctions. The Senate draft bill would also have appropriated $322 million. P.L. 115-141 appropriated $322 million to be derived from regulatory fees for the FCC. Section 511 also included $600 million for the TV broadcaster relocation fund. The Federal Deposit Insurance Corporation (FDIC) in general is funded through deposit insurance funds outside of the appropriations process. The FDIC's Office of the Inspector General (OIG), whose mission is to audit, investigate, and review the FDIC's operations and programs, is also funded from deposit insurance funds, but the amount is directly appropriated (through a transfer) to ensure the independence of the OIG. The President's request included approximately $39.1 million for the FDIC OIG in FY2018, approximately $3.2 million more than the enacted FY2017 amount. H.R. 3354 as passed by the House included the requested $39.1 million for the FDIC OIG, as did the Senate draft bill. P.L. 115-141 appropriated $39.1 million for the FDIC OIG. The FEC is an independent agency that administers, and enforces civil compliance with, the Federal Election Campaign Act (FECA) and campaign finance regulations. The agency does so through educational outreach, rulemaking, enforcement and litigation, and by issuing advisory opinions. The FEC also administers the presidential public financing system. In recent years, FEC appropriations have generally been noncontroversial and subject to limited debate in committee or on the House and Senate floors. For FY2018, the agency requested $71.25 million, approximately $7.9 million less than the FY2017-enacted amount. H.R. 3354 as passed by the House included the requested $71.25 million, as would the Senate draft bill. Congress appropriated the additional $7.9 million in FY2017 in anticipation of the FEC's expiring lease for office space at 999 E Street NW. In FY2018, the agency is scheduled to move to 1050 First Street NE. As in previous years, approximately 90% of the agency's budget is expected to fund salaries and benefits, information technology (IT), and facilities expenses. As in previous years, other sections of the FSGG legislation contained provisions related to campaign finance policy: Section 629 of the House-passed version would prohibit the Securities and Exchange Commission (SEC) from issuing rules "regarding disclosure of political contributions" or payments for trade-association dues. Section 630 of the House-passed version would prohibit spending appropriated funds to enforce a FECA provision known as the "prior approval" rule. This provision limits the number of trade associations that may solicit member-companies' employees. Section 734 of the House-passed version would prohibit reporting certain political contributions or expenditures as a condition of the government-contracting process. P.L. 115-141 appropriated $71.25 million for the FEC; Section 629 of the House-passed version was included as Section 631 in the enacted law and Section 734 was included as Section 735. For more information on the FEC and campaign finance issues, see CRS Report R41542, The State of Campaign Finance Policy: Recent Developments and Issues for Congress , by [author name scrubbed]. The Federal Trade Commission (FTC) has two primary responsibilities: (1) to protect consumers from deceptive or illegal business practices and (2) to maintain or enhance competition in a broad range of industries. It carries them out by enforcing laws prohibiting anticompetitive, deceptive, or unfair business practices; issuing new and revised regulations; and educating consumers and business owners to foster informed consumer choices, improved compliance with the law, and vigorous competition in free and open markets. Operating funds for the agency come from three sources, listed in descending order of importance: (1) direct appropriations, (2) premerger filing fees under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976, and (3) Do-Not-Call (DNC) Registry fees. In FY2017, of the FTC's enacted budget of $313.0 million, direct appropriations accounted for 53.3%, HSR filing fees for 41.8%, and DNC registry fees for 5.0%. Under the President's FY2018 request, the FTC would have received $178.6 million in direct appropriations, $112.7 million in HSR filing fees, and $15 million in DNC registry fees. The FTC's FY2018 budget would have totaled $306.3 million or $6.7 million less than the FY2017 enacted amount. The budget request included a cut of $5 million in salaries and expenses to account for a projected decrease in full-time staff. H.R. 3354 as passed by the House would have appropriated the same total amount that the Administration requested for the FTC in FY2018, consisting of $164.3 million in direct appropriations, $126 million from HSR filing fees, and $16 million from DNC registry fees. In its report on the bill, the House Appropriations Committee directed the FTC to submit a report on its approach to enforcing the laws safeguarding the privacy of consumer information collected by internet service providers and online services and its future plans for this enforcement activity. The House committee also ordered the agency to submit a report to both appropriations committees and several other congressional committees on the consumer benefits of credit education and improvement services, and the extent to which the Credit Repair Organizations Act "impedes the research, development, and provision of new credit education products, services, and technology." The Senate draft bill would have appropriated $306.3 million for the FTC, with $164.3 million in direct appropriations, $126 million from HSR filing fees, and $16 million from DNC registry fees. P.L. 115-141 appropriated $306.3 million for the FTC, with $164.3 million in direct appropriations, $126 million from HSR filing fees, and $16 million from DNC registry fees. The General Services Administration (GSA) administers federal civilian procurement policies pertaining to the construction and management of federal buildings, disposal of real and personal property, and management of federal property and records. It is also responsible for managing the funding and facilities for former Presidents and presidential transitions. GSA's real property activities are funded through the Federal Buildings Fund (FBF). The FBF is a revolving fund, into which rental payments are deposited from federal agencies that lease GSA space. The fund's revenue is then made available by Congress each year to pay for specific activities: construction or purchase of new space, repairs and alterations to existing space, rental payments for space that GSA leases, installment payments, and other building operations expenses. These amounts are referred to as limitations because GSA may not obligate FBF funds in excess of that permitted by Congress, regardless of how much revenue is available for obligation. Certain debts may also be paid for with FBF funds. A negative total for the FBF occurs when the amount of funds made available for expenditure in a fiscal year is less than the amount of new revenue expected to be deposited. A negative total does not mean that no funds are available from the FBF, only that there is a net gain to the fund under the proposed spending levels. GSA's operating accounts are funded through direct appropriations, separate from the FBF. GSA's total funding amount is calculated by adding the net FBF appropriations made available and appropriations provided to the operating accounts. Table 4 details GSA's enacted amounts for FY2017, the President's FY2018 request, the FY2018 amounts from H.R. 3354 as passed by the House, the FY2018 amounts from the Senate Appropriations chairmen's draft bill, and the enacted amounts combined from P.L. 115-141 and P.L. 115-123 . As shown in Table 4 , the President proposed a limit of $9.951 billion from the FBF's available revenue for GSA's real property activities for FY2018, an increase of $1.106 billion above the amount provided in FY2017. The House-passed bill included a limit of $7.842 billion, which would have been a decrease of $1.003 billion from FY2017-enacted appropriations and $2.109 billion less than the President's request for FY2018. The Senate draft bill would have provided a limit of $7.809 billion, which would have been $1.036 billion less than the FY2017 enacted amount and $2.142 billion less than the President requested. P.L. 115-141 provided a limit of $9.074 billion, an increase of $229 million above the amount provided for FY2017 and $877 million less than the President requested. The President also requested $511 million for GSA's operating accounts, an increase of $257 million above the FY2017-enacted level. The President's request included $40 million for the newly created Asset Proceeds and Space Management Fund (APSMF). Appropriations in the APSMF are to be used to carry out actions pursuant to the recommendations of the Public Buildings Reform Board, which was established by the Federal Assets Sale and Transfer Act of 2016 (FAST Act). The President's request also included $10 million for another new account, the Environmental Review Improvement Fund. Appropriations in this account would fund activities related to reforming the environmental review process and the work of the Federal Permitting Improvement Steering Council. The council would address issues surrounding modernization of federal permitting for major infrastructure projects and help implement the FAST Act. Finally, the President requested $228 million for a new Technology Modernization Fund to support improvements in agency information technology systems. The House-passed bill would have appropriated $240 million for GSA's operating accounts, $14 million less than the FY2017-enacted amounts and $271 million less than the President requested. The Senate draft bill would have provided $234 million for GSA's operating accounts, which would have been $20 million less than the FY2017-enacted amounts and $277 million less than the President requested. P.L. 115-141 provided $335 million for GSA's operating accounts, which was $81 million more than provided for FY2017 and $176 million less than the President requested. In addition to the regular FY2018 appropriations in P.L. 115-114 , P.L. 115-123 included an additional $127 million in emergency supplemental GSA appropriations in response to recent disasters. The FSGG appropriations bill includes funding for four agencies with personnel management functions: the Federal Labor Relations Authority (FLRA), the Merit Systems Protection Board (MSPB), the Office of Personnel Management (OPM), and the Office of Special Counsel (OSC). Table 5 lists the enacted amounts for FY2017, the President's FY2018 request, the FY2018 amounts from H.R. 3354 as passed by the House, the FY2018 amounts from the Senate Appropriations chairmen's draft bill, and the enacted amounts from P.L. 115-141 . The FLRA is an independent federal agency that administers and enforces Title VII of the Civil Service Reform Act of 1978. Title VII is called the Federal Service Labor-Management Relations Statute (FSLMRS). The FSLMRS gives federal employees the right to join or form a union and to bargain collectively over the terms and conditions of employment. Employees also have the right not to join a union that represents employees in their bargaining unit. The statute excludes specific agencies and gives the President the authority to exclude other agencies for reasons of national security. Agencies that are specifically excluded by law are the Federal Bureau of Investigation (FBI), Central Intelligence Agency (CIA), Government Accountability Office (GAO), National Security Agency (NSA), Tennessee Valley Authority (TVA), FLRA, Federal Service Impasses Panel (FSIP), and U.S. Secret Service. The FLRA is composed of a three-member authority, the Office of General Counsel, and the FSIP. The three members of the authority and the General Counsel are appointed to five-year terms by the President with the advice and consent of the Senate. The members of the FSIP are appointed by the President. The authority resolves disputes over the composition of bargaining units, charges of unfair labor practices, objections to representation elections, and other matters. The General Counsel's office conducts representation elections, investigates charges of unfair labor practices, and manages the FLRA's regional offices. The FSIP resolves labor negotiation impasses between federal agencies and labor organizations. For FY2018, the President requested appropriations of $26.2 million for the FLRA. This amount would fund 121 full-time equivalents (FTEs), 8 FTEs less than the FY2017 estimated level of 129 FTEs. H.R. 3354 as passed by the House included, and the Senate draft bill would have provided, $26.2 million as the President requested. P.L. 115-141 appropriated $26.2 million. The MSPB is an independent, quasijudicial agency established to protect the civil service merit system. The MSPB adjudicates appeals primarily involving personnel actions, certain federal employee complaints, and retirement benefits issues. The President's budget requested FY2018 appropriations of $46.8 million (including $44.5 million for salaries and expenses) for the MSPB. This amount would fund 235 FTEs, the same as the FY2017-enacted level. The justification that accompanied the MSPB budget submission explained that the request would "fund the anticipated FY2018 pay raise" and continue the agency's "efforts to develop and maintain a planned hosted data center migration and e-Adjudication projects addressing [MSPB's information technology] IT infrastructure needs." H.R. 3354 as passed by the House included, and the Senate draft bill would have provided, the $46.8 million as the President requested. P.L. 115-141 appropriated $46.8 million. OPM is responsible for personnel management of the civil service of the federal government. The President's budget requested FY2018 appropriations of $148.3 million for OPM salaries and expenses. This amount included funding of $37 million to remain available until expended for information technology (IT) infrastructure modernization and Trust Fund Federal Financial System migration or modernization. It also included $584,000 to strengthen the capacity and capabilities of the acquisition workforce, including the recruitment, hiring, training, and retention of the acquisition workforce, and to modernize IT in support of acquisition workforce effectiveness or management. The budget also requested appropriations of $131.4 million for trust fund transfers, $5 million for OIG salaries and expenses, and up to $25 million for OIG trust fund transfers for FY2018. OPM requested an FTE employment level of 6,376 for FY2018, an increase of 500 FTEs above the FY2017-enacted level of 5,876 FTEs. The agency's budget submission stated that the request "will enable OPM to continue to address critical information technology (IT) infrastructure and investments necessary to maintain its security posture and respond to changing business needs and Federal mandates." In addition, the budget will allow the OIG to "continue its oversight of agency programs and operations by conducting audits, investigations, and evaluations and inspections of OPM programs, including the FEHBP [Federal Employees' Health Benefits Program] and retirement trust fund programs, OPM revolving fund programs, oversight of the OPM financial statement, and other program areas" and "will continue to advance its prescription drug audit program [and the] FEHBP claims data warehouse initiative." The OIG will also "provide oversight through all phases" of the agency's IT infrastructure project, which includes "a data center consolidation and potential mainframe migrations." H.R. 3354 as passed by the House included, and the Senate draft bill would have provided, appropriations of $129.3 million for OPM salaries and expenses, $131.4 million for trust fund transfers, $5 million for OIG salaries and expenses, and up to $25 million for OIG trust fund transfers. P.L. 115-141 appropriated these amounts. The OPM salaries and expenses amount is $19 million less than the President's request. The other amounts are the same as that request. H.R. 3354 as passed by the House would have required the Comptroller General to submit a report to the House and Senate Appropriations Committees within six months after the act's enactment that would evaluate OPM's (1) steps taken to prevent, mitigate, and respond to data breaches involving sensitive personnel records and information; (2) cybersecurity policies and procedures in place on this act's enactment date, including policies and procedures relating to IT best practices for data encryption, multifactor authentication, and continuous monitoring; (3) oversight of contractors providing IT services; and (4) compliance with government-wide initiatives to improve cybersecurity; and set forth improvements that could be made to assist OPM in addressing cybersecurity challenges. The report that accompanied H.R. 3280 included several directives to OPM as follows: Federal retirement process modernization —The House committee directed OPM to "continue to make retirement processing a priority and move to a fully-automated electronic filing system," and also directed OPM to continue to provide monthly reports to the House and Senate Appropriations Committees on progress in addressing backlogs. Information technology —The House committee directed OPM to "continue to take steps to secure the personally identifiable information and material relating to security clearances" and to continue upgrades to IT security. Security Clearance Investigations —The House committee directed OPM to "continue to make security clearance processing a priority and to make necessary administrative or regulatory reforms to expedite investigations, reviews, and approvals." National Background Investigations Bureau (NBIB) —The House committee directed OPM to provide biannual progress reports to the House and Senate Committees on Appropriations on "the NBIB implementation plan, timeline, and milestones; costs for each phase of implementation and anticipated outyear costs; governance, resource management and accountability policies between OPM and the Department of Defense; and a human capital plan." The OPM OIG must submit a report to the House and Senate Committees on Appropriations, within 12 months after the act's enactment, "assessing the implementation of NBIB; staffing needs and any performance issues; current and future costs; governance and accountability structure among the NBIB, [DOD], OPM IG and Performance Accountability Council; and recommendations and weaknesses found." Critical OPM functions —The House committee reminded OPM to "not lose sight of" fulfilling functions critical to the agency's mission, including recruitment, retention, and development of the federal workforce. Recruitment —The House committee directed OPM to report to the House and Senate Committees on Appropriations by September 30, 2018, "on a plan to reduce barriers to Federal employment, reduce delays in the hiring process, and ... improve the overall federal recruitment and hiring process." Federal agencies are to increase recruitment efforts within the United States and the territories and at Hispanic Serving Institutions and Historically Black Colleges and Universities. The committee encouraged OPM to review the recommendations in a GAO report on hiring authorities and provide "educational outreach" and resources to federal agencies when critical positions are being filled. CyberCorps Scholarship for Service Program —The House committee directed OPM to report to the House and Senate Appropriations Committees, the House Permanent Select Committee on Intelligence, and the Senate Select Committee on Intelligence within 90 days after the act's enactment on OPM actions to improve the hiring of CyberCorps graduates. Acquisition Planning —The House committee directed OPM to report to the House and Senate Appropriations Committees on actions taken to improve acquisition planning, expected results, and impact on the security clearance process. The explanatory statement for the Consolidated Appropriations Act, 2018 included the following directives to OPM: OPM Cybersecurity —In lieu of the House committee report language on the National Bureau of Investigations, GAO is directed to brief the House and Senate Committees on Appropriations within six months after the act's enactment on actions taken by OPM to respond to GAO's recommendations on information security. The explanatory statement expressed the expectation that OPM "take the steps necessary to complete outstanding GAO recommendations to improve its information security." OPM Modernization —OPM is directed to continue providing reports and briefings on the status of modernization efforts and the strategic technology plan when developments and milestones occur and as future plans are determined. Retirement Backlog —OPM is directed to continue providing monthly progress reports to the House and Senate Committees on Appropriations on the retirement claims backlog. Section 619(a) (3), (4), and (5) of H.R. 3354 as passed by the House, the Senate draft bill, and P.L. 115-141 provided the mandatory appropriations for the health benefits, life insurance, and retirement accounts. According to the House Committee on Appropriations report, "These are accounts where authorizing language requires the payment of funds." The House report stated that the Congressional Budget Office (CBO) estimated $13.2 billion for the Government Payment for Annuitants, Employee Health Benefits; $48.0 million for the Government Payment for Annuitants, Employee Life Insurance; and $8.4 billion for Payment to the Civil Service Retirement and Disability Fund. The OSC is an independent federal investigative and prosecutorial agency whose mission is to safeguard the merit system by protecting federal employees and applicants from prohibited personnel practices, especially reprisal for whistleblowing. The President's budget requested FY2018 appropriations of $26.5 million for the OSC. The agency's FTE employment level was estimated to be 144 for FY2018, an increase of 9 FTEs above the FY2017-estimated level of 135 FTEs. For FY2017 and FY2018, the budget submission projected that whistleblower disclosure, Hatch Act, and prohibited personnel practice cases would "follow recent trends and stabilize around 6,000 new cases received each year." The requested funding was said to "enable OSC to meet rising demand for [the agency's] services, protect the growing number of whistleblowers in the VA [Veterans Affairs] and other agencies, protect the employment rights of returning service members, manage continually rising case levels, and protect the Federal merit system from prohibited personnel and political practices." H.R. 3354 as passed by the House included an appropriation of $24.7 million, almost $1.8 million less than the President's request. The Senate draft bill would have provided, and P.L. 115-141 appropriated, the same amount as the President requested. The National Archives and Records Administration (NARA) is an independent agency created to preserve the records of the U.S. government, oversee the recordkeeping in the various government agencies and make government records publicly available. The Administration requested $376 million for NARA for FY2018, over $16 million less than FY2017. H.R. 3354 as passed by the House included $380 million while the Senate draft bill would have appropriated $403 million. P.L. 115-141 appropriated $403.2 million for NARA. The National Credit Union Administration (NCUA) is an independent federal agency funded largely by the credit unions that the agency charters, insures, and regulates. The NCUA manages the Community Development Revolving Loan Fund (CDRLF). Established in 1979, the CDRLF assists officially designated low-income credit unions in providing basic financial services to low-income communities. Low-interest loans and deposits are made available to assist these credit unions. Loans or deposits are normally repaid in five years, although shorter repayment periods may be considered. Technical assistance grants are also available to low-income credit unions. Earnings generated from the CDRLF are available to fund technical assistance grants in addition to funds provided for specifically in appropriations acts. Grants are available for improving operations as well as addressing safety and soundness issues. The President requested no money be appropriated for the CDRLF in FY2018, whereas H.R. 3354 as passed by the House and the Senate draft bill would both have appropriated $2 million, the same amount as in FY2017. P.L. 115-141 appropriated $2 million. The Office of Government Ethics (OGE) is an independent federal agency, established by the Ethics in Government Act of 1978, charged with promulgating rules and regulations pertaining to financial disclosure, conflict of interest, and ethics in the executive branch. OGE is headed by a director who is appointed to a five-year term by the President with Senate confirmation. According to its website, OGE provides education and training to executive branch ethics officials. "OGE does not adjudicate complaints, investigate matters within the jurisdiction of Inspectors General and other authorities, or prosecute ethics violations." For FY2018, the President's request for OGE was $16.4 million, a $349,000 increase over FY2017. H.R. 3354 as passed by the House and the Senate draft bill both included $16.4 million as requested. P.L. 115-141 appropriated $16.4 million for OGE. The Privacy and Civil Liberties Oversight Board (PCLOB) was originally established in 2004 by the Intelligence Reform and Terrorism Prevention Act as an agency within the Executive Office of the President. PCLOB was reconstituted as an independent agency within the executive branch by the Implementing Recommendations of the 9/11 Commission Act of 2007. The five-member board assumed its new status on January 30, 2008; its FY2009 appropriation was its first funding as an independent agency. The board is to (1) ensure that privacy and civil liberties concerns are appropriately considered in the development and implementation of laws, regulations, and executive branch policies related to efforts to protect the nation against terrorism; (2) review the implementation of laws, regulations, and executive branch policies related to efforts to protect the nation from terrorism, including information sharing guidelines; and (3) analyze and review actions the executive branch takes to protect the nation from terrorism, ensuring that the need for such actions is balanced with the need to protect privacy and civil liberties. In addition, the board is to (1) advise the President and the heads of executive branch departments and agencies on issues concerning, and findings pertaining to, privacy and civil liberties; and (2) provide annual reports to Congress detailing its activities during the year, and upon request, board members appear and testify before congressional committees. For FY2018, the President requested $8 million for the PCLOB, compared with $10.1 million appropriated in FY2017. H.R. 3354 as passed by the House and the Senate draft bill both included the requested $8 million. P.L. 115-114 appropriated $8 million for the PCLOB. The Public Company Accounting Oversight Board (PCAOB) was created by the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) as a nonprofit corporation to provide independent oversight of audits of public companies. Amendments in the Dodd-Frank Act provided that the PCAOB is generally funded outside the appropriations process through the annual accounting support fees assessed on public companies and other issuers, as well as brokers and dealers registered with the SEC. Sarbanes-Oxley created a merit scholarship for undergraduate and graduate students enrolled in the accredited accounting degree program that was to be funded by monetary penalties imposed by the PCAOB, notwithstanding other requirements of the act. The scholarship program is administered by an outside vendor under the rules established by the PCAOB. Section 620 of the Senate draft bill would have provided an "amount not exceeding the amount of funds collected by the Board as of December 31, 2017, including accrued interest, as a result of the assessment of monetary penalties" for these scholarships. According to the draft report summary table, this amount would be $1 million. The same amount was provided in FY2017, but no such funding was included in the FY2018 Administration request, nor in H.R. 3354 as passed by the House. P.L. 115-141 included a similar Section 620 specifying that not more than $1 million should be spent on such scholarships. The SEC administers and enforces federal securities laws to protect investors from fraud, ensure that sellers of corporate securities disclose accurate financial information, and maintain fair and orderly trading markets. The SEC's budget is set through the normal appropriations process, but, under the Dodd-Frank Act, the agency's appropriations are offset by fees it collects from securities exchanges on stock sales and certain other securities transactions on those exchanges. The collections go directly to the Treasury Department. To achieve the offset, the act requires the agency to adjust its fees' rates, making the agency's budget deficit-neutral. The President's FY2018 request for the SEC totaled $1.85 billion, compared with the FY2017-enacted level of $1.61 billion, with $245 million in FY2018 for a new headquarters lease. H.R. 3354 as passed by the House included $1.90 billion the SEC for FY2018, while the Senate draft bill included $1.85 billion. In addition to amounts approved in the regular appropriations process, the Dodd-Frank Act also established an SEC reserve fund to enable the agency to plan for certain long-term expenses, potentially freeing up other funds for agency use in areas such as enforcement and regulation. The reserve fund is funded by the agency's traditional collections on registration fees. In any single fiscal year, the SEC may not collect more than $50 million in fees for the reserve fund, and it cannot exceed more than $100 million. Excess collections go to the Treasury Department. In FY2017, $25 million was rescinded from the SEC reserve fund. For FY2018, the President's request would rescind $25 million, whereas H.R. 3354 as passed by the House would have rescinded the entire amount in the fund, $75 million according to the House report. The Senate draft bill would not have rescinded funds from the SEC reserve fund. P.L. 115-141 appropriated $1.90 billion for the SEC, entirely offset by fee collections, with $245 million specifically for the headquarters lease. It did not rescind any monies from the SEC reserve fund. The Selective Service System (SSS) is an independent federal agency operating with permanent authorization under the Military Selective Service Act. It is not part of the Department of Defense, but its mission is to serve the emergency manpower needs of the military by conscripting personnel when directed by Congress and the President. Most males aged 18 through 25 and living in the United States are required to register with the SSS. The induction of men into the military via Selective Service (i.e., the draft) terminated in 1973 and has not been renewed. In January 1980, President Carter asked Congress to authorize standby draft registration of both men and women. Congress approved funds for male-only registration in June 1980. Women are now allowed to serve in combat units and occupations, which may lead to the modification of registration to include women. Funding of the SSS has remained relatively stable over the years in terms of absolute dollars, but has decreased in terms of inflation-adjusted funding. For FY2018, the President requested and H.R. 3354 as passed by the House, the Senate draft bill, and P.L. 115-141 all included $22.9 million, the same amount as FY2017. The Small Business Administration (SBA) administers a number of programs intended to assist small businesses. For example, the SBA (1) guarantees loans made by banks and other financial institutions to small businesses; (2) makes low-interest loans to small businesses, nonprofit organizations, and households that are victims of natural disasters and acts of terrorism; (3) finances training and technical assistance programs for small business owners and prospective owners; and (4) serves as an advocate for small business within the federal government. The President requested an appropriation of $829.1 million for the SBA for FY2018, $57.6 million less than was appropriated in FY2017. The request included $265.0 million for salaries and expenses, $192.5 million for entrepreneurial development and noncredit programs, $152.8 million for business loan administration, $3.4 million for business loan subsidy costs, $19.9 million for the Office of the Inspector General, $9.1 million for the Office of Advocacy, and $186.5 million for disaster assistance. The Administration also requested authorization levels of $29.0 billion for the 7(a) loan guaranty program, $7.5 billion for the 504/CDC loan guaranty program, $4.0 billion for the Small Business Investment Company (SBIC) program, and $12.0 billion for SBA-guaranteed trust certificates for the SBIC program. In addition, the Administration requested a rescission of $2.6 million in the Immediate Disaster Assistance and Expedited Disaster Assistance Loan programs. The House-passed bill would have appropriated $862.8 million for the SBA for FY2018, $33.7 million more than the Administration's request. Of the appropriated amount, $260.0 million would have gone to salaries and expenses and $231.1 million would have gone to entrepreneurial development and noncredit programs. The remaining budget account amounts, authorization levels, and rescission followed the request. In addition, the House-passed bill included a provision to allow Microloan intermediaries to spend up to 50%, instead of up to 25%, of their technical assistance grant funds on prospective borrowers and up to 50%, instead of 25%, of those grant funds on contracts with third parties to provide technical assistance. The Senate Committee on Appropriations' chairmen's recommended FSGG draft bill would have appropriated $886.3 million for the SBA for FY2018, $57.1 million more than the Administration's request. Of the appropriated amount, $269.5 million would have gone to salaries and expenses and $245.1 million would have gone to entrepreneurial development and noncredit programs. The remaining budget account amounts, authorization levels, and rescission followed the request. The chairmen's recommended FSGG draft bill did not include the Microloan technical assistance provisions. The SBA's final appropriation amount for FY2018 in P.L. 115-141 was $700.8 million: $268.5 million for salaries and expenses, $247.1 million for entrepreneurial development and noncredit programs, and no funding for disaster assistance. No disaster assistance funding was deemed necessary for FY2018 because P.L. 115-123 included an additional $1.66 billion for the SBA, largely to address disaster costs from hurricanes in 2017. The SBA was authorized to use up to $618.0 million of that supplemental funding for disaster assistance administrative costs. The remaining budget account amounts, authorization levels, and rescission followed the request. In addition, the House's Microloan provisions were also enacted. The U.S. Postal Service (USPS) generates almost all of its funding—nearly $69 billion annually—by charging mail users for the costs of the services it provides. Congress, however, does provide annual appropriations to compensate USPS for revenue it forgoes in providing free mailing privileges to the blind and overseas voters. Congress authorized appropriations for these purposes in the 1993 Revenue Forgone Reform Act (RFRA). This act also permitted Congress to provide USPS with a $29 million annual reimbursement until 2035 to compensate for lost revenue providing additional below-cost postal services during the RFRA's phase-in period. Funds appropriated to the USPS for the annual reimbursement and revenue forgone are deposited in the Postal Service Fund, which is a revolving fund at the Department of the Treasury that is used to pay the operating expenses of USPS, the U.S. Postal Service Office of Inspector General (USPSOIG), and the Postal Regulatory Commission (PRC). The Postal Accountability and Enhancement Act (PAEA), which was enacted on December 20, 2006, first affected the postal appropriations process in FY2009. Under the PAEA, both the USPSOIG and the PRC must submit their budget requests directly to Congress and to OMB. The law requires that funding for these two agencies must be provided out of the Postal Service Fund. The law further requires that USPSOIG's budget be treated as a component of USPS's budget, whereas the PRC's budget, like the budgets of other independent regulators, is treated separately. Table 6 summarizes the different appropriations for the USPS. In the FY2018 budget submission, the President requested $58.1 million for the Postal Service Fund, which is about $23.4 million more than the USPS's FY2017 appropriation. Pursuant to the statutory requirement that the President submit the USPS's budget request to Congress without change, the FY2018 budget submission also includes USPS's request of $71.3 million for FY2018, which is about $36.7 million more that its FY2017 appropriation. H.R. 3354 as passed by the House would have provided $58.1 million, as would have the Senate draft bill. P.L. 115-141 appropriated $58.1 million. In the FY2018 budget submission, the President requested $234.7 million for the USPSOIG, which is about $19 million less than the USPSOIG's FY2017 appropriation. Pursuant to the statutory requirement that the President submit the USPSOIG's budget request to Congress without change, the FY2018 budget submission also includes USPSOIG's request of $275.2 million for FY2018, which is $21.6 million more that its FY2017 appropriation. The House-passed bill would have provided $234.7 million, while the Senate draft bill would have provided $245 million. P.L. 115-141 appropriated $245 million. The PRC and the President requested $14.4 million for FY2018, which is about $1.8 million less than the PRC's FY2017 appropriation. H.R. 3354 as passed and the Senate draft bill would have provided the PRC with $15.2 million, which is $1 million less than the PRC's FY2017 appropriation and about $800,000 more than its FY2018 request. P.L. 115-141 provided the same $15.2 million. The House-passed bill included several long-standing postal policy provisions. For example, the bill would have required USPS to continue six-day mail delivery; required USPS to continue providing mail for overseas voting and mail for the blind free of charge; prohibited appropriated funds from being used to charge a fee to a child support enforcement agency seeking the address of a postal customer; and prohibited funds from being used to consolidate or close small rural and other small post offices. In addition, the House committee report directed that the Postmaster General submit a report on actions taken and planned by the USPS to increase sales of the Multinational Species semipostal stamp. The President's FY2018 budget request, like the House measure, proposed extending the aforementioned long-standing appropriations policies, except for six-day mail delivery. The Trump Administration proposes implementing several reforms intended to reduce costs and improve revenue, such as (1) reducing mail delivery frequency where there is a business case to do so; (2) shifting to centralized and curbside mail delivery, where appropriate; and (3) adjusting the rate structure to "provide enough flexibility to ensure both the stability of Postal operations and the ability of the Postal Service to meet its statutory obligations for retiree health and pension costs." The Administration also proposed several changes to USPS's liabilities for retirement and retiree health benefits, including modifying the Postal Service's contributions for life and health insurance, and requiring OPM to use postal specific demographics to calculate unfunded liabilities and resulting amortization payments. The President's FY2018 budget stated that these reforms would "reduce the budget deficit by $46 billion over 10 years and result in on-budget savings through higher payments from the Postal Service to on-budget OPM accounts." P.L. 115-141 included the policy provisions from the House-passed bill provisions and the Explanatory Statement endorsed the House report language. P.L. 115-141 did not enact the further reforms in the President's request. A court of record under Article I of the Constitution, the United States Tax Court (USTC) is an independent judicial body that has jurisdiction over various tax matters as set forth in Title 26 of the United States Code . The court is headquartered in Washington, DC, but its judges conduct trials in many cities across the country. The USTC was appropriated $51.2 million in FY2017. The President requested $53.2 million for FY2018, the same amount that was included in the Senate draft bill. H.R. 3354 as passed by the House would have appropriated $51.1 million. P.L. 115-141 appropriated $50.7 million for the USTC in FY2018. The FSGG Appropriations Act includes general provisions applying government-wide. Most of the provisions include language that has appeared under the General Provisions title for several years because Congress has decided to reiterate the language rather than make the provisions permanent. An Administration's proposed government-wide general provisions for a fiscal year are generally included in the Budget Appendix. Among the new provisions proposed but not enacted for FY2018 were the following: If new budget authority provided in FY2018 Appropriations Acts exceeds the discretionary spending limit for any category set forth in Section 251(c) of the Balanced Budget and Emergency Deficit Control Act of 1985 because of estimating differences with CBO, the OMB director will make an adjustment to the FY2018 discretionary spending limit in such category in the amount of the excess. The total of all such adjustments will not exceed 0.2% of the sum of the adjusted FY2018 discretionary spending limits for all categories. (Section 736, FY2018 budget proposal and Section 748 of the Senate draft bill.) An alien who is authorized to be employed in the United States pursuant to the Deferred Action for Childhood Arrivals (DACA) program established under the June 15, 2012, memorandum of the Secretary of Homeland Security would be eligible for federal government employment. (Section 746, H.R. 3280 as reported.) The Treasury Department's Office of Foreign Assets Control (OFAC) administers the main body of Cuba embargo regulations, the Cuban Assets Control Regulations, which were first issued in 1963, and have been amended many times over the years to reflect changes in U.S. policy toward Cuba. As reported, H.R. 3280 had two provisions that would have tightened U.S. economic sanctions on Cuba, but they were not included in P.L. 115-141 . Section 130 would have provided that no funds made available by the act could be used to approve, license, facilitate, authorize, or otherwise allow the use, purchase, trafficking, or import of property confiscated by the Cuban government. The provision appeared to be aimed at prohibiting the importation of rum and tobacco products by authorized U.S. travelers as accompanied baggage. In the 114 th Congress, a similar provision had been included in the House Appropriations Committee version of the FY2017 FSGG appropriations bill, H.R. 5485 (Section 133), but was not included in the FY2017 enacted omnibus appropriations measure. Section 131, which relates to a trademark sanction on Cuba, would have provided that no funds made available by the act could have been used to authorize a general license or approve a specific license with respect to a mark, trade name, or commercial name that is substantially similar to one that was used in connection with a business or assets that were confiscated by the Cuban government unless the original owner expressly consented. The provision, which would have prohibited OFAC from licensing the payment of trademark registration fees, relates to a long-standing dispute between a Cuban company and the Bermuda-based Bacardi Limited over the Havana Club trademark. In January 2016, OFAC issued a specific license for the Cuban company to make payments related to the renewal of the Havana Club trademark, and the U.S. Patent and Trademark Office subsequently renewed the Havana Club trademark until 2026. A similar provision had been included in H.R. 5485 in the 114 th Congress, but was not included in the FY2017 final appropriations measure. | The Financial Services and General Government (FSGG) appropriations bills include funding for more than two dozen independent agencies in addition to the larger entities in the bill (Department of the Treasury, the Executive Office of the President, the District of Columbia, and the judiciary). Among these are Consumer Product Safety Commission (CPSC), Election Assistance Commission (EAC), Federal Communications Commission (FCC), Federal Election Commission (FEC), Federal Labor Relations Authority (FLRA), Federal Trade Commission (FTC), General Services Administration (GSA), National Archives and Records Administration (NARA), Office of Personnel Management (OPM), Privacy and Civil Liberties Oversight Board (PCLOB), Securities and Exchange Commission (SEC), Selective Service System, Small Business Administration (SBA), and United States Postal Service (USPS). The House and Senate FSGG bills include funding for the same agencies, with one exception. Funding for the Commodity Futures Trading Commission (CFTC) is considered in the Agriculture appropriations bill in the House and the FSGG bill in the Senate. President Trump submitted his FY2018 budget request on May 23, 2017. The request totaled approximately $3.1 billion for the independent agencies funded through the FSGG appropriations bill, including $330 million for the CFTC. The House Committee on Appropriations reported the Financial Services and General Government Appropriations Act, 2018 (H.R. 3280, H.Rept. 115-234) on July 18, 2017. Combined total FY2018 funding for the FSGG independent agencies in the reported bill was $253 million, with another $248 million for the CFTC included in the Agriculture appropriations bill (H.R. 3268, H.Rept. 115-232). The resulting total of $501 million would have been about $2.6 billion below the President's FY2018 request, with most of this difference in the funding for the GSA. The text of nearly all of H.R. 3280 was included as Division D of H.R. 3354, an omnibus appropriations bill. The bill was amended numerous times on the floor of the House, shifting funding among FSGG agencies, with the FSGG independent agencies totaling $488 million after the amendments. H.R. 3354 passed the House on September 14, 2017. The Senate Committee on Appropriations did not act on an FY2018 FSGG appropriations bill. A draft FY2018 chairmen's recommended FSGG bill and explanatory statement was released on November 20, 2017. Funding in the draft bill totaled approximately $539 million, $2.5 billion below the President's FY2018 request, with most of this difference in funding for the GSA. No appropriations bills were passed prior to the start of FY2018. Five separate continuing resolutions (CRs) were enacted—on September 8, 2017 (P.L. 115-56), December 8, 2017 (P.L. 115-90), December 22, 2017 (P.L. 115-96), January 22, 2018 (P.L. 115-120), and February 9, 2018 (P.L. 115-123). The CRs generally maintained FSGG funding based on FY2017 levels, with P.L. 115-123 also adding supplemental emergency funding for the GSA ($127 million) and the SBA ($1.66 billion) largely to address natural disasters. The Consolidated Appropriations Act, 2018 (H.R. 1625, P.L. 115-141) was enacted on March 23, 2018. FY2018 enacted appropriations in P.L. 115-141 and P.L. 115-123 combined totaled $4.7 billion for the FSGG agencies, $1.6 billion above the original request, with much of this difference resulting from the emergency funding for the SBA. |
The Alien Tort Statute (ATS) states that "district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States." Codified at 28 U.S.C. § 1350, the ATS is "a jurisdictional provision unlike any other in American law and of a kind apparently unknown to any other legal system in the world." Created as part of the Judiciary Act of 1789, the ATS is an opaque statute initially intended to provide foreign nationals redress for violations of the law of nations. The statute lay dormant until 1980, when it was used by Paraguayan plaintiffs in a case involving the wrongful death of their son in Paraguay, at the hands of a Paraguayan official. This was the first of the ATS "foreign cubed" cases, in which a foreign plaintiff brings a suit against a foreign defendant for torts committed on foreign soil. Soon victims of human rights violations used the ATS as a vehicle for claims against foreign corporations that aided and abetted local foreign governments in committing human rights abuses. The debate soon focused on whether those corporations could be held responsible for committing those torts under the ATS. In April 2013, the Supreme Court decided a long-awaited case, Kiobel v. Royal Dutch Petroleum Co . In this case, Nigerian nationals sued Royal Dutch Petroleum Co. (Royal Dutch), a Dutch company, and Shell Transport and Trading (Shell), a British company, for aiding and abetting the Nigerian government in committing human rights violations. The case began when residents of the Ogoni Region of Nigeria began protesting the environmental effect of the companies' oil drilling in Ogoni. In response to these protests, the plaintiffs claimed that the oil companies enlisted the aid of the Nigerian militia, who went on to rape, beat, and kill Ogoni residents, and loot and destroy their property. Royal Dutch and Shell argued that the ATS does not extend liability to corporations, and the controversial question of corporate liability was argued before the Supreme Court. After oral arguments, the Court then requested supplementary briefs and arguments on a new inquiry that called into question the past 30 years of ATS jurisprudence: "whether and under what circumstances courts may recognize a cause of action under the ATS, for violations of the law of nations occurring within the territory of a foreign sovereign." Applying a judicially created doctrine called the presumption against extraterritoriality, the Court held that because it was not the intent of Congress that the ATS apply to cases occurring abroad, Kiobel and similar foreign cubed cases are not justiciable in federal courts. The presumption acts to prevent courts from making foreign affairs and policy decisions that might best be left to its coordinate political branches. The Kiobel court held that nothing in the text, history, or purpose of the ATS rebutted the presumption, and unless Congress speaks to the jurisdiction of the courts over foreign cubed cases, judicial caution would be best. The Court left a door open for cases that "touch and concern the territory of the United States," but only if those cases do so with enough force to rebut the presumption. The Court provided only one guidepost, that "mere corporate presence" in the United States is insufficient. The majority declined to comment on the question of corporate liability, resolving the case on the issue of extraterritorial jurisdiction. This report will briefly survey the historical background of the Alien Tort Statute. It will then look at the past 30 years of ATS case law, starting with Filartiga and tracing the question of corporate liability. Next, it will examine the decision in Kiobel and the arguments made by the majority and concurrences about the extraterritorial application of the ATS; the history, text, and purposes of the act; and the "touch and concern" test. Finally, it will survey the possible implications of the Kiobel decision on pending and future cases, and possible congressional responses to the Court's invocation of the presumption. As a fledgling nation, the United States faced a number of difficulties in meeting its foreign relations obligations. One problem in particular was the inability of the Continental Congress to provide redress to foreign citizens for violations of the law of nations. Fearing the consequences wrought by lack of sufficient federal control over foreign affairs, in 1781 Congress implored the powerful state legislatures to "provide expeditious, exemplary and adequate punishment" for treaty infractions and violations of other international norms. Unfortunately, as James Madison wrote in a letter to James Monroe, "Nothing seems to be more difficult under our new Governments than to impress upon the attention of our Legislatures a due sense of those duties which spring from our relations to foreign nations." Thus, despite the pleas of Congress, the states' response was underwhelming, and their reluctance to create provisions for violations of the law of nations soon created friction between the United States and other nations. In 1784, the United States faced international criticism when the Secretary of the French Legion, Consul General Marbois, was assaulted by a French adventurer on the streets of Philadelphia. A formal protest was brought to the Continental Congress by the French Minister Plenipotentiary, who threatened to leave the United States unless provided with a remedy, pursuant to the law of nations. The federal government was apologetic, but unable to act. Three years later, a similar incident occurred when a police officer in New York City entered Dutch Ambassador Van Brecknel's residence to arrest a domestic servant, violating the ambassador's diplomatic immunity. Leaving such incidents unaddressed could have led to a perversion of justice, which would have been considered a just cause of war under the law of nations. Despite this danger, as John Jay, then governor of New York, reported to Congress, the federal government was not "vested with any judicial Powers competent to the Cognizance and Judgment of such Cases." The United States was "embarrassed by its potential inability to provide judicial relief to foreign officials injured in the United States," and these incidents contributed to the creation of the federal judiciary under the Judiciary Act of 1789. As Alexander Hamilton wrote: the peace of the WHOLE ought not to be left at the disposal of a PART. The Union will undoubtedly be answerable to foreign powers for the conduct of its members. And the responsibility for an injury ought ever to be accompanied with the faculty of preventing it. As the denial or perversion of justice by the sentences of courts ... is with reason classed among the just causes of war, it will follow that the federal judiciary ought to have cognizance of all causes in which the citizens of other countries are concerned.... So great a proportion of the cases in which foreigners are parties, involve national questions, that it is by far most safe and most expedient to refer all those in which they are concerned to the national tribunals. While the academic community has debated the legislative history and reasoning behind the creation of the ATS, it can be concluded that the foreign affairs-related "anxieties of the preconstitutional period," including the infamous Marbois and Van Brecknel incidents, contributed to passage of the ATS as part of the act. Enacted in 1789, and later codified in 1878, 28 U.S.C. § 1350 now reads, "district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States." While it seems clear that providing redress for foreign diplomats was contemplated in the creation of the statute, there is little else in the legislative history to serve as a guidepost for interpreting the ATS. Adding to its mystery is the remarkably small number of cases asserting jurisdiction under the ATS during the next 200 years, with fewer still argued successfully. Thus in 1980, when the long hibernation of the ATS came to an end, its rebirth as a vehicle for human rights cases raised myriad questions of first impression, leaving the courts and scholastic community struggling to define its contours. In 1980, after nearly two centuries of dormancy, the ATS was given new life in the landmark human rights case, Filartiga v. Pena-Irala . The case involved a suit against a Paraguayan police officer by two Paraguayan natives, who alleged that the officer tortured and killed Dr. Filartiga's son, Joelito, while the family was living in Paraguay. Though it was dismissed by a federal district court for lack of subject matter jurisdiction, the U.S. Court of Appeals for the Second Circuit (Second Circuit), applying the transitory tort theory, held that torture performed by a state authority was actionable under international law, and thus could be successfully argued under the ATS. On its face, Filartiga does not inspire much controversy. The case involved alien plaintiffs suing for what was clearly a tort, and the determination that torture and wrongful death was a violation of the law of nations was, after Nuremberg, "uncreative." But what the case did do was wake a sleeping giant of academic debate. By "opening the federal courts for adjudication of the rights already recognized by international law," Filartiga unceremoniously opened a door for what would become known as "foreign cubed" claims, where both the plaintiffs and defendants are foreign nationals, and the alleged violations took place on foreign soil. The case that most "strikingly exemplifies" the controversy surrounding the modern day understanding of the ATS is Tel-Oren v. Libya n Arab Republic . The case was brought by the survivors of a terrorist attack in Israel, which was allegedly committed by the Palestine Liberation Organization and assisted by Libya. The U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) agreed per curiam that the case should be dismissed for lack of subject matter jurisdiction, but issued three separate concurring opinions outlining three very different lines of reasoning. The disparity between the opinions reflects the "legal Lohengrin" that is the ATS; a lack of historical context combined with little-to-no precedent has required the courts to deal with a 200-year-old statute as a matter of first impression, leading to "sharp differences of viewpoint among the judges who have grappled with these cases over the meaning and application." Judge Robb found the case to be nonjusticiable under the political question doctrine. Not only is the status of an international terrorist attack beyond the responsibilities of the federal courts, Robb argued, but to make decisions about terrorism would be to interfere with foreign affairs and the national interest, a job better left to the political branches. In an argument that would later find ground in Sosa v. Alvarez-Machain , Judge Bork came to a similar, but differently reasoned conclusion, finding that the ATS does not provide a cause of action. Relying on a formalist approach to separation of powers, Bork maintained that in recognizing a case where the legislature has not expressly granted a cause of action, the risk of crossing into the territory best left to the political branches is too great. With modern day terrorism being beyond the understanding of the drafters in 1789 and too little legislative history to suggest otherwise, Judge Bork concluded that there was no express intent to create a private cause of action under the ATS. Judge Edwards's conclusion varied significantly from his colleagues' views. Finding both that the understanding of international normative law evolved with the modern understanding, and that there is a cause of action under the ATS, Judge Edwards affirmed the lower court's decision based instead on factual considerations that distinguished the case at bar from Filartiga . Focusing on a question that would soon become the central controversy surrounding the ATS, Judge Edwards looked to the liability of non-state actors and determined that the ATS does permit some individual liability. Though extending the law to include individual liability would "require this court to venture out of the comfortable realm of established international law – within which Filartiga firmly sat – in which states are the actors," Judge Edwards examined the potential for individuals to violate the law of nations. Despite his unwillingness to conclude that the law of nations recognizes individual liability for all violations, Judge Edwards did find that there exist a "handful of crimes to which the law of nations attributes individual responsibility." While torture and terrorism were not included on this list, Judge Edwards's concurrence opened the door to the possibility that some individuals could be liable under the ATS. To whom the statute could apply and for which crimes would come under much debate. Though one of the oldest of Filartiga's progeny, Tel-Oren's greatly varied interpretations of the ATS foreshadowed the interpretive confusion in the decades to follow. Coming to an agreement on the appropriate reading of the ATS has been a challenge for judges, and its application has run the gamut in district and appeals courts. Additionally, debate turned toward those issues identified by the judges, including whether the ATS created a cause of action, and more prevalently, whether it permits liability of an individual or corporation for violating international law. Judge Edwards's concurrence in Tel-Oren became a benchmark for the next two decades of ATS cases. The 1995 decision, Ka dic v. Karadzic , was a landmark case in determining whether individuals can be held liable under the ATS. The case involved Croat and Muslim citizens of Bosnia-Herzegovina, who alleged that the self-proclaimed president of the Bosnia-Serb Republic commanded his military forces to commit human rights violations. A federal district court held that because the Bosnia-Serb Republic was not a recognized state, and "acts committed by non-state actors do not violate the law of nations," the ATS could not provide a remedy. The Second Circuit reversed, holding that "certain forms of conduct violate the law of nations whether undertaken by those acting under the auspices of a state or only as private individuals." While this answered the question as to whether individuals could be held liable without acting under the color of the state, the Second Circuit did not address whether a corporation is considered an individual. However, eliminating the need for state action brought to the forefront a number of cases where aliens brought suit against individuals and, more predominantly, corporations under the ATS. Whether those corporations could be held liable sparked an ongoing debate that has spanned two decades, with appeals courts coming to varied conclusions. The first case to deal specifically with corporate liability under the statute was Doe v. Unocal Corp . in 2002. Villagers from Myanmar (also known as Burma) sued the United States energy corporation Unocal for human rights violations committed while the corporation was constructing a gas pipe. The U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit), relying on Judge Edwards's Tel -Oren concurrence and the decision in Ka dic , held that violations of international law such as genocide, war crimes, and other human rights abuses committed by individuals could be actionable under the ATS, with no state action requirement. The panel held that the Unocal Corporation could be liable under the statute, but did not articulate its reasoning. The court appeared to have assumed that corporations fell within the scope of individual liability without further discussion. The case was ultimately settled, but Unocal became the first in a line of cases dealing with corporate liability to hold a corporation responsible for a tort in violation of the law of nations. The question of corporate liability was addressed only by an ambiguous footnote in the 2004 Supreme Court decision, Sosa v. Alvarez-Machain . The first ATS case to be heard by the Supreme Court, Sosa involved the torture and death of Drug Enforcement Administration (DEA) agent Enrique Camarena-Salazar in Mexico. The respondent, Humberto Alvarez-Machain, was a Mexican physician accused of prolonging Camarena-Salazar's life in order to extend the interrogation and torture. After Mexican authorities failed to aid the United States in carrying out its arrest order, the DEA employed a group of Mexicans, including petitioner Jose Francisco Sosa, to abduct Alvarez-Machain from his home and bring him to Texas, where he was arrested. After he was released, Alvarez-Machain sued Sosa, five other Mexican civilians, and several DEA agents. He argued, among other things, that the abduction was a violation of international law under the ATS. After examining the limited legislative history of the statute, the Court determined that its place in Section 9 of the Judiciary Act and its "cognizance" of certain causes of action indicate that the ATS is a strictly jurisdictional statute, and does not create a cause of action. However, the Court found that despite not creating causes of action, the statute was intended to have immediate practical effect with no congressional action required. The Court left the door "ajar subject to vigilant doorkeeping, and thus open to a narrow class of international norms today," but specified that any cause of action under the ATS would have to be cautiously determined by courts to have been "defined with a specificity comparable to the features of the 18 th century paradigms" contemporaneous to the drafting of the statute. The determination would also have to include an "element of judgment about the practical consequences" of making the cause available, taking into special consideration potential effects on foreign policy. "Since many attempts by federal courts to craft remedies for violation of new norms of international law would raise risks of adverse foreign policy consequences," the Court warned, "they should be undertaken, if at all, with great caution." The Court's only reference to corporate liability was in a much-debated footnote. During its discussion about "whether a norm is sufficiently definite to support a cause of action," the Court noted that, "[a] related consideration is whether international law extends the scope of liability for a violation of a given norm to the perpetrator being sued, if the defendant is a private actor such as a corporation or individual." The Court then referred to the passages about the liability of private actors in both Tel-Oren and Kadic . Though it says little, footnote 20 reverberated through ATS cases for the rest of the decade, and was relied on by plaintiffs and defendants alike to both support and contradict the proposition that corporations could be held liable for international torts under the ATS. In the decade following Unocal at least four appeals courts dealt with the question of corporate liability under the ATS. The first case to hold a corporation explicitly liable was in 2008 from the U.S. Court of Appeals for the Eleventh Circuit (Eleventh Circuit), Romero v. Drummond Co . However, like the Ninth Circuit in Unocal , the Drummond court did not outline its rationale, noting only that the text of the ATS "provides no express exception for corporations." In 2011 the D.C. Circuit also addressed corporate liability in Doe v. Exxon Mobil Corp . Based on its finding that the law of nations does not create civil remedies or private rights of action, the court examined corporate liability under federal common law. Looking to the historical context of both the ATS and corporate liability theories, the court opined, "It appears that the law in 1789 on corporate liability was the same as it is today: The general rule of substantive law is that corporations, like individuals, are liable for their torts." The court also criticized Exxon's reliance on Sosa footnote 20, finding that the footnote only referred to the debate in Tel-Oren and K adic over whether "certain forms of conduct were violations of international law only when done by a state actor" rather than a private actor. Footnote 20 was not intended, according to the D.C. Circuit, to distinguish private actors from corporations, as Exxon argued. Ultimately, that same year both the U.S. Court of Appeals for the Seventh Circuit (Seventh Circuit) and Ninth Circuit joined the D.C. Circuit in concluding that corporations can be held liable, though their reasoning varied. Not all appeals courts agreed that corporations could be held liable under the ATS, however. In its 2010 decision, Kiobel v. Royal Dutch Petroleum Co ., the Second Circuit furthered the debate by finding that the ATS does not provide federal courts with jurisdiction over corporations. The Kiobel decision was appealed to the Supreme Court, and many believed that the Court would finally solve the decades-long debate surrounding corporate liability. Instead, the Court turned to the threshold question of whether the ATS provides federal courts with jurisdiction over extraterritorial cases with foreign plaintiffs and defendants. Kiobel v. Royal Dutch Petroleum Co. involved a suit brought by former residents of Ogoniland, Nigeria, now residing in the United States. They alleged that the respondents, Royal Dutch Petroleum Company (Royal Dutch) and Shell Transport and Trading Company PLC's (Shell) subsidiary, Shell Petroleum Development Company of Nigeria (SPDC), aided and abetted the Nigerian company in committing human rights violations against the residents of Ogoni. Royal Dutch and Shell are incorporated in the Netherlands and the United Kingdom, respectively. The SPDC is incorporated in Nigeria. Since 1958, the SPDC has been exploring for and producing oil in Ogoni. In response to the effect on the local environment, a group of concerned residents called the "Movement for Survival of Ogoni People" was organized in order to protest the exploration. In 1993, the oil companies allegedly enlisted the help of the Nigerian government to suppress the Ogoni resistance. The Nigerian military and police forces allegedly attacked the Ogoni villages, raping, beating, arresting, and killing the Ogoni people, and destroying property. The plaintiffs also alleged that the respondents aided and abetted these human rights violations by providing the military forces with food, transportation, and compensation. The plaintiffs fled the area and came to the United States, where they are now legal residents after receiving political asylum. The petitioners filed suit in the Southern District of New York, alleging jurisdiction under the ATS for violations of the law of nations. The federal district court determined that three claims gave rise to a violation of the law of nations: (1) crimes against humanity; (2) torture and cruel treatment; and (3) arbitrary arrest and detention. The court granted an order for interlocutory appeal under 28 U.S.C. § 1292(b) to determine whether these alleged human rights abuses were actionable under the ATS. The Second Circuit granted the appeal, but unlike contemporaneous cases from other circuits, held that (1) international law, not domestic law, governs under the ATS; and (2) international law has not recognized liability for corporations. Relying on Sosa and international law treatises, the court first found that international law, not the domestic law of individual states, determines the subjects and scope of liability of international law. Relying specifically on footnote 20 from Sosa , the court emphasized that the language "requires that we look to international law " to determine both liable conduct and the scope of liability under the ATS. The court then turned to establishing whether international law imposes liability on corporations. Relying primarily on the tribunals at Nuremberg, the court focused on the war crimes and crimes against humanity perpetrated by Nazi Germany, and its partnership with I.G. Farben, the corporation that helped create Auschwitz and manufactured the chemical agent used in its gas chambers. As the court noted, "[I]t is no exaggeration to assert that the corporation made possible the war crimes and crimes against humanity perpetrated by Nazi Germany." Despite its complicity, the tribunal made a conscious decision to refrain from holding I.G. Farben criminally liable. While the tribunal firmly established individual liability for human rights crimes, they found that: [C]orporations act through individuals and, under the conception of personal individual guilt ... the prosecution, to discharge the burden imposed upon it in this case, must establish by competent proof beyond a reasonable doubt that an individual defendant was either a participant in the illegal act or that, being aware thereof, he authorized or approved it. The Kiobel court noted that when the Nuremberg tribunals concluded that "[c]rimes against international law are committed by men, not by abstract entities," that court made it clear that crimes cannot be divorced from individual moral responsibility. Also looking to post-Nuremberg international tribunals, international treaties, and academics, the court concluded that corporate liability is not contemplated by international law because "moral and legal responsibility for heinous crimes should rest on the individual whose conduct makes him or her ' hostis humani generis ,' an enemy of all mankind." Thus, the court held that Royal Dutch and Shell could not be held responsible under the ATS. It was on this question of corporate liability that the Supreme Court granted certiorari in 2012. During oral argument, the Justices turned from the potential for corporate liability to whether the ATS provided jurisdiction for extraterritorial torts. As Justice Alito asked counsel for the plaintiffs, "What business does a case like [ Kiobel ] have in the courts of the United States? ... There's no connection to the United States whatsoever." Re-briefing and new oral arguments addressed the question of extraterritoriality: whether and under what circumstances courts may recognize a cause of action under the ATS, for violations of the law of nations occurring within the territory of a sovereign other than the United States. On April 17, 2013, the Court handed down the Kiobel ruling. While unanimous in the judgment that extraterritorial jurisdiction did not lie based on the specific facts of the case, the Court splintered as to the rule moving forward. The Kiobel majority opinion, written by Chief Justice Roberts and joined by Justices Scalia, Kennedy, Thomas, and Alito, first looked to the question of whether the presumption against extraterritorial application applied to the ATS. The Court stated that the question was not whether a proper claim was brought under the ATS, but instead whether a proper claim under the ATS can reach conduct that occurs in the territory of a foreign sovereign. The Court concluded that the presumption is in force and applies to foreign cubed ATS cases. The presumption against extraterritoriality "is a longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States." Chief Justice Rehnquist's Aramco opinion, a landmark case concerning the presumption canon, observed that applying the presumption effectuates congressional intent. The courts "assume that Congress legislates against the backdrop of the presumption against extraterritoriality," so unless Congress has clearly indicated that the law applies to conduct in foreign territories, the law must then be "primarily concerned with domestic conditions." As the Court in Morrison v. National Australia Bank Ltd. summarized, "when a statute gives no clear indication of an extraterritorial application, it has none." While traditionally a canon aimed at answering questions of merit, rather than questions of jurisdiction, the presumption against extraterritoriality was invoked because "the principles underlying the canon of interpretation similarly constrain courts considering causes of action that may be brought under the ATS." Essentially, any time a court makes a decision that affects foreign policy it could have serious consequences, regardless of whether the question is jurisdictional or on the merits. In fact, the Chief Justice stressed that in the case of jurisdiction, the level of danger may actually be higher. The principles underlying the presumption make constraining the courts' power to hear these cases "all the more pressing" under the ATS because they would be deciding which conduct occurring within the territory of another sovereign could be considered a cause of action under international law. He wrote: [T]he danger of unwarranted judicial interference in the conduct of foreign policy is magnified in the context of the ATS, because the question is not what Congress has done but instead what courts may do . This Court in Sosa repeatedly stressed the need for judicial caution in considering which claims could be brought under the ATS, in light of foreign policy concerns. As the Court explained, 'the potential [foreign policy] implications ... of recognizing ... causes [under the ATS] should make courts particularly wary of impinging on the discretion of the Legislative and Executive Branches in managing foreign affairs. The danger of "unwarranted judicial interference" in this context calls for a high level of caution to prevent the courts from making any decisions that affect foreign policy, especially because these matters are the province of the political branches. This foreign policy tension was reflected in several of the amici briefs filed by other countries in support of the respondent corporations. Concerned with the potential long arm of ATS jurisdiction, the Federal Republic of Germany wrote in its brief, "Such assertions of jurisdiction are likely to interfere with foreign sovereign interests in governing their own territories and subjects and in applying their own laws in cases which have a closer nexus to those countries." In fact, construing the ATS to apply to extraterritorial torts would work antithetically to the purpose of the statute's creation, the prevention of diplomatic discord. "Far from avoiding diplomatic strife," the Court noted, "providing such a cause of action could have generated it." One final repercussion of allowing for extraterritorial reach is its potential effect on American citizens and corporations. If the United States construes international law to allow its domestic courts to hear foreign cubed cases, there is nothing to prevent other countries from providing relief in their own courts for acts committed by Americans in other territories, including on American soil. As the Chief Justice warned, providing jurisdiction "would imply that other nations, also applying the law of nations, could hale our citizens into their courts for alleged violations of the law of nations occurring in the United States, or anywhere else in the world." Such dangerous decision making, the Court concluded, appropriately remains in the hands of the political branches. In his concurrence, Justice Breyer, joined by Justices Ginsburg, Sotomayor, and Kagan, disagreed with the majority's use of the presumption against extraterritoriality. Justice Breyer noted, "That presumption rests on the perception that Congress ordinarily legislates with respect to domestic, not foreign matters." However, he pointed out, the ATS was "enacted with foreign matters in mind," referring to "aliens," "treaties," and the "law of nations." The First Congress was not legislating domestic matters here, Breyer concluded, and "the majority's effort to answer the question by referring to the presumption against extraterritoriality does not work well." The Court then went on to respond to the petitioners' contention that even if the presumption is applied, the text, history, and purposes of the ATS rebut it for causes of action appropriately brought under the statute. The Court acknowledged that Congress can indicate when federal law applies to extraterritorial conduct, but in order to conclude that the First Congress intended it to do so here, "the ATS would need to evince a clear indication of extraterritoriality." After examining the text, history, and purposes of the ATS, the Court concluded that, "It does not." Beginning with the text of the ATS, the Court identified no language to indicate that Congress intended extraterritorial application. The ATS covers torts brought by aliens, but does not specify where those actions should take place because "such violations affecting aliens can occur either within or outside the United States." The Court read this as applying to domestic torts with no indication that extraterritorial torts were contemplated. The petitioners argued that by using the word "torts," the First Congress implied jurisdiction under a doctrine of transitory torts, which can be heard in both foreign and domestic territories outside the forum state. The Court disagreed, citing the only justification for allowing a party to recover in another jurisdiction as "a well-founded belief that it was a cause of action in that place." The Court also noted that the question is not whether a federal court has jurisdiction over a cause of action provided by foreign or international law, but whether the court has authority "to recognize a cause of action under U.S. law to enforce a norm of international law." Using the word "tort" did nothing to indicate that those causes of action were meant to reach conduct in another sovereign territory. The Court also noted that the umbrella language "any civil action" does not necessarily cover torts committed abroad. "It is well established," the Court cited, "that generic terms like 'any' or 'every' do not rebut the presumption against extraterritoriality." Turning to the historical background of the ATS, the Court also found that the history of the ATS gave no clear indication that the First Congress intended the statute to reach extraterritorial conduct. In determining whether a cause of action applies extraterritorially, the Morrison court wrote that "assuredly context can be consulted." Relying on this language, the Court looked to the understanding of international law violations contemporaneous to the creation of the ATS. When Congress passed the ATS, three principle law of nations violations had been identified by Blackstone, a preeminent 18 th century legal authority. These consisted of the violation of safe conducts, infringement of the rights of ambassadors, and piracy. Violation of safe conducts and infringement of the rights of ambassadors, the Court points out, did not contemplate extraterritorial activity but in fact were described by Blackstone to cover domestic conduct. The Court pointed to the Marbois and Van Brecknel incidents in the mid-1780s, both of which involved international common law violations toward ambassadors on American soil. Two additional contemporaneous incidents after the drafting of the statute invoked the ATS. Both incidents, concerning the wrongful seizure of slaves from a vessel docked in a U.S. port, and wrongful seizure from a ship in U.S. territorial waters, involved conduct occurring in U.S. territory. The majority concluded that "these prominent contemporary examples–immediately before and after passage of the ATS–provide no support for the proposition that Congress expected causes of action to be brought under the statute for violations of the law of nations occurring throughout." The third instance of international law violations, piracy, presented a different challenge. Petitioners contended that piracy was a clear example of Congress's intent to provide extraterritorial jurisdiction under the ATS because actions against pirates necessarily anticipated conduct occurring abroad. The Court conceded that they have "generally treated the high seas the same as foreign soil for the purposes of the presumption against extraterritoriality." However, the Court distinguished piracy from other actions performed on the high seas, concluding that the existence of a cause of action against pirates was not sufficient to suggest that the ATS applies extraterritorially. First, the Court found that when it came to pirates, applying U.S. law to acts performed on a pirate ship was different from applying those same laws to acts occurring on ships flying under the flag of a sovereign nation. Far from acting in a sovereign jurisdiction, pirates did not operate within any jurisdiction at all. "Pirates were fair game," Chief Justice Roberts wrote, and applying U.S. law to a pirate ship did not carry the same foreign policy consequences. In terms of causes of action, the Court opined that "pirates may well have been a category unto themselves." The Court also looked to one of the few contemporaneous references to the ATS, a 1795 opinion written by Attorney General William Bradford, which both petitioners and respondents interpreted to support their arguments for and against extraterritoriality. During the Napoleonic wars, several U.S. citizens joined a French privateer fleet and attacked Sierra Leone, a British colony. The disputed language comes from Bradford's response to the protest of the British ambassador: So far ... as the transactions complained of originated or took place in a foreign country, they are not within the cognizance of our courts; nor can the actors be legally prosecuted or punished for them by the United States. But crimes committed on the high seas are within the jurisdiction of the ... courts of the United States; and, so far as the offense was committed thereon, I am inclined to think that it may be legally prosecuted in ... those courts ... But some doubt rests on this point, in consequence of the terms in which the [applicable criminal law] is expressed. But there can be no doubt that the company or individuals who have been injured by these acts of hostility have a remedy by a civil suit in the courts of the United States; jurisdiction being expressly given to these courts in all cases where an alien sues for a tort only, in violation of the laws of nations, or a treaty of the United States.... Petitioners argued that the last sentence clearly indicated that 18 th century understanding was that the ATS applied to law of nations violations committed on foreign sovereign territory. The respondents countered by suggesting that Attorney General Bradford was referring to acts of hostility only insofar as they took place on the high seas, and even if he meant a broader application, it was only in relation to the applicable treaty, which had an extraterritorial reach. In its amicus brief, the United States suggested that the opinion "could have been meant to encompass ... conduct [occurring within the foreign territory]." The Court determined, however, that there was no definitive reading of the passage, and declined to adopt one. It concluded that because Attorney General Bradford's statement dealt with actions performed by U.S. citizens in violation of a treaty between the United States and Great Britain, the passage "hardly suffices to counter the weighty concerns underlying the presumption against extraterritoriality." Finally, the Court looked to the purposes for which the ATS was drafted to determine if there was sufficient evidence to rebut the presumption. The Court dealt with this question simply by suggesting that it was highly unlikely the First Congress intended the fledgling United States to become the first "custos morum of the whole world." Instead, embarrassed by its likely inability to provide redress to foreign diplomats injured in the United States, a just cause of international war, it is more likely that the drafters merely intended to create judicial relief for these incidents because "nothing about this historical context suggests that Congress also intended federal common law under the ATS to provide a cause of action for conduct occurring in the territory of another sovereign." After concluding that the presumption against extraterritorial application applies to the ATS, and that nothing in the text, history, or purposes of the statute rebuts the presumption, the majority barred the petitioners' case seeking relief because the conduct in question took place outside the United States. However, foreign cubed cases are not definitively foreclosed from redress under the ATS. The Court, raising more questions than it answered, wrote that, "even where the claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritorial application." The Chief Justice then referred to the decision in Morrison v. National Australia Bank , which held that the presumption against extraterritorial application prevented Section 10(b) of the Securities Exchange Act from applying to securities not listed on a domestic exchange. Petitioners in that case argued that Section 10(b) applied in their case because the company and its executives engaged in the deceptive conduct and made misleading statements in Florida, though the effects were felt in Australia. The Morrison Court agreed that: ... [the] presumption [against extraterritorial application] here (as often) is not self-evidently dispositive, but its application requires further analysis. For it is a rare case of prohibited extraterritorial application that lacks all contact with the territory of the United States. But the presumption against extraterritorial application would be a craven watchdog indeed if it retreated to its kennel whenever some domestic activity is involved in the case. However, the Court found that the focus of the Exchange Act was not the place of origin but rather the location of the purchases of the sales and securities, which in this case did not happen in the United States. Apart from its reference to Morrison , the Court was silent on which foreign cubed cases would "touch and concern" U.S. territory with sufficient force to rebut the presumption. The Court did note, however, that "[c]orporations are often present in many countries, and it would reach too far to say that mere corporate presence suffices" to satisfy the "touch and concern" test. The Chief Justice concluded by suggesting that, "If Congress were to determine otherwise, a statute more specific than the ATS would be required." The majority's "touch and concern" test does not lay out a clear set of guidelines; the concurrences of Justices Kennedy and Breyer do provide some suggestions as to the scope of the new standard, but Justice Alito felt the test should be narrowed to permit only those cases occurring in the United States. Justice Kennedy's brief concurrence remarks that, "The opinion for the Court is careful to leave open a number of significant questions regarding the reach and interpretation of the Alien Tort Statute." He observes: Many serious concerns with respect to human rights abuses committed abroad have been addressed by Congress in statutes such as the Torture Victim Protection Act of 1991 (TVPA), and that class of cases will be determined in the future according to the detailed statutory scheme Congress has enacted. Other cases may arise with allegations of serious violations of international law principles protecting persons, cases covered neither by the TVPA nor by the reasoning and holding of today's case; and in those disputes the proper implementation of the presumption against extraterritorial application may require some further elaboration and explanation. Leaving a door open for particular, though unidentified, human rights violations, the "touch and concern" test does not completely foreclose foreign cubed cases from redress under the ATS. Justice Kennedy's concurrence does little to explicate exactly which extraterritorial human rights violations are anticipated to fit through the opening left by the Court, but acknowledges that such cases could exist, though they may be a narrow class. This opinion contrasts with Justice Alito's concurrence, joined by Justice Thomas, which stressed that the ATS should not apply to any conduct occurring outside U.S. territory. Though noting that "perhaps there is wisdom in the Court's preference for this narrow approach," Justice Alito would apply a broader standard, concluding the case falls squarely in the scope of the presumption. Relying on the test used in Morrison , Justice Alito looked to the conduct that was the "focus of congressional concern" when the statute was drafted. Opining that the focus was on the three Blackstone international law violations, Alito concluded that only domestic conduct that both violates an international law norm and meets Sosa's requirements of definiteness and acceptance among civilized nations can be successfully redressed under the ATS. Justice Breyer's concurring opinion, joined by Justices Ginsburg, Sotomayor, and Kagan, agrees with the majority's conclusion, but deviates completely from its reasoning. Finding that the presumption against extraterritoriality was not appropriate for the ATS, Justice Breyer looked to the principles and practices of international law. Looking at the Blackstone offenses, Justice Breyer opined that the real question was: Who are today's pirates? Men who commit human rights crimes, " hostis humani generis , [enemies] of all mankind," are the modern day equivalent of pirates, and they are equally "fair game." Based on this interpretation and Sosa's cautionary note, Justice Breyer found three areas of jurisdiction under the ATS: where (1) the alleged tort occurs on American soil; (2) the defendant is an American national; or (3) the defendant's conduct substantially and adversely affects an important American national interest. This specifically includes providing safe harbor for criminals who have committed grievous human rights violations or any other "common enemy of mankind." Justice Breyer's test casts a wider net than the majority's narrower "touch and concern" test, but he also concluded that the Kiobel plaintiffs' case was too far reaching to suggest sufficient American interest, "agree[ing] with the Court that here it would 'reach too far to say' that such 'mere corporate presence suffices.'" In his 1984 Tel-Oren concurrence, Judge Bork said, "Since section 1350 appears to be generating an increasing amount of litigation, it is to be hoped that clarification will not be long delayed." However, 30 years later the ATS still resides in murky waters. While the Supreme Court has decided two cases involving the ATS, in each instance the Court has been careful to address only the narrow questions before it. As a result, while the "touch and concern" test has likely narrowed the number of justiciable ATS cases, the actual scope of its jurisdiction is still unknown. Early responses from the academic community in the wake of the Kiobel decision have varied. On the practical application of the ATS, some have opined that the narrow "touch and concern" test will compel human rights plaintiffs to seek redress under other federal laws, or from state courts. Some have argued that this was "an all but categorical 'no,'" and that the door to the ATS is, for all intents and purposes, closed. One observer predicts that the Kiobel case "will help to usher in a brave new world of transnational litigation where federal, state, and foreign courts compete to regulate international human rights claims." The majority of commentators, however, have focused on the question of how the Kiobel holding will affect claims of corporate liability, an issue the Court did not address. At least one commentator has read the Court's comment that "mere corporate presence" is insufficient to meet the touch and concern test as an implication that other potential ties to U.S. territory could be enough for corporate liability. Another commentator has gone so far as to claim that, "It's clear that all the justices believe that some cases involving abuses by corporations, even those involving injuries in foreign countries, may still be brought." Another has argued that the door left open by the Court and by Justice Kennedy's vague concurrence results in a purgatorial state for corporate liability claims. While plaintiffs in human rights claims are certain to argue that corporations with headquarters in the United States are responsible even for injuries occurring abroad, uncertainty about the application of the "touch and concern" test and the remaining unanswered questions leaves the fate of corporate liability cases in the air. Commentators who have focused more heavily on the political atmosphere surrounding the life of the ATS as a human rights vehicle say that there is little surprise in the Court's decision. While the decision and its reliance on the presumption may "radically revise[] and undermine[] the way the statute has been applied for a generation," commentators have pointed out that it should not be too surprising that the Filartiga line of cases have met this end. The Filartiga decision, as one commentator noted, came at the end of a phase where judge-made law and implied rights of action ruled the day. Since that time, power in the federal courts has shifted. Filartiga and its human rights progeny rested on "a mountain of judge-made law" because the text and history of the statute provide little guidance for causes of action and jurisdiction. In fact, nearly every decision made about human rights cases brought under the ATS would involve judge-made law. So when the Court's first look at the ATS came in the 2004 Sosa decision, this commentator believes, it should have been obvious that the Court was unwilling to say more than necessary to solve the case at hand. That silence was read by some to imply approval of Filartiga , and was also seen as only limiting ATS jurisdiction with Sosa's specificity test. That commentator believes seeing things in Sosa that were not there should be a cautionary tale for those looking to read too much into Kiobel , particularly those that believe the Court implied that corporate liability is possible by giving the example of mere corporate liability as insufficient to rebut the presumption. This cautionary approach to interpreting the case seems to have taken hold in the lower courts in recent post- Kiobel decisions. Sarei v. Rio Tinto , a case on the Court's docket at the time of the Kiobel opinion, was remanded to the district court in light of that decision. The district court held, and the Ninth Circuit affirmed, that based on Kiobel , the court had no jurisdiction over this foreign cubed case. This has been the fate of several recent cases, with judges cautiously concluding that, "the Supreme Court appears to have set a very high bar for plaintiffs asserting jurisdiction under the ATS for claims arising out of conduct occurring entirely abroad." One case particularly stands out among the post- Kiobel decisions because it is the first opinion to decide if a case has passed the "touch and concern" test. Mwani v. Bin Laden is an ongoing litigation involving the Kenyan victims of an explosion caused by Al Qaeda outside the American Embassy in Nairobi. Magistrate Judge Facciola of the D.C. District Court felt that because the events that occurred were directed at the United States government with the intention of harming our country and its citizens, "[s]urely, if any circumstances were to fit the Court's framework of 'touching and concerning the United States with sufficient force,' it would be a terrorist attack that (1) was plotted in part within the United States, and (2) was directed at a United States Embassy and its employees." However, Judge Facciola certified the issue for appeal under 28 U.S.C. § 1292(b) because as it is a matter of first impression "there may be a substantial difference of opinion among judges whether it is correct." While the case is pending appeal, Judge Facciola's decision indicates that the "touch and concern" test may not close the door to extraterritorial application as drastically as some commentators believe. However, as this case involves a terrorist attack directed at the United States Embassy, it could be distinguished in future cases applying the "touch and concern" test in human rights litigation. Since the Nuremberg trials at the close of the Second World War, the importance of redressing human rights cases has been acknowledged by countries around the world. However, plaintiffs in foreign cubed cases, especially those featuring corporate aiding and abetting, face a great challenge in overcoming the presumption against extraterritorial application. Justice Kennedy's concurrence suggests that some human rights cases may be the exception to the rule, but until a third ATS case reaches the Supreme Court, clarification on the fate of ATS cases may have to come from other sources. In 1991 Congress enacted the Torture Victim Protection Act (TVPA) in order to provide redress for those victims of torture and extrajudicial killing committed by individuals acting in an official capacity in other countries. Because of limitations on defendants, foreign cubed cases claiming corporate liability cannot seek redress under the TVPA. With the new test for jurisdiction under the ATS, the Kiobel case has created some uncertainty for foreign cubed human rights cases. If Congress wishes to provide redress for extraterritorial torts, or establish corporate liability, it is within its power to do so. | The Alien Tort Statute (ATS) was originally drafted as part of the Judiciary Act of 1789 in order to provide foreign plaintiffs with a forum to remedy violations of customary international law. Now codified at 28 U.S.C. § 1350, the ATS states that "district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States." After being raised in only a handful of early cases, the ATS lay dormant for almost 200 years until a 1980 case, Filartiga v. Pena-Irala, signaled a new use for the statute as a vehicle for redressing human rights violations. Post-Filartiga, the ATS was used frequently for "foreign cubed" cases, which involve alien plaintiffs and defendants for torts committed on foreign soil. These cases first prompted debate that most recently has centered on the controversial question of whether corporate defendants can be held liable for aiding and abetting human rights violations under the ATS. This was the question originally presented to the Supreme Court in the 2012 case, Kiobel v. Royal Dutch Petroleum Co. A foreign cubed case, Kiobel involved Nigerian plaintiffs suing for human rights violations aided and abetted by Royal Dutch Petroleum Co. (Royal Dutch) and Shell Transport and Trading Co. (Shell), incorporated in the Netherlands and United Kingdom, respectively. After the first round of oral arguments, the Court ordered rebriefing and reargument on a new issue: whether federal courts even have jurisdiction over cases occurring on foreign soil. Asking whether and under what circumstances courts may recognize a cause of action under the ATS, for violations of the law of nations occurring within the territory of a foreign sovereign, the Court held that the presumption against extraterritorial application applied to the ATS. Under Morrison v. National Australia Bank, the presumption against extraterritoriality provides that, "[w]hen a statute gives no clear indication of an extraterritorial application, it has none." The presumption calls for judicial caution in hearing extraterritorial cases over which Congress has not expressly given the courts jurisdiction. The Kiobel court held that nothing in the text, history, or purpose of the ATS overcame the presumption. The Court left a narrow opening for cases arising under the ATS that "touch and concern the territory of the United States" with "sufficient force" to overcome the presumption. Justice Kennedy's concurrence suggests that there could be an exception for cases involving "serious violations of international law principles," but the only example provided by the Court was that "mere corporate presence" is insufficient to rebut the presumption. Because the question of extraterritoriality was sufficient to resolve the case, the Court declined to address the question of corporate liability. The decision in Kiobel could reduce the number of human rights cases successfully brought under the ATS. The "touch and concern" test leaves a small crack in the door for extraterritorial application, but the test is vague, and its contours unknown. While it appears the courts will proceed with caution, Congress is free to either explicitly give the courts extraterritorial jurisdiction, or clarify the limits of that jurisdiction at least in respect to human rights violations, as it did with the Torture Victim Protection Act (TVPA). |
The United States Border Patrol (USBP) is the lead federal agency charged with securing the U.S. international land border with Mexico and Canada. The USBP's San Diego sector is located north of Tijuana and Tecate, Mexican cities with a combined population of 2 million people, and features no natural barriers to entry by unauthorized migrants and smugglers. As part of the "Prevention Through Deterrence" strategy, which called for reducing unauthorized migration by placing agents and resources directly on the border abutting population centers, in 1990 the USBP began erecting a physical barrier to deter illegal entries and drug smuggling in the San Diego sector using the broad powers granted to the Attorney General (AG) to control and guard the U.S. border. The ensuing "primary" fence was completed in 1993 and covered the first 14 miles of the border, starting from the Pacific Ocean, and was constructed of 10-foot-high welded steel. This fence (and the subsequent three-tiered fence, see discussion below) was constructed with the assistance of the Department of Defense's (DOD's) Army Corps of Engineers. According to the Bureau of Customs and Border Protection (CBP), the primary fence, in combination with various labor-intensive USBP enforcement initiatives along the San Diego border region (i.e., Operation Gatekeeper), proved to be quite successful but fiscally and environmentally costly. For example, as undocumented aliens and smugglers breached the primary fence and attempted to evade detection, USBP agents were often forced to pursue the suspects through environmentally sensitive areas. It soon became apparent to immigration officials and lawmakers that the USBP needed, among other things, a "rigid" enforcement system that could integrate infrastructure (i.e., a multi-tiered fence and roads), manpower, and new technologies to further control the border region. The concept of a three-tiered fence system was first recommended by a 1993 Sandia Laboratories study commissioned by the Immigration and Naturalization Service (INS). The study concluded that aliens attempting to enter the United States from Mexico had shown remarkable resourcefulness in bypassing or destroying obstacles in their path, including the existing primary fence, and postulated that "[a] three-fence barrier system with vehicle patrol roads between the fences and lights will provide the necessary discouragement." Congress responded to these enforcement needs, in part, with the passage of the Illegal Immigration Reform and Immigration Responsibility Act (IIRIRA) of 1996. This comprehensive law, among other things, expanded the existing fence by authorizing the INS to construct a triple-layered fence along the same 14 miles of the U.S.-Mexico border near San Diego. Section 102 of IIRIRA concerns the improvement and construction of barriers at our international borders. As described later, several of the provisions in §102 were amended in the 109 th Congress to facilitate the construction of the San Diego fence, as well as other border barriers. The following paragraphs, however, discuss §102 as originally passed in IIRIRA to provide a historical perspective and comparative analysis. Section 102(a) appears to give the AG broad authority to install additional physical barriers and roads "in the vicinity of the United States border to deter illegal crossings in areas of high illegal entry into the United States." The phrase vicinity of the United States border is not defined in the Immigration and Nationality Act (8 U.S.C. §1101 et seq .) or in immigration regulations. The section also does not stipulate what specific characteristics would designate an area as one of high illegal entry . This subsection has not been amended. Section 102(b)âbefore its amendment in the Secure Fence Act of 2006 ( P.L. 109-367 )âmandated that the AG construct a barrier in the border area near San Diego. Specifically, §102(b) directed the AG to construct a three-tiered barrier along the 14 miles of the international land border of the United States, starting at the Pacific Ocean and extending eastward. Section 102(b) ensured that the AG would build a barrier, pursuant to his broader authority in §102(a), near the San Diego area. Other non-amended provisions in §102(b) provide authority for the acquisition of necessary easements, require that certain safety features be incorporated into the design of the fence, and authorize an appropriation not to exceed $12 million. Section 102(c)âbefore its amendment in the REAL ID Act as part of P.L. 109-13 âwaived the Endangered Species Act (ESA) of 1973 (16 U.S.C. §§1531 et seq .) and the National Environmental Policy Act (NEPA) of 1969 (42 U.S.C. §§4321 et seq .), to the extent the AG determined necessary, in order to ensure expeditious construction of the barriers authorized to be constructed under §102. The waiver authority in this provision appears to apply both to barriers that may be constructed in the vicinity of the border under §102(a) and to the barrier that is to be constructed near the San Diego area under §102(b). Apprehension statistics have long been used as a performance measure by the USBP. However, the number of apprehensions may be a misleading statistic for several reasons, including the data's focus on events rather than people and the absence of reliable estimates for how many aliens successfully evade capture. These factors aside, however, apprehensions data remain the best way to gain a glimpse into the reality facing USBP agents and the trends in unauthorized migration along the border. As Figure 1 shows, apprehensions remained stable during the early 1990s in the San Diego sector despite the construction of the "primary" fence in 1993. After the IIRIRA's mandate for increased enforcement along the Southwest border in 1996, including construction of the triple-fence, apprehensions dropped rapidly in the San Diego sector in the late 1990sâfrom 480,000 in FY1996 to 100,000 in FY2002. The reduction in apprehensions was even more marked in the areas where fencing was constructed within San Diego sector. The USBP's Imperial Beach and Chula Vista stations saw their apprehensions decline from 321,560 in FY1993 to 19,035 in FY2004âa reduction of 94% over the 12 year period. Although much of this reduction in apprehensions in those stations and in San Diego sector may have been due to the construction of the triple-fence, the sector also saw an increase in other resources that may account for part of the reduction. For example, the number of agents assigned to the San Diego sector increased significantly during this periodâfrom 980 agents in 1993 to 2,274 in 1998. Additionally, the number of underground sensors deployed in the San Diego sector almost tripled from 1993 to 1998, and the fleet of vehicles increased by over 150% over the same period. The increase in manpower and resources reflected the USBP's policy of re-routing unauthorized migration away from population centers to remote border regions where their agents have a tactical advantage over border-crossers. Other sectors, especially the remote Tucson sector in Arizona, saw apprehensions increase significantly in the late 1990s. Proponents of border fences point to the drastic reduction in apprehensions along the San Diego sector as tangible proof that these fences succeed in their goal of reducing cross-border smuggling and migration where they are constructed. Opponents attribute part of the decrease in apprehensions to the increase in manpower and resources in the sector and (pointing to the increase in apprehensions in less-populated sectors) contend that the fence only succeeds in re-routing unauthorized migration. By 2004, only nine miles of the 14 miles of fence authorized to be constructed had been completed. Two sections, including the final three-mile stretch of fence that leads to the Pacific Ocean, were not finished because of environmental concerns and litigation. In order to finish the fence, the USBP proposed to fill a deep canyon known as "Smuggler's Gulch" with over 2 million cubic yards of dirt. The triple-fence would then be extended across the filled gulch. California's Coastal Commission (CCC), however, essentially halted the completion of the fence in February 2004. The CCC determined that the CBP had not demonstrated, among other things, that the project was consistent "to the maximum extent practicable" with the policies of the California Coastal Management Programâa state program approved under the federal Coastal Zone Management Act (CZMA) (16 U.S.C. §§1451-1464). Specifically, the CCC was concerned with the potential for significant adverse effects on (1) the Tijuana River National Estuarine Research and Reserve; (2) state and federally listed threatened and endangered species; (3) lands set aside for protection within California's Multiple Species Conservation Program; and (4) other aspects of the environment. The CCC held that Congress did not specify a particular design in the IIRIRA and that the CBP failed to present a convincing argument that the less environmentally damaging alternative projects it rejected would have prevented compliance with the IIRIRA. Although the IIRIRA initially allowed DHS to waive two major environmental laws, it did not include the CZMA in its purview. Congress, accordingly, attempted to pass legislation to facilitate the completion of the fence. The 107 th Congress, in §446 of the Homeland Security Act ( P.L. 107-296 ), expressed its sense that completing the 14-mile border project should be a priority for the Secretary of DHS. The 108 th Congress considered measures that would have allowed the Secretary of DHS to waive the CZMA and other environmental laws, but no bill passed both chambers. However, the 109 th Congress subsequently passed the REAL ID Act of 2005 ( P.L. 109-13 , Div. B), which authorized the Secretary of Homeland Security to waive all legal requirements determined necessary to ensure expeditious construction of barriers and roads authorized under IIRIRA § 102. Such waivers are effective upon publication in the Federal Register. Federal district courts are provided with exclusive jurisdiction to review claims alleging that the actions or decisions of the Secretary violate the U.S. Constitution, and district court rulings may only be reviewed by the Supreme Court. Because the REAL ID Act amended only the waiver provision of §102 of IIRIRA, the new waiver authority appears to apply to all the barriers that may be constructed under IIRIRAâthat is, both to barriers constructed in the vicinity of the border and to the barrier that is to be constructed near the San Diego area. The 109 th Congress also passed the Secure Fence Act of 2006 ( P.L. 109-367 ), which removed the specific provisions authorizing the San Diego fence and added provisions authorizing five stretches of two-layered reinforced fencing along the southwest border. CBP has estimated that this fencing will total roughly 850 miles. While the specific authorization of the San Diego fence was deleted, the project appears permissible under the general fence authorization in §102(a) of IIRIRA. In the 110 th Congress, S. 1639 , introduced by Senator Edward Kennedy on June 20, 2007, would amend § 102 of IIRIRA to once again expressly authorize the construction of the San Diego fence. CBP, in conjunction with the Army Corps of Engineers and the National Guard, have now begun the process of acquiring the land required to finish building the San Diego border fence. On September 22, 2005, DHS published a Federal Register notice declaring the waiver of, in their entirety: (1) the NEPA; (2) the ESA; (3) the CZMA; (4) the Federal Water Pollution Control Act (33 U.S.C. §§1251 et seq .); (5) the National Historic Preservation Act (16 U.S.C. §§470 et seq .); (6) the Migratory Bird Treaty Act (16 U.S.C. §§703 et seq .); (7) the Clean Air Act (42 U.S.C. §§7401 et seq .); and (8) the Administrative Procedure Act (5 U.S.C. §§551 et seq .). DHS predicts that the San Diego fence will have a total cost of $127 million for its 14-mile length when it is completedâroughly $9 million a mile. Construction of the first 9.5 miles of fencing cost $31 million, or roughly $3 million a mile, while construction of the last 4.5 miles of fencing is projected to cost $96 million, or roughly $21 million a mile. DHS is proposing to hire private contractors to expedite the construction of the remaining 4.5 miles of fencing; this fact, and the complex construction project of filling Smuggler's Gulch, may account for part of the difference in cost. The FY2006 DHS Appropriations Act ( P.L. 109-90 ) provides $35 million for the construction of the border fence in San Diego. For FY2007, conferees for the DHS Appropriations Act ( P.L. 109-295 ) recommended $30.5 million be allocated to the San Diego fence. Since 1990, Congress has also included language in DOD appropriations bills allowing the DOD to assist federal agencies in counter-drug activities, including the construction of fencing and roads to reduce the flow of narcotics into the country. | This report outlines the issues involved with DHS's construction of the San Diego border fence and highlights some of the major legislative and administrative developments regarding its completion; it will be updated as warranted. (For more analysis of border fencing and other barriers, please see CRS Report RL33659, Border Security: Barriers Along the U.S. International Border , by [author name scrubbed], Yule Kim, and [author name scrubbed].) Congress first authorized the construction of a 14-mile, triple-layered fence along the U.S.-Mexico border near San Diego in the Illegal Immigration Reform and Immigration Responsibility Act (IIRIRA) of 1996. By 2004, only nine miles had been completed, and construction was halted because of environmental concerns. The 109 th Congress subsequently passed the REAL ID Act ( P.L. 109-13 , Div. B), which contained provisions to facilitate the completion of the 14-mile fence. These provisions allow the Secretary of Homeland Security to waive all legal requirements determined necessary to ensure expeditious construction of authorized barriers and roads. In September 2005, the Secretary used this authority to waive a number of mostly environmental and conservation laws. Subsequently, the Secure Fence Act of 2006 ( P.L. 109-367 ) removed the specific IIRIRA provisions authorizing the San Diego fence and added provisions authorizing five stretches of two-layered reinforced fencing along the southwest border. While the specific authorization of the San Diego fence was deleted, the project appears permissible under a separate, more general authorization provision of IIRIRA. In the 110 th Congress, S. 1639 , introduced by Senator Edward Kennedy on June 20, 2007, would amend § 102 of IIRIRA to once again expressly authorize the construction of the San Diego fence. |
The employer shared responsibility provisions (ESRP) of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended) generally incentivize large employers to offer adequate and affordable health insurance coverage to their full-time employees and their full-time employees' dependents. If an applicable large employer fails to offer health insurance or offers substandard coverage to its employees, that employer may be subject to a penalty. As shown in Figure 1 , all common-law employers, including government entities (such as federal, state, local, or Indian tribal government entities), are responsible for annually determining whether they are considered an applicable large employer (ALE). An ALE is generally an employer that has at least 50 full-time employees (including full-time equivalent employees , which are a representation of non-full-time employees as full-time employees). If an employer qualifies as an ALE in a given year, then it will be subject to the ESRP in the subsequent year. An employer subject to the ESRP is incentivized to offer adequate, affordable health insurance coverage to their full-time employees (and their full-time employees' dependents). If an employer does not offer such coverage, the employer risks being subject to a penalty if at least one full-time employee receives a premium tax credit or cost-sharing subsidy through a health insurance exchange (exchange). If an employer does not qualify as an ALE, then it will not be subject to the ESRP, nor will it be at risk of a penalty for failing to offer health insurance coverage to its full-time employees. This report begins with an overview of how employers determine whether they are considered an ALE before outlining the ESRP. It then discusses the two types of ESRP penalties and introduces administrative aspects of the ESRP. This report also includes two appendixes that contain definitions of terms as used in the report and a summary of how various worker classifications are considered for ALE determinations and under the ESRP ( Appendix A and Appendix B ). All common-law employers, including government entities (such as federal, state, local, or Indian tribal government entities) and nonprofit organizations that are exempt from federal income taxes, can be subject to the ESRP. For an employer to be subject to the ESRP, the employer must be considered an ALE, which is an employer that has an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year. If an employer does not qualify as an ALE, then it will not be subject to the ESRP, nor will it be at risk of a penalty for failing to offer appropriate health insurance coverage to its full-time employees. To determine whether an employer is considered an ALE, an employer calculates its workforce size by averaging the combination of all full-time employees and full-time equivalent employees for each month of the previous calendar year. Generally, if this average is at least 50, the employer is considered an ALE and is subject to the ESRP. ALE determinations are made on an annual basis. Once qualified, an employer is subject to the ESRP for the subsequent calendar year. For example, if an employer employed at least 50 full-time employees in 2018, it would be considered an ALE subject to the ESRP in 2019. In instances where multiple businesses have a certain level of shared ownership, these businesses must be aggregated into a controlled group before determining whether the group collectively is considered an ALE. This aggregation occurs even if the businesses are separate legal entities. If the controlled group is collectively determined to be an ALE (i.e., an aggregated ALE group ), each subcomponent of that controlled group is considered an ALE, regardless of the total number of employees at that entity, and is subject to the ESRP. Although both full-time employees and full-time equivalent employees are used to determine whether an employer is considered an ALE, ALEs are responsible for providing health care coverage only to full-time employees. In addition, when applicable, ALEs do not include full-time equivalent employees when calculating an ESRP penalty. These topics are discussed further in the sections on " Employer Shared Responsibility Provisions " and " Penalty Determination ," below. An employee is generally considered f ull-time for each month that the individual works an average of at least 30 hours per week or 130 total hours in that month. If an employee is found to be a full-time employee for a specific month, that employee is counted as a full-time employee for each business day in that month. This method is referred to as the mo nthly m easurement m ethod . Hours worked by part-time employees (i.e., not full-time employees) are converted into full-time equivalent employees and included in the determination of whether an employer is an ALE. To do so, all hours worked by part-time employees during a month are added up and divided by 120 to get the number of full-time equivalent workers in that month. S easonal workers are individuals who perform any labor "on a seasonal basis where, ordinarily, the employment pertains to or is of the kind exclusively performed at certain seasons or periods of the year and which, from its nature, may not be continuous or carried on throughout the year." All hours worked by s eason al worker s are summed and converted to full-time employees (including full-time equivalent employees) and included in the determination of whether an employer is an ALE unless two conditions are met. If (1) an employer would be considered a large employer for fewer than 120 days in a calendar year and (2) seasonal workers are what push the employer's full-time employee calculation to exceed 50 full-time employees for those days, the employer may effectively exclude the hours worked by seasonal workers and therefore would not be considered an ALE. The definition of seasonal workers is different from the definition of seasonal employees , which is used to determine which employees are considered full-time employees under ESRP. The differences in definitions are summarized in Table 5 . As shown in Table 1 , there are various types of workers other than full-time employees, part-time employees, and seasonal workers whose hours are counted using special rules for ALE determination (and, where applicable, under the ESRP). These rules tend to address discrepancies due to some individuals not being compensated on an hourly basis or having other characteristics that differentiate them from full-time employees, part-time employees, and seasonal workers. Definitions of these other types of workers and explanations of their associated rules are summarized in Appendix B . Once an employer is determined to be an ALE, the employer must either satisfy the ESRP by offering affordable and adequate health insurance coverage to its full-time employees (and their dependents) or risk being subject to a penalty payment if at least one full-time employee receives a premium tax credit through an exchange. For purposes of the ESRP, ALEs must identify which of their employees are considered full-time employees and need to be offered health insurance in order to not risk being subject to a penalty. To do this, employers may use the same full-time-employee conclusions from the ALE determination, may redetermine which employees are considered full-time using a different measurement method (see the " Look-Back Measurement Method ," below), or, in certain instances, may use a combination of both methods. When an ALE is part of an aggregated ALE group, each subcomponent ( ALE member ) is responsible for identifying which employees are considered full-time under the ESRP, deciding whether to offer health insurance coverage to its full-time employees, and if applicable, paying any specific ESRP penalty amount. If full-time employees were not offered appropriate health insurance by their employer (as defined in " Health Insurance Coverage Requirements for Employer Plans ") and did not receive a premium tax credit through an exchange, the employer would not be subject to a penalty. ALEs are not at risk of a penalty for failing to offer health insurance coverage to non-full-time employees, such as part-time employees. If an ALE decides to offer health insurance to its full-time employees (and their dependents), to satisfy the ESRP and not risk a penalty, this health insurance must be considered adequate and affordable . A plan is considered adequate when the health plan has an actuarial value of at least 60%. Actuarial value is a summary measure of a plan's generosity, expressed as the percentage of total medical expenses that are estimated to be paid by the issuer for a standard population's set of allowed charges. In other words, it reflects the relative share of cost sharing that may be imposed. The actuarial value calculation for determining minimum value includes the employer contributions to health savings accounts and health reimbursement accounts that are part of a high-deductible health plan. A plan is considered affordable when an individual's required contribution toward the plan premium for self-only coverage does not exceed 9.56% of the employee's W-2 wages in 2018, and 9.86% of the employee's W-2 wages in 2019. (This percentage is annually adjusted.) The definition of affordable—for both an individual employee and a family—is based solely on the cost of individual-only coverage and does not take into consideration the often significantly higher cost of a family plan. For purposes of identifying which employees are considered full-time under the ESRP and therefore would need to be offered health insurance coverage to prevent the risk of a penalty, an ALE may redetermine its total number of full-time employees using a different methodology (see the " Look-Back Measurement Method ," below) instead of the monthly measurement method, which is the methodology used to determine whether an employer is considered an ALE. As a result, employers may have different full-time employee counts for purposes of determining (1) whether an employer is considered an ALE and (2) which employees need to be offered health insurance coverage to prevent an ESRP penalty ( Table 2 ). Employers may use a combination of the two methodologies in their redetermination. Specifically, employers may divide their employees into categories (as identified in Table 3 ) and may use either full-time employee measurement method (monthly or look-back) for each of these categories. However, employers may not use the look-back measurement method for variable-hour and seasonal employees if they use the monthly measurement method for employees with predictable schedules. Since employers initially use reasonable expectations to decide whether a new employee is considered a variable hour, seasonal, or full-time employee, the aforementioned structure would provide employers with the ability to move employees between measurement methods based entirely on the employer's expectations, which the Treasury Department and the Internal Revenue Service (IRS) deem as "an excessive level of subjectivity." Under the look-back measurement method, ALEs determine whether or not an employee is considered a full-time employee under the ESRP over the course of three stages: 1. M easuremen t Period . The measurement period is the amount of time employers may measure, on average, whether employees are full-time employees. 2. A dministrative Period . The administrative period is the amount of time an employer may take to identify and enroll full-time employees into health insurance coverage. 3. S tability Period . The stability period is the amount of time an employer may be subject to a penalty for not offering health insurance coverage to employees found to be full time during the measurement period. Employers may determine the duration of these periods, which can vary between three groupings of workers (ongoing employees, new full-time employees, and new variable-hour and seasonal employees), within the limits outlined in Table 4 . Within each of these groupings, employers also may apply different period lengths to each of the subcategories of workers identified in Table 3 . Period length does not need to be consistent across all of these subcategories of workers but must be consistent within each subcategory. As compared to ALE determinations, employers treat seasonal employees' work hours differently when identifying whether an employee is considered full time under the ESRP. This difference stems from distinctions in terminology in ESRP regulations, which use different definitions for seasonal workers and seasonal employees . S easonal workers are used to calculate whether an employer is an ALE. Although these workers are defined in regulations as labor performing at certain seasons or periods of the year, they effectively affect the ALE determination only when they are employed for more than 120 days (approximately four months). S easonal e mployees are defined in regulations as employees hired into a position of six months or less. This term is used to determine whether an individual is considered a full-time employee under the ESRP (i.e., must be offered health insurance coverage to avoid a penalty and would be included in any applicable penalty calculation). In practice, regulations allow employers to use the " Look-Back Measurement Method " to calculate the full-time status of seasonal employees based on a 12-month measurement period. Because these individuals, by definition, usually work fewer than six months per year in a position, firms using the look-back measurement method may effectively exclude seasonal workers from being considered full-time workers under the ESRP (even if they were considered full-time employees for the ALE determination). ALEs with full-time employees are required to report various types of information to the IRS and to their employees after the conclusion of every calendar year. ALEs are responsible for annually reporting two forms to the IRS: Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage. These forms contain summary information about the health care coverage that the employer offered, if at all, to each employee considered full time for at least one month in the previous year. Specifically, each ALE is responsible for submitting at least one Form 1094-C to the IRS. This form is used to report the employer's general information, whether the ALE is an aggregated ALE (and if so, any applicable ALE subcomponents), the total number of full-time employees in each month of the previous year, whether the employer offered minimum essential coverage to its full-time employees, and the total number of all employees (i.e., full-time and non-full-time employees) in each month of the previous year. In addition, each ALE must submit to the IRS one Form 1095-C for each employee who was considered full time for any month of the previous calendar year. Form 1095-C is used to report employee personal information; employer general information; if and to whom (e.g., employee only or employee and dependents) the employer offered coverage in each month of the previous year; the employee's share of the monthly cost for the lowest-cost, self-only minimum essential coverage offered to the employee; and, if applicable, the months the employee and potential dependents were covered by an employer's self-insurance coverage. Generally, employers must submit these forms to the IRS by February 28 of the subsequent year if paper filed or by March 31 of the subsequent year if electronically filed. Employers that have to file more than 250 Form 1094-C or Form 1095-C documents often must file electronically, as consistent with other tax information reporting. If an ALE fails to file a correct calendar year 2018 form in 2019, it may be subject to a $270 per-return penalty, with a maximum penalty amount of $3.2755 million. ALEs also must provide their full-time employees with a written statement that contains the name and contact information of the ALE and the same information provided to the IRS. ALEs may elect to meet this requirement by providing each employee with a copy of his or her specific Form 1095-C that the ALE submitted to the IRS. Each full-time employee must receive this information by January 31 of the subsequent year. If an ALE fails to provide a correct calendar year 2018 statement to a full-time employee in 2019, the ALE may be subject to a $270 per-statement penalty, with a maximum penalty amount of $3.2755 million. If an employer intentionally disregards the reporting requirements, the per-return penalty and maximum penalty amounts may be increased. Conversely, penalty amounts may be waived if an ALE fails to report due to reasonable cause . ALEs are potentially subject to an ESRP assessment payment if at least one full-time employee receives a premium tax credit through an exchange. An individual may be eligible for a premium tax credit if the individual's employer does not offer health insurance coverage or offers insurance that is either inadequate or unaffordable. Therefore, if an ALE offered adequate and affordable coverage to every full-time employee (and his or her dependents), the ALE would not be subject to an ESRP penalty. ESRP penalties apply to all applicable common-law employers, including government entities (such as federal, state, local, or Indian tribal government entities) and nonprofit organizations, even if the employers are exempt from federal income taxes. An ALE is assessed a penalty for each month that the ALE was in violation of the ESRP. If an ALE is subject to an ESRP penalty, the penalty amount is determined based on one of two formulas; the applicable formula depends on the number of full-time employees that received a health insurance coverage offer, if at all. Both penalties are indexed by a premium adjustment percentage each calendar year. If, for 2018, an ALE was subject to an ESRP penalty and offered health insurance to more than 95% of its full-time employees (and their dependents), the monthly penalty amount is the lesser of the following: the number of full-time employees who received a premium credit multiplied by one-twelfth of $3,480 for any applicable month, or the total number of the firm's full-time employees minus 30, multiplied by one-twelfth of $2,320 for any applicable month. If, for 2018, an ALE was subject to an ESRP penalty and offered health insurance coverage to less than 95% of its full-time employees (and their dependents), the monthly penalty assessed to an ALE is equal to the number of its full-time employees minus 30 multiplied by one-twelfth of $2,320 for any applicable month. ALEs that are at risk of a potential ESRP penalty will receive two notifications: (1) by an exchange, when an employee is deemed eligible for advanced payments of the premium tax credit and enrolled in a qualified health plan through an exchange, and, (2) by the IRS, after the conclusion of the tax year. Exchanges must notify an employer within a "reasonable timeframe" that an employee was deemed eligible for advance payments of the premium tax credit and enrolled in a qualified health plan through the exchange. All exchanges, state-based and federally facilitated, are required to provide this notification. Employers may appeal the exchange notification, though this notification does not determine or indicate a potential ESRP liability. Given the construction of the ESRP penalty, an employer will not be contacted by the IRS until after the employer's and all employees' tax returns have been filed. As part of its determination of whether an employer has an ESRP liability, the IRS notifies an ALE if one or more employees were allowed or received a premium tax credit through an exchange for one or more months during a year. Any IRS notification also will contain a proposed responsibility penalty amount and a corresponding explanation table. Employers generally must respond to the IRS within 30 days of receiving the IRS notification either agreeing with or appealing the computation. After correspondence between the IRS and the ALE has concluded, the IRS will provide a notice to the employer reflecting the final penalty amount and will provide payment options. As enacted, the ESRP were supposed to take effect in 2014. However, the IRS provided transition relief in 2014 and did not enforce the ESRP or any associated penalties for that year. The IRS enforced a limited rollout of the provisions in 2015, generally applying the ESRP to employers with at least 100 full-time employees (including full-time equivalent employees). In 2016, the IRS further expanded enforcement to include nearly every business as required by law, except for certain specific circumstances. The ESRP were enforced on all ALEs beginning in 2017. Although 2015 was the first year in which the provisions were enforced, ALEs did not receive a notification from federally facilitated exchanges during that year because the federally facilitated exchanges' employer notification program was not phased in until 2016. With respect to the IRS notification, ALEs began receiving a notification about potential penalties for tax year 2015 in November 2017. By January 2, 2018, the IRS had notified only 3,820 of 33,080 ALEs identified as being potentially subject to a penalty for tax year 2015. In 2017, an audit by the Treasury's Inspector General for Tax Administration found that the delay in IRS notifications resulted from some of the IRS's ESRP compliance processes either not working as intended or being delayed, not initiated, or canceled. The audit also found that as of March 21, 2018, the IRS still was unable to process paper information returns promptly and accurately. Appendix A. Definitions as Used Under the Employer Shared Responsibility Provisions Appendix B. Employer Shared Responsibility Provisions Treatment of Different Types of Worker Classifications | The employer shared responsibility provisions (ESRP), which often are referred to as the employer mandate, generally incentivize large employers to offer adequate and affordable health insurance coverage to their full-time employees and full-time employees' dependents. If an applicable large employer fails to offer health insurance or offers substandard coverage to its employees, the employer may be subject to a penalty (i.e., assessment payment). All common-law employers, including government entities (such as federal, state, local, or Indian tribal government entities), are responsible for annually determining whether they are considered an applicable large employer (ALE), which is generally an employer that has at least 50 full-time employees (including full-time equivalent employees, which are a representation of non-full-time employees as full-time employees). If an employer qualifies as an ALE in a given year, then it will be subject to the ESRP in the subsequent year, meaning it will have to offer adequate, affordable health insurance coverage to generally all of its full-time employees (and their dependents) or it will risk being subject to one of two penalties. Regardless of penalty type, a penalty will be triggered only if at least one full-time employee receives financial assistance through an exchange. These types of financial assistance generally are not available to employees who were offered affordable and adequate coverage by their employer. If an employer does not qualify as an ALE, then it will not be subject to the ESRP and will not face a penalty for failing to offer health insurance coverage to its full-time employees. Which potential ESRP penalty an ALE may be subject to is contingent upon whether an ALE offered appropriate health insurance to enough of its full-time employees (and their dependents). If an ALE offered appropriate health insurance to 95% or more of its full-time employees (and their dependents) and at least one employee received a premium tax credit or cost-sharing subsidy through a health insurance exchange, then the employer may be subject a penalty that is the lesser of (1) an amount based on the number of people who received financial assistance through an exchange or (2) an amount based on the number of the firm's full-time employees. If an ALE did not offer appropriate health insurance coverage to its full-time employees (or offered appropriate coverage to less than 95% of its full-time employees and their dependents) and at least one employee received a premium tax credit or cost-sharing subsidy through a health insurance exchange, then the employer may be subject to a penalty based on the number of the firm's full-time employees. |
On March 19, 2010, the Food and Drug Administration (FDA) reissued a 1996 final rule aimed at reducing underage smoking and use of smokeless tobacco products (e.g., snuff, chewing tobacco). The agency's rulemaking was mandated by the Family Smoking Prevention and Tobacco Control Act (FSPTCA), which was enacted in 2009 after the Supreme Court, in a 2000 case entitled FDA v. Brown & Williamson Tobacco Corp. , determined that FDA lacked statutory authority to regulate tobacco products. The new law expressly amends the Federal Food, Drug, and Cosmetic Act (FFDCA) to give FDA broad statutory authority to regulate the manufacture, distribution, advertising, sale, and use of cigarettes and other tobacco products. The FDA tobacco rule limits underage access to cigarettes and smokeless tobacco, and places new restrictions on the advertising and marketing of tobacco products. Among its provisions, the rule prohibits the sale of tobacco products to any person under age 18; requires retailers to verify a purchaser's age by photo ID; restricts the sale of tobacco products through vending machines and self-service displays; limits tobacco advertising in publications to which children and adolescents are exposed to a black-on-white, text-only format; prohibits the sale of tobacco brand-identified promotional items such as caps and T-shirts; and prohibits brand-name sponsorship of sporting and other cultural events. The rule took effect on June 22, 2010. This report discusses FDA's initial failed attempt at regulating tobacco products under the then existing provisions of the FFDCA, summarizes FDA's current tobacco rule—reissued pursuant to statutory authority granted under the FSPTCA, and compares the reissued rule's provisions to the youth access, advertising, and marketing restrictions that went into effect pursuant to the 1998 Master Settlement Agreement between the states and the tobacco companies. The report then discusses the First Amendment implications of the rule's advertising restrictions and includes an analysis of the U.S. Supreme Court's decision in Lorillard Tobacco Co. v. Reilly , which struck down a Massachusetts law restricting outdoor tobacco advertising, and a recent federal court of appeals ruling against FDA. The report will be updated to reflect further regulatory actions taken by FDA and any future court decisions. Recognizing the health hazards of smoking, FDA first attempted to regulate tobacco products in the 1990s as a "drug or device" under the then existing provisions of the Federal Food, Drug, and Cosmetic Act (FFDCA). Accordingly, FDA published a final rule on August 28, 1996, aimed at reducing underage smoking and use of smokeless tobacco products. The FDA rule included three sets of provisions: restrictions on the sale and distribution of tobacco products to minors, limits on tobacco-product marketing and advertising, and new labeling requirements for packaging and advertising. The agency said that the purpose of the rule was to reduce the easy access to tobacco products by minors. It also hoped to reduce the amount of positive advertising imagery used by manufacturers to make their products appealing to minors. While the rule did not directly address adult tobacco use, FDA argued that over time it would help reduce adult tobacco consumption. Data from the National Survey on Drug Use and Health indicate that the vast majority of smokers take up the habit as teenagers. Thus, reducing the number of new teenage smokers, who were needed to replace adult smokers who quit or die, was expected to lower overall tobacco consumption in the future. The FDA initially asserted regulatory jurisdiction over cigarettes and smokeless tobacco under the FFDCA by concluding that nicotine was a "drug" and that cigarettes and smokeless tobacco were a drug-delivery "device" as defined by the act. The statute defines a drug, in relevant part, as "articles (other than food) intended to affect the structure or any function of the body." In its rulemaking, the FDA drew on the extensive scientific literature documenting nicotine's pharmacologic effects on the body, including satisfaction of addiction, stimulation, and sedation. The agency also concluded that cigarettes and smokeless tobacco are devices that deliver nicotine into the body. As with drugs, the FFDCA's definition of medical devices includes articles that are intended by the manufacturer to affect the structure and function of the body. Unlike a drug, however, a device is defined, in part, as an article "which does not achieve its primary intended purpose through chemical action." Having made the determination that tobacco products fell under the statutory definitions of drugs and devices, the FDA further concluded that these products were combination products because they have both a drug and a device component. Under the FFDCA, the FDA is authorized to regulate products that "constitute a combination of a drug, device, or biologic product." The agency interpreted this provision as giving it the discretion to regulate combination products as drugs, as devices, or as biologic products. In its final rule, the FDA chose to regulate tobacco products under the device provisions of the FFDCA because they offered the agency greater regulatory flexibility than did the drug provisions of the act. Under the FFDCA, drug and device manufacturers must demonstrate that their products are both safe and effective in order to gain FDA marketing approval. The safety and effectiveness standard poses a difficult challenge for regulating tobacco products, which are manifestly unsafe when used as intended. Critics of FDA's 1996 rule argued that in asserting regulatory authority over tobacco products, the agency would have no choice but to ban them because of their harmful and addictive effects. In commenting on the rule, the FDA conceded that tobacco products are "unsafe" as that term is generally understood, but concluded that banning tobacco products was not a realistic option because the health care system would be overwhelmed by more than 40 million nicotine addicts seeking assistance for withdrawal symptoms. Moreover, the agency argued, banning cigarettes would create an enormous black market, which might lead to the use of unregulated and potentially even more harmful products. The FFDCA's device authorities present a range of mandatory controls that apply to devices and their manufacturers including labeling and recordkeeping requirements, registration and inspection, and good manufacturing practices. In addition to mandatory controls, the FFDCA contains various discretionary provisions that apply to devices under certain circumstances. The FDA predicated its authority to regulate tobacco products on one such provision regarding restricted devices. The act's restricted device provision states, in relevant part, that "[t]he Secretary may by regulation require that a device be restricted to sale, distribution, or use ... upon such other conditions as the Secretary may prescribe in such regulation, if, because of its potentiality for harmful effect or the collateral measures necessary for its use , the Secretary determines that there cannot otherwise be reasonable assurance of its safety and effectiveness." In the final tobacco rule, the FDA relied on the FFDCA's restricted device provision when it concluded that, because of the harmful effects of cigarette and smokeless tobacco and in the absence of a reasonable assurance of the safety and effectiveness of such products, it needed to implement additional restrictions on tobacco access and advertising in order to prevent new users from becoming addicted. Following the release of the 1996 tobacco rule, tobacco companies filed a lawsuit against the FDA and sought summary judgment on the grounds that the agency lacked the authority to regulate tobacco products when such products are marketed and sold without explicit claims of therapeutic benefit. The lawsuit further charged that the FDA exceeded its statutory authority because the FFDCA did not authorize the FDA to regulate tobacco products as drugs or devices. Finally, the companies argued that the rule's advertising restrictions, which limited most advertisements to a black-on-white text-only format, violated the First Amendment protection of commercial speech. In a 2000 case entitled FDA v. Brown & Williamson Tobacco Corp ., the U.S. Supreme Court, in a 5-4 decision written by Justice Sandra Day O'Connor, affirmed that the FDA did not have the authority to regulate tobacco products as drug-delivery devices. Although the majority opinion acknowledged the public health threat posed by tobacco use, the Court concluded that "Congress has clearly precluded the FDA from asserting jurisdiction to regulate tobacco products. Such authority is inconsistent with the intent that Congress has expressed in the [FFDCA's] overall regulatory scheme and in the tobacco-specific legislation that it has enacted subsequent to the [FFDCA]." In reaching its decision, the Court examined the FDA tobacco rule in light of the precedents that govern cases involving an agency's construction of a statute that it administers. As part of such a review, the Court must determine whether an agency's interpretation of its statute is entitled to deference and presents a reasonable or permissible construction of the law. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. is the leading case on judicial review of agency interpretations of statutes. This case involved the Environmental Protection Agency's rules regulating emissions under the Clean Air Act. In Chevron , the Court enunciated a two-step test for judicial review of an agency's interpretation of its statute: (1) has Congress spoken directly to the precise question at issue? and (2) if Congress has not done so and the statute is silent or ambiguous with respect to the specific issue, is the agency's answer based on a permissible construction of the statute? Under Chevron step one, if Congress has spoken directly to the question at issue, then Chevron deference is not due and the court "must give effect to the unambiguously expressed intent of Congress." In this case, the Court examined both the FFDCA and other tobacco-related statutes, ultimately concluding that Congress had clearly intended to preclude the FDA from regulating tobacco. As a result, the Court did not need to reach step two of Chevron . In reaching its decision, the court relied on a number of factors. First, the Court found that, because tobacco is a dangerous product and because the FFDCA prohibits the marketing of products that have not been found to be safe and effective, the statute would require the FDA to ban tobacco products if the agency did indeed have jurisdiction over such products. Such a ban, argued the Court, would plainly contradict the congressional intent reflected in the enactment of several pieces of legislation that clearly contemplate the continued marketing of tobacco products. Thus, the Court held that Congress had clearly "intended to exclude tobacco products from the FDA's jurisdiction." In addition, the Court found that the FDA had repeatedly denied that it had jurisdiction over tobacco and that Congress had repeatedly rejected bills that would have granted the agency such authority. Instead, Congress had demonstrated its intent to create a distinct regulatory scheme for tobacco by enacting other tobacco-related regulatory statutes, such as the Federal Cigarette Labeling and Advertising Act and the Comprehensive Smokeless Tobacco Health Education Act. The Court cited these tobacco-related statutes as additional evidence in support of its conclusion that Congress had intended to preclude the FDA from regulating tobacco. Writing in dissent, Justice Stephen Breyer argued that cigarettes and other tobacco products clearly fall within the plain meaning of the statutory definition of drugs and devices because such products are intended to affect the structure and function of the body. In addition, the dissent argued that the purpose of the FFDCA—to protect the public health—also supported the conclusion that the FDA was authorized to regulate tobacco products. For these reasons, the dissent would have upheld the FDA's jurisdiction over such products. Following Brown & Williamson , it was evident that the FDA could not regulate tobacco products unless Congress provided the agency with the express statutory authority to do so. To that end, the Family Smoking Prevention and Tobacco Control Act ( H.R. 4433 , S. 2461 ) was first introduced in the 108 th Congress by Representatives Tom Davis and Henry Waxman and Senators Mike DeWine and Ted Kennedy to grant FDA statutory authority over tobacco products. The legislation was the product of months of negotiations in which lawmakers sought to balance the competing interests of public health groups and the tobacco industry. The Senate added S. 2461 as an amendment to a corporate tax package, but the language was subsequently removed in conference by House conferees. The Family Smoking Prevention and Tobacco Control Act was reintroduced in the 109 th Congress ( H.R. 1376 , S. 666 ) and again in the 110 th Congress ( H.R. 1108 , S. 625 ), during which it was approved by committees in both the House and Senate. The House passed H.R. 1108 in July 2008, but no further legislative action was taken during the 110 th Congress. Reintroduced in the 111 th Congress, the Family Smoking Prevention and Tobacco Control Act ( H.R. 1256 ) passed the House on April 2, 2009. The Senate passed a slightly different version of the legislation ( S. 982 ) on June 11, 2009, which the House agreed to the following day. The Family Smoking Prevention and Tobacco Control Act (FSPTCA) was signed into law on June 22, 2009 ( P.L. 111-31 ). The FSPTCA amended the FFDCA by granting FDA authority over the regulation of tobacco products based on a public health standard rather than the safety and effectiveness standard by which the FDA regulates pharmaceutical drugs and medical devices. The new law gives FDA the authority to develop regulations restricting the sale, distribution, advertising, and promotion of tobacco products. Any proposed regulation must meet the new public health standard. That standard requires FDA to demonstrate that the proposal is appropriate for the protection of the public health, taking into account the risks and benefits to the population as a whole, including users and nonusers of tobacco products. In addition, FDA has the authority to require changes in the design and characteristics of current and future tobacco products, such as the reduction or elimination of harmful ingredients and additives. Again, the agency must show that any such proposal is appropriate for protecting public health, based on a consideration of the risks and benefits to the population as a whole. Under the FSPTCA, manufacturers must obtain FDA approval in order to market a new tobacco product. The same public health standard applies to such applications. However, the law provides two exceptions to the requirement that manufacturers obtain premarket approval for new products: (1) the manufacturer makes a claim and FDA, upon review, agrees that the new product is substantially equivalent to a product already on the market, or (2) the new product is determined to be a "minor modification" of an existing product. For the first 21 months after enactment (i.e., until March 22, 2011), manufacturers are permitted to introduce and market a new product for which a substantial equivalence claim has been submitted, provided FDA has not reviewed and rejected the claim. The FSPTCA prohibits the use of descriptors such as "light" and "mild." Manufacturers seeking to market a tobacco product for which they wish to make a reduced-risk claim, explicitly or implicitly, must provide evidence substantiating that claim and meet additional requirements in order to obtain FDA approval to market the product. The law requires a number of other important changes in the labeling, advertising, and marketing of cigarettes and smokeless tobacco products. Beginning on June 22, 2010, more explicit and conspicuous health warnings will start to appear on smokeless tobacco product labels and advertising. New health warnings on cigarette labeling and advertising will appear at a later date. FDA also has the authority to revise the size and content of the warnings, if it determines that such changes would promote a greater public understanding of the health risks of tobacco use. The FSPTCA also required FDA to reissue a modified version of the 1996 tobacco rule that the Supreme Court struck down in Brown & Williamson . The reissued tobacco rule's provisions restricting the sale, advertising, and marketing of cigarettes and smokeless tobacco are summarized in the box below. Generally, each manufacturer, distributor, and retailer is responsible for ensuring that the tobacco products it manufactures, labels, advertises, distributes, or sells comply with these provisions. Retailers, for example, must ensure that all self-service displays and advertising located within their establishments that do not comply with the rule's provisions are removed or brought into compliance. The FSPTCA instructed FDA to reissue the 1996 rule as a final rule with the following specified exceptions. First, the agency was instructed to drop the original rule's labeling provisions that would have required cigarette and smokeless tobacco packaging and advertising to include the statement "Nicotine Delivery Device for Persons 18 and Older." The FSPTCA gives FDA new authority to regulate tobacco product labeling and advertising. Second, FDA was required to replace the definitions of "cigarettes," "cigarette tobacco," and "smokeless tobacco" as they appeared in the original rule with the definitions of those terms included in the FSPTCA. Third, the agency was directed to modify the provision in the original rule that would have prohibited the distribution of free samples of cigarettes or smokeless tobacco with language in the FSPTCA that permits the distribution of free smokeless tobacco samples in "qualified adult-only facilities," as defined. Finally, the FSPTCA instructed FDA to consider modifications to the original rule's ban on outdoor cigarette and smokeless tobacco advertising (e.g., billboards, posters) within 1,000 feet of schools and playgrounds so as to address First Amendment case law, including the 2001 U.S. Supreme Court decision in Lorillard Tobacco Co. v. Reilly . In Lorillard , discussed in more detail infra , the Court struck down a Massachusetts state ban on outdoor tobacco advertising within 1,000 feet of any school or playground, holding that it violated the First Amendment protection of commercial speech. The reissued final rule does not include the outdoor advertising ban. FDA has instead reserved a section in the rule for future rulemaking on outdoor advertising restrictions. In a separate advanced notice of proposed rulemaking, the agency has requested public comment on this issue and offered several options for more narrowly tailored outdoor advertising restrictions that it believes would not violate the First Amendment. To date, the FDA has not published a Notice of Proposed Rulemaking. Retail establishments are responsible for providing training to their employees on the new regulations. FDA is planning to publish guidance to assist retailers in complying with the new regulations. The agency intends to enforce retailer compliance with the rule through inspections. The FSPTCA requires the agency to contract with states to inspect retail establishments. FDA has indicated that it will enter into these contracts on a rolling basis, but that in the interim it intends to conduct its own inspections and take enforcement action when appropriate. FDA has a variety of enforcement tools to address retailer noncompliance, including civil monetary penalties, warning letters, injunctions, and/or criminal prosecution. Retailers who violate the regulations may also be in violation of state law and subject to a variety of state remedies. In August 2009, several tobacco companies filed a federal lawsuit against FDA claiming that the FSPTCA violated their constitutional right to commercial free speech. On January 5, 2010, a federal district court judge struck down the tobacco rule's provision that limits advertising in publications with significant youth readership to a black-on-white text-only format. That ruling, which FDA is expected to appeal, is discussed in more detail below. The FDA rule builds on the youth access, marketing, and advertising restrictions that the tobacco companies agreed to as part of the 1998 Master Settlement Agreement (MSA). Attorneys general from 46 states, the District of Columbia (DC), and the five U.S. territories signed the MSA with the major cigarette companies to settle lawsuits filed by the states to recover the public health costs of treating smokers. The remaining four states (Florida, Minnesota, Mississippi, and Texas) reached comparable individual settlements with the companies. The MSA committed the tobacco companies to pay the states approximately $200 billion over the first 25 years, subject to inflation and other adjustments, with payments to continue in perpetuity. In addition, the MSA included the following restrictions on youth access, marketing, and advertising, all of which remain in effect (unless noted otherwise). The FDA rule expands the MSA youth access restrictions by restoring the 20-cigarette minimum pack size and banning free samples of cigarettes entirely. In addition, the rule places new restrictions on retailers—requiring photo identification of persons under age 28 and face-to-face retail exchanges—and limits vending machine sales to adult-only locations. Comparable provisions were not included in the MSA. Regarding tobacco product marketing and advertising, the FDA rule goes beyond the MSA in banning all brand-name sponsorship of sporting and other cultural events. And, unlike the MSA, the rule places new restrictions on tobacco labeling and advertising in publications with a significant youth readership and in audio and video advertisements. However, FDA has decided not to include a ban on all outdoor tobacco advertising within 1,000 feet of a school or playground. As discussed in more detail in the next section of this report, the agency is seeking public comment on more narrowly tailored outdoor advertising restrictions. The FDA's reissued tobacco rule includes marketing and advertising restrictions that raise constitutional questions as to the resulting burden placed on commercial speech. As authorized by the FSPTCA, FDA is also considering modifications to a ban on outdoor advertising within 1,000 feet of a school or playground in light of First Amendment case law. The U.S. Supreme Court has issued a series of decisions striking down government restrictions on certain types of commercial speech, including tobacco product advertising. These cases are instructive and form the basis for a federal court's analysis of the early legal challenges to the reissued tobacco rule. In Central Hudson Gas & Electric Corp. v. Public Service Commission , the U.S. Supreme Court established a four-part test for deciding the constitutionality of commercial speech regulation. First, in order to be protected by the First Amendment, the commercial speech must concern lawful activity and not be false or misleading. Second, the government must demonstrate that by restricting such speech, it is seeking to further a substantial government interest. Third, the restrictions must directly advance that interest. Fourth, there has to be a reasonable fit between the type of restrictions imposed and the government's objectives; in other words, the regulation cannot be "more extensive than is necessary to service that interest." As discussed previously, the FSPTCA required FDA to reissue most of the agency's 1996 tobacco rule as a final rule, with some additional language. In developing the 1996 tobacco rule, FDA created a set of advertising restrictions aimed at reducing underage smoking and smokeless tobacco use that it hoped would withstand a constitutional challenge. However, whether the FDA's 1996 rule—which included the restrictions on outdoor advertising, color graphics, and sponsorships—would have passed the Central Hudson test was a question never reached by the Supreme Court. In FDA v. Brown & Williamson , the Court instead confined itself to the more fundamental issue of agency authority to regulate tobacco at all. The Court did not address the constitutionality of the rule's marketing restrictions. Although the Supreme Court did not reach the merits of the 1996 FDA rule's advertising restrictions in Brown & Williamson , the Court has considered similar state restrictions on tobacco product advertising. In the 2001 case, Lorillard Tobacco Co. v. Reilly , the Court found a number of Massachusetts state regulations restricting outdoor and point-of-sale advertising for cigars and smokeless tobacco products to be unconstitutional. The Court determined that the regulations restricted speech more than was reasonable to advance the state's interest in reducing underage (i.e., illegal) use of tobacco products and, thus, failed to meet the fourth part of the Central Hudson test. One of the invalidated restrictions was an outdoor advertising provision with nearly identical language to the 1996 FDA tobacco rule's prohibition on outdoor tobacco advertisements within 1,000 feet of a school or playground. Such a restriction, in conjunction with other zoning restrictions, reasoned the Court, "would constitute a nearly complete ban on the communication of truthful information about smokeless tobacco and cigars to adult consumers." The Court found that the restrictions on outdoor advertising of cigars and smokeless tobacco were too broad in that they prohibited advertising "in a substantial portion of the major metropolitan areas of Massachusetts," included oral communications, and imposed burdens on retailers with limited advertising budgets. The Court also upheld challenges by smokeless tobacco and cigar companies to the outdoor advertising restrictions on the grounds that adults have a right to information and the tobacco industry has a right to communicate truthful speech on legal products. The Court's reasoning in Lorillard is likely to be instructive for any future consideration of the FDA's outdoor advertising provisions. In defending the state regulation, the Massachusetts Attorney General relied to a substantial degree on studies and evidence associated with the advertising restrictions in the FDA's 1996 rule. Although the Court determined that Massachusetts had presented sufficient evidence to satisfy the first three prongs of the Central Hudson test, the outdoor advertising regulations were found to be too broad to meet the fourth requirement—that is, that the regulation not be "more extensive than is necessary." The Court's key finding in the Lorillard case was that Massachusetts had not engaged in a "careful calculation" of the costs of the advertising regulation, nor did the state "seem to consider the impact of the 1,000-foot restriction on commercial speech in major metropolitan areas." Rather, the Attorney General simply imposed a 1,000 foot restriction that was identical to the FDA's restriction in the 1996 rule. The Court accepted the lower court's finding that the broad restriction would prohibit advertising in 87%-91% of the greater Boston metropolitan area. Such an extensive ban, reasoned the Court, "would constitute nearly a complete ban on the communication of truthful information about smokeless tobacco and cigars to adult consumers" and therefore did not "demonstrate a careful calculation of the speech interests involved." The Court also criticized the fact that the regulation constituted a ban on signs of any size, prevented retailers from communicating legitimate commercial messages to passersby, and applied to indoor communications that could be seen from the outside. In short, Massachusetts had failed to demonstrate that the regulation was sufficiently tailored to achieving the state's substantial interest in preventing minors' access to tobacco. Because Massachusetts relied greatly on studies and evidence supporting the FDA's proposed 1996 outdoor advertising regulation, the Court did, in dicta, reference the FDA rule. In discussing the geographical implications of Massachusetts' 1,000-foot ban, the Court simply noted that "the FDA's regulations would have had widely disparate effects nationwide." The Court also suggested that a "uniform … geographical limitation," without taking account of the differences between rural, suburban, and urban communities, "demonstrates a lack of tailoring." FDA received comments in response to the 1996 rule that identified this very issue. In the FDA's 1996 final rule, the agency took note of comments that focused on the impact of the rule in major metropolitan areas, including a survey that "showed that outdoor tobacco advertising would be prohibited in 94 percent and 78 percent of the respective land mass of Manhattan and Boston under the [1,000-foot] proposal." However, the FDA attributed "the possibility that its restrictions effectively outlaw outdoor advertising in most urban areas" to population density in cities. The agency then stated that its intent in establishing the 1,000-foot restriction was "to restrict the accessible and intrusive communications of information about cigarettes and smokeless tobacco to children and adolescents at school and at play." The rule explained that the FDA "considered the cost of its [1,000-foot] restriction but conclude[d] that a narrower restriction would not adequately advance its purpose of protecting young people from unavoidable advertising." Several tobacco companies were quick to challenge the advertising and marketing provisions of the reissued tobacco rule, citing Lorillard and arguing that the restrictions violated the free speech protections of the First Amendment. The U.S. Court of Appeals for the Sixth Circuit, the first appellate court to consider the validity of the new rule, released a "mixed ruling" on March 19, 2012, striking down some provisions of the regulation while upholding others. In Discount Tobacco City and Lottery v. United States , the court of appeals held that the FSPTCA's prohibition on color and graphical advertising violated the tobacco company's First Amendment free speech rights. The court treated the regulation as a blanket ban of color and imagery in advertising. Noting that such blanket bans are disfavored, the court wrote that "[i]nstead of instituting a blanket restriction on color and graphics in tobacco advertising, the government may instead restrict only the speech necessary to effect its purposes." Quoting the Supreme Court's opinion in Lorillard , the court stated, "To the extent that studies have identified particular advertising promotion practices that appeal to youth, tailoring would involve targeting those practices while permitting others." Therefore, under the court's opinion, the government may ban advertising directed at youth, but it may not ban advertising for adults because "'so long as the sale and use of tobacco is lawful for adults, the tobacco industry has a protected interest in communicating information about its products and adult customers have an interest in receiving that information.'" Therefore, the court of appeals concluded that the ban on color graphics and text failed the fourth prong of the Central Hudson test because it was more extensive than necessary. The court largely upheld the remaining restrictions on tobacco advertising and marketing. The court upheld the provisions prohibiting the distribution of free samples and branded non-tobacco products, and brand-name sponsorship of events. However, it struck down the rule's ban on so-called "continuity programs," which allow consumers to redeem proofs of purchase for merchandise. The district court did not reach the merits of the tobacco rule's outdoor advertising restrictions, and the cigarette companies did not appeal that portion of the decision. While the district court implied that a ban on outdoor advertising within 1,000 feet of a school or playground, such as the prohibition found in the original 1996 rule, was "undoubtedly" unconstitutional under Lorillard , the court held that an immediate challenge to the outdoor advertising ban was not yet ripe for review. Under the FSPTCA, Congress mandated that the FDA "include such modifications" to the outdoor advertising restriction as deemed appropriate "in light of governing First Amendment case law." The FDA has yet to issue any such modifications. Accordingly, a challenge to the restriction is not yet ripe for judicial consideration. The validity of the reissued tobacco rule's outdoor advertising restrictions will likely hinge on the nature of the modifications issued by the FDA. Analyzing the restriction on outdoor advertising in the context of Central Hudson , Lorillard , and Discount Tobacco , it does not appear that an unconditional or unaltered restriction on advertisements within 1,000 feet of a school or playground would survive the fourth step of the Central Hudson test (i.e., that the regulation cannot be "more extensive than is necessary" to serve the substantial government interest). In Lorillard , for example, the Court explained that a "careful calculation of the costs of a speech regulation does not mean that a State must demonstrate that there is no incursion on legitimate speech interests, but a speech regulation cannot unduly impinge on the speaker's ability to propose a commercial transaction and the adult listener's opportunity to obtain information about products." Thus, any modification to the rule's outdoor advertising provision will need to carefully balance the FDA's substantial interest in protecting children from tobacco products with the tobacco companies' legitimate right to convey commercial information to adults. Although the FSPTCA does not require the FDA to modify the outdoor advertising restrictions included in the 1996 rule, the FDA appears to have determined that a more narrowly tailored restriction is advisable. The reissued final rule does not include the outdoor advertising ban. FDA has instead reserved a section in the rule for future rulemaking on outdoor advertising restrictions. In a separate advanced notice of proposed rulemaking that FDA published on the same day as the final rule, the agency requested comments, data, and research "pertaining to potential outdoor advertising restrictions for tobacco products that may have developed since ... 1996." In addition, FDA announced that it was considering "several options" for altering the 1996 outdoor advertising provision, including limiting the outdoor advertising prohibition to only apply to billboards within 1,000 feet of elementary or secondary schools, or prohibiting "signs or collections of advertisements greater than 14 square feet at retail establishments located in close proximity to any elementary or secondary school (e.g., within 350 feet or approximately one city block)." FDA also noted that it was considering creating a sliding scale regulatory scheme that prohibits advertisements of varying size in relation to the sign's proximity to an elementary or secondary school. Given the legal restraints, some public health law experts believe that the U.S. Supreme Court in its decisions on the regulation of commercial speech has left public health authorities with limited room to craft tobacco advertising restrictions that meet both the third (effectiveness) and fourth (extensiveness) parts of the Central Hudson test. On the one hand, tobacco advertising restrictions that are narrowly tailored may not provide clear evidence of effectiveness, thus failing the third part of Central Hudson test. On the other hand, more sweeping (and potentially effective) restrictions may be viewed as too extensive and not reasonably related to the government's asserted interest, thus failing the fourth part of the Central Hudson test. | On March 19, 2010, the Food and Drug Administration (FDA) reissued a 1996 final rule aimed at reducing underage smoking and use of smokeless tobacco products (e.g., snuff, chewing tobacco). The agency's rulemaking was mandated by the Family Smoking Prevention and Tobacco Control Act, which was enacted last year in response to a 2000 decision by the Supreme Court holding that FDA lacked the statutory authority to regulate tobacco products. The Family Smoking Prevention and Tobacco Control Act (P.L. 111-31) expressly gives FDA broad statutory authority under the Federal Food, Drug, and Cosmetic Act (FFDCA) to regulate the manufacture, distribution, advertising, sale, and use of cigarettes and other tobacco products. The new FDA tobacco rule builds on the youth access, marketing, and advertising restrictions that the tobacco companies agreed to as part of the 1998 Master Settlement Agreement, which settled lawsuits filed by the states to recover the public health costs of tobacco-related illness. Among its provisions, the rule prohibits the sale of tobacco products to any person under age 18; requires retailers to verify a purchaser's age by photo ID; restricts the sale of tobacco products through vending machines and self-service displays to adult-only facilities; limits tobacco advertising in publications to which children and adolescents are exposed to a black-on-white, text-only format; prohibits the sale of tobacco brand-identified promotional items such as caps and T-shirts; and prohibits brand-name sponsorship of sporting and other cultural events. The rule became effective on June 22, 2010. The original 1996 rule included a ban on outdoor cigarette and smokeless tobacco advertising (e.g., billboards, posters) within 1,000 feet of schools and playgrounds. The reissued rule does not incorporate such a ban. In Lorillard Tobacco Co. v. Reilly (2001), the U.S. Supreme Court struck down a similar outdoor advertising ban in Massachusetts, arguing that it violated the First Amendment protection of commercial speech. FDA has reserved a section in the reissued rule for future rulemaking on outdoor advertising restrictions. In a separate advanced notice of proposed rulemaking, the agency has requested public comment on this issue and offered several options for more narrowly tailored outdoor advertising restrictions that the agency believes would not violate the First Amendment. In August 2009, several tobacco companies filed a federal lawsuit against FDA claiming that the Family Smoking Prevention and Tobacco Control Act violates their constitutional right to commercial free speech. On March 19, 2012, the U.S. Court of Appeals for the Sixth Circuit upheld the district court's decision striking down the tobacco rule's provision that limits advertising in publications with significant youth readership to a black-on-white, text-only format. |
Federal regulation, like taxing and spending, is one of the basic tools of government used to implement public policy. In fact, the development and framing of a rule has been described as "the climactic act of the policy making process." Another observer described the rulemaking process as "a ubiquitous presence in virtually all government programs.... The crucial intermediate process of rulemaking stands between the enactment of a law by Congress and the realization of the goals that both Congress and the people it represents seek to achieve by that law." Regulations generally start with an act of Congress, and are one of the means through which statutes are implemented and specific requirements are established. Federal agencies usually issue more than 3,000 final rules each year on topics ranging from the timing of bridge openings to the permissible levels of arsenic and other contaminants in drinking water. The costs and benefits associated with all federal regulations have been a subject of great controversy, with the costs estimated in the hundreds of billions of dollars and the benefits estimates generally even higher. The terms "rule" or "regulation" are often used interchangeably in discussions of the federal regulatory process. The Administrative Procedure Act (APA) of 1946 defines a rule as "the whole or part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy." The process by which federal agencies develop, amend, or repeal rules is called "rulemaking," and is the subject of this report. Figure 1 illustrates the basic process that most federal agencies are generally required to follow in writing or revising a significant rule. However, some aspects of Figure 1 do not apply to all rules. For example, as discussed later in this report, an agency may, in certain circumstances, issue a final rule without issuing a notice of proposed rulemaking, thereby skipping several steps depicted in the figure. On the other hand, some rules may be published for public comment more than once. Also, independent regulatory agencies are not required to submit their rules to the Office of Management and Budget's (OMB) Office of Information and Regulatory Affairs (OIRA) for review, and no agency is required to do so for rules that are not "significant." Note at the top of Figure 1 that the rulemaking process begins when Congress passes a statute either requiring or authorizing an agency to write and issue certain types of regulations. An initiating event (e.g., a recommendation from an outside body or a catastrophic accident) can prompt either legislation or regulation (where regulatory action has already been authorized). For example, in response to lethal chemical releases by plants in Bhopal, India, and West Virginia, Congress enacted Section 313 of the Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. §§11001-11050, 11023). The act required the owners and operators of certain types of facilities to report the amounts of various toxic chemicals that the facilities release to the environment above certain thresholds, and it requires the Environmental Protection Agency (EPA) to make this information available to the public. EPA subsequently issued detailed regulations implementing these requirements and, using the authority provided to it through the statute, has required reporting for more than 300 toxic substances in addition to those delineated in the law. As this example illustrates, the authority to regulate rests with Congress and is delegated, through law, to an agency. The statutory basis for a regulation can vary greatly in terms of its specificity, from (1) very broad grants of authority that state only the general intent of the legislation and leave agencies with a great deal of discretion as to how that intent should be implemented, to (2) very specific requirements delineating exactly what regulatory agencies should do and how they should take action. Note also in Figure 1 the roles that Congress and the courts can play at the end of the rulemaking process, which may result in a rule being returned to an earlier point in the process or being vacated by the reviewing body. Congress may also play a role at other stages in the process through its oversight and appropriations responsibilities. Implicit within the steps depicted in Figure 1 is an elaborate set of procedures and requirements that Congress and various Presidents have developed during the past 60 to 70 years to guide the federal rulemaking process. Some of these rulemaking requirements apply to virtually all federal agencies, some apply only to certain types of agencies, and others are agency-specific. Collectively, these rulemaking provisions are voluminous and require a wide range of procedural, consultative, and analytical actions on the part of rulemaking agencies. Some observers contend that the requirements have resulted in the "ossification" of the rulemaking process, causing agencies to take years to develop final rules. For example, the National Advisory Committee on Occupational Safety and Health noted that it takes the Occupational Safety and Health Administration (OSHA) within the Department of Labor an average of 10 years to develop and promulgate a health or safety standard. On the other hand, while these congressional and presidential rulemaking requirements are numerous, it is not clear whether they or some other factors (e.g., lack of data, congressionally imposed delays, court challenges, etc.) are the primary cause of the long time-frames that are sometimes required to develop and publish final rules. Statutory rulemaking requirements can be generally categorized into two groups—those that are specific to an individual agency or program and those that are more cross-cutting in nature and therefore apply to a wider range of agencies or programs. Agency- or program-specific rulemaking requirements may be in authorizing or appropriating statutes, and can have a significant or even determinative effect on an agency's rules and rulemaking procedures. As noted previously, these statutes sometimes specifically delineate what the agency's rules should require. For example, the Employee Retirement Income Security Act (29 U.S.C. §1001 et seq. ) gives the Pension Benefit Guaranty Corporation no discretion in drafting rules that establish minimum pension insurance premium rates, specifying to the dollar what those rates should be. Also, for a number of years the Department of Transportation (DOT) concluded that it had no discretion in setting the average fuel economy standards for light trucks, and was required to keep the standard at 20.7 miles per gallon. Agency-specific statutes may also impose specific procedural requirements on their rulemaking processes (e.g., the conduct of public hearings, the publication of a notice of proposed rulemaking by a particular date, or the coordination of rulemaking with another agency). In other cases, however, statutes may give rulemaking agencies substantial discretion in how rules are developed and what they require. For example, the Agricultural Adjustment Act provides a broad grant of rulemaking authority to the Secretary of Agriculture, stating only that agricultural marketing should be "orderly" but providing little guidance regarding which crops should have marketing orders or how to apportion the market among growers. More recently, the Patient Protection and Affordable Care Act (ACA, P.L. 111-148 ) contained a number of provisions giving federal agencies broad authority to issue "such regulations as may be necessary" to carry out certain requirements in the law. Agency rulemaking is also often significantly influenced by court decisions interpreting these agency- or program-specific statutory requirements. For example, in 1980, the Supreme Court ruled that, before promulgating new health standards, OSHA must demonstrate that the particular chemical to be regulated poses a "significant risk" under workplace conditions permitted by current regulations. The court also said that OSHA must demonstrate that the new limit OSHA proposes will substantially reduce that risk. This decision effectively requires OSHA to evaluate the risks associated with exposure to a chemical and to determine that these risks are "significant" before issuing a regulatory standard. Other court decisions have required OSHA rulemaking to demonstrate the technical and economic feasibility of its requirements. Still other decisions have required agencies to permit meaningful public participation in rulemaking and to fully explain what they considered and why they did and did not take particular actions. The following discussion of statutory rulemaking requirements focuses solely on the cross-cutting requirements that are applicable to more than one agency. The discussion provides descriptions of some of the major rulemaking-related statutes and is not intended to be a catalogue of all such requirements. Some of these rulemaking requirements have been in place for more than 70 years, but most have been implemented within the past 30 years. Some of these statutory requirements apply to Cabinet departments and independent agencies; others apply to those agencies as well as the independent regulatory agencies. With the surge of New Deal legislation enacted in the 1930s, Congress made federal agencies responsible for issuing detailed regulations on a variety of complex social and economic issues. However, no central regulatory publication system existed, so there was no efficient way for citizens to know about regulations that affected them. Therefore, Congress enacted the Federal Register Act, which became law in July 1935 (44 U.S.C. Chapter 15). The act established a uniform system for handling agency regulations by requiring (1) the filing of documents with the Office of the Federal Register, (2) the placement of documents on public inspection, (3) publication of the documents in the Federal Register , and (4) (after a 1937 amendment) permanent codification of rules in the Code of Federal Regulations . Publication of a rule in the Federal Register provides official notice of its existence and contents. Other documents that are generally published in the Federal Register include presidential proclamations and executive orders, notices, and documents that the President or Congress requires to be published. Regulations for carrying out the Federal Register Act deal with, among other things, the format and distribution of the Federal Register and how documents are prepared, transmitted, and processed. The Office of the Federal Register is responsible for printing and distributing the Federal Register , and the Office has published a guide and a drafting handbook explaining how Federal Register documents are to be prepared. The Federal Register is published each business day, and is now available electronically. The most long-standing and broadly applicable federal rulemaking requirements are in the Administrative Procedure Act (APA) of 1946 (5 U.S.C. §551 et seq. ). The APA was written to bring regularity and predictability to agency decisionmaking, and it provides for both formal and informal rulemaking. Formal rulemaking is used in ratemaking proceedings and in certain other cases when rules are required by statute to be made "on the record" after an opportunity for a trial-type agency hearing. However, few statutes require such on-the-record hearings. Informal rulemaking, also known as "notice and comment" rulemaking, is used much more frequently, and is the focus of this section. In informal rulemaking, the APA generally requires that agencies (Cabinet departments and independent agencies as well as independent regulatory agencies) publish a notice of proposed rulemaking (NPRM) in the Federal Register . The notice must contain (1) a statement of the time, place, and nature of public rulemaking proceedings; (2) reference to the legal authority under which the rule is proposed; and (3) either the terms or substance of the proposed rule or a description of the subjects and issues involved. After giving "interested persons" an opportunity to comment on the proposed rule, and after considering the public comments, the agency may then publish the final rule, incorporating a general statement of its basis and purpose. Although the APA does not specify the length of this public comment period, agencies commonly allow at least 30 days. Public comments as well as other supporting materials (e.g., hearing records or agency regulatory studies but generally not internal memoranda) are placed in a rulemaking "docket" which must be available for public inspection. Finally, the APA states that the final rule cannot become effective until at least 30 days after its publication unless (1) the rule grants or recognizes an exemption or relieves a restriction, (2) the rule is an interpretative rule or a statement of policy, or (3) the agency determines that the rule should take effect sooner for good cause, and publishes that determination with the rule. The final rule cannot adopt a provision if the NPRM did not clearly provide notice to the public that the agency was considering adopting it. If challenged in court under the APA, an agency rulemaking can be held unlawful or set aside if it is found to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law." The court can also "compel agency action unlawfully withheld or unreasonably delayed." Amendment or revocation of an existing rule generally requires the responsible agency to issue a new rule through the APA process. Although the APA generally requires agencies to publish NPRMs before promulgating a final rule, the act provides exceptions to this requirement. For example, the APA states that the notice and comment procedures generally do not apply when an agency finds, for "good cause," that those procedures are "impracticable, unnecessary, or contrary to the public interest." When agencies use the good cause exception, the act requires that they explicitly say so and provide a rationale for the exception's use when the rule is published in the Federal Register . The APA also provides explicit exceptions to the NPRM requirement for certain categories of regulatory actions, such as rules dealing with military or foreign affairs; agency management or personnel; or public property, loans, grants, benefits, or contracts. Further, the APA says that the NPRM requirements do not apply to interpretative rules; general statements of policy; or rules of agency organization, procedure, or practice. However, these rules do have to be published in the Federal Register . The legislative history of the APA makes it clear that Congress did not believe that the act's good cause exception to the notice and comment requirements should be an "escape clause." According to the Senate committee's report accompanying the APA, a "true and supported or supportable finding of necessity or emergency must be made and published" when the agency uses the good cause exception. The legislative history also indicates that Congress envisioned agencies using the notice and comment procedures even in some cases in which the APA's exceptions applied. A federal agency's invocation of the good cause exception (or other exceptions to notice and comment procedures) is subject to judicial review. After having reviewed the totality of circumstances, the courts can and sometimes do determine that an agency's reliance on the good cause exception was not authorized under the APA. The case law has generally reinforced the view that the good cause exception should be "narrowly construed." Two procedures for noncontroversial and expedited rulemaking were designed not to involve NPRMs. "Direct final" rulemaking involves agency publication of a rule in the Federal Register with a statement that the rule will be effective on a particular date unless an adverse comment is received within a specified period of time (e.g., 30 days). However, if an adverse comment is filed, the "direct final rule" is withdrawn and the agency may publish the rule as a proposed rule under normal NPRM procedures. "Direct final" rulemaking can be viewed as a particular application of the APA's good cause exception in which agencies claim NPRMs are "unnecessary." Both Vice President Albert Gore's National Performance Review and the Administrative Conference of the United States encouraged agencies to use direct final rulemaking for noncontroversial rules. The Administrative Conference also endorsed the use of what is known as "interim final" rulemaking, in which an agency issues a final rule without an NPRM that is generally effective immediately, but with a post-promulgation opportunity for the public to comment. If the public comments persuade the agency that changes are needed in the "interim final" rule, the agency may revise the rule by publishing a final rule reflecting those changes. "Interim final" rulemaking can be viewed as another particular application of the good cause exception in the APA, but with the addition of a comment period after the rule has become effective. Congress sometimes requires agencies to use "interim final" rulemaking, and may also specify the length of the comment period. For example, Subsection (b)(2) of Section 1104 of the Patient Protection and Affordable Care Act amended Section 1173 of the Social Security Act (at 42 U.S.C. §1320d-2) and states, in part, that the Secretary "shall promulgate an interim final rule applying any standard or operating rule recommended by the National Committee on Vital and Health Statistics," and "shall accept and consider public comments on any interim final rule published under this subparagraph for 60 days after the date of such publication." In August 1998, the General Accounting Office (GAO, now the Government Accountability Office) reported that about half of the 4,658 final regulatory actions published in the Federal Register during 1997 were published without NPRMs. Seven agencies accounted for about 70% of both the final actions and the actions without NPRMs. Most of the actions without NPRMs appeared to involve administrative or technical issues with limited applicability. However, 11 of the 61 final rules published during 1997 that were "major" (e.g., having a $100 million impact on the economy) did not have NPRMs. The agencies most commonly cited the APA's good cause exception as their justification for not publishing NPRMs, frequently noting the time-sensitive nature of the actions being taken. The agencies also frequently used the categorical exceptions permitted in the APA (e.g., actions involving agencies' management or personnel). In some cases GAO concluded that the agencies' explanations for why NPRMs were not used were not clear or understandable, with the agencies sometimes making broad assertions that an NPRM would delay the issuance of rules that were, in some general sense, in the public interest. For example, in one case the agency said that soliciting public comments on the rule was "contrary to the public interest" because the rule authorized a "new and creative method of financing the development of public housing." The National Environmental Policy Act (NEPA) of 1969 (42 U.S.C. §§4321-4347) was the first statute to require an "impact statement" as a way to ensure that federal agencies give special consideration to certain issues during the rulemaking process. NEPA requires all federal agencies to include in every recommendation or report related to "major Federal actions significantly affecting the quality of the human environment" a detailed statement on the environmental impact of the proposed action. Initially, though, agencies make a threshold determination (known as an "environmental assessment") as to whether the rule or other action represents a significant impact on the environment. If not, the agency issues a "finding of no significant impact." If the agency concludes that there is a significant impact, the agency then prepares a full "environmental impact statement" describing the likely effects of the rule. According to the act and its implementing regulations developed by the Council on Environmental Quality (CEQ), the environmental impact statement must delineate the direct, indirect, and cumulative effects of the proposed action. Agencies are also required to include in the statement (1) any adverse environmental effects that cannot be avoided should the proposal be implemented, (2) alternatives to the proposed action, (3) the relationship between local short-term uses of the environment and the maintenance and enhancement of long-term productivity, and (4) any irreversible and irretrievable commitments of resources that would be involved if the proposed action should be implemented. Before developing any such environmental impact statement, NEPA requires the responsible federal official to consult with and obtain comments of any federal agency that has jurisdiction by law or special expertise with respect to any environmental impact involved. Agencies must make copies of the statement and the comments and views of appropriate federal, state, and local agencies available to the President, the CEQ, and to the public. The adequacy of an agency's environmental impact statement is subject to judicial review. In April 2002, the chairman of the CEQ established a task force composed of federal agency employees to review NEPA implementation practices and procedures. In September 2003, the task force issued a report containing more than 50 recommendations to expedite the NEPA review process. Among other things, the task force recommended that new guidance be developed setting standards for the documentation needed to support a determination that a rule would not have significant environmental effects. Also, several pieces of legislation have been enacted since 2008 in an effort to streamline the NEPA process. The Paperwork Reduction Act (PRA) (44 U.S.C. §§3501-3520) was originally enacted in 1980. One of the purposes of the PRA is to minimize the paperwork burden for individuals, small businesses, and others resulting from the collection of information by or for the federal government. The act generally defines a "collection of information" as the obtaining or disclosure of facts or opinions by or for an agency by 10 or more nonfederal persons. Many information collections, recordkeeping requirements, and third-party disclosures are contained in or are authorized by regulations as monitoring or enforcement tools. In fact, these paperwork requirements are the essence of many agencies' regulatory provisions. The PRA requires agencies to justify any collection of information from the public by establishing the need and intended use of the information, estimating the burden that the collection will impose on respondents, and showing that the collection is the least burdensome way to gather the information. The original PRA established OIRA within OMB to provide central agency leadership and oversight of government-wide efforts to reduce unnecessary paperwork burden and improve the management of information resources. Agencies must receive OIRA approval (signified by an OMB control number displayed on the information collection) for each collection request before it is implemented, and those approvals must be renewed at least every three years. Failure to obtain OIRA approval for an active collection, or the lapse of that approval, represents a violation of the act, and triggers the PRA's public protection provision. Under that provision, no one can be penalized for failing to comply with a collection of information subject to the act if the collection does not display a valid OMB control number. OIRA can disapprove any collection of information if it believes the collection is inconsistent with the requirements of the PRA. The PRA clearance process is described in the act and implementing regulations. For new collections, no later than the publication of the NPRM, the issuing agency must submit the proposed rule and any background information to OIRA. At the same time the agency is required to publish a notice in the Federal Register stating that OIRA's approval is being sought, thereby providing the public with an opportunity to comment on the proposed collection. For any collection of information that is not contained in a proposed rule, OIRA staff have up to 60 days under the statute to review the proposed collection and ensure, among other things, that the collection is statutorily authorized and necessary, and that the agency's paperwork burden estimate (most commonly measured in terms of "burden hours") is reasonable. At the end of the process the agency is notified of the disposition of the review. OIRA data indicates that the office takes action on between 3,000 and 5,000 information collection requests (new approvals, renewals, or revisions) each year. The PRA was amended in 1995. The amended version reaffirmed the principles in the original act and gave significant new responsibilities to OIRA and executive branch agencies. For example, the act currently requires OIRA to "oversee the use of information resources to improve the efficiency and effectiveness of governmental operations to serve agency missions." The PRA also requires federal agencies to establish a process, independent of program responsibility, to evaluate proposed collections of information, manage information resources to reduce information collection burdens on the public, and ensure that the public has timely and equitable access to information products and services. The coverage of the PRA is extremely broad, including actions by both Cabinet departments and independent agencies as well as independent regulatory agencies, and covering virtually any type of collection of information that these agencies "conduct or sponsor." As a result of the 1995 amendments to the act, the PRA's clearance requirements clearly cover collections of information "requiring the disclosure to third parties or the public," effectively overturning the Supreme Court's 1990 decision in Dole v. United Steelworkers of America (494 U.S. 26). One of the key features of the PRA of 1995 was the requirement that OIRA, in consultation with the agency heads, set annual government-wide goals for the reduction of information collection burdens by at least 10% in fiscal years 1996 and 1997, and by at least 5% in each of the succeeding four fiscal years. The act also required OIRA to establish agency burden reduction goals each year representing "the maximum practicable opportunity in each agency." At the end of FY1995 (just before the PRA of 1995 took effect), federal agencies estimated that their information collections imposed about 7 billion burden hours on the public. Therefore, if all federal agencies had been able to meet each of the government-wide goals, by September 30, 2001, the burden-hour estimate would have decreased about 35% to about 4.6 billion hours. However, this reduction did not occur. In fact, the September 30, 2002, government-wide burden estimate stood at more than 8.2 billion hours—a 17% increase since the PRA of 1995 took effect. Nearly half of that increase occurred during FY2002 alone, and about 70% occurred during fiscal years 2001 and 2002. The agencies contend that they are often unable to reduce paperwork requirements without changes in the underlying statutes that require the information to be collected. As of January 2013, there were more than 9,000 active agency information collections, with a total burden-hour estimate of over 10 billion hours. The Regulatory Flexibility Act (RFA) of 1980 (5 U.S.C. §§601-612), requires federal agencies to assess the impact of their forthcoming regulations on "small entities," which the act defines as including small businesses, small governmental jurisdictions, and certain small not-for-profit organizations. Under the RFA, Cabinet departments and independent agencies as well as independent regulatory agencies must prepare a regulatory flexibility analysis at the time certain proposed and final rules are issued. The analysis for a proposed rule is referred to as an "initial regulatory flexibility analysis" (IRFA) and the analysis for a final rule is referred to as a "final regulatory flexibility analysis." The RFA requires the analysis to describe, among other things, (1) the reasons why the regulatory action is being considered; (2) the small entities to which the proposed rule will apply and, where feasible, an estimate of their number; (3) the projected reporting, recordkeeping, and other compliance requirements of the proposed rule; and (4) any significant alternatives to the rule that would accomplish the statutory objectives while minimizing the impact on small entities. However, these analytical requirements are not triggered if the head of the issuing agency certifies that the proposed rule would not have a "significant economic impact on a substantial number of small entities." The RFA does not define "significant economic impact" or "substantial number of small entities," thereby giving federal agencies substantial discretion regarding when the act's analytical requirements are initiated. Also, the RFA's analytical requirements do not apply to final rules for which the agency does not publish a proposed rule. The RFA initially did not permit judicial review of agencies' actions under the act. However, amendments to the act in 1996 as part of the Small Business Regulatory Enforcement Fairness Act (SBREFA) (110 Stat. 857, 5 U.S.C. §601 note) permitted judicial review regarding, among other things, agencies' regulatory flexibility analyses for final rules and any certifications that their rules will not have a significant impact on small entities. As a result, a small entity that is adversely affected or aggrieved by an agency's determination that its final rule would not have a significant impact on small entities could seek judicial review of that determination within one year of the date of the final agency action. In granting relief, a court may remand the rule to the agency or defer enforcement against small entities. The addition of judicial review in 1996 is generally viewed as a significant strengthening of the RFA, and is believed to have improved agencies' compliance with the act. The RFA also contains several other notable provisions. For example, Section 602 requires each federal agency to publish a "regulatory flexibility agenda" in the Federal Register each October and April listing regulations that the agency expects to propose or promulgate which are likely to have a significant economic impact on a substantial number of small entities. Section 610 of the act requires agencies to review those rules that have or will have a significant impact within 10 years of their promulgation to determine whether they should be continued without change or should be amended or rescinded to minimize their impact on small entities. Section 612 of the RFA requires the Chief Counsel of the Small Business Administration's (SBA) Office of Advocacy to monitor and report at least annually on agencies' compliance with the act. SBA's primary method of monitoring agencies' compliance is to review and comment on proposed regulations when they are published for notice and comment in the Federal Register . However, the statute also specifically authorizes the Chief Counsel to appear as amicus curiae (i.e., "friend of the court") in any court action to review a rule. The RFA also requires agencies to ensure that small entities have an opportunity to participate in the rulemaking process, and it has special requirements for proposed rules issued by the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), and the Consumer Financial Protection Bureau (CFPB). Specifically, these three agencies are required to convene "advocacy review panels" before publishing a regulatory flexibility analysis for a proposed rule. The agency issuing the regulation must notify the SBA Chief Counsel for Advocacy and provide information on the draft rule's potential impacts on small entities and the type of small entities that might be affected. The Chief Counsel then must identify representatives of affected small entities within 15 days of the notification. The review panel must consist of full-time federal employees from the rulemaking agency, the Office of Management and Budget, and SBA's Chief Counsel for Advocacy. During the panel process, the panel must collect the advice and recommendations of representatives of affected small entities about the potential impact of the draft rule. The panel must report on the comments received and on the panel's recommendations no later than 60 days after the panel is convened, and the panel's report must be made public as part of the rulemaking record. The agency may or may not adopt the panel's recommendations. GAO has examined the implementation of the RFA several times within the past 20 years, and a recurring theme in GAO's reports is a lack of clarity in the act and a resulting variability in the act's implementation. For example, in 1991 GAO reported that each of the four federal agencies that it reviewed had a different interpretation of key RFA provisions. In 1994 GAO again reported that agencies' compliance with the RFA varied widely from one agency to another and that agencies were interpreting the statute differently. In a 1999 report on the implementation of Section 610 of the RFA and in a 2000 report on the implementation of the RFA at the Environmental Protection Agency (EPA), GAO concluded that agencies had broad discretion to determine what the statute required. In all of these reports, GAO suggested that Congress consider clarifying the act's requirements and/or give SBA or some other entity the responsibility to develop criteria for whether and how agencies should conduct RFA analyses. In 2001, GAO testified that the promise of the RFA may never be realized until Congress or some other entity defines what a "significant economic impact" and a "substantial number of small entities" mean in a rulemaking setting. However, other observers have indicated that the definitions of these terms should remain flexible because of significant differences in each agency's operating environment. Periodically, legislation is introduced to amend the RFA. For example, in the 112 th Congress, H.R. 527 , the Regulatory Flexibility Improvements Act of 2011, would (among other things) clarify and expand the rules covered by the act, and require the SBA Chief Counsel for Advocacy to "issue rules governing agency compliance with this chapter." As noted in the previous section of this report, certain provisions in SBREFA amended the RFA to permit judicial review and to permit small entities to participate in EPA and OSHA rulemaking before a proposed rule with a significant impact on small entities is published. Other provisions in SBREFA did not amend the RFA, but imposed new rulemaking-related requirements on federal agencies. For example, Section 212 of SBREFA requires agencies to develop one or more compliance guides for each final rule or group of related final rules for which the agency is required to prepare a regulatory flexibility analysis. Specifically, Section 212 requires the guides to (1) be published, (2) be designated as "small entity compliance guides," and (3) explain the actions a small entity is required to take to comply with an associated final rule. However, the discretion inherent in the RFA regarding when a regulatory flexibility analysis is required also applies to whether compliance guides must be developed. Section 212 gives agencies broad discretion in other areas as well. For example, it says agencies "may" prepare separate guides covering groups or classes of similarly affected small entities, and "may" cooperate with associations of small entities to develop and distribute the guides. Agencies are given "sole discretion" in the use of plain language in the guides. The statute does not indicate when the guides must be developed or how they must be "published." In December 2001, GAO reported that Section 212 of SBREFA did not appear to have had much of an impact on agencies' rulemaking activities, and its implementation varied across and sometimes within agencies. Using the discretion that the section provided, GAO said "an agency could legally exclude all of its rules from coverage by the statute, designate a previously published document as its small entity compliance guide, or develop and publish a guide with no input from small entities years after the covered rule takes effect." GAO recommended several changes it felt were needed to strengthen and clarify the requirements in Section 212. Section 213 of SBREFA required federal agencies regulating the activities of small entities to establish a program for responding to inquiries concerning compliance with applicable statutes and regulations. The section also says that in any civil or administrative action against a small entity, such guidance "may be considered as evidence of the reasonableness or appropriateness of any proposed fines, penalties or damages sought against such small entity." Section 222 of SBREFA amended the Small Business Act (15 U.S.C. §631 et seq .) to require the SBA Administrator to designate a "Small Business and Agriculture Regulatory Enforcement Ombudsman," who was directed to work with each agency to ensure that small business concerns have an opportunity to comment on agencies' enforcement actions. The ombudsman was directed to annually evaluate and report on each agency's enforcement activities, including a rating of the "responsiveness to small business" of each agency's regional and program offices. Section 222 also required the Administrator to establish a "Small Business Regulatory Fairness Board" in each SBA regional office to report to and advise the ombudsman on "excessive enforcement actions of agencies against small business concerns." Section 223 of SBREFA requires agencies to provide small entities with some form of relief from civil monetary penalties. Specifically, subsection 223(a) of the act required federal agencies regulating the activities of small entities to establish a policy or program by end of March 1997 for the reduction and, under appropriate circumstances, the waiver of civil penalties by small entities. In February 2001, GAO reported on the implementation of Section 223 and concluded that all of the agencies' penalty reduction and waiver policies were within the broad discretion afforded by the statute. However, GAO also reported that some of the policies covered only a portion of the agencies' enforcement actions involving small entities, and some treated small entities no differently than large entities. The agencies' policies also differed in terms of how key terms such as "small entity" and "penalty reduction" were defined, and most were developed before SBREFA took effect. GAO suggested several changes to the statute to strengthen agencies' penalty relief policies and make them more consistent. For example, GAO suggested amending the act to require agencies to maintain data on the number of enforcement actions involving small entities and the amount of penalty relief provided. This recommendation was later implemented with the passage of the Small Business Paperwork Relief Act of 2002 ( P.L. 107-198 , 116 Stat. 729), which required (among other things) that agencies develop and report such information to selected congressional committees. The statutory provision commonly known as the Congressional Review Act (CRA) (5 U.S.C. §§801-808) was included as part of SBREFA as enacted in March 1996, and it established expedited procedures by which Congress may disapprove agencies' rules by enacting a joint resolution of disapproval. Under the CRA, before any final rule can become effective it must be filed with each house of Congress and GAO. The act also requires federal agencies to submit to GAO and make available to each house of Congress a copy of any cost-benefit analysis prepared for the rule and a report on the agency's actions related to the RFA and any other relevant act or executive order. The definition of a "rule" under the CRA is very broad, and the act applies to rules issued by Cabinet departments and independent agencies as well as independent regulatory agencies. If OIRA considers the issuing agency's rule to be "major," the agency generally must delay the rule's effective date by 60 days after the date of publication in the Federal Register or submission to Congress and GAO, whichever is later. Within 15 calendar days of receiving a major rule, GAO is required to provide Congress with a report on the rule assessing the issuing agency's compliance with the procedural steps required by the various acts and executive orders applicable to the rulemaking process. Although the CRA establishes these special requirements for major rules, the CRA procedures for disapproving regulations apply to all rules, whether or not they are declared to be major. Within 60 days after Congress receives an agency's rule, excluding periods when Congress is in recess or adjournment, a Member of Congress can introduce a resolution of disapproval that, if adopted by both Houses and enacted into law, can nullify the rule, even if it has already gone into effect. Congressional disapproval under the CRA also prevents the agency from proposing to issue a "substantially similar" rule without subsequent statutory authorization, but this provision is not intended to vitiate altogether the agency's power to establish regulations in the area in question. The CRA provides that Senate action on a disapproval resolution under the act must occur within 60 days of session after the regulation is submitted, and it makes available during that period an expedited procedure intended to ensure that the Senate can take up and vote on the measure before the period expires. The act establishes no such expedited procedure for the House. If Congress adjourns less than 60 days of session after a rule is submitted, a new 60 day period for disapproval under the act begins on the 15 th legislative day of the next session. If a disapproval resolution is rejected by either house of Congress, the rule can take effect immediately (or as provided by other governing law or rule). Federal agencies have submitted more than 57,000 rules to GAO (and presumably, Congress) since the CRA took effect in March 1996, including more than 1,000 major rules. However, only one rule has been overturned through CRA's procedures—OSHA's ergonomics standard in March 2001 ( P.L. 107-5 ). Many reasons have been suggested for why the CRA has not been used more often, but chief among them may be the fact that, if the President vetoes a resolution of disapproval (which is likely if the underlying rule is developed during his administration), then enactment of the resolution would require approval of a two-thirds majority in both houses of Congress to override the veto. The rejection of the ergonomics rule was the result of a specific set of circumstances created by a transition in party control of the presidency. The majority party in both houses of Congress was the same as the party of the incoming President (George W. Bush). The new Congress convened in 2001 and adopted a resolution disapproving the rule published under the outgoing President (William J. Clinton), which George W. Bush signed into law. Congress may be most able to use the CRA to disapprove rules in similar, transition-related circumstances. Congress can also stop agency rulemaking or regulatory enforcement through provisions added to agency appropriations legislation. There appear to be four types of such appropriations provisions: (1) restrictions on the finalization of particular proposed rules, (2) restrictions on regulatory activity within certain areas, (3) implementation or enforcement restrictions, and (4) conditional restrictions (e.g., preventing implementation of a rule until certain actions are taken). Some of these kinds of provisions have been included in appropriations bills for many years in a row. The reasons behind these restrictions vary, with some appearing to be based on economic considerations, some requiring or preventing the implementation of rules issued at the end of a presidential administration, and some included for various other reasons. Such provisions are generally applicable only for the period of time and the agencies covered by the relevant appropriations bill, but (depending on how they are worded) can be more broadly applicable. Also, to the extent that agencies have independent sources of funding (e.g., user fees) or implement their regulations through state or local governments, some of the limitations may not be as restrictive as they seem. The Unfunded Mandates Reform Act (UMRA) of 1995 was enacted in an effort to reduce the costs associated with federal imposition of responsibilities, duties, and regulations upon state, local, and tribal governments and the private sector without providing the funding appropriate to the costs imposed by those responsibilities. Title I of UMRA established new procedures designed to ensure that Congress fully considers the potential effects of unfunded federal mandates before imposing them in legislation. Among other things, the procedures call for the Congressional Budget Office to provide statements to authorizing committees about whether reported bills contain mandates and, if so, the cost of those mandates. Title II of UMRA (2 U.S.C. §§1532-1538) contains requirements imposed on covered federal agencies during the rulemaking process. Specifically, the act requires Cabinet departments and independent agencies (but not independent regulatory agencies) to, among other things: prepare a written statement containing specific descriptions and estimates for any proposed rule or any final rule for which a proposed rule was published that includes any federal mandate that may result in the expenditure of $100 million or more in any year by state, local, or tribal governments, in the aggregate, or the private sector. One of the items required in the written statement is a qualitative and quantitative assessment of the anticipated costs and benefits of the mandate (Section 202); identify and consider a reasonable number of regulatory alternatives and select the least costly, most cost-effective, or least burdensome alternative (or explain why that alternative was not selected) for each rule for which a written statement is prepared (Section 205); develop a plan in which agencies provide notice of regulatory requirements to potentially affected small governments (Section 203); and develop an effective process to permit elected officers of state, local, and tribal governments (or their designees) to provide input in the development of regulatory proposals containing significant intergovernmental mandates (Section 204). OIRA has primary responsibility for monitoring agency compliance with title II of UMRA, and issued guidance in March 1995 on the implementation of the title that generally repeated the requirements of the statute. OIRA also publishes an annual report on the implementation of title II. In February 1998, GAO reported that, because of the way the statute was written, title II of UMRA had little effect on agencies' rulemaking actions during its first two years of implementation. First, many of the act's requirements did not appear to apply to most of the "economically significant" rules (e.g., rules with a $100 million impact on the economy) that were promulgated during this period. For example, if a final rule did not have an associated NPRM or imposed a mandate as a condition of federal financial assistance, the written statement requirement in Section 202 of UMRA does not apply. Second, UMRA does not require agencies to take the actions specified if the agencies determine that they are duplicative of other actions or that accurate estimates of the effect of their rules are not feasible. Third, even when UMRA is triggered, it often requires agencies to take actions that are identical or similar to actions that they were already required to take. For example, UMRA's requirements in sections 202 and 205 for the conduct of cost-benefit analysis and identification of regulatory alternatives are similar to the requirements that were already in place under Executive Order 12866, which was issued more than a year before UMRA was enacted. (See below for a discussion of " Executive Order 12866 .") The consultation requirements in Section 204 are traceable to the notice and comment requirements in the APA, and are almost identical to the requirements in Executive Order 12875, which was issued more than a year before UMRA. In May 2004, GAO again reported that UMRA's written statement requirements did not apply to most major or economically significant final rules issued in 2001 and 2002 (only 9 of 122). However, GAO also said that some of the rules not triggering UMRA's requirements "appeared to have potential financial impacts on affected nonfederal parties similar to those of the actions that were identified as containing mandates at or above the act's thresholds." In March 2005, GAO reported that parties from various sectors (businesses, public interest groups, academia, and others) most commonly cited UMRA's numerous definitions, exclusions, and exceptions as problematic and in need of improvement. In February 2011, GAO reiterated these conclusions, noting that there are 14 reasons why a rule may not be considered a "mandate" under UMRA. Section 515 of the Treasury and General Government Appropriations Act for Fiscal Year 2001 ( P.L. 106-554 ), generally known as the "Data Quality Act" or the "Information Quality Act" (IQA), amended the Paperwork Reduction Act and directed OMB to issue government-wide guidelines that "provide policy and procedural guidance to Federal agencies for ensuring and maximizing the quality, objectivity, utility, and integrity of information (including statistical information) disseminated by Federal agencies." The IQA also instructed agencies (both Cabinet departments and independent agencies as well as independent regulatory agencies) to issue their own guidelines not more than one year after the issuance of OMB's government-wide guidelines, and to establish administrative mechanisms allowing affected persons to seek and obtain correction of information maintained and disseminated by the agency. Finally, the act required agencies to report periodically to the Director of OMB on the number and nature of complaints received and how such complaints were handled by the agency. The first agency reports were due by January 1, 2004. In response to a separate congressional requirement, in April 2004, OMB provided Congress with a report on the implementation of the IQA during FY2003. The report said that agencies received only about 35 substantive correction requests during the year, and said it was "premature to make broad statements about both the impact of the correction request process and the overall responsiveness of the agencies." Many other correction requests listed in the report were on minor issues or involved matters that had been dealt with before the IQA was enacted. OMB indicated that the correction requests came from all segments of society, and said there was no evidence that the IQA had affected the pace of rulemaking. However, OMB Watch (a public interest group now known as the Center for Effective Government) said OMB's report was "seriously flawed" in that it understated the number of correction requests and did not disclose that nearly three-quarters of the requests were from industry. A major test of the IQA concerned whether agencies' denials of information correction requests are subject to judicial review. In March 2006, the U.S. Court of Appeals for the Fourth Circuit ruled that the act does not permit judicial review. Two district courts had previously reached a similar conclusion, and the Department of Justice had issued a brief stating that the IQA does not permit judicial review. In a development closely related to the issue of information quality, in September 2003, OMB published a proposed bulletin on "Peer Review and Information Quality" that would have, if made final, provided a standardized process by which all significant regulatory information would be peer reviewed. The authorities that OMB cited for this action were the IQA, the Paperwork Reduction Act, and Executive Order 12866. "Regulatory information" was defined in the bulletin as any scientific or technical study that "might" be used by federal, state, local, or international regulatory bodies. Specifically, the bulletin proposed requiring each federal agency (each executive agency and independent regulatory agency) to take three actions: (1) have all "significant regulatory information" that it intends to disseminate peer reviewed (with information defined as "significant" if OMB determines that it will have a clear and substantial impact on important public policies or private sector decisions); (2) have "especially significant regulatory information" subject to the above requirements peer reviewed according to even higher standards (with information deemed "especially significant" if, among other things, it supports a regulatory action with a $100 million or more impact on the economy or "is relevant to an Administration policy priority"); and (3) provide OMB at least once each year with information about upcoming significant regulatory disseminations and the agency's plans for conducting peer reviews. The proposed bulletin also said agencies that are likely to disseminate "significant" or "especially significant" regulatory information must supplement or amend their information quality guidelines to incorporate the requirements of the proposed peer review bulletin for "significant" and "especially significant" information. The proposed bulletin indicated that OMB could waive the requirements for peer review if an agency made "a compelling case" that a waiver is necessary (e.g., an imminent health hazard or homeland security threat). OMB received 187 comments from the public and other agencies on its proposed peer review bulletin, with some supporting its issuance in final and others calling for its withdrawal and reconsideration. On April 15, 2004, OMB published a revised bulletin, and again asked the public for comments. On December 16, 2004, OMB published a final version of the peer review bulletin on its website. The final bulletin was published in the Federal Register on January 14, 2005. OMB said this version reflects "minor revisions" made in response to more than 50 comments from the public on the revised bulletin. For example, the final bulletin requires agencies to disclose the names of peer reviewers to the public and adds an annual reporting requirement to allow OMB to track how agencies are using the bulletin. However, agencies are still afforded substantial discretion to determine when and what type of peer review is required. OMB also retains substantial discretion in certain areas. As of June 2013, OMB has not updated or changed the peer review memo since it was finalized in December 2004. OMB and supporters of the peer review bulletin indicate that peer review standards across the government are currently inconsistent, and that more consistent use of peer review can increase the technical quality and credibility of regulatory science. They also assert that peer review can protect science-based regulations from political criticism and litigation. Opponents view the bulletin as an effort to inject political considerations into the world of science and to use the uncertainty that inevitably surrounds science as an excuse to delay new rules that could cost regulated entities millions or even billions of dollars. They also expressed concerns regarding the need for the bulletin and OMB's authority to issue it. Other statutory provisions have been enacted over the years that, while generally not imposing new rulemaking requirements per se, can affect the rulemaking process. Several statutes either require or permit the use of advisory committees in the federal rulemaking process. An advisory committee may be composed of experts in the regulatory field involved, representatives of the interest groups affected by the rule, and related federal or state agencies, and may help set the agency's rulemaking agenda or may simply serve as a sounding board for agency ideas. The enactment of the Federal Advisory Committee Act (FACA) of 1972 (5 U.S.C. App. II) established requirements to ensure that agencies using advisory committees receive impartial and relevant expertise. Specifically, FACA requires that the advice provided by advisory committees be objective and accessible to the public. With certain exceptions, each advisory committee meeting is presumptively open to the public. Adequate advance notice of the meetings must be published in the Federal Register , and all papers, records, and minutes of the meetings must generally be made available to the public. FACA also requires that the advisory committees be fairly balanced in regard to the points of view of affected interests and the functions performed. The act defines an advisory committee as any committee or similar group (1) established or used to obtain advice or recommendation for one or more federal agencies or the President and (2) that is not composed wholly of full-time federal officers or employees. The Trade Agreements Act of 1979 (19 U.S.C. §§2531-2533) prohibits agencies from setting regulatory standards that create "unnecessary obstacles to foreign commerce" of the United States. The act specifically states that legitimate domestic objectives such as safety or health are not considered unnecessary obstacles. The statute also requires, where appropriate, the use of performance standards rather than design standards and the consideration of international standards as the basis of domestic standards. The Negotiated Rulemaking Act of 1990 (5 U.S.C. §§561-570a), as amended and permanently authorized in 1996 (110 Stat. 3870), seeks to overcome what some observers describe as an adversarial relationship between agencies and affected interest groups that often accompanies agency rulemaking. The concept of negotiated rulemaking (sometimes referred to as regulatory negotiation or "reg-neg") emerged in the 1980s as a supplement to the traditional procedure for developing regulations. Negotiated rulemaking does not replace procedures necessary under the APA. Instead, the act encourages (but does not require) agencies to consider convening a negotiated rulemaking committee before developing and issuing a proposed regulation under the APA. The committee, composed of representatives of the agency and the various interest groups that would be affected by the proposed regulation, addresses areas of concern in the hope that it can reach agreement on the contents of a proposed regulation. The agency can, if it agrees, then issue the agreement as a proposed rule, and eventually a final rule under existing APA requirements. The expectation is that any rule drafted through negotiated rulemaking would be easier to implement and less likely to be the subject of subsequent litigation. However, any proposal agreed to by the negotiated rulemaking committee is not binding on the agency or other parties. The major provisions of the act require that (1) a negotiated rulemaking committee consist of at least one member of the agency and no more than 25 members, unless the head of the agency determines that more are needed; (2) the agency select an impartial "facilitator" to chair meetings, subject to the approval of the committee by consensus; (3) an agreement on any negotiated rulemaking must be unanimous, unless the negotiated rulemaking committee agrees to other conditions; and (4) the head of an agency, when deciding whether to establish a negotiated rulemaking committee, assure that (a) there are a limited number of identifiable interests that will be significantly affected by the rule; (b) there is a reasonable chance that a committee can be convened with a balanced representation of interested parties willing to negotiate in good faith; and (c) there is a reasonable likelihood that a committee will reach a consensus on the proposed rule within a fixed period of time. An agency may pay reasonable travel and per diem expenses, and reasonable compensation to negotiating committee members under certain conditions. The agency must comply with FACA in establishing and administering the committee. Agency procedural actions related to establishing, assisting, or terminating the committee are not subject to judicial review, but any judicial review available regarding the rule resulting from negotiated rulemaking is unaffected. Although the use of negotiated rulemaking was expected to improve rulemaking timeliness and reduce litigation, one examination of agencies' efforts in this area indicated that those expectations were not being fulfilled. However, another study indicated that negotiated rulemaking can improve participants' perception of the final rule and of the overall rulemaking process. Although the Negotiated Rulemaking Act gives agencies substantial discretion as to whether the approach should be employed in rulemaking, Congress has sometimes mandated its use by rulemaking agencies and established specific procedures and time frames to follow. For example, Section 5602 of the Patient Protection and Affordable Care Act requires the Secretary of Health and Human Services to use negotiated rulemaking to establish a "comprehensive methodology and criteria for designation of ... (A) medically underserved populations in accordance with section 330(b)(3) of the Public Health Service Act (42 U.S.C. § 254b(b)(3))," and "(B) health professions shortage areas under section 332 of the Public Health Service Act (42 U.S.C. § 254e)." Section 12(d) of the National Technology Transfer and Advancement Act (15 U.S.C. §272 note), adopted in March 1996, generally requires federal agencies to "use technical standards that are developed or adopted by voluntary consensus standards bodies" to carry out policy objectives unless doing so is "inconsistent with applicable law or otherwise impractical." Agencies are also required to consult with and (if in the public interest and compatible with agency missions, authority, priorities, and resources) participate with voluntary, private sector, consensus bodies. This provision essentially codified policies already in existence in OMB Circular A-119, and also established reporting requirements and authorized the National Institute of Standards and Technology (NIST) within the Department of Commerce to coordinate agencies' conformity assessment activities. According to NIST, federal agencies use consensus standards in hundreds of federal procurement or regulatory programs (e.g., requiring certification from Underwriters Laboratories that a product is safe or requiring individuals in certain professions meet specific educational or competency standards). Section 624 of the Treasury and General Government Appropriations Act, 2001 (31 U.S.C. §1105 note), sometimes referred to as the "Regulatory Right-to-Know Act," requires OMB to prepare and submit with the budget an "accounting statement and associated report" containing an estimate of the total costs and benefits (including quantifiable and nonquantifiable effects) of federal rules and paperwork, to the extent feasible, (1) in the aggregate, (2) by agency and agency program, and (3) by major rule. The accounting statement is also to contain an analysis of impacts of federal regulation on state, local, and tribal governments, small businesses, wages, and economic growth. The statute requires an accounting statement and report for calendar year 2002 "and each year thereafter." To prepare the report, OMB relies heavily on agencies' estimates of costs and benefits for individual rules published during the previous 10 years. However, if an agency quantified but did not monetize its estimates, OMB monetizes them using "standard" assumptions. In its reports, OMB attempts to capture the agencies' nonquantified benefits and costs in "other information" columns, but OMB's monetized estimates exclude these effects. In 1998, Congress enacted the Government Paperwork Elimination Act (GPEA) (44 U.S.C. §3504 note), which required that by October 21, 2003, federal agencies provide the public, when practicable, with the option of submitting, maintaining, and disclosing information electronically, instead of on paper. GPEA makes OMB responsible for ensuring that federal agencies meet the act's implementation deadline. Although GPEA does not specifically mention rulemaking, both OMB and rulemaking agencies have indicated that its requirements have provided an impetus for developing information technology-based approaches to rulemaking that involves information collection and, more generally, to regulatory management. The E-Government Act of 2002 (44 U.S.C.A. §3601 note) was designed to enhance the management and promotion of electronic government services and processes, and contains requirements affecting the rulemaking process. Specifically, Section 206 of the act requires agencies, to the extent practicable, to: ensure that a publicly accessible website includes all information about that agency that is required to be published in the Federal Register , accept public comments on proposed rules "by electronic means," and ensure that a publicly accessible federal website contains "electronic dockets" for proposed rules containing all comments submitted on the rules as well as "other materials that by agency rule or practice are included in the rulemaking docket under (the APA), whether or not submitted electronically." The E-Government Act also requires agencies to conduct a "privacy impact assessment" before initiating a new collection of information that uses information technology and contains individually identifying information. In addition, the act established an Office of Electronic Government within OMB, headed by an Administrator appointed by the President. It requires the Administrator of that office to work with the Administrator of OIRA in establishing the strategic direction of the e-government program, and to oversee its implementation. In January 2003, the Bush Administration launched the "Regulations.gov" website, an "e-rulemaking" initiative intended to accomplish many of the objectives of the E-Government Act. Regulations.gov has electronic versions of proposed and final rules, as well as other rulemaking documents and Federal Register notices, and the public can identify and submit comments electronically on rules that are open for comment. The Environmental Protection Agency (EPA) is the managing agency for Regulations.gov. In June 2002, Congress enacted and the President signed the Small Business Paperwork Relief Act of 2002 ( P.L. 107-198 ). The act amended the Paperwork Reduction Act to, among other things, require each agency to establish a single point of contact to act as a liaison for small business concerns with regard to information collection and paperwork issues. It also directed agencies to make a special effort to reduce information collection burdens for small businesses with fewer than 25 employees. OMB was directed to publish in the Federal Register and make available on the Internet an annual list of the compliance assistance resources available to small businesses. The act also required agencies to report to Congress on the amount of penalty relief provided to small businesses, and established a task force to study the feasibility of streamlining information collection requirements on small businesses. During the past 20 years, each President has issued executive orders and/or presidential directives designed to guide the federal rulemaking process, often with the goal of reducing regulatory burden. Although independent regulatory agencies are generally not covered by these requirements, they are often encouraged to follow them. By far the most important of the current executive rulemaking requirements is Executive Order 12866, which describes both the principles and the process by which presidential regulatory review currently takes place. Centralized review of agencies' regulations within the Executive Office of the President has been part of the federal rulemaking process for more than 30 years. Although each of his three predecessors had some type of review process, the most significant development in the evolution of presidential review of rulemaking occurred in 1981, when President Reagan issued Executive Order 12291. The executive order established a set of general requirements for rulemaking, and required federal agencies (other than independent regulatory agencies) to send a copy of each draft proposed and final rule to OMB before publication in the Federal Register . It also required covered agencies to prepare a regulatory impact analysis for each "major" rule (e.g., those with a $100 million impact on the economy). As a result of this order, OIRA's responsibilities were greatly expanded from paperwork reviews under the Paperwork Reduction Act to examinations of the substance of covered agencies rules—between 2,000 and 3,000 reviews per year. In 1985, President Reagan expanded OIRA's influence further by issuing Executive Order 12498, which required covered agencies (all except independent regulatory agencies) to submit a regulatory plan to OMB for review each year that covered all of their significant regulatory actions underway or planned. On September 30, 1993, President Clinton issued Executive Order 12866, which revoked Executive Orders 12291 and 12498 and established a new process for OIRA review of rules. Like its predecessors, the new executive order limited OIRA's reviews to proposed and final rules published by agencies other than independent regulatory agencies. However, it also limited OIRA reviews to actions identified by the rulemaking agency or OIRA as "significant" regulatory actions, defined as those that were "economically significant" (e.g., those with a $100 million impact on the economy) or that (1) were inconsistent or interfered with an action taken or planned by another agency; (2) materially altered the budgetary impact of entitlements, grants, user fees, or loan programs; or (3) raised novel legal or policy issues. As a result, the number of rules that OIRA reviewed dropped from between 2,000 and 3,000 per year to between 500 and 700 per year. Executive Order 12866 also differs from its predecessors in other respects. For example, the order requires that OIRA generally complete its reviews of proposed and final rules within 90 calendar days. It also requires both rulemaking agencies and OIRA to disclose certain information about how the regulatory reviews were conducted. For example, agencies are to identify for the public (1) the substantive changes made to rules between the draft submitted to OIRA for review and the action subsequently announced, and (2) changes made at the suggestion or recommendation of OIRA. OIRA is required to, among other things, provide agencies with a copy of all communications between OIRA personnel and parties outside of the executive branch, and to maintain a public log of all regulatory actions under review and of all of the documents provided to the agencies. For each significant draft rule, the executive order requires the issuing agency to provide to OIRA the text of the draft rule, a description of why the rule is needed, and a general assessment of the rule's costs and benefits. For draft rules that are "economically significant," the executive order requires a detailed cost-benefit analysis, including an assessment of the costs and benefits of "potentially effective and reasonably feasible alternatives to the planned regulation." One of the "principles of regulation" in the order is that agencies shall "propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs." The order also says that when setting regulatory priorities, "each agency shall consider, to the extent reasonable, the degree and nature of the risks posed by various substances or activities within its jurisdiction." The executive order's "regulatory philosophy" states that unless a statute requires another regulatory approach, "in choosing among alternative regulatory approaches, agencies should select those approaches that maximize net benefits." During the formal Executive Order 12866 review process, OIRA analyzes the draft rule in light of the principles of the executive order and discusses the rule with staff and officials at the rulemaking agency. OIRA may also discuss the draft rule with other agencies with whom interagency coordination will be necessary, and may meet or otherwise communicate with interested stakeholders outside of the federal government. At the end of the review, OIRA either concludes that the draft rule is consistent with the principles of the executive order (the majority of the cases) or returns the rule to the agency "for further consideration." In some cases agencies withdraw their draft rules during OIRA's review. If the draft is a proposed rule, the agency may then publish an NPRM. If the draft is a final rule, the agency may then publish a final rule and allow the rule to take effect. OIRA staff also sometimes review draft rules informally before their formal submission under the executive order—particularly when there is a statutory or legal deadline or when a rule has a large impact on society. OIRA's formal review process has not changed substantially since Executive Order 12866 was issued in 1993. However, GAO reported in September 2003 that there were several changes in OIRA policies and practices when then-OIRA Administrator John Graham took office in July 2001, including (1) increased use of public letters explaining why OIRA returned rules to agencies for their consideration and suggesting regulatory action, (2) increased emphasis on cost-benefit analysis and peer review of agencies' rules, (3) stricter adherence to the 90-day time limit for OIRA review, (4) improvements in the transparency of the OIRA review process, and (5) an increase in the size and skills of OIRA's staff. Underlying many of these changes is a shift in how OIRA administrators view the office's role in the rulemaking process—from "counselor" to the agencies to regulatory "gatekeeper." GAO also concluded that, certain changes notwithstanding, the OIRA review process was still not very transparent to the public, and recommended several changes in OIRA's disclosure policies. In a 2009 report, GAO again recommended changes and improvements in the transparency of OIRA reviews under Executive Order 12866. Executive Order 12866 also includes several other notable requirements. For example, Section 5 of the order requires agencies to periodically review their existing significant regulations to determine whether they should be modified or eliminated. In March 1995, President Clinton reemphasized this requirement by directing each agency to conduct a page-by-page review of all existing regulations. In June 1995, the President announced that 16,000 pages had been eliminated from the Code of Federal Regulations . GAO reported on this review effort in October 1997, noting that the page elimination totals that four agencies reported did not take into account pages that had been added while the eliminations took place. GAO also reported that about half of the actions taken appeared to have no effect on the burden felt by regulated entities, would have little effect, or could increase regulatory burden. On January 18, 2007, President George W. Bush issued Executive Order 13422, making the most significant amendments to Executive Order 12866 since it was published. The major changes made by Executive Order 13422 fell into five general categories: (1) a requirement that agencies identify in writing the specific market failure or problem that warrants a new regulation, (2) a requirement that each agency head designate a presidential appointee within the agency as a "regulatory policy officer" who can control upcoming rulemaking activity in that agency, (3) a requirement that agencies provide their best estimates of the cumulative regulatory costs and benefits of rules they expect to publish in the coming year, (4) an expansion of OIRA review to include significant guidance documents, and (5) a provision permitting agencies to consider whether to use more formal rulemaking procedures in certain cases. On January 30, 2009, President Barack Obama issued Executive Order 13497, which (among other things) revoked Executive Order 13422. As a result, Executive Order 12866 was returned to its original form as issued in September 1993. On January 18, 2011, President Obama issued Executive Order 13563 on "Improving Regulation and Regulatory Review." Section 1(b) of the new order states that "This order is supplemental to and reaffirms the principles, structures, and definitions governing contemporary regulatory review that were established in Executive Order 12866 of September 30, 1993." Although similar to the 1993 order in many respects, Executive Order 13563 contains some new provisions. For example, Section 2(b) of the order states that agencies should generally provide "timely online access to the rulemaking docket on regulations.gov, including relevant scientific and technical findings, in an open format that can be easily searched and downloaded. For proposed rules, such access shall include, to the extent feasible and permitted by law, an opportunity for public comment on all pertinent parts of the rulemaking docket, including relevant scientific and technical findings." Perhaps most notably, Section 6(b) of the new order requires agencies to initiate retrospective reviews of their existing rules. Specifically, it states, Within 120 days of the date of this order, each agency shall develop and submit to the Office of Information and Regulatory Affairs a preliminary plan, consistent with law and its resources and regulatory priorities, under which the agency will periodically review its existing significant regulations to determine whether any such regulations should be modified, streamlined, expanded, or repealed so as to make the agency's regulatory program more effective or less burdensome in achieving the regulatory objectives. Section 5(a) of Executive Order 12866 had previously required agencies to submit a plan for retrospective reviews to OIRA, so this provision appears to require agencies to update those plans. On February 2, 2011, the OIRA Administrator issued guidance to federal agencies on the implementation of the executive order, including these retrospective reviews. As a follow-up to Executive Order 13563, President Obama issued Executive Order 13579, asking independent regulatory agencies to follow the key principles of Executive Order 13563 and to produce plans for retrospective analysis of their existing rules. Agencies other than independent regulatory agencies must also be aware of an array of other rulemaking requirements contained in executive orders and presidential directives. For example: Executive Order 13132 on "Federalism" requires covered federal agencies to "have an accountable process to ensure meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications." The order defines "federalism implications" as "substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government." Federal agencies are prohibited from promulgating any regulation with unfunded federalism implications unless they have (1) consulted with state and local officials early in the development of the proposed rule, and (2) prepared a "federalism summary impact statement" consisting of a description of the prior consultation with state and local officials, a summary of their concerns and the agency's position regarding the need to issue the rule, and a statement of the extent to which the officials' concerns have been met. The order gives agencies substantial discretion regarding its implementation. For example, it does not define what type of regulatory action constitutes "substantial direct effects," and says the consultation and impact statement requirements apply "to the extent practicable." Executive Order 12630 on constitutionally protected property rights says each agency "shall be guided by" certain principles when formulating or implementing policies that have "takings" implications. For example, the order says that private property should be taken only for "real and substantial threats," and "be no greater than is necessary." Executive Order 12889 on the North American Free Trade Agreement generally requires agencies subject to the APA to provide at least a 75-day comment period for any "proposed Federal technical regulation or any Federal sanitary or phytosanitary measure of general application." Executive Order 12898 on environmental justice says (among other things) that each agency must develop a strategy that identifies and addresses disproportionately high and adverse human health or environmental effects of its programs, policies, and activities on minority populations and low income populations. It also says that environmental human health research should include diverse segments of the population in epidemiological and clinical studies, and that agencies should identify rules that should be revised to meet the objectives of the order. Executive Order 12988 on civil justice reform generally requires agencies reviewing existing and new regulations to ensure that they comply with specific requirements (e.g., "eliminate drafting errors and ambiguity" and "provide a clear legal standard for affected conduct") to improve regulatory drafting in order to minimize litigation. Agencies formulating proposed regulations are directed to "make every reasonable effort" to ensure that they, among other things, specify in clear language any preemptive or retroactive effects, and the effect on existing law. Executive Order 13045 on protection of children from environmental health risks and safety risks says that for any substantive rulemaking action that is likely to result in an economically significant rule that concerns an environmental health risk or safety risk that may disproportionately affect children, the agency must provide OIRA with (1) an evaluation of the environmental or safety effects on children and (2) an explanation of why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives. Executive Order 13175 on consultation and coordination with Indian tribal governments generally prohibits agencies from promulgating any regulation not required by law that has tribal implications and imposes substantial direct costs on tribal governments unless the necessary funds are provided or the agency consults with tribal officials and provides a "tribal summary impact statement" describing those consultations. Similar consultation and impact statement requirements apply to rules that preempt tribal laws. Executive Order 13211 on energy impacts requires agencies (to the extent permitted by law) to prepare and submit to OMB a "statement of energy effects" for significant energy actions. The statement, published in the NPRM and the final rule, is to include a detailed statement of "any adverse effects on energy supply, distribution, or use" for the action and reasonable alternatives and their effects. Executive Order 13272 on small entities generally requires federal agencies to issue (by February 2003) written procedures and policies to ensure proper consideration during the rulemaking process of the impacts of their draft rules on small entities. The order also requires agencies to notify the SBA Chief Counsel for Advocacy of any draft rules that may have a significant economic impact on a substantial number of small entities, and to give "every appropriate consideration" to any comments the Chief Counsel provides. Executive Order 13609 requires agencies, as well as a "Regulatory Working Group," to consider the issue of international regulatory cooperation and how to eliminate differences in regulations between the United States and its major trading partners. Executive Order 13610 instructs agencies to institutionalize regular reviews of their previously issued significant regulations, and to take additional steps to increase public participation in retrospective reviews of regulations. In addition to executive orders, presidential memoranda or directives can also affect the rulemaking process. For example: a March 4, 1995, presidential memorandum directed federal agencies to (among other things) focus their regulatory programs on results, not process, and expand their use of negotiated rulemaking. an April 21, 1995, memorandum directed agencies to waive or reduce penalties in certain circumstances, and to reduce the frequency of reports the public is required to provide to the government. a June 1, 1998, presidential directive required agencies to use plain language in proposed and final rulemaking documents. During the past 60 to 65 years, Congress and various Presidents have made numerous attempts to add structure, economy, efficiency, accountability, and greater public access and transparency to the regulatory process. In this regard, Congress has enacted laws such as the Administrative Procedure Act, the Regulatory Flexibility Act, the Paperwork Reduction Act, and the Unfunded Mandates Reform Act that require some type of procedure, review, and/or analysis of draft rules by the rulemaking agencies themselves or by outside parties. Presidential rulemaking requirements have often focused on coordination of agencies' regulatory efforts with the President's priorities and attempts to improve the quality of regulations through cost-benefit analysis, risk assessment analysis, and the consideration of specific factors in the rulemaking process (e.g., environmental justice, children, and property rights). Underlying many of these congressional and presidential requirements is an attempt to ensure that certain interests or issues are considered during the rulemaking process and/or to minimize the burden associated with federal regulations. However, these rulemaking requirements impose burdens of their own on rulemaking agencies, and may be a factor in the length of time it takes agencies to issue rules. Federal agencies must be aware of the cross-cutting and the program-specific statutory and executive requirements underlying their regulations and must craft rules that are consistent with those requirements—or run the risk of having their rules returned to them by OIRA or rejected by Congress or the courts. Several of these statutes and orders indicate that their requirements may be integrated with or satisfied by the requirements in other statutes or orders. For example, the Regulatory Flexibility Act states that federal agencies can develop their regulatory agendas and perform their regulatory flexibility analyses "in conjunction with or as a part of any other agenda or analysis required by any other law." Some observers believe that integration and consolidation of all these requirements could improve the rulemaking process. In 1993 the Administrative Conference of the United States noted that the simple requirements in the Administrative Procedure Act for informal rulemaking had been "overlain with an increasing number of constraints," including those imposed by Congress, Presidents, and the courts. The Administrative Conference recommended a "coordinated framework of proposals aimed at promoting efficient and effective rulemaking." Since then, the number of rulemaking requirements has increased. On the other hand, many of these statutory and executive order provisions provide the agencies substantial discretion regarding when and how the rulemaking requirements are to be applied. For example, because the Regulatory Flexibility Act does not define the term "significant impact on a substantial number of small entities," agencies have a great deal of latitude to determine when a regulatory flexibility analysis is required. Similarly, Executive Order 13132 does not define the term "significant federalism implications," so agencies have substantial discretion in deciding whether the analytical requirements of the order have been triggered. Other rulemaking requirements are written in such a way that they actually apply to only a small number of rules. For example, title II of the Unfunded Mandates Reform Act does not apply to any rules published by independent regulatory agencies or any rules for which an agency determines there is "good cause" not to publish a notice of proposed rulemaking. Other rules are exempt from UMRA if they are conditions of federal financial assistance or enforce constitutional rights. Finally, if agencies are not required to prepare regulatory flexibility analyses for their proposed rules, they are also exempt from the SBREFA requirements to prepare small entity compliance guides and (in the case of OSHA, EPA, and CFPB) to convene advocacy review panels. Because of the inevitability of regulation and its associated burden, efforts to either tighten existing requirements or impose new ones are likely to continue. A clear understanding of the existing requirements and how they have been implemented may inform any such future efforts. Cornelius M. Kerwin and Scott R. Furlong, Rulemaking: How Government Agencies Write Law and Make Policy, Fourth Edition (Washington: CQ Press, 2011). Jeffrey S. Lubbers, A Guide To Federal Agency Rulemaking, Fifth Edition (Chicago: ABA Publishing, 2012). In addition, information regarding a variety of regulatory issues is available at the following websites: Center for Progressive Regulation http://www.progressiveregulation.org Center for Regulatory Effectiveness http://www.thecre.com Competitive Enterprise Institute http://www.cei.org Government Accountability Office (GAO, formerly the General Accounting Office) http://www.gao.gov Government Printing Office (GPO) http://www.gpo.gov/fdsys/search/home.action Office of Management and Budget http://www.whitehouse.gov/omb Center for Effective Government (formerly OMB Watch) http://www.foreffectivegov.org/ Regulations.gov http://www.regulations.gov Regulatory Information Service Center http://www.reginfo.gov | Federal regulation, like taxing and spending, is one of the basic tools of government used to implement public policy. Although not as frequently examined as congressional or presidential policy making, the process of developing and framing rules is viewed by some as central to the definition and implementation of public policy in the United States. Regulations generally start with an act of Congress, and are the means by which statutes are implemented and specific requirements are established. The terms "rule" or "regulation" are often used interchangeably in discussions of the federal regulatory process. The Administrative Procedure Act of 1946 defines a rule as "the whole or part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy." The procedures that federal agencies are required to follow in writing regulations are called the rulemaking process, and are the subject of this report. During the past 60 to 70 years, Congress and various Presidents have developed an elaborate set of procedures and requirements to guide the federal rulemaking process. Statutory rulemaking requirements applicable to a wide range of agencies include the Administrative Procedure Act, the Regulatory Flexibility Act, the Paperwork Reduction Act, the Unfunded Mandates Reform Act, and the Information Quality Act. These and other cross-cutting rulemaking requirements often require some type of analysis on the part of the rulemaking agency before issuing a covered rule, but also often give agencies substantial discretion regarding whether the requirements are applicable. Other statutorily based rulemaking requirements are contained in agency- or program-specific laws, which provide varying levels of discretion regarding the substance of agencies' rules and may impose (or exclude) additional analytical or procedural requirements. In addition to statutory requirements, Presidents have also imposed their own requirements on federal agencies when issuing rules. The most important of the current set of presidential rulemaking requirements are in Executive Order 12866, which establishes presidential review of covered agencies' rulemaking within the Office of Management and Budget's (OMB's) Office of Information and Regulatory Affairs (OIRA). The executive order requires covered agencies to submit their significant rules to OIRA for review before they become final, and requires those rules to meet certain minimal standards. Other executive orders and presidential directives delineate other specific rulemaking requirements incumbent on covered agencies. However, these requirements also often provide substantial discretion to agencies regarding whether, and if so how, they are applied. The purpose of this report is to provide Congress with an overview of the federal rulemaking process and a brief discussion of the major laws and executive orders that prescribe the procedures agencies are to apply when promulgating regulations. This report will be updated when new requirements are put in place or when the requirements in this report change. |
March 20, 2008. The yen appreciated to 99 yen per dollar, a 20% rise since its low on June 24, 2007. September 5, 2007. The unwinding of yen carry trade positions (selling investments in non-Japanese financial instruments and buying yen to repay yen loans) has caused the yen to rise since its low of 124.1 yen per dollar on June 24, 2007. The rise has been accelerated by the turmoil in the subprime mortgage market from mid-August 2007. June 24, 2007. In its Annual Report for 2006/2007, the Bank for International Settlements stated that "there is clearly something anomalous in the ongoing decline in the external value of the yen" and warned investors betting against the yen to remember 1998 when it soared suddenly. The rapid depreciation of the value of the dollar on foreign exchange markets is causing fundamental changes in the trading relationships between the United States and other nations whose currencies have appreciated lately. Japan, in particular, has seen its currency rise by 20% relative to the dollar (comparable to the 18% rise in the Euro over the same period of time). This is raised concerns that Japan may intervene in currency markets for the first time since March 2004 to shore up the value of the dollar and slow the appreciation of the yen. Japan has conducted such intervention in the past by purchasing dollars and selling yen on foreign exchange markets. This has caused Japan's holdings of foreign currency reserves to reach $979 billion (February 29, 2008), second only to the $1.5 trillion held by China (December 31, 2007). Japan earns some $12 billion per month in interest on its holdings of foreign currency and other reserve assets. Japan's past intervention to slow the upward revaluation of the yen raised concerns in the United States and brought charges that Tokyo was manipulating its exchange rate in order to gain unfair advantage in world trade. This coincided with similar charges being made with respect to the currency of China. This report provides an overview and analysis of Japan's official intervention into currency markets, reviews various studies on the probable effect of that intervention, examines the charge that Japan has manipulated its exchange rate as defined by the International Monetary Fund (IMF), and reviews legislation and policy options. Foreign governments intervene into currency markets by buying foreign exchange—usually dollars, Euros, or British pounds—in order to increase demand for these currencies and support their value relative to the intervening government's own currency. Likewise, they can sell foreign exchange in order to decrease demand for target foreign currencies and increase the value of the country's own currency. In Japan's case, it has frequently bought dollars from its domestic exporters in exchange for yen and used those dollars to buy U.S. Treasury securities or other liquid dollar assets. In the 110 th Congress, H.R. 2886 (Knollenberg)/ S. 1021 (Stabenow) (Japan Currency Manipulation Act) would require negotiation, reports, and other action with respect to Japan's currency actions. This bill states in its findings that Japan's exchange rate provides a subsidy to Japanese exporters and an unfair competitive advantage for Japanese automobile manufacturers. H.R. 782 (Ryan)/ S. 796 (Bunning) (Fair Currency Act of 2007) would provide that exchange-rate misalignment by an foreign nation is a countervailable export subsidy and also would clarify the definition of manipulation with respect to currency. S. 1607 (Baucus) (Currency Exchange Rate Oversight Reform Act of 2007) would require the Treasury Department to identify currencies that are fundamentally misaligned and would require action to correct the misalignment. S. 1677 (Dodd), Currency Reform and Financial Markets Access Act of 2007, would require the Treasury Department to identify countries that manipulate their currencies regardless of their intent and to submit an action plan for ending the manipulation, and gives Treasury the authority to file a case in the WTO. Concern over currency manipulation, intervention, and misalignment stems from the basic U.S. interest in American national prosperity. Manipulation of exchange rates to undervalue foreign currencies potentially can increase the U.S. trade deficit, increase U.S. dependency on foreign investors to finance U.S. budget deficits, affect the level of U.S. interest rates, and negatively affect U.S. businesses competing with imports or exporting. In Japan's case, the Bank of Japan (in consultation with the Ministry of Finance) has bought U.S. Treasury securities and other liquid dollar assets at times when the value of the dollar relative to the yen was declining. The intended result was to keep the value of the yen from appreciating too quickly in order to keep the price of Japanese exports from rising in markets such as those in the United States and to maintain the profitability of those exports. Some experts argue that the yen has been undervalued by 10% to 29% or more, although recent appreciation of the yen largely negates this argument. The underlying concern is that an undervalued yen gives many Japanese manufacturers a significant price advantage over U.S. competitors. The U.S.-headquartered automobile industry, for example, claims that an undervalued yen generates a price advantage of about $4,000 per car to vehicles made in Japan and a resultant surge in sales of such vehicles in the United States. Another measure of the exchange rate takes into account differences in inflation rates between those in Japan and in the United States (real rate) and provides relatively greater weight to currencies with which Japan trades the most (effective rate). These adjustments produce a real effective exchange rate. As shown in Figure 2 , this adjusted value of the yen reached a 20-year low in May 2007, but it has appreciated since then. Any undervaluation since 2004 arguably has resulted from private market forces and inflation rates (resulting from macroeconomic policy) in both countries rather than from government currency intervention. Economic studies indicate that currency intervention for large countries with floating exchange rates, such as Japan, merely slows the rate of currency appreciation or depreciation over the short run (less than 30 days) and has little effect over the long term. Whether Japan can be considered to have manipulated its exchange rate under criteria set by the International Monetary Fund (IMF) is open to debate. The IMF and the Secretary of the Treasury have not found such manipulation in recent years, but others charge that such manipulation has taken place. Although, Japan claims that it has not intervened in foreign exchange markets since March 2004, some claim that Japan still "talks down the value of the yen." In 2008 as the yen has appreciated, the question before Japanese policymakers is whether or not to intervene again. Pressures from Japanese industries to do so are increasing. Toyota Motors, for example, reportedly bases its earnings on an exchange rate of 105 yen per dollar. Every 1 yen appreciation against the dollar causes a $350 million drop in its operating profit, although such adverse effects can be mitigated over the longer run. Japanese carmakers reportedly place the appropriate exchange rate at about 90 to 100 yen per dollar. Yen appreciation also causes the value of Japanese stocks to decline. However, until the rate goes below 85 to 90 yen per dollar, some think the government of Japan would not consider intervening. Government financial officials in Japan have indicated that they are "monitoring the foreign exchange movements with "great interest." One problem with intervening in today's markets is that there has been a sharp rise in the volume of transactions. According to the Bank for International Settlements, the daily trading of foreign currencies through traditional foreign exchange markets totaled more than $3.2 trillion in April 2007, up sharply from $1.9 trillion in 2004. Another $2.4 trillion was traded in the over-the-counter foreign exchange derivatives market for a total of $5.6 trillion per day in both markets. About 86% of the trading on traditional foreign exchange markets was in dollars. These amounts are so large that for any intervention to have an effect, it arguably would have to be coordinated among Japan, the United States, and the European Union with possible cooperation from China. In 1971, when the link between the U.S. dollar and gold was severed and the dollar was allowed to float within certain bands, the yen began to appreciate in value. The yen/dollar exchange rate, established during the U.S. occupation of Japan in 1949, had been held at 360 yen per dollar for 22 years. Since then, it appreciated to around 105 yen per dollar in early 2005, but in late 2005 it had depreciated to around 120 yen per dollar before rising slightly to about 119 yen per dollar in March 2007. Japan's government has intervened in currency markets to buy dollars or other foreign exchange at times when the yen was appreciating at a pace that it considered to be too rapid. Japan also has intervened by selling dollars at times when the Japanese government (Bank of Japan and Ministry of Finance) felt that the yen was depreciating too rapidly. The net result of this intervention is that Japan's holdings of foreign exchange reserves have risen to $902 billion by July 31, 2007. As can be seen in Figure 2 , the most significant of Japan's interventions to counter the yen's appreciation took place in 1976-1978, 1985-1988, 1992-1996, and 1998-2004. Since March 2004, the Japanese government has not intervened significantly in currency markets to support the value of the dollar. Figure 3 also shows that despite heavy buying (or selling) of dollars during certain periods of time, the intervention seems to have had little lasting effect. It might have slowed the change in value of the yen, but the appreciation (or depreciation) occurred anyway. This is called "leaning against the wind" in economic parlance or intervening to oppose strong short-term trends rather than to reverse the direction of change. In most cases, Japan's intervention resulted in the "smoothing" of fluctuations in exchange rates rather changing the direction of movement. As one author put it, Japan seems to have won many daily battles with the foreign exchange market, yet it lost the war. Even though Japan has invested hundreds of billions of dollars in buying dollar assets that are then held as foreign exchange reserves, many observers point out that such transactions are small when compared with the average daily turnover of $3.2 trillion in traditional foreign exchange markets and $2.4 trillion in over-the-counter currency and interest rate derivatives markets. Currency transactions in support of imports and exports, investments, remittances, and other purposes dwarf interventions by central banks. Still, it is the effect of central government intervention on net—rather than gross—flows that make the difference (since imports and exports tend to balance on a global basis). Government purchases and sales constitute a net addition to or subtraction from global demand and supply. Also government interventions can have a powerful signaling effect on market participants who may prudently reduce their speculative buying should it be in a contrary direction to what the government is doing. Central banks also often coordinate intervention (intervening in the same direction the same day). This multiplies the effect of the intervention. Academic studies of intervention generally conclude that interventions did increase exchange rate volatility (moved the market), were a good indicator that the magnitude of the change in exchange value on subsequent days would decrease, and that much of it amounted to "leaning against the wind." A recent study of the 1991-2002 period of Japanese intervention concluded that "prior to June 1995, Japanese interventions only had value as a forecast that the previous day's yen appreciation or depreciation would moderate during the current day. After June 1995, Japanese purchases of dollars had value as a forecast that the yen would depreciate" in the very short run. This analysis also confirmed that large, infrequent interventions, which characterized the latter period, had a higher likelihood of success than small, frequent interventions. For 2003 and 2004, despite the record size and frequency of the intervention by Japan, the authors found it difficult to statistically distinguish the pattern of exchange rate movements on intervention days from that of all the days in that particular subperiod. This showed little effectiveness in the interventions for that subperiod and only modest effectiveness overall. Another study examining data from 1991 to 2000 found strong evidence that "sterilized" intervention (buying of dollars offset by domestic selling of yen-denominated bonds to keep Japan's money supply unchanged) systemically affected the exchange rate in the short-run (less than one month). Large-scale intervention (amounts over $1 billion)—coordinated between the Bank of Japan and the U.S. Federal Reserve—gave the highest success rates. Of the 12 "large scale coordinated" interventions studied, 11 achieved the desired effect: they moved the yen either up or down in accordance with the policy goal of the moment, although the effects were short-lived. The estimate that the yen was 10% to 20% undervalued is emphasized heavily by U.S. automaker along with other industrial interests. In 2003, General Motors claimed that the yen should be trading at about 100, rather than at 110 yen per dollar. In late 2005, as the dollar strengthened, General Motors claimed that the relatively weak yen (111 per dollar at the time) was providing a significant cost advantage (about $3,000 per vehicle) to Japanese automakers. GM also raised the issue of "jawboning" and verbal currency intervention (talking the yen down) by high-ranking Japanese officials. In a meeting between President Bush and the Big Three U.S. automakers, General Motors Chairman Rick Wagoner indicated there is still a chasm between the auto industry and President Bush on foreign exchange issues. Wagoner said the yen, in particular, was "systematically undervalued" with the car companies estimating that Japanese competitors gain a $3,000 to $9,000 cost advantage per vehicle over U.S. auto makers thanks to what is seen as an unfair currency advantage. In April 2007, the Automotive Trade Policy Council (with membership by Daimler Chrysler, Ford, and GM) claimed that Japan's weak yen policy had forced U.S. automakers to contend with a $4,000 subsidy on vehicles that their Japanese competitors export from Japan to the United States. A leading proponent of the position that Japan has manipulated its exchange rate is Ernest Preeg. In one study, he concluded that Japan had manipulated its exchange rate and that the yen in 2002 was about 20% undervalued and should have been around 100 yen per dollar. His analysis is based on the observation that Japan's intervention has been large, protracted, and one-sided, but the 20% figure is a rough estimate based primarily on the extent of the intervention, not on a rigorous economic model. The International Monetary Fund also conducts surveillance over the exchange rates of its member countries. In the IMF's August 2005 report on consultations with Japan, the Fund noted that compared to the United States and the Euro Area, Japan stands out for its active use of foreign exchange market intervention as a policy instrument. The IMF reported that since 1991, the Bank of Japan had intervened on 340 days, the European Central Bank on four days (since its inception in 1998), and the U.S. Federal Reserve on 22 days. The IMF further stated that "there is some evidence that intervention has had some impact on yen movements." It then quoted Takatoshi Ito, a Japanese economist, who found that intervention of about ¥2.5 trillion (about $250 billion) on average moved the exchange rate by ¥1 per dollar or about 1%. The IMF's May 2006 report on consultations with Japan did not discuss exchange rate intervention. A fundamental problem with exchange rates is that no commonly accepted method exists to estimate the effectiveness of official intervention into foreign exchange markets. Many interrelated factors affect the exchange rate at any given time, and no quantitative model exists that is able to provide the magnitude of any causal relationship between intervention and an exchange rate when so many interdependent variables are acting simultaneously. A 2007 Occasional Paper No. 7 by economists at the U.S. Treasury surveyed exchange rate models and misalignments in currencies. The authors concluded that currencies cannot be said to be misaligned without estimating what the exchange rate should be. Economists use various models to estimate such hypothetical exchange rates and then compare the modeled rates to the actual ones. The study notes that the models produce widely divergent results and depend heavily on their assumptions, methodologies, and mathematical structure in trying to capture all the relevant features of an economy, particularly the behavior of financial markets. For Japan, the authors note that according to the purchasing power parity approach, Japan's currency in 2003 was overvalued (not undervalued) by 21%. According to a Big Mac index of the cost of this hamburger across countries, in May 2006, the yen at 112 yen per dollar was 28% undervalued. Using relative labor costs to calculate real effective exchange rates, in 2004, Japan's yen was undervalued by 6.3%, but was overvalued by 2.2% using relative consumer prices in the calculation. Private sector estimates likewise vary widely. Using various methods, the Hong Kong and Shanghai Banking Corporation (HSBC) estimated the yen to have been 1.8% overvalued at the end of 2005, while Goldman Sachs estimated that it was 6.9% undervalued, while J.P. Morgan Stanley came up with the figure of 14% undervalued. In 2007, Morgan Stanley reported that the thirteen models it uses to value currencies provided estimates of the exchange value of the yen being between 18% overvalued and 29% undervalued with the median at 15% undervaluation. These models do not, however, differentiate between undervaluation caused by intervention and that caused by market forces. Setting aside the problems with statistical estimates, what can be said is that the Japanese economy has generated a surplus in its trade accounts for much of recent history. Without an offsetting deficit in its capital account, market forces would have forced an appreciation of the yen that would have worked to eliminate the trade surplus. From 1977 to 2004, Japan's cumulative surplus on current account (net trade in goods and services plus remittances) totaled $2,077 billion. Offsetting Japan's surplus on current account was its net capital outflow and net official purchases of foreign exchange reserves (intervention). From 1977 to 2004, Japan recorded a deficit in its capital flows (investments in foreign securities, buying foreign companies, deposits in foreign bank accounts, etc.) of $1,314 billion. In other words, Japan's private investors sent $1,314 billion more abroad than foreigners invested in Japan. The remaining $763 billion outflow ($2,077 billion minus $1,314 billion) of dollars was primarily from official currency intervention that added to Japan's foreign exchange reserves. This net buying of $763 billion in dollars—over the 1977-2004 period provided more than a third (37%) of the total capital outflow from Japan to offset the country's surplus in trade. If Japan had not intervened to this extent, the yen likely would have appreciated more than it did. Taking the estimate by Takatoshi Ito that $250 billion in intervention moved the exchange rate by about 1% or ¥1, the net effect of the direct intervention that ended in 2004 would have been around ¥3 or ¥4 per dollar. Taking the estimates by Preeg and General Motors, the upper bound on the effect of the intervention would be around 20% or about ¥20 per dollar. The range, therefore, for the effect of exchange rate undervaluation because of Japanese intervention would be from ¥3 to ¥20 per dollar with the statistical likelihood more toward the lower end of the range. Setting aside the question of the efficacy of Japan's intervention into exchange markets to weaken the yen, a second question is whether changes in the yen-dollar exchange rate actually affect imports and exports. In theory, Japan's intervention by buying dollars and selling yen induces a cheaper yen which then assists Japan's exporters by allowing them either to lower their export price or to maintain their export price while increasing profits. It also makes imports relatively more expensive in Japan. Lowered export prices and higher import prices will tend to increase Japan's trade surplus which then contributes to a higher growth rate. The Bank of Japan may or may not sterilize the currency operation by selling Japanese bonds locally to keep the domestic money supply constant. In an economic sense, if the intervention is not sterilized, buying dollars is equivalent to increasing the Japanese money supply, since the Finance Ministry purchases the dollars from Japanese exporters with yen which then enters the Japanese money supply. In actual practice, the operation of currency markets often deviates from that represented in economic theory and in models. In particular, the long-term link between intervention and the foreign exchange rate is difficult to show empirically. While the intervention has short-term effects, the long-term effects on exchange rates and trade flows are much less apparent—especially considering that most of the time, the intervention leans against the wind rather than reversing the direction of change. A second problem is that, in practice, Japan's automakers and other exporters to U.S. markets usually do not make short-run adjustments to prices in response to exchange rate fluctuations. Unlike generic commodities (such as crude oil or wheat that have standardized commodity markets), Japan's exports tend to be brand-named products for which the sellers have some control over prices. When selling in the United States, dealers and retailers of products from Japan tend to "price to market" or set prices according market conditions. For instance, between January 5, 1994, and April 19, 1995, the Japanese yen appreciated by 34% against the dollar (it rose from 113 to 80 yen per dollar). Prices for exported products from Japan to the United States should have risen significantly, but, for example, the U.S. sticker price of a Toyota Celica ST Coup rose by only 2% (it went from $16,968 to $17,285), while the suggested retail price of a large-screen Sony Trinitron television receiver actually fell by 15%. Japanese exporters simply absorbed exchange rate changes into their costs. They tended to gain or lose profits—rather than market share—because of exchange rate changes. In the case of Toyota Motors, it is estimated that the company's profit increases by ¥25 billion ($227 million) a year for every ¥1 the currency depreciates against the dollar. For shipments to the United States, economic studies have found that, on average, an exchange rate change induces a price response equal to one-half the amount, although it varies by industry. An implication of this lack of a complete response of domestic prices to exchange rate changes is that a currency depreciation will not necessarily eliminate—or even reduce significantly—a nation's trade deficit. Empirical studies indicate, however, that for most countries over the long run, a real depreciation (adjusting for domestic inflation) is likely to improve a nation's current account balance while a real appreciation is likely to worsen it. In the short-run, however, the opposite is likely to occur. This is called the J-curve effect. As the value of the yen rises, for example, some Japanese exporters do increase their prices, and U.S. importers end up paying more for the quantity of goods they need. This worsens the balance of trade before U.S. importers can switch to other suppliers. Still, Japan's balance of trade does respond somewhat in the long run to a large appreciation of the yen. Japanese exporters ultimately have to either raise prices or decrease costs of production, and importers of commodities in Japan face lower international prices. This works to reduce Japan's surplus in trade (exports fall while imports rise). One economic study indicated that, in 2002, a 1% appreciation of the yen induced a 2.2% decrease in Japan's current account surplus (balance of trade with the world in goods and services plus unilateral transfers). At that time, Japan's current account surplus was about $110 billion. Therefore, a 1% yen appreciation was estimated to decrease Japan's current account balance by about $2.4 billion. Another study for 1985-1991 found that a 10% sustained appreciation of the yen would reduce Japan's trade surplus by 0.7% of gross national product (GNP). At that time, Japan's GNP was around $3,000 billion. A 1% appreciation of the yen, therefore, would have reduced Japan's trade surplus by about $2.1 billion. In actuality, from 2002 to 2004, the yen appreciated from ¥120 to ¥104 per dollar (up by 13%), but Japan's current account surplus rose (not fell) from $113 billion to $172 billion (up by 52%). Part of this rise in Japan's current account surplus may have been the J-curve effect, but in this case the yen appreciation was overshadowed by other variables. Yen appreciation may have slowed the rise in Japan's current account surplus, but it did not stop it. Other factors also came into play. These included growth in the American and other major markets, relative savings and inflation rates, the level of interest rates in various markets, earnings from investments, the competitiveness of Japanese products, the price of petroleum, competition from China, and intra-firm trade by multinational corporations. Another question is whether Japan's intervention into foreign exchange markets raised its rate of growth. Figure 4 shows Japan's currency intervention in terms of annual rates of change in its foreign exchange reserves and the yen/dollar exchange rate. It also shows Japan's economic growth rate (in real gross domestic product). The chart indicates that many of the periods of yen appreciation and intervention into foreign exchange markets to buy dollars also were periods of relatively slower—not faster—economic growth rates. Except in the late 1970s, Japan's growth performance during periods of intervention was rather lackluster. Growth tended to be higher during periods without intervention, although it can be argued that the intervention may have helped to keep economic conditions from becoming worse than they actually were. A question for U.S. policy is whether Japan's intervention into currency markets constituted manipulation of its exchange rate. Under U.S. law, the Secretary of the Treasury is required to analyze the exchange rate policies of foreign countries annually (in consultation with the International Monetary Fund) and consider whether countries manipulate their exchange rate for purposes of preventing effective balance of payments adjustment or gaining unfair competitive advantage in international trade. If the Secretary considers that such manipulation is occurring with respect to countries that (1) have material global current account surpluses; and (2) have significant bilateral trade surpluses with the United States, the Secretary of the Treasury shall take action to initiate negotiations with such foreign countries on an expedited basis, in the International Monetary Fund or bilaterally, for the purpose of ensuring that such countries regularly and promptly adjust the rate of exchange between their currencies and the United States dollar to permit effective balance of payment adjustments and to eliminate the unfair advantage. The Secretary of the Treasury also is to provide reports on exchange rate policy that contain the results of exchange rate negotiations conducted pursuant to this law. At various periods from 1988 through 1994, Treasury found that China, Taiwan, and South Korea were each considered to have manipulated their currencies. In the March and November 2005 and May 2006 reports to Congress as required by the Omnibus Trade and Competitiveness Act of 1988, Treasury indicated that it had reviewed the exchange rates, external balances, foreign exchange reserve accumulation, macroeconomic trends, monetary and financial developments, state of institutional development, and financial and exchange restrictions for U.S. trading partners. In both reports, Treasury did not find currency manipulation by any country, including by Japan. Likewise, in Treasury's December 2006 report to Congress, the Secretary stated that persistent Japanese deflation since 1998 has led to a substantial depreciation of the yen in real terms. Bank of Japan data indicate that the yen was at its weakest level in real trade-weighted terms in more than 20 years, even though Japanese authorities had not intervened in the foreign exchange market since March 2004. In April 2005, the Government Accountability Office examined Treasury's assessments of whether countries were manipulating their currencies and concluded that "although China and Japan have engaged in economic activities that have led to concerns about currency manipulation," Treasury "did not find that Japan met the Trade Act's definition for currency manipulation in 2003 and 2004." GAO reported that Treasury viewed "Japan's exchange rate interventions as part of a macro-economic policy aimed at combating deflation...." In September 2005 testimony before the House Ways and Means Committee, Deputy Assistant Secretary of the Treasury David Loevinge stated that Treasury had discussed foreign exchange market issues with Japanese officials. He stated that Japan has supported the G-7 position on exchange rates, expressed in a series of G-7 Communiqués, calling for greater exchange rate flexibility. Japan also has worked with the United States to bring about greater exchange rate flexibility in China and in other large economies in East Asia. The International Monetary Fund also conducts surveillance over the exchange rates of its member countries. A 1977 decision by the Fund (as amended), a principle for guidance of member's exchange rate policies states, "A member shall avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain unfair competitive advantage over other members." The decision, does allow, however, for governments to intervene in the exchange market if necessary to counter disorderly conditions (disruptive short-term movements in the exchange value of its currency). In the IMF's August 2005 report on consultations with Japan, the Fund did not find currency manipulation, but noted that compared to the United States and the Euro Area, Japan stands out for its active use of foreign exchange market intervention as a policy instrument. As a comparison, one can compare the movement of the exchange rate between the German mark and the dollar with that for the yen and the dollar. Figure 5 shows the movement of indexes (1972 = 100) for the value of the two exchange rates. From 1972 to 2005, the yen has appreciated more than the mark, and they generally have moved together. The correlation coefficient between the two indexes is 0.82 (they move together 82% of the time). From 1993, the Euro replaced the country currencies of the members of the European Union, and the index of its value replaces that of the German mark. In Figure 5 , the Euro index is set at 100 in January 1993. As can be seen, the index of the Euro also has moved roughly with the yen with the exception of the U.S. recession period around 2001 when the dollar rose in value relative to the Euro and mark but rose less relative to the yen. Most of the time, however, the values of these currencies seemed to be responding to the same outside influences. Even though Japan indicates that it has not intervened into currency markets since March 2004, this issue still is a U.S. policy concern because of Tokyo's past intervention and the possibility that it could resume intervening should the yen strengthen too rapidly or excessively against the dollar. Japan also may use other methods to alter the expectations of currency traders and "talk down" the yen through various statements or other "jawboning." Japan also could be caught up in the concern over China's currency policy. Policies aimed at China also could affect Japan. Currently, Tokyo seems content to abstain from active intervention into international currency markets. At some point, however, Japan may want to decrease its dollar denominated foreign exchange holdings. It would likely do this by selling dollar-denominated assets, an action that would weaken the dollar and strengthen the yen. Depending on how this potential divestiture is conducted, it could be viewed as intervention into foreign exchange markets (albeit in the opposite direction of concern). Given the weakness of the dollar in 2008, moreover, if the value of the yen "overshoots" and rises to a value considered to be too high for Japanese financial authorities, they may be compelled by political pressures from their exporting industries to intervene. According to observers, the threshold exchange rate at which Japan may intervene seems to be around 85 to 90 yen per dollar. Ironically, intervention under current circumstances to strengthen the weakened dollar, may coincide with U.S. economic policy goals. A question remains, moreover, whether the United States should take measures to compensate for past intervention by Japan. Setting aside the issue of how much past intervention actually moved the exchange rate and whether any exchange rate change affected actual market transactions, if U.S. industries were significantly impacted negatively, should remedial action be taken now? If, for example, the U.S. automobile industry lost market share because of past Japanese government attempts to reduce the value of the yen, is there action that should be taken now to remedy the lost market share? The major policy options for Congress include the following: let the market adjust (do nothing); clarify the definition of currency manipulation; require reports and negotiations; require the President to certify which countries are manipulating their currencies and take remedial action if the manipulation is not halted; and convene a special meeting of the International Monetary Fund to reach an agreement on the misalignment of the yen, oppose increased voting shares or representation in international financial organizations for any country that has a currency that is manipulated or in fundamental misalignment, initiate a dispute settlement case with the World Trade Organization (WTO), or block the Overseas Private Investment Corporation from providing services to Japan. Most economists argue that currency markets are so large that only extensive and coordinated intervention has any lasting effects. Countries that do intervene often find themselves "leaning against the wind" and not materially altering either the direction of or the extent of change. Also, intervention is expensive. It is not clear that Japan could afford to invest another $800 billion in U.S. Treasury securities and other liquid dollar assets. Allowing market forces to determine exchange rates while permitting central banks to intervene only to counter abnormal market shifts is the policy pursued for most major currencies of the world. In terms of foreign exchange intervention, Japan differs from China in two important respects. First, Japan does not peg its exchange rate to any basket of currency. It generally intervenes to slow down rates of change not to maintain a certain exchange rate. It also does not require citizens to sell foreign exchange to the central bank at an official rate of exchange. Second, Japan allows for free flows of capital into and out of the country. This makes currency manipulation much more difficult in Japan, since speculators and investors can offset official buying and selling of foreign financial assets. A currency peg without capital controls is expensive and difficult to maintain during a financial crisis. During the 1997-1998 Asian financial crisis, for example, Hong Kong maintained its pegged exchange rate partly by raising domestic interest rates to attract foreign capital and to retard capital flight by local investors (to reduce the incentive to convert Hong Kong dollars to U.S. dollars in anticipation of a drop in the value of the Hong Kong dollar). On October 23, 1997, the overnight rate of interest in Hong Kong jumped from 6.25% to 100.0% as the monetary authorities tried to stem the capital outflow. Even though Hong Kong was able to maintain its exchange rate peg, the high interest rates caused a near collapse of real estate markets there. This is one reason China still maintains some capital controls. Since the Asian financial crisis, Japan and other Asian nations have negotiated currency swap agreements to provide short-term sources of foreign exchange in times of crisis. This obviates, somewhat, the need to rely on interest rates to attract foreign capital. Under a policy of allowing market forces to determine exchange rates, some intervention still may be necessary to calm excessive volatility in markets or to counter trends that overshoot because of herd mentality and other effects. In the past, the more successful of such interventions were coordinated among the large, industrialized nations. A major provision of various currency bills in Congress has been to clarify the definition of currency manipulation. While this legislation apparently has been aimed primarily at China's currency policy, in cases, the bills also have cited Japan (and South Korea) in the findings. Currently, the Department of the Treasury, in consultation with the International Monetary Fund, determines each year whether countries are manipulating their exchange rate for purposes of gaining an unfair trade advantage or preventing effective balance of payments adjustments and also have a material global current account surplus and a significant bilateral trade surplus with the United States. H.R. 1498 (Ryan)/ S. 796 (Bunning) and H.R. 2886 (Knollenberg)/ S. 1021 (Stabenow) define exchange-rate misalignment as an undervaluation of a foreign currency (yen) as a result of protracted large-scale intervention by or at the direction of a governmental authority in the exchange market. Such undervaluation shall be found when the observed exchange rate for a foreign currency (yen) is below the exchange rate that could reasonably be expected for that foreign currency absent the intervention. In determining whether exchange-rate misalignment is occurring and a benefit thereby is conferred, the administering authority in each case would consider an exporting country's: bilateral balance of trade surplus or deficit with the United States, balance of trade surplus or deficit with other trading partners, foreign direct investment in its territory, currency specific and aggregate amounts of foreign currency reserves, mechanisms employed to maintain its currency at a fixed exchange rate and the nature, duration, and monetary expenditures of those mechanisms, and may consider such other economic factors as are relevant. S. 1607 (Baucus) would define a currency for priority action if the country that issues such currency is: engaging in protracted large-scale intervention in one direction in the currency exchange market; engaging in excessive reserve accumulation; introducing or substantially modifying for balance of payments purposes a restriction on, or incentive for, the inflow or outflow of capital, that is inconsistent with the goal of achieving full currency convertibility; or pursuing any other policy or action that, in the view of the Secretary of the Treasury warrants designation for priority action. The bills also specify that trade data are to be those of the United States and other trading partners of the exporting country, unless such trade data are not available or are demonstrably inaccurate, in which case the exporting country's trade data may be relied upon if shown to be sufficiently accurate and trustworthy. The issue of which data to use applies primarily to China, mainly because of imports and exports that flow through, but do not originate in, Hong Kong and the general lack of confidence in China's system for compiling statistics and reporting them. The data problem, however, also arises with Japan. In 2004 for Japan, Japanese data (as accessed through the IMF or Global Trade Atlas ) reported a merchandise trade surplus of $110 billion (2.4% of GDP), but a compilation of partner country data (statistics from countries that export to and import from Japan) showed a surplus for that year of $208 billion (4.5% of GDP). Each bill placed more emphasis on large-scale intervention by a country into currency markets—particularly when evidenced by large accumulations of foreign exchange. Such accumulations of dollars, do not constitute prima facie evidence of currency manipulation, but they would be used along with other criteria to determine whether a country has been engaged in it. The bills have not addressed the issue of sterilization in currency intervention. In 2003 and 2004, Treasury found that Japan did not meet the criteria for currency manipulation in part because its exchange rate interventions were considered to be part of a macroeconomic policy to combat deflation. (It was considered to be unsterilized intervention to increase the money supply.) A policy question is whether large-scale interventions are justified when part of macroeconomic policy even though they may have adverse affects on exchange markets. Current trade law requires the President to seek to confer and negotiate with other countries to achieve: more appropriate and sustainable levels of trade and current account balances and exchange rates of the dollar and other currencies consistent with such balances; and improvement in the functioning of the exchange rate system to provide for long-term exchange rate stability consistent with more appropriate and sustainable current account balances. The United States and Japan also conduct regular cabinet and sub-cabinet meetings that provide a venue to discuss exchange rates. In addition, the two countries meet in G-7 summits and at the APEC (Asia Pacific economic cooperation) meetings where currency and exchange rate policy is discussed. In a 2000 G-7 meeting, for example, the communique stated that the group had discussed developments in exchange and financial markets and said that they welcomed the reaffirmation by the Japanese monetary authorities that exchange rate policies would be conducted appropriately in view of their potential impact and that they would continue to monitor developments in exchange markets and cooperate as appropriate. Current bills related to Japan's currency in the 110 th Congress would require Treasury to submit a semi-annual report to Congress on currency intervention by Japan to include any effort by Japan to create an exchange-rate misalignment (including intervention and statements by Japanese government officials). The bills also would require Treasury to submit to Congress a proposal for a comprehensive joint U.S.-European Union plan to address the exchange-rate misalignment of the Japanese yen. It also would require the U.S. government to initiate consultations with Japan for the purpose of decreasing the foreign currency holdings of the government of Japan. In the 110 th Congress, H.R. 782 (Tim Ryan)/ S. 796 (Bunning) would make exchange rate "misalignment" actionable under U.S. countervailing duty laws, require the Treasury Department to determine whether a currency is misaligned in its semi-annual reports to Congress on exchange rates. This certification could then trigger certain remedial actions under U.S. trade law. S. 1677 (Dodd) would require the Treasury Department to identify countries that manipulate their currencies regardless of their intent and to submit an action plan for ending the manipulation. It also would give Treasury the authority to file a case in the WTO. The currency bills in the 110 th Congress also would require the Secretary of the Treasury to oppose any change in the governance arrangements in International Financial Institutions (such as the International Monetary Fund or World Bank) in the form of increased voting shares or representation if the beneficiary country has a currency that is manipulated or in fundamental misalignment. S. 1677 (Dodd) would give the Treasury Department the authority to take a currency manipulation case to the World Trade Organization through its dispute settlement mechanism or to the International Monetary Fund. S. 1607 (Baucus) would require the United States to inform the International Monetary Fund of the failure of a country to adopt appropriate policies to eliminate the fundamental misalignment in its currency and request a consultation by the IMF with that country. The United States also would not approve any new financing by the U.S. Overseas Private Investment Corporation (including insurance, reinsurance, or guarantee) and oppose any loan to the country from a multilateral bank. In the case of a persistent failure to adopt appropriate policies to correct the misalignment, the U.S. Trade Representative would request dispute settlement consultations at the WTO. With respect to the WTO dispute settlement mechanism, an agreement between the IMF and WTO requires the WTO to refer exchange rate disputes to the IMF and accept the IMF's findings as conclusive. If the IMF finds currency manipulation, it is not clear how a WTO dispute settlement panel would rule. There is no precedent for a case in which currency manipulation is considered to have the effect of an export subsidy and allows for direct retaliation against the exports of the offending country. Even though the IMF has not found that Japan was manipulating its currency during its Article IV consultations, the United States could inform the IMF that it believes Japan is not complying with the requirements of Article IV. This would trigger consultations with Tokyo and a report by the Managing Director to the IMF's executive board. While the IMF still might not find Japan guilty of currency manipulation, it would put pressure on the Bank of Japan not to intervene in currency markets in the future. Legislation in the 110 th Congress related to Japan's currency include the following: H.R. 782 (Ryan)/ S. 796 (Bunning). Fair Currency Act of 2007. Would provide that exchange-rate misalignment by any foreign nation is a countervailable export subsidy and clarify the definition of manipulation with respect to currency. H.R. 2886 (Knollenberg)/ S. 1021 (Stabenow). Japan Currency Manipulation Act. Would address the exchange-rate misalignment of the Japanese yen with respect to the United States dollar. S. 1607 (Baucus). Currency Exchange Rate Oversight Reform Act of 2007. Would require the Treasury Department to identify currencies that are fundamentally misaligned and would require action to correct the misalignment. Such action would include factoring currency undervaluation in U.S. anti-dumping cases, banning federal procurement of products or services from the designated country, and filing a case against in the WTO. S. 1677 (Dodd). Currency Reform and Financial Markets Access Act of 2007. Would require the Treasury Department to identify countries that manipulate their currencies regardless of their intent and to submit an action plan for ending the manipulation, and would give Treasury the authority to file a case in the WTO. | The rapid depreciation of the value of the dollar on foreign exchange markets is mirrored by an equally rapid appreciation of currencies, such as the yen (and Euro). This has raised concerns that Japan may intervene in currency markets for the first time since March 2004 to shore up the value of the dollar and slow the appreciation of the yen. Japan has conducted such intervention in the past by purchasing dollars and selling yen on foreign exchange markets. This intervention has raised concerns in the United States and brought charges that Tokyo is manipulating its exchange rate in order to gain unfair advantage in world trade. This coincides with similar charges being made with respect to the currencies of the People's Republic of China and South Korea. In the 110th Congress, H.R. 2886 (Knollenberg)/S. 1021(Stabenow) (Japan Currency Manipulation Act), H.R. 782 (Tim Ryan)/S. 796 (Bunning) (Fair Currency Act of 2007), S. 1677 (Dodd) (Currency Reform and Financial Markets Access Act of 2007), and S. 1607 (Baucus) (Currency Exchange Rate Oversight Reform Act of 2007) address currency misalignment in general or by Japan in particular. In the past, Japan has intervened (bought dollars and sold yen) extensively to counter the yen's appreciation, but since 2004, the Japanese government has not intervened significantly, although some claim that Tokyo continues to "talk down the value of the yen." This heavy buying of dollars resulted in an accumulation of official foreign exchange reserves that exceeded a record $979 billion (February 2008) by Japan. The intervention, however, seems to have had little lasting effect. Estimates on the cumulative effect of the interventions range from an undervaluation of the yen of about 3 or 4 yen to as much as 20 yen per dollar, although recent appreciation of the yen has erased most of such undervaluation. In 2007, the U.S. Secretary of the Treasury indicated that it had not found currency manipulation by any country, including by Japan. An April 2005 report by the Government Accountability Office reported that Treasury had not found currency manipulation because it viewed "Japan's exchange rate interventions as part of a macroeconomic policy aimed at combating deflation...." In its May 2006 report on consultations with Japan, the International Monetary Fund (IMF), likewise, did not find currency manipulation by Japan. One problem with the focus on currency intervention to correct balance of trade deficits is that only about half of the increase in the value of a foreign currency is reflected in prices of imports into the United States. Periods of heaviest intervention also coincided with slower (not faster) economic growth rates for Japan. Major policy options for Congress include (1) letting the market adjust; (2) clarifying the definition of currency manipulation; (3) requiring negotiations and reports; (4) requiring the President to certify which countries are manipulating their currencies and taking remedial action if the manipulation is not halted; (5) taking the case to the World Trade Organization or appealing to the IMF; or (6) opposing any change in governance in the IMF benefitting Japan. This report will be updated as circumstances require. |
Recent unrest in the Middle East and North Africa (MENA) region has affected international energy markets and put upward pressure on oil prices. MENA is home to some of the world's largest oil and natural gas producers and exporters. The region's exporters account for roughly 40% of oil and 20% of natural gas traded internationally. MENA countries also hold some of the largest reserves of oil and natural gas. (See the Appendix for energy profiles of the MENA countries.) This paper examines the consequences of the recent unrest on oil and natural gas markets, both in the short term and longer term. Energy prices can fluctuate based on current energy supply and demand conditions, expectations about future supply and demand, and financial market conditions. As a major source of the world's oil and natural gas production, MENA is critical to global energy markets. Current unrest there has shut down some energy production and raised uncertainties about future supply from the region. Some regional producers are seeking to reassure global energy markets, amid fears that unrest could spread to major producers or disrupt regional commerce. Oil is traded globally and oil prices are set in a globally integrated market under relatively short-term contracts. Consequently, what happens in any one part of the market—especially as significant a component as MENA—can affect the price of oil everywhere regardless of where the oil is produced or consumed. Natural gas markets have also been affected, but natural gas is not traded as widely as oil. Outside of North America and the United Kingdom, natural gas is traded mostly under long-term contract, and international market pricing is not as flexible as oil pricing. Consequently the effects of MENA unrest vary more by region, with the greatest impact currently being felt in Europe. The Brent crude oil price (a key international reference or benchmark) increased by nearly $20 per barrel from December 17, 2010, when protests started in Tunisia, to $113 per barrel on March 8, 2011, by which point unrest had spread through Egypt, Bahrain, Libya, and elsewhere. Oil prices had already been increasing throughout the fourth quarter of 2010—due largely to the global economic recovery and the resulting increase in oil demand—but threats to oil supply from, and oil transportation through, MENA pushed them up further than might otherwise have been the case. The unrest has contributed to higher prices by causing some supply reductions and giving rise to worries that unrest may spread to the region's larger energy producers. The MENA region includes some of the world's largest oil exporting countries and most important shipping chokepoints. The region produces 29.1 million barrels per day (Mb/d), a third of global oil supply, and its oil exports equal roughly 40% of the world's oil trade (see Table 1 ). Unrest in Egypt in January and February raised concerns of disruptions to oil and natural gas moving between the Red Sea and the Mediterranean, highlighting transit risks. Turmoil in Libya, a much bigger oil exporter than Egypt, and unrest in the Persian Gulf state of Bahrain increased concern in oil markets. As of March 2, 2011, estimates for how much oil production has been shut down in Libya varied, ranging from 0.8 Mb/d to 1.2 Mb/d. (For context, Libya produced 1.8 Mb/d last year, and the global oil market is roughly 86 Mb/d.) Several U.S. companies are invested in Libya's energy production, including ConocoPhillips, Hess, and Occidental Petroleum; they are minority partners in their joint ventures with the Libyan National Oil Company. Saudi Arabia and Kuwait have publicly offered to make up any shortfall from the Libyan disruption by using their spare oil production capacity, and industry data show that Saudi Arabia has increased production by about 400,000 barrels per day. But some of the additional Saudi volumes may be of lower quality (heavier and higher in sulfur content) than the Libyan crudes, making them an imperfect substitute for certain refiners. European refineries not equipped to process the lower quality crudes may have to source cargoes from places like Nigeria and Azerbaijan, which have crude closer in quality to the lost Libyan supplies. Other refineries around the world, particularly some of the new refineries in Asia, may be better able to absorb the additional heavy, higher sulfur crude from Saudi Arabia, but at least in the short run there may be a dislocation that may raise prices, particularly for light, low sulfur crude, as global supply is redistributed. The transition may have some leeway as a number of European refiners are undergoing prescheduled maintenance in March, though the situation may tighten as they come back into operation in April. Of greater concern to oil markets is the risk that unrest may spread to other, larger producing countries in the region. Of particular concern would be if unrest spreads to Saudi Arabia. It is the world's second-largest producer behind Russia. In addition to its current output, as of the end of 2010, Saudi Arabia also held about 80% of the world's spare oil production capacity —capacity that is now being used to offset supply disruptions elsewhere. If significant geopolitical unrest emerges in Saudi Arabia, market concern may drive prices considerably higher. If any such unrest somehow disrupts Saudi oil production, it is difficult to predict how high oil prices may rise. The security of the Strait of Hormuz, between Iran and Oman, is also of great concern. A third of the world's oil trade passes through the Strait of Hormuz, and any closing or confining of transit could also substantially raise oil prices. As of 2010, the United States imported half of the oil it consumed from abroad—9.4 Mb/d, of which 2.3 Mb/d came from MENA. More than 2.0 Mb/d came from three countries: Saudi Arabia, Algeria, and Iraq. Imports from Libya were less than 0.1 Mb/d; most of Libya's oil and other petroleum product shipments go to Europe. Because the oil market is globally integrated, the disruption of Libyan exports to Europe has affected the price of oil worldwide, including all U.S. imports and domestic production. Economically, higher oil prices have a negative impact on household budgets and national economic growth for countries that are major importers. According to recent testimony from Federal Reserve Chairman Ben Bernanke, while rising oil prices increase inflation and take income out of the pockets of consumers, reducing consumer spending and confidence, the recent increase does not yet appear to be a significant risk for the recovery or inflation. Some analysts estimate that a sustained $10 increase in the oil price can reduce U.S. economic growth by roughly two-tenths of a percentage point. However, this may not account for potential secondary effects such as through consumer confidence or other areas. The benchmark U.S. oil price on March 8, 2011, was $105 per barrel, versus an average of $80 per barrel in 2010. Even under a scenario in which the United States produced as much oil as it consumes, international events would still affect U.S. oil prices as long as international trade were permitted. The drag on economic growth via the trade deficit would be muted in such a scenario. Households and businesses could still face higher (or lower) costs due to international events, but wealth would be redistributed domestically from energy consumers to producers to a greater degree than it is today. There is much less risk to the United States from MENA-related disruptions of natural gas supply. The United States imports about 16% of the natural gas it consumes, nearly all via pipeline from Canada. In 2009, MENA liquefied natural gas (LNG) accounted for less than 1% of U.S. consumption. Since the beginning of the unrest, U.S. natural gas prices have actually declined. (See Figure 3 .) The global natural gas market is much more regionally segmented than the oil market, and events in one part of the world do not necessarily affect prices everywhere. Only about 30% of natural gas is traded internationally, versus 60% for oil. Most natural gas exports from MENA go to Europe or Asia, where supplies are mostly sold under long-term contracts, insulating consumers in the short term from any price fluctuations caused by unrest. Figure 3 highlights the minimal influence the unrest has had on natural gas markets. Some companies have had to scramble for LNG cargoes to limit their risk of a natural gas supply disruption, but there is ample spare capacity to meet this demand. The northern hemisphere winter is the main consumption season for natural gas, used primarily for heating, and prices will mostly be affected by changes in temperature. Europe is the region most vulnerable to a natural gas shutdown in MENA, particularly from North African countries. The complete cut off by Libya of its natural gas exports, which almost exclusively go to Italy, has contributed to a 12% increase in European spot prices since major protests began. Russia has increased its pipeline exports to Italy to compensate for the shortfall. However, since a market vendor in Tunisia lit himself on fire in December, European prices are down almost 7%. If supply from Algeria—Europe's third-largest supplier of natural gas behind Russia and Norway—were for some reason reduced or cut off, Europe would be hard-pressed to replace this gas. (See the Algeria synopsis in the Appendix for additional information.) Europe's network of natural gas pipelines is designed to move natural gas from east to west, and requires more interconnections to move supplies throughout the region. In contrast, Asian prices have remained almost flat since the unrest started in Libya. Oil and natural gas exporting countries in MENA rely heavily on revenues from energy exports to fund government budgets and fuel their economies. And MENA exports will make up a substantial component of world oil and gas trade for the foreseeable future. MENA countries hold approximately 61% of oil reserves and 45% of natural gas reserves. Changes in government policies that affect the development of these resources will have a long-term impact on global markets. MENA is home to 8 of the 12 countries in the Organization of the Petroleum Exporting Countries (OPEC) and 5 of the 11 members of the Gas Exporting Countries Forum (GECF). If unrest persists in MENA countries, the long-term effects may be incorporated into oil and natural gas market expectations. Energy markets may evaluate the risk associated with exports from MENA differently in the future. The outbreak and persistence of unrest across the region has highlighted geopolitical risks that may not have been fully recognized before the crisis. Even after the current outbreak of unrest subsides, concerns that it could re-emerge may mean that some part of the current risk premium may persist. Countries that undergo regime change may re-evaluate national energy development, production, and export policies. In the short term, regime change is likely to support relatively higher prices by creating uncertainty. Long-run risks from regime change and energy policy re-evaluation from energy exporting countries can vary on a case-by-case basis. Risks from regime change in countries such as Libya or Iran, historically sources of instability to the oil market, may be different than regime change in Saudi Arabia. On the other hand, market observers may judge that the revenue requirements of many regional producers create strong incentives for energy policy continuity in producing states, regardless of the makeup of their governments. Even absent regime change, the current crisis may foster changes in MENA energy policy. Some governments have already increased public expenditures in apparent hope that it may dampen unrest, and these expenditures may increase revenue needs over the long term. Increasing energy consumption in some exporting countries also creates complex choices for government and industry. Should increases in government expenditures be sustained, these countries may require greater revenues from oil and natural gas exports. Whether they attempt to do this through higher export volumes than would otherwise be the case (which may contribute to lower prices), or coordinating lower exports than would otherwise be the case to raise prices, is unclear. Policy options involving action or oversight from Members of the 112 th Congress fall into three categories: short-term energy policies, long-term energy policies, and addressing the underlying political unrest. The oil market is global; no one country controls it, though the policies of larger producer and consumer nations can have more influence than others. Policy measures aimed at reducing the price of oil or U.S. import dependence tend to focus on increasing oil supply (or the supply of oil alternatives) and reducing demand. But the energy industry has long lead times and is capital intensive, so it takes long periods of time to implement most supply and demand measures. As a result, there are limited short-term policy options, which Congress recognized in its justification for establishing the Strategic Petroleum Reserve (SPR). The SPR created a short-term policy tool that reduces the vulnerability of the United States to the consequences of a severe energy supply interruption. However, debates have continued concerning the appropriateness of using the SPR and what qualifies as "severe." Much of the discussion around energy policy responses to MENA unrest is focused on oil. U.S. natural gas consumption, as mentioned above, is mainly supplied by domestic resources with some imports largely from Canada. As natural gas is currently not a substitute for oil, particularly in the transportation sector, policies to increase production will have minimal if any effect on U.S. oil consumption. There are proposals to encourage more natural gas use in the transportation sector, but these proposals are long-term in nature. The United States uses very little oil in electricity generation, making the effect of fuel switching to natural gas in that sector minimal. Globally, some U.S. companies have applied for permits to export natural gas, but the limited LNG additions would unlikely change the overall global natural gas picture. The U.S. government holds 726.5 million barrels of crude oil in the SPR—equivalent to 75 days of imports—to respond to supply interruptions. Oil from the SPR could reach markets within 13 days of the President authorizing its release at a maximum rate of 4.4 Mb/d, though any market impact could be more immediate once the market knows it has been made available. Further, some of the light, sweet barrels available in the SPR are a closer match to shut-in Libyan crude (or the Nigerian, Azeri, etc., crude that may substitute for it) than some of the heavier and/or higher sulfur crude that may come out of Saudi Arabia. An SPR release can be coordinated with other members of the International Energy Agency, which also hold strategic reserves. However, using the SPR at any given point may leave less oil in storage to deal with subsequent disruptions. The Energy Policy and Conservation Act of 1975 ( P.L. 94-163 , EPCA), establishing the SPR, authorizes a drawdown upon a finding by the President that there is a "severe energy supply interruption"—an energy supply shortage that is likely to be of significant scope and duration and may cause major adverse impact on national safety or the national economy which results from an interruption in the supply of imported or domestic petroleum. What qualifies as a severe interruption is a matter of debate (see below). EPCA also includes provisions for test sales and exchanges of crude in the SPR. In its FY2012 Budget Request, the Department of Energy (DOE) called for a sale of approximately 6 million barrels of oil for operational purposes. One of the 62 caverns that hold the reserve, one at the Choctaw Bayou SPR site in Louisiana that had originally been assessed as able to hold 7.5 million barrels, has leached toward the edge of the salt dome it sits under and may now only be able to safely hold 3.2 million barrels. The excess oil is being moved to other locations, but the DOE is concerned about overfilling these other locations and has proposed selling the excess crude rather than risk losing it through leaks. The sale will reduce the crude oil stocks to 74 days of imports. Congressional views on the use of the SPR vary. Some have supported the sale of 6 million barrels for operational reasons, citing fiscal and environmental concerns about losing the oil. Others have asked the Administration to stand ready to draw down the SPR if the situation in MENA deteriorates any further, posing greater risk to oil supply. And still others are calling for an immediate SPR release to bring down prices. Critics of tapping the reserve have questioned the Administration's motive in selling crude for operational reasons, and suggested that the SPR should be preserved for more severe disruptions, resisting calls that it be used to affect prices. Industry analysts disagree whether selling crude from the SPR will have a significant market impact. On March 8, 2011, officials stated that the Administration is monitoring the situation and that drawing down the SPR is an option under consideration. The SPR was established at least in part because there are few other short-term options to mitigate the effect of severe oil market disruptions. Price controls implemented in the 1970s, also responses to MENA oil supply disruptions, were ultimately rejected as counterproductive to long-term energy goals. When prices were rising rapidly in 2008, Congress considered but did not pass a temporary "gas tax holiday." The proposal, S. 2890 in the 110 th Congress, would have amended the Internal Revenue Code of 1986 to reduce the 18.4¢ per gallon federal gas tax and 24.4¢ diesel tax to zero during the summer driving season. It met significant opposition on concerns it would contribute to higher oil import dependence by spurring increased consumption and jeopardize programs funded by the Highway Trust Fund, the recipient of the fuel excise tax. Apart from the SPR, much of the policy debate stemming from the unrest in MENA and its impacts on oil markets has focused on options that take a long time to implement. Some Members of Congress and others cite the current unrest in MENA and the resulting increase in oil costs in backing proposals ranging from increasing support for domestic oil and gas production, and renewable energy, or mandating greater efficiency. Such proposals may contribute to lower import dependence but only over time, as they take months or years to make material impacts on liquid fuels supply and demand. Further, while such moves would reduce the drag on economic growth when oil prices rise, American consumers could still face higher gasoline prices at the pump due to international disruptions of oil supply, since oil prices are set in a global marketplace. Discussing these numerous options falls beyond the scope of this report. Also, Congress may seek to use its authorization, appropriations, and oversight powers to monitor and affect the executive branch's efforts to address the underlying political unrest in MENA. For more information on political unrest in MENA, see the CRS Issue in Focus page on the Middle East and its associated reports. Political profiles of MENA countries are available via the CRS Issue in Focus page on the Middle East. Algeria Oil Exports: Algeria is in the top 15 of oil exporters, sending approximately 1.2 Mb/d around the world. Europe is the primary recipient of Algerian oil. Algeria is also a main exporter to Europe of naphtha, which is used to make high octane gasoline and jet fuel, and condensate, a light natural gas liquid. Natural Gas Exports: Europe, mainly Italy, is Algeria's primary customer for natural gas. Algeria is Europe's third-largest supplier of natural gas, behind Russia and Norway, exporting by both pipeline and LNG. Much of Algeria's natural gas exports come from the Hassi R'Mel field. There are two main export pipelines—the Transmed pipeline going to Italy via Tunisia and the Maghreb-Europe gas pipeline going to Spain via Morocco—and two LNG export terminals, Arzew and Skikda. Arzew was the first LNG facility built in the world in 1964. There are three additional pipelines at various stages of development: the Medgaz pipeline going directly to Spain, the Galsi pipeline going directly to Italy, and the Trans-Sahara pipeline that would bring Nigerian natural gas to Europe via Algeria. Medgaz is scheduled to open in 2011, Galsi in 2012, and there is no date for the Trans-Sahara as it is unlikely to be constructed. Supplemental Energy Concerns: None. Bahrain Oil Exports: Bahrain shares the Abu Safah field with Saudi Arabia and is a minor exporter of oil. Natural Gas Exports: Bahrain is not an exporter of natural gas. Supplemental Energy Concerns: Bahrain is linked by a causeway to the Eastern Province of Saudi Arabia, which serves as the production and export hub for most of Saudi Arabia's oil. As such, unrest in Bahrain may concern oil markets as a possible indication of potential risk to supplies from Saudi Arabia. Bahrain also hosts the headquarters of the U.S. Navy's Fifth Fleet, which plays an important role in providing maritime security in and around the Persian Gulf. Egypt Oil Exports: Egypt is a minor exporter of oil. Natural Gas Exports: Egypt is the 12 th -largest exporter of natural gas, with cargoes going to the United States, Europe, and Asia. However, its main influence is its regional natural gas exports by pipeline to Israel and to Jordan, Lebanon, and Syria by the Arab Gas Pipeline. In 2009, Egypt supplied all the natural gas consumed in Jordan and Lebanon, half of Israel's consumption, and 13% of Syria's consumption. Supplemental Energy Concerns: Egypt's control of the Suez Canal and the Suez-Mediterranean (SUMED) oil pipeline raised concern during the recent unrest. If both of these transit options were closed it would likely take a few weeks for the oil and natural gas industry to find alternative routes. There would be additional costs to these alternative routes, and many cargoes would have to factor in the required time and cost of going around South Africa's Cape of Good Hope. There are plans to extend the Arab Gas Pipeline to Turkey in order to send natural gas to Europe. Iran Oil Exports: In 2009, Iran exported 2.2 Mb/d, making it the third-largest exporter, behind Saudi Arabia and Russia. Although Iran is a major exporter of oil, it imports refined products and has experienced shortages of some products, including gasoline. Kharg Island is Iran's main oil export terminal, with a loading capacity of 5 Mb/d. Natural Gas Exports: Although Iran is the second-largest reserve holder of natural gas, it is a net importer. Iran exports small amounts of natural gas to Turkey, but imports from Turkmenistan. Additionally, Iran co-operates the South Pars/North Field, the world's largest natural gas field, with Qatar. Supplemental Energy Concerns: Iran, along with Oman, is one of the littoral countries of the Strait of Hormuz, through which transits approximately 15.5 Mb/d, or nearly a third, of the world's oil trade. If this passage were threatened or closed, the impact on world oil markets would be tremendous, with prices likely reaching new highs. Iran is also a regional exporter of electricity. Iran's belligerent relationship with Israel adds instability to the marketplace, as an attack by either would have a big impact on oil exports and possibly natural gas exports if it extended beyond Iran's borders. Iraq Oil Exports: Iraq is one of the countries that could have tremendous growth in its oil production should the country remain stable. In 2009, Iraq exported almost 1.8 Mb/d, making it the 10 th -largest exporter. The Basrah oil terminal has a 1.3 Mb/d capacity and is Iraq's main export terminal. Iraq also exports oil by pipeline to Turkey. Natural Gas Exports: At present, Iraq does not export natural gas, although it does have substantial reserves. Supplemental Energy Concerns: Iraq has the potential to be among the leading sources of global oil supply growth. It is home to the world's fourth-largest proven oil reserves, behind Saudi Arabia, Canada, and Iran, but development plans may be threatened by unrest. Israel Oil Exports: Israel is not an exporter of oil. Natural Gas Exports: Israel is not an exporter of natural gas, but recent discoveries could make Israel self-sufficient in natural gas and possibly lead to exports. Supplemental Energy Concerns: Israel's influence on oil and natural gas markets comes from its strained relationships with some MENA countries, and its hostile relationship with Iran. The possibility of Israel attacking Iran over its nuclear program adds instability to the market. Jordan Oil Exports: Jordan is not an exporter of oil. Natural Gas Exports: Jordan is not an exporter of natural gas. Supplemental Energy Concerns: Jordan is a transit point on the Arab Gas Pipeline from Egypt, which also supplies natural gas to Lebanon and Syria. Rising energy prices were creating significant fiscal challenges for the Jordanian government prior to the recent unrest. Sustained high prices may complicate government efforts to respond to protestor demands and maintain a healthy fiscal balance. Kuwait Oil Exports: In 2009, Kuwait ranked as the 11 th -largest exporter of oil. Given its proximity to Saudi Arabia, unrest in Kuwait may have a greater market impact than its relative importance as a producer would suggest. Natural Gas Exports: Despite having ample natural gas reserves, Kuwait actually imports natural gas. In the future, Kuwait reportedly intends to increase its natural gas production to meet domestic demand. Supplemental Energy Concerns: Kuwait shares an area referred to as the Partitioned Neutral Zone (PNZ) with Saudi Arabia. The resources of the PNZ are developed in a 50-50 relationship with Saudi Arabia. Lebanon Oil Exports: Lebanon is not an exporter of oil. Natural Gas Exports: Lebanon is not an exporter of natural gas. Supplemental Energy Concerns: Lebanon is a transit point on the Arab Gas Pipeline from Egypt. Libya Oil Exports: Prior to the ongoing crisis, Libya was exporting over 1.2 Mb/d of oil, which is approximately 3% of global exports. In addition to its exports, Libya historically has played an important role in the oil industry, with Muammar al Qadhafi and his supporters leading the nationalization effort of most of most Arab countries' oil industry assets in the early 1970s. Natural Gas Exports: Libya's exports almost exclusively go to Italy and in 2009 made up almost 13% of that country's natural gas consumption. The Greenstream natural gas pipeline to Italy has ceased flows. Libya also exports a small amount of LNG. Supplemental Energy Concerns: None. Morocco Oil Exports: Morocco is not an exporter of oil. Natural Gas Exports: Morocco is not an exporter of natural gas. Supplemental Energy Concerns: The Maghreb Europe Gas pipeline from Algeria to Spain transits Morocco. Oman Oil Exports: Oman is in the top 20 of oil exporters, accounting for about 1% of global exports. Natural Gas Exports: Oman is a net exporter of natural gas, but does import a small amount from Qatar. Most of Oman's LNG goes to Asia. Supplemental Energy Concerns: Oman, along with Iran, is one of the littoral countries of the Strait of Hormuz, through which transits approximately 15.5 Mb/d, or nearly a third, of the world's oil trade. If this passage were threatened or closed, the impact on world oil markets would be tremendous, with prices likely reaching new highs. Qatar Oil Exports: Qatar accounted for 2% of the world's oil exports last year. Natural Gas Exports: Qatar is the fourth-largest exporter of natural gas, but the world's leading exporter of LNG. This gives Qatar greater flexibility in where it sends its natural gas than countries bound by pipelines. Qatar has two LNG complexes—Qatargas and Ras Laffan. In addition to its liquefaction capacity, Qatar also owns interests in LNG import terminals in Europe and the United States and one of the largest LNG tanker fleets. Qatar also exports natural gas by pipeline to the UAE. Supplemental Energy Concerns: Qatar hosts of the Gas Exporting Country Forum's headquarters in Doha. It is also home to important U.S. military Central Command facilities that support ongoing operations in MENA, Iraq, and Afghanistan. Saudi Arabia Oil Exports: Saudi Arabia is the key oil-producing country in MENA, and by most industry measures the world. Besides being the largest exporter of oil, Saudi Arabia is the holder of most of the world's spare production capacity. Key within Saudi Arabia's petroleum complex are two pieces of infrastructure: Abqaiq Oil Processing Center and the Ras Tanura Oil Exporting Terminal. Both of these are essential parts of Saudi Arabia's ability to export oil. Oil is processed at Abqaiq in preparation for export or refining. Abqaiq has a 7 Mb/d oil processing capacity. Ras Tanura, the main export terminal for Saudi oil, has a 6 Mb/d export capacity. Should either of these facilities be shut down, the impact on oil markets would be significant, with prices likely rising to new highs very quickly. Abqaiq was targeted in a failed attack by terrorists in February 2006. Natural Gas Exports: Although Saudi Arabia is one of the largest producers of natural gas, it does not export any natural gas. Natural gas is used domestically for industry and electric power generation. Supplemental Energy Concerns: Saudi Arabia has played a key role in OPEC as the swing producer, increasing or decreasing its production to maintain prices. It has also been a moderate voice within the cartel. Syria Oil Exports: Syria is a minor exporter of oil. Natural Gas Exports: Syria does not export natural gas. Supplemental Energy Concerns: Syria is a transit country for the Arab Gas Pipeline from Egypt. Additionally, Syria could play a role in potential Iraq natural gas exports. Tunisia Oil Exports: Tunisia is a minor exporter of oil. Natural Gas Exports: Tunisia does not export natural gas. Supplemental Energy Concerns: Tunisia is a transit country for Algeria's Galsi natural gas pipeline to Italy. United Arab Emirates (UAE) Oil Exports: The UAE accounted for 5% of global oil traded in 2009 and had the second-largest spare capacity of OPEC members. Natural Gas Exports: The UAE is a net importer of natural gas, receiving over 600 bcf of natural gas from Qatar via pipeline. Supplemental Energy Concerns: The UAE is a global financial hub. Yemen Oil Exports: Yemen is a minor exporter of oil. Natural Gas Exports: Yemen is a minor exporter of natural gas. Supplemental Energy Concerns: Terrorist activity in Yemen has led to concern over its exports of LNG that was destined for the United States. Yemen is a littoral country for a shipping chokepoint called the Bab el-Mandab, through which transited an estimated 3.2 Mb/d of oil last year cumulatively in both directions. The Bab el-Mandab is the southern entry/exit point to the Red Sea and therefore critical to much of the ship traffic that passes through the Suez Canal. | Political unrest in the Middle East and North Africa (MENA) has contributed to higher oil prices and added instability to energy markets. Supply disruptions and fears about the possible spread of unrest to major exporters have pushed prices higher. Even if the crisis abates, some risk premium may persist to the degree that market participants fear such an event could occur again. Higher oil prices can negatively impact the economies of oil importing countries. The cost of oil is the primary determinant of gasoline prices and prices of other petroleum products; increased costs can be a burden on households and many businesses. Rising import costs for oil, natural gas and petroleum-based products can be a drag on economic growth by negatively affecting the trade balance. This may slow the current economic recovery, though it is not expected to derail it. Many energy policy options to address vulnerability to disruptions and higher prices, such as what is taking place in MENA, are long-term in nature. It takes a long time for the energy sector to make material shifts, be they through renewables, efficiency, or increased domestic oil and gas production. Short-term energy policy options (as opposed to the broader national security and diplomatic issues) are limited. Oil exporters with spare production capacity, particularly Saudi Arabia, may make short-term decisions to try to moderate prices by adjusting production levels, but their ability and willingness to do so are often based on internal decisions. For more information on the political unrest in MENA, see the CRS Issue in Focus page on the Middle East and its associated reports. Part of the U.S. energy policy debate around recent unrest has focused on whether it is appropriate to release oil from the Strategic Petroleum Reserve (SPR). The government holds the SPR to mitigate the impacts of a "severe energy supply interruption." Proponents of using the SPR point out that there is a disruption to oil production in Libya and the resulting price increase negatively impacts the U.S. economic recovery. Critics question whether this is the appropriate time to release oil from the SPR or whether it should be saved to guard against larger future disruptions, and emphasize that the SPR has not traditionally been viewed as a device to manipulate prices. |
The USA PATRIOT Improvement and Reauthorization Act (Reauthorization Act) contains a number of death penalty related provisions. Some create new federal capital offenses; some add the death penalty as a sentencing option in the case of pre-existing federal crimes; some alter the procedural attributes of federal capital cases. Other proposals offered during the 109 th Congress would have followed the same pattern: some new crimes; some new penalties for old crimes; and some procedural adjustments. Only one of the other proposals, the Adam Walsh Child Protection and Safety Act, passed, although at least one House approved several others. Three proposals do not fit the pattern; they either would have abolished the death penalty as a federal sentencing alternative or would have imposed a moratorium upon executions. The Reauthorization Act changes procedures associated with federal capital cases including those relating to air piracy cases arising before 1994, capital offenses under federal drug laws, appointment of counsel in capital cases, and habeas procedures for state capital petitioners. In the early 1970s, the U.S. Supreme Court held unconstitutional the imposition of capital punishment under the procedures then employed by the federal government and most of the states. In 1974, Congress established a revised procedure for imposition of the death penalty in certain air piracy cases. In 1994, when Congress made the procedural adjustments necessary to revive the death penalty as a sentencing option for other federal capital offenses, it replaced the air piracy procedures with those of the new regime. At least one court, however, held that the new procedures could not be applied retroactively to air piracy cases occurring after the 1974 fix but before the 1994 legislation, in the absence of an explicit statutory provision. The Reauthorization Act adds an explicit provision to the end of the 1994 legislation. The amendment provides for the application of the existing federal capital punishment procedures, 18 U.S.C. ch.228, after consideration of the mitigating and aggravating factors in place in capital air piracy cases prior to the 1994 revival. It also provides for severance should any of the pre-1994 factors be found constitutionally invalid, and includes a limiting definition of the "especially heinous, cruel, or depraved" aggravating factor in section 46503 to avoid the vagueness problems that might otherwise attend the use of such an aggravating factor. The conference report on the Reauthorization Act notes that the changes apply to a relative small group of individuals responsible for murders committed during the course of hijackings in the mid 1980s who would otherwise be eligible for parole within 10 years of sentencing and could not be effectively sentenced to more than 30 years in prison. H.R. 1763 and H.R. 3060 contained comparable provisions, but lacked the severability clause found in the Reauthorization Act. Federal law provides expedited habeas corpus procedures for state death row inmates in those states that qualify for application of the procedures and have opted to take advantage of them. Subject to a one time 30 day extension, district courts with whom habeas petitions are filed by a prisoner challenging his state capital conviction or sentence must make a final determination within the sooner of 60 days after the case is submitted for decision or 450 days after the application is filed. In such cases, the court of appeals has 120 days after the final briefs have been submitted to render a decision; the court has 30 days to consider a petition for rehearing or rehearing en banc and another 30 days to render an en banc decision should it grant rehearing. No such judicial deadlines apply in other federal habeas cases. Before enactment of the Reauthorization Act, these expedited procedures found in chapter 154 applied in capital cases only if the state met certain conditions. "A state must [have] establish[ed] 'a mechanism for the appointment, compensation, and payment of reasonable litigation expenses of competent counsel' in state postconviction proceedings, and 'must [have] provide[d] standards of competency for the appointment of such counsel.'" As of enactment of the Reauthorization Act apparently, few if any states had sought and been found qualified to opt in. Critics implied that the states have been unable to take advantage of the expedited capital procedures only because the courts have a personal stake in the outcome. The solution, they contended, was the amendment found in section 507 of the Reauthorization Act, which allows the Attorney General to determine whether a state qualifies, permits the determination to have retroactive effect, and allows review by the federal appellate court least likely to have an interest in the outcome, the U.S. Court of Appeals for the D.C. Circuit. Opponents raised separation of powers issues and questioned whether the chief federal prosecutor or the courts are more likely to make an even handed determination of whether the procedures for providing capital defendants with qualified defense counsel are adequate. Under the Reauthorization Act, states opt-in or have opted-in as of the date, past or present, upon which the Attorney General determines they established or have established qualifying assistance of counsel mechanism. Opting-in to the expedited procedures of chapter 154 only applies, however, to instances in which "counsel was appointed pursuant to that mechanism [for the death row habeas petitioner], petitioner validly waived counsel, petitioner retained counsel, or petitioner was found not to be indigent." The earlier provision required that the mechanism include competency standards for appointed counsel. The Reauthorization Act removed the requirement, but granted the Attorney General regulatory authority sufficient to establish such standards. The Act establishes a de novo standard of review for the Attorney General's determination before the D.C. Circuit. It also extends the expedited time deadline for U.S. district court action on a habeas petition from a state death row inmate from 6 to 15 months (180 days to the sooner of 450 days after filing or 60 days after the completion of all pleadings, hearings, and submission of briefs). The Streamlined Procedures Acts in the House and Senate, H.R. 3035 and S. 1088 , would have made similar changes in the opt in procedure, but set a different standard for appellate review of the Attorney General's decision, and would have included a wide range of habeas amendments unknown to the Reauthorization Act. In McFarland v. Scott , 512 U.S. 849, 859 (1994), the Supreme Court held that federal district courts might stay the execution of a state death row inmate upon the filing of a petition for the appointment of counsel but prior to the filing of a federal habeas petition in order to allow for the assistance of counsel in the filing the petition. In an amendment described as overruling McFarland , the Reauthorization Act amends federal law to permit a stay in such cases of no longer than 90 days after the appointment of counsel or the withdrawal or denial of a request for the appointment of counsel. S. 956 , H.R. 2388 , and H.R. 3132 contained a common amendment governing federal habeas cases of an individual convicted under state law of killing a child, proposed 28 U.S.C. 2254. Habeas under section 2254 would have been unavailable in such cases except for claims that both (1) relied on a new constitutional interpretation made retroactively applicable by the Supreme Court or on evidence that the petitioner could not reasonable have been previously discovered and (2) were predicated upon facts in the face of which no reasonable judge or jury would have found the petitioner guilty but for the constitutional error, proposed 28 U.S.C. 2254(j)(1), (2). Under the bills, judicial consideration of claims that met the dual criterion would have been subject to deadlines under which evidentiary hearings had to be (1) requested within 90 days of the state's answer to the petition and granted or denied within 30 days, (2) held within 60 days and completed within 150 days, and (3) decided within 15 months of the state's answer; the state could enforce deadlines through a mandamus petition to the court of appeals, proposed 28 U.S.C. 2254(j)(3). Appellate courts would have had 120 days to pass upon an appeal, 30 days to consider whether to grant a hearing en banc, and 120 days to decide a case en banc, proposed 28 U.S.C. 2254(j)(4). The rights of victims under 18 U.S.C. 3771(b) to be notified, attend, and participate in relevant criminal proceedings would have been expanded to include habeas proceedings under an amendment found in each of the bills, proposed 18 U.S.C. 3771(b). Proponents pointed to examples of delays of up to 20 years between conviction and the completion of habeas proceedings to explain the amendment; they contended that the Supreme Court has upheld past restrictions on protracted federal habeas proceedings conducted on behalf of state prisoners; and they argued the appropriateness of confining relief to those who can establish their innocence. Critics claimed the amendment was unnecessary and that great care should be taken before closing the doors of the federal courts to claims that a state criminal court has convicted an accused and imposed the death penalty in an unconstitutional manner. Some observers might have suggest that the participation of victims in the habeas process is more likely to prolong it than to streamline it. Prior to the Reauthorization Act, federal law provided two sets of death penalty procedures for capital drug cases, the procedures applicable in federal capital cases generally and the procedures specifically applicable in federal capital drug cases. The two procedures were virtually identical and either might be employed in a capital drug case. The Reauthorization Act eliminates the specific drug case procedures so that only the general procedures apply in such cases. According to the conference report, this "eliminates duplicative death procedures under title 21 of the United States code, and consolidates procedures governing all Federal death penalty prosecutions in existing title 18 of the United States Code, thereby eliminating confusing requirements that trial courts provide two separate sets of jury instructions." Prior to the Reauthorization Act, the federal capital drug provisions called for the appointment of counsel to assist indigents facing federal capital charges and indigent federal and state death row inmates during federal habeas proceedings. The Reauthorization Act transfers these provisions to title 18. Prior to the Reauthorization Act, in capital and noncapital cases alike a federal sentencing court could impose a term of supervised release for any term of years or for life (to be served upon release from prison) if the defendant has been convicted of a federal crime of terrorism (18 U.S.C. 2332b(g)(5)(B)) involving the foreseeable risk of physical injury of another, 18 U.S.C. 3583(j)(2000 ed., Supp.I). The Reauthorization Act amends section 3583(j) to eliminate the requirement that the defendant be convicted of a crime involving a foreseeable risk of injury; conviction of any federal crime of terrorism is sufficient. Several anti-gang bills would have purported to change the place where capital cases may be tried. S. 155 , H.R. 970 , H.R. 1279 , and H.R. 4472 would each have rewritten 18 U.S.C. 3235. Section 3235 provides that where possible capital cases should be tried in the county in which the crime occurred. Section 3235 is followed by a section that states that murder and manslaughter cases should be tried where the death-causing injury was inflicted regardless of where death actually occurs, 18 U.S.C. 3236. Section 3236 is followed in turn by a section that provides that multi-district crimes may be tried where they are begun, continued, or completed and that offenses involving the use of the mails, transportation in interstate or foreign commerce, or importation into the United States may be tried in any district from, through, or into which commerce, mail, or imports travel. At least one federal appellate court has held that the specific instruction of section 3236 overrides the general instructions of section 3237(a) only with regard to "unitary" murder offenses, such as murder by a federal prisoner. Section 3236 does not apply, the court held, to "death resulting" cases, cases where murder is a sentencing element rather than a substantive element of the offense, such as in cases of a violation of 18 U.S.C. 924(c)(use of a firearm during and relating to the commission of crime of violence), the sentence for which is determined in part by whether death resulted from the commission of the offense. The proposal would have repealed the "county trial" language of section 3235 and would have replaced it with language reminiscent of the multi-district terms of section 3237(a): "(a) the trial of any offense punishable by death shall be held in the district where the offense was committed or in any district in which the offense began, continued, or was completed. (b) If the offense, or related conduct, under subsection (a) involves activities which affect interstate or foreign commerce, or the importation of an object or person into the United States, such offense may be prosecuted in any district in which those activities occurred," proposed 18 U.S.C. 3235. Although it is far from certain, the proposal appeared intent upon repealing both the "county trial" feature of section 3235 and, by indirection, the section 3236 override of multi-district section 3237 in murder cases. The manslaughter features of 3236 would presumably have continued in place since they are not capital cases and thus by definition are beyond the reach of the proposed capital venue provisions of the amended section 3235. The proposal would have operated in the shadow of two constitutional provisions and of two Supreme Court cases which construe them. Article III declares that "[t]he trial of all crimes . . . shall be held in the state where the said crimes shall have been committed." The Sixth Amendment directs that, "[i]n all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the state and district wherein the crime shall have been committed." The Supreme Court in United States v. Cabrales held that in light of these provisions the crime of money laundering committed in Florida could not be tried in Missouri where the laundered funds had been criminally generatedâabsent other circumstances. Shortly thereafter, the Court held in United States v. Rodriguez-Moreno , that the crime of using a firearm during and in relation to the crime of kidnaping could be tried in New Jersey into which the victim had been carried, notwithstanding the fact that the firearm was acquired and used in Maryland after the victim had been moved there from New Jersey. The Court reasoned (1) that a crime may be tried wherever one of its conduct elements occurs; (2) that the kidnaping constituted a conduct element of the offense of using a firearm during and in relation to the crime of kidnaping; (3) that the kidnaping was a form of continuous conduct beginning where the victim was seized (in Texas) and continuing (to New Jersey and then into Maryland) until he was released or escaped; (4) that the kidnaping could be tried in New Jersey; and (5) consequently the firearm use charge could be tried in New Jersey. It is not clear how the proposal would have fared in light of Cabrales and Rodriguez-Moreno . It says "(a) the trial for any offense punishable by death shall be held in the district where the offense was committed or in any district in which the offense began, continued, or was completed. (b) if the offense, or related conduct, under subsection (a) involves activities which affect interstate or foreign commerce, or the importation of an object or person into the United States, such offense may be prosecuted in any district in which those activities occurred," proposed 18 U.S.C. 3235. It would appear to permit trial of an offense in a district in which related conduct affecting interstate or foreign commerce occurs even if the offense itself is committed entirely in another district. The Cabrales ' money generating drug trafficking in Missouri would seem to qualify as conduct related to the laundering in Florida for purposes of the proposal, and yet in Cabrales that was not enough. Nor would the proposal always appear to meet Rodriguez-Moreno 's "conduct element" standard. There is nothing in the proposal that requires that the "related conduct affecting interstate commerce" be an element of the offense to be tried. In fact, the alternative wordingâ"if the offense, or related conduct . . . involves activities which affect interstate commerce"âseems to contemplate situations in which affecting commerce is not an element, conduct or otherwise, of the offense. The death penalty may be imposed in a federal capital case only after consideration of the mitigating and aggravating factors listed in 18 U.S.C. 3592 and only if at least one aggravating factor is found. Several bills adjust the factors. One of the aggravating factors in homicide cases consists of the fact that the death resulted from the commission of a list of designated felonies. The Adam Walsh Child Protection and Safety Act, P.L. 109-248 , 120 Stat. 587, 614 (2006) adds 18 U.S.C. 2245 to the list, 18 U.S.C. 3592(c)(1). Among the proposals that failed to secure passage, H.R. 3060 would have placed 18 U.S.C. 2339D (receipt of military training from a foreign terrorist organization) on the list. H.R. 5040 would have done the same and would have added 18 U.S.C. 241 (civil rights conspiracy), 245 (deprivation of federally protected activities), 247 (interference with religious exercise), 1512 (tampering with federal witnesses), and 1513 (retaliating against federal witnesses), proposed 18 U.S.C. 3592(c)(1). Both H.R. 3060 and H.R. 5040 would have made obstruction of justice an aggravating factor in homicide cases, proposed 18 U.S.C. 3592(c)(17). H.R. 3060 would have allowed the court upon a finding of good cause or agreement of the parties to proceed with a capital sentencing jury of fewer than 12 members, proposed 18 U.S.C. 3593(b). Existing law requires agreement of the parties. The bill also would have amended Rule 24(c) of the Federal Rules of Criminal Procedure to allow for the selection of a maximum of 9 alternate jurors and to allow each side 4 peremptory alternate juror challenges when either 7, 8, or 9 alternates were to be selected, proposed F.R.Crim.P. 24(c). The present Rule calls for a maximum of 6 alternates and affords the parties 3 alternate juror peremptory challenges. These and other similar proposals passed the House initially as part of H.R. 3199 , but were dropped in conference and were not part of the Reauthorization Act as passed. H.R. 5040 would have struck the provision which outlaws the execution of the mentally retarded, proposed 18 U.S.C. 3596(c). The omission, although perhaps surprising to some, appeared inconsequential since execution of the mentally retarded is constitutionally proscribed. The bill also would have required notice to the government and would have permitted the government to request an independent mental health examination when a defendant intended to enter mental retardation as a mitigating factor for capital sentencing purposes, proposed 18 U.S.C. 3593(b). The existing statute mentions no such requirements. Presumably recourse to the proposed procedure would have been more infrequent in those cases where the district court conducted a pre-trial evidentiary hearing to determine whether the mental retardation of the accused precluded imposition of the death penalty following any conviction. Present law permits a capital jury to unanimously recommend a sentence of death or of imprisonment without possibility of release; if they do not, the court is to sentence the defendant to any lesser sentence authorized by law, i.e., imprisonment for life or a term of years. H.R. 5040 would have provided that if the jury could not agree on a capital recommendation, a new sentencing jury should be empaneled and the issue retried, proposed 18 U.S.C. 3594. Existing law specifically contemplates that the execution of federal capital sentences will be carried out in state facilities. H.R. 5040 would have granted the Attorney General regulatory implementing authority without exclusive reference to state facilities, proposed 18 U.S.C. 3596, 3597. The bill also would have rewritten 18 U.S.C. 3005 which assures defendants two assigned counsel in capital cases. The proposal would have made it clear that the statute only applied when the government sought the death penalty and not in capital cases where it had elected not to do so, proposed 18 U.S.C. 3005(a). The federal appellate courts are divided on the question over whether section 3005 now entitles a defendant to the assistance of two attorneys in all capital cases or only in those in which the government actively seeks the death penalty. The proposal would have explicitly authorized the government to strike for cause potential jurors in capital cases whose opposition to the death penalty "would prevent or substantially impair the performance" of their duties as jurors, proposed 18 U.S.C. 3005(b). The proposal borrowed language from Supreme Court cases that indicate a potential juror may be struck if his views on capital punishment "would prevent or substantially impair the performance of his duties as a juror in accordance with his instructions and his oath." Title III of the Reauthorization Act, designated the Reducing Crime and Terrorism at America's Seaports Act, creates three new federal capital offenses: 18 U.S.C. 2282A (devices or dangerous substances in waters of the United States likely to destroy or damage ships or to interfere with maritime; causing a death); 18 U.S.C. 2283 (transportation of explosive, biological, chemical, or radioactive or nuclear materials; causing a death); and 18 U.S.C. 2291 (destruction of vessel or maritime facility; intentionally causing a death). The provisions supplement federal capital offenses created earlier, e.g., 18 U.S.C. 2280 (violence against maritime navigation where death results), 229 & 229A (possession of chemical weapons where death results), 1111 (murder within the maritime jurisdiction of the United States). Two other port security bills would have suggested similar new death penalty offenses, H.R. 2651 and S. 378 (as reported) (proposed 18 U.S.C. 2282A, 2283, and 2291), and a third would have offered three slightly less comparable offenses, H.R. 173 (proposed 18 U.S.C. 1372 (destruction of vessel or maritime facility; if death results), 2280A (devices or substances in waters of the United States likely to destroy or damage ships; if death results), and 2282 (malicious dumping; if death results)). The bills drafted to counter gang violenceâ H.R. 4472 and H.R. 1279 , H.R. 970 , and S. 155 âfrequently included two new federal death penalty offenses. One of the proposed offenses would have proscribed the use of interstate facilities with the intent to commit multiple murders and would have been a capital offense where death resulted. The other, modeled after the provision that condemned the use of a firearm during or in relation to a crime of violence or a drug offense, would have outlawed crimes of violence committed during or in relation to a drug trafficking offense and would have made the offense punishable by death if a death results. A few bills would have made it a federal capital offense to kill a police officer under various circumstances. For example, H.R. 2363 would have outlawed killing a peace officer and fleeing the country, proposed 18 U.S.C. 1121(c). H.R. 1751 and H.R. 2194 would have prohibited murdering federally funded state or local law enforcement officers, proposed 18 U.S.C. 1123. Other proposed new federal capital offenses would have included: agroterrorism when death results, proposed 18 U.S.C. 2339D ( S. 1532 ); interference with federal disaster relief efforts if death results, proposed 18 U.S.C. 1370 ( H.R. 3728 ); death resulting from a violation of 18 U.S.C. 1590 (trafficking in persons) that involves raping or kidnaping more than one person, proposed 18 U.S.C. 1590 ( S. 2437 ); death resulting from a violation of proposed 18 U.S.C. 555 ( S. 2611 ) that proscribes evading immigration, customs or agricultural inspection at the border; and death resulting from the commission of federal crimes of terrorism, violations of 18 U.S.C. 175 (biological weapons), 175b (biological materials), 229 (chemical weapons), 831 (nuclear materials), or of 42 U.S.C. 2284 (atomic weapons), or conspiracies or attempts to commit such crimes or violations, proposed 18 U.S.C. 2339E ( H.R. 3060 , H.R. 5939 , S. 3882 , and S. 3848 ). Section 110 of the Reauthorization Act merges 18 U.S.C. 1992 (2000 ed.) (wrecking trains) and 18 U.S.C. 1993 (2000 ed.) (attacks on mass transit) into a new 18 U.S.C. 1992. The train wreck offense was a capital offense; the mass transit offense was not; under the new section both are now capital offenses, 18 U.S.C. 1992. The most common example of a proposed death penalty sentencing option for an existing crime came from some of the child safety bills, many of which would have made the death penalty available when a child died as a result the commission of a federal crime of violence or some other federal crime: S. 956 (crime of violence, proposed 18 U.S.C. 3559(d)); H.R. 2388 (same); H.R. 3132 (same); H.R. 4472 (same); and H.R. 3860 (violations of 18 U.S.C. ch.110 (sexual exploitation of children), ch. 117 transportation of illegal sexual activity), or 1591 (sex trafficking in children), proposed 18 U.S.C. 2245(b)). Congress adopted a variation of this theme in the Adam Walsh Child Protection and Safety Act when it amended 18 U.S.C. 2245 to read, "A person who, in the course of an offense under this chapter [chapter 109A], or sections 1591[(sex trafficking in children], 2251, 2251A, 2260, 2421[transportation for sexual purposes], 2422[coercion or enticement to travel for sexual purposes], 2423[transportation followed by sexual abuse of minors], or 2425[interstate transmission of information about a minor], murders an individual shall be punished by death or imprisoned for any term of years or for life." The section had previously covered only death resulting violations of chapter 109A, 18 U.S.C. 2245 (2000 ed.) which then as now included sections 2251, 2251A and 2260. The gang bills would have rewritten the federal criminal gang statute (18 U.S.C. 521) to permit imposition of capital punishment for a death-resulting violation of the newly crafted provisions or of the Travel Act (18 U.S.C. 1952): H.R. 1279 , proposed 18 U.S.C. 521, 1952; S. 155 , proposed 18 U.S.C. 523, 1952; H.R. 4472 , proposed 18 U.S.C. 521, 1952; see also, H.R. 970 , proposed 18 U.S.C. 523. H.R. 3060 , H.R. 5939 , S. 3882 , and S. 3848 would have made capital offenses of several death-resulting terrorism-related offenses that are now punishable by no more than life imprisonment, specifically, proposed 18 U.S.C. 832 (participating in foreign nuclear or other weapon of mass destruction programs), proposed 18 U.S.C. 2332g (anti-aircraft missiles), proposed 18 U.S.C. 2332h (radiological dispersal devices), proposed 18 U.S.C. 175c (smallpox virus), and proposed 18 U.S.C. 42 U.S.C. 2272 (atomic weapons). It is possible that the drafters of H.R. 3060 also intended to treat receipt of military training from a foreign terrorist organization, 18 U.S.C. 2339D, like treason and espionage; that is, to make it a capital offense even if no death results from commission of the offense. The statutes that outlaw treason and espionage make them punishable by death or a term of imprisonment, 18 U.S.C. 2381, 794. Section 3591(a)(1) of the federal capital punishment procedures provides that treason or espionage are punishable by death if execution is found justified after considering the mitigating and aggravating factors listed in section 3592. Section 3592(b) lists three aggravating factors for treason and espionage cases, i.e., (1) the offender has a prior espionage or treason conviction, (2) the offense involved a grave risk to national security, and (3) the offense involved a grave risk of death. Violation of section 2339D is punishable by imprisonment for not more than 10 years, 18 U.S.C. 2339D(a). H.R. 3060 would have made no change in section 2339D, but it would have amended section 3591(a)(1) of the capital procedures provisions to say that violations of sections 2381 (treason), 794 (espionage), or 2339D (terrorist training) might be punished by death if execution were found justified after considering the mitigating and aggravating factors listed in section 3592, proposed 18 U.S.C. 3591(a)(1). It also would have amended the list of 3592(c) aggravating factors to add a fourth factor, i.e., the defense involved substantial planning by the defendant, proposed 18 U.S.C. 3592(c)(4). Assuming the conforming amendment to section 2339Dâmaking it a capital offenseâwas an oversight and in spite of the proposal's caption ("addition of terrorism to death penalty offenses not resulting in death"), it is not clear that the courts would permit imposition of the death penalty for a violation of section 2339D unless the offense also involved a first degree murder. The Eighth Amendment's cruel and unusual punishment clause precludes imposing the death penalty for the rape of an adult woman by an individual already under a sentence of life imprisonment at the time of the rape; it precludes imposition of the death penalty even in the case of murder unless the defendant at least acted intentionally or acted with reckless indifference to human life while participating in a felony involving a murder; and since the Court's decision in Furman v. Georgia , it has never been called upon to approve, and consequently has never approved, imposition of the death penalty for a crime that did not involve murder. H.R. 4923 / S. 122 would have repealed federal death penalty provisions and would have barred imposition or execution of any capital sentence for violation of federal law. It made no mention of capital punishment imposed for violation of state law. H.R. 379 , on the other hand, would have set a ten year moratorium on imposition and execution of capital sentences in any state in which an individual originally sentenced to death had subsequently been judicially found innocent. It said nothing of capital punishment imposed or executed under federal law. Expedited Habeas Procedures in State Capital Cases (Provisions added by the Reauthorization Act in italics) (Provisions repealed by the Reauthorization Act have been struck) 28 U.S.C. 2261. Prisoners in State custody subject to capital sentence; appointment of counsel; requirement of rule of court or statute; procedures for appointment (a) This chapter shall apply to cases arising under section 2254 brought by prisoners in State custody who are subject to a capital sentence. It shall apply only if the provisions of subsections (b) and (c) are satisfied. (b) Counsel.â This chapter is applicable if â (1) the Attorney General of the United States certifies that a State has established a mechanism for providing counsel in postconviction proceedings as provided in section 2265; and (2) counsel was appointed pursuant to that mechanism, petitioner validly waived counsel, petitioner retained counsel, or petitioner was found not to be indigent. (b) This chapter is applicable if a State establishes by statute, rule of its court of last resort, or by another agency authorized by State law, a mechanism for the appointment, compensation, and payment of reasonable litigation expenses of competent counsel in State post-conviction proceedings brought by indigent prisoners whose capital convictions and sentences have been upheld on direct appeal to the court of last resort in the State or have otherwise become final for State law purposes. The rule of court or statute must provide standards of competency for the appointment of such counsel. (c) Any mechanism for the appointment, compensation, and reimbursement of counsel as provided in subsection (b) must offer counsel to all State prisoners under capital sentence and must provide for the entry of an order by a court of record â (1) appointing one or more counsels to represent the prisoner upon a finding that the prisoner is indigent and accepted the offer or is unable competently to decide whether to accept or reject the offer; (2) finding, after a hearing if necessary, that the prisoner rejected the offer of counsel and made the decision with an understanding of its legal consequences; or (3) denying the appointment of counsel upon a finding that the prisoner is not indigent. (d) No counsel appointed pursuant to subsections (b) and (c) to represent a State prisoner under capital sentence shall have previously represented the prisoner at trial or on direct appeal in the case for which the appointment is made unless the prisoner and counsel expressly request continued representation. (e) The ineffectiveness or incompetence of counsel during State or Federal post-conviction proceedings in a capital case shall not be a ground for relief in a proceeding arising under section 2254. This limitation shall not preclude the appointment of different counsel, on the court's own motion or at the request of the prisoner, at any phase of State or Federal post-conviction proceedings on the basis of the ineffectiveness or incompetence of counsel in such proceedings. 28 U.S.C. 2262. Mandatory stay of execution; duration; limits on stays of execution; successive petitions (a) Upon the entry in the appropriate State court of record of an order under section 2261(c), a warrant or order setting an execution date for a State prisoner shall be stayed upon application to any court that would have jurisdiction over any proceedings filed under section 2254. The application shall recite that the State has invoked the post-conviction review procedures of this chapter and that the scheduled execution is subject to stay. (b) A stay of execution granted pursuant to subsection (a) shall expire ifâ(1) a State prisoner fails to file a habeas corpus application under section 2254 within the time required in section 2263; (2) before a court of competent jurisdiction, in the presence of counsel, unless the prisoner has competently and knowingly waived such counsel, and after having been advised of the consequences, a State prisoner under capital sentence waives the right to pursue habeas corpus review under section 2254; or (3) a State prisoner files a habeas corpus petition under section 2254 within the time required by section 2263 and fails to make a substantial showing of the denial of a Federal right or is denied relief in the district court or at any subsequent stage of review. (c) If one of the conditions in subsection (b) has occurred, no Federal court thereafter shall have the authority to enter a stay of execution in the case, unless the court of appeals approves the filing of a second or successive application under section 2244(b). 28 U.S.C.2263. Filing of habeas corpus application; time requirements; tolling rules (a) Any application under this chapter for habeas corpus relief under section 2254 must be filed in the appropriate district court not later than 180 days after final State court affirmance of the conviction and sentence on direct review or the expiration of the time for seeking such review. (b) The time requirements established by subsection (a) shall be tolledâ(1) from the date that a petition for certiorari is filed in the Supreme Court until the date of final disposition of the petition if a State prisoner files the petition to secure review by the Supreme Court of the affirmance of a capital sentence on direct review by the court of last resort of the State or other final State court decision on direct review; (2) from the date on which the first petition for post-conviction review or other collateral relief is filed until the final State court disposition of such petition; and (3) during an additional period not to exceed 30 days, ifâ(A) a motion for an extension of time is filed in the Federal district court that would have jurisdiction over the case upon the filing of a habeas corpus application under section 2254; and (B) a showing of good cause is made for the failure to file the habeas corpus application within the time period established by this section. 28 U.S.C. 2264. Scope of Federal review; district court adjudications (a) Whenever a State prisoner under capital sentence files a petition for habeas corpus relief to which this chapter applies, the district court shall only consider a claim or claims that have been raised and decided on the merits in the State courts, unless the failure to raise the claim properly isâ(1) the result of State action in violation of the Constitution or laws of the United States; (2) the result of the Supreme Court's recognition of a new Federal right that is made retroactively applicable; or (3) based on a factual predicate that could not have been discovered through the exercise of due diligence in time to present the claim for State or Federal post-conviction review. (b) Following review subject to subsections (a), (d), and (e) of section 2254, the court shall rule on the claims properly before it. 28 U.S.C. 2265. Certification and judicial review (a) Certification. â (1) In general.âIf requested by an appropriate State official, the Attorney General of the United States shall determine â (A) whether the State has established a mechanism for the appointment, compensation, and payment of reasonable litigation expenses of competent counsel in State postconviction proceedings brought by indigent prisoners who have been sentenced to death; (B) the date on which the mechanism described in subparagraph (A) was established; and (C) whether the State provides standards of competency for the appointment of counsel in proceedings described in subparagraph (A). (2) Effective date. â The date the mechanism described in paragraph (1)(A) was established shall be the effective date of the certification under this subsection. (3) Only express requirements. â There are no requirements for certification or for application of this chapter other than those expressly stated in this chapter. (b) Regulations. â The Attorney General shall promulgate regulations to implement the certification procedure under subsection (a). (c) Review of certification. â (1) In general. â The determination by the Attorney General regarding whether to certify a State under this section is subject to review exclusively as provided under chapter 158 of this title. (2) Venue. â The Court of Appeals for the District of Columbia Circuit shall have exclusive jurisdiction over matters under paragraph (1), subject to review by the Supreme Court under section 2350 of this title. (3) Standard of review. â The determination by the Attorney General regarding whether to certify a State under this section shall be subject to de novo review. 28 U.S.C. 2266. Limitation periods for determining applications and motions (a) The adjudication of any application under section 2254 that is subject to this chapter, and the adjudication of any motion under section 2255 by a person under sentence of death, shall be given priority by the district court and by the court of appeals over all noncapital matters. (b)(1)(A) A district court shall render a final determination and enter a final judgment on any application for a writ of habeas corpus brought under this chapter in a capital case not later than 450 days after the date on which the application is filed, or 60 days after the date on which the case is submitted for decision, whichever is earlier 180 days after the date on which the application is filed. (B) A district court shall afford the parties at least 120 days in which to complete all actions, including the preparation of all pleadings and briefs, and if necessary, a hearing, prior to the submission of the case for decision. (C)(i) A district court may delay for not more than one additional 30-day period beyond the period specified in subparagraph (A), the rendering of a determination of an application for a writ of habeas corpus if the court issues a written order making a finding, and stating the reasons for the finding, that the ends of justice that would be served by allowing the delay outweigh the best interests of the public and the applicant in a speedy disposition of the application. (ii) The factors, among others, that a court shall consider in determining whether a delay in the disposition of an application is warranted are as follows: (I) Whether the failure to allow the delay would be likely to result in a miscarriage of justice. (II) Whether the case is so unusual or so complex, due to the number of defendants, the nature of the prosecution, or the existence of novel questions of fact or law, that it is unreasonable to expect adequate briefing within the time limitations established by subparagraph (A). (III) Whether the failure to allow a delay in a case that, taken as a whole, is not so unusual or so complex as described in subclause (II), but would otherwise deny the applicant reasonable time to obtain counsel, would unreasonably deny the applicant or the government continuity of counsel, or would deny counsel for the applicant or the government the reasonable time necessary for effective preparation, taking into account the exercise of due diligence. (iii) No delay in disposition shall be permissible because of general congestion of the court's calendar. (iv) The court shall transmit a copy of any order issued under clause (i) to the Director of the Administrative Office of the United States Courts for inclusion in the report under paragraph (5). (2) The time limitations under paragraph (1) shall apply toâ(A) an initial application for a writ of habeas corpus; (B) any second or successive application for a writ of habeas corpus; and (C) any redetermination of an application for a writ of habeas corpus following a remand by the court of appeals or the Supreme Court for further proceedings, in which case the limitation period shall run from the date the remand is ordered. (3)(A) The time limitations under this section shall not be construed to entitle an applicant to a stay of execution, to which the applicant would otherwise not be entitled, for the purpose of litigating any application or appeal. (B) No amendment to an application for a writ of habeas corpus under this chapter shall be permitted after the filing of the answer to the application, except on the grounds specified in section 2244(b). (4)(A) The failure of a court to meet or comply with a time limitation under this section shall not be a ground for granting relief from a judgment of conviction or sentence. (B) The State may enforce a time limitation under this section by petitioning for a writ of mandamus to the court of appeals. The court of appeals shall act on the petition for a writ of mandamus not later than 30 days after the filing of the petition. (5)(A) The Administrative Office of the United States Courts shall submit to Congress an annual report on the compliance by the district courts with the time limitations under this section. (B) The report described in subparagraph (A) shall include copies of the orders submitted by the district courts under paragraph (1)(B)(iv). (c)(1)(A) A court of appeals shall hear and render a final determination of any appeal of an order granting or denying, in whole or in part, an application brought under this chapter in a capital case not later than 120 days after the date on which the reply brief is filed, or if no reply brief is filed, not later than 120 days after the date on which the answering brief is filed. (B)(i) A court of appeals shall decide whether to grant a petition for rehearing or other request for rehearing en banc not later than 30 days after the date on which the petition for rehearing is filed unless a responsive pleading is required, in which case the court shall decide whether to grant the petition not later than 30 days after the date on which the responsive pleading is filed. (ii) If a petition for rehearing or rehearing en banc is granted, the court of appeals shall hear and render a final determination of the appeal not later than 120 days after the date on which the order granting rehearing or rehearing en banc is entered. (2) The time limitations under paragraph (1) shall apply toâ(A) an initial application for a writ of habeas corpus; (B) any second or successive application for a writ of habeas corpus; and (C) any redetermination of an application for a writ of habeas corpus or related appeal following a remand by the court of appeals en banc or the Supreme Court for further proceedings, in which case the limitation period shall run from the date the remand is ordered. (3) The time limitations under this section shall not be construed to entitle an applicant to a stay of execution, to which the applicant would otherwise not be entitled, for the purpose of litigating any application or appeal. (4)(A) The failure of a court to meet or comply with a time limitation under this section shall not be a ground for granting relief from a judgment of conviction or sentence. (B) The State may enforce a time limitation under this section by applying for a writ of mandamus to the Supreme Court. (5) The Administrative Office of the United States Courts shall submit to Congress an annual report on the compliance by the courts of appeals with the time limitations under this section. 2265. Application to State unitary review procedure (a) For purposes of this section, a "unitary review" procedure means a State procedure that authorizes a person under sentence of death to raise, in the course of direct review of the judgment, such claims as could be raised on collateral attack. This chapter shall apply, as provided in this section, in relation to a State unitary review procedure if the State establishes by rule of its court of last resort or by statute a mechanism for the appointment, compensation, and payment of reasonable litigation expenses of competent counsel in the unitary review proceedings, including expenses relating to the litigation of collateral claims in the proceedings. The rule of court or statute must provide standards of competency for the appointment of such counsel. (b) To qualify under this section, a unitary review procedure must include an offer of counsel following trial for the purpose of representation on unitary review, and entry of an order, as provided in section 2261(c), concerning appointment of counsel or waiver or denial of appointment of counsel for that purpose. No counsel appointed to represent the prisoner in the unitary review proceedings shall have previously represented the prisoner at trial in the case for which the appointment is made unless the prisoner and counsel expressly request continued representation. (c) Sections 2262, 2263, 2264, and 2266 shall apply in relation to cases involving a sentence of death from any State having a unitary review procedure that qualifies under this section. References to State "post-conviction review" and "direct review" in such sections shall be understood as referring to unitary review under the State procedure. The reference in section 2262(a) to "an order under section 2261(c)" shall be understood as referring to the post-trial order under subsection (b) concerning representation in the unitary review proceedings, but if a transcript of the trial proceedings is unavailable at the time of the filing of such an order in the appropriate State court, then the start of the 180-day limitation period under section 2263 shall be deferred until a transcript is made available to the prisoner or counsel of the prisoner. Capital Offenses Created by the Reauthorization Act 18 U.S.C. 2282A. Devices or dangerous substances in waters of the United States likely to destroy or damage ships or to interfere with maritime commerce (a) A person who knowingly places, or causes to be placed, in navigable waters of the United States, by any means, a device or dangerous substance which is likely to destroy or cause damage to a vessel or its cargo, cause interference with the safe navigation of vessels, or interference with maritime commerce (such as by damaging or destroying marine terminals, facilities, or any other marine structure or entity used in maritime commerce) with the intent of causing such destruction or damage, interference with the safe navigation of vessels, or interference with maritime commerce shall be fined under this title or imprisoned for any term of years, or for life; or both. (b) A person who causes the death of any person by engaging in conduct prohibited under subsection (a) may be punished by death. (c) Nothing in this section shall be construed to apply to otherwise lawfully authorized and conducted activities of the United States Government. (d) In this section: (1) The term "dangerous substance" means any solid, liquid, or gaseous material that has the capacity to cause damage to a vessel or its cargo, or cause interference with the safe navigation of a vessel. (2) The term "device" means any object that, because of its physical, mechanical, structural, or chemical properties, has the capacity to cause damage to a vessel or its cargo, or cause interference with the safe navigation of a vessel. 18 U.S.C. 2283. Transportation of explosive, biological, chem ical, or radioactive or nuclear materials (a) In GeneralâWhoever knowingly transports aboard any vessel within the United States and on waters subject to the jurisdiction of the United States or any vessel outside the United States and on the high seas or having United States nationality an explosive or incendiary device, biological agent, chemical weapon, or radioactive or nuclear material, knowing that any such item is intended to be used to commit an offense listed under section 2332b(g)(5)(B), shall be fined under this title or imprisoned for any term of years or for life, or both. (b) Causing DeathâAny person who causes the death of a person by engaging in conduct prohibited by subsection (a) may be punished by death. (c) DefinitionsâIn this section: (1) BIOLOGICAL AGENTâThe term "biological agent" means any biological agent, toxin, or vector (as those terms are defined in section 178). (2) BY-PRODUCT MATERIALâThe term "by-product material" has the meaning given that term in section 11(e) of the Atomic Energy Act of 1954 (42 U.S.C. 2014(e)). (3) CHEMICAL WEAPONâThe term "chemical weapon" has the meaning given that term in section 229F(1). (4) EXPLOSIVE OR INCENDIARY DEVICEâThe term "explosive or incendiary device" has the meaning given the term in section 232(5) and includes explosive materials, as that term is defined in section 841(c) and explosive as defined in section 844(j). (5) NUCLEAR MATERIALâThe term "nuclear material" has the meaning given that term in section 831(f)(1). (6) RADIOACTIVE MATERIALâThe term "radioactive material" meansâ (A) source material and special nuclear material, but does not include natural or depleted uranium; (B) nuclear by-product material; (C) material made radioactive by bombardment in an accelerator; or (D) all refined isotopes of radium. (8) SOURCE MATERIALâThe term "source material" has the meaning given that term in section 11(z) of the Atomic Energy Act of 1954 (42 U.S.C. 2014(z)). (9) SPECIAL NUCLEAR MATERIALâThe term "special nuclear material" has the meaning given that term in section 11(aa) of the Atomic Energy Act of 1954 (42 U.S.C. 2014(aa)). 18 U.S.C. 2291. Destruction of vessel or maritime facility (a) OffenseâWhoever knowinglyâ (1) sets fire to, damages, destroys, disables, or wrecks any vessel; (2) places or causes to be placed a destructive device, as defined in section 921(a)(4), destructive substance, as defined in section 31(a)(3), or an explosive, as defined in section 844(j) in, upon, or near, or otherwise makes or causes to be made unworkable or unusable or hazardous to work or use, any vessel, or any part or other materials used or intended to be used in connection with the operation of a vessel; (3) sets fire to, damages, destroys, or disables or places a destructive device or substance in, upon, or near, any maritime facility, including any aid to navigation, lock, canal, or vessel traffic service facility or equipment; (4) interferes by force or violence with the operation of any maritime facility, including any aid to navigation, lock, canal, or vessel traffic service facility or equipment, if such action is likely to endanger the safety of any vessel in navigation; (5) sets fire to, damages, destroys, or disables or places a destructive device or substance in, upon, or near, any appliance, structure, property, machine, or apparatus, or any facility or other material used, or intended to be used, in connection with the operation, maintenance, loading, unloading, or storage of any vessel or any passenger or cargo carried or intended to be carried on any vessel; (6) performs an act of violence against or incapacitates any individual on any vessel, if such act of violence or incapacitation is likely to endanger the safety of the vessel or those on board; (7) performs an act of violence against a person that causes or is likely to cause serious bodily injury, as defined in section 1365(h)(3), in, upon, or near, any appliance, structure, property, machine, or apparatus, or any facility or other material used, or intended to be used, in connection with the operation, maintenance, loading, unloading, or storage of any vessel or any passenger or cargo carried or intended to be carried on any vessel; (8) communicates information, knowing the information to be false and under circumstances in which such information may reasonably be believed, thereby endangering the safety of any vessel in navigation; or (9) attempts or conspires to do anything prohibited under paragraphs (1) through (8), shall be fined under this title or imprisoned not more than 20 years, or both. (b) LimitationâSubsection (a) shall not apply to any person that is engaging in otherwise lawful activity, such as normal repair and salvage activities, and the transportation of hazardous materials regulated and allowed to be transported under chapter 51 of title 49. (c) PenaltyâWhoever is fined or imprisoned under subsection (a) as a result of an act involving a vessel that, at the time of the violation, carried high-level radioactive waste (as that term is defined in section 2(12) of the Nuclear Waste Policy Act of 1982 (42 U.S.C. 10101(12)) or spent nuclear fuel (as that term is defined in section 2(23) of the Nuclear Waste Policy Act of 1982 (42 U.S.C. 10101(23)), shall be fined under this title, imprisoned for a term up to life, or both. (d) Penalty When Death ResultsâWhoever is convicted of any crime prohibited by subsection (a) and intended to cause death by the prohibited conduct, if the conduct resulted in the death of any person, shall be subject also to the death penalty or to a term of imprisonment for a period up to life. (e) ThreatsâWhoever knowingly and intentionally imparts or conveys any threat to do an act which would violate this chapter, with an apparent determination and will to carry the threat into execution, shall be fined under this title or imprisoned not more than 5 years, or both, and is liable for all costs incurred as a result of such threat. 18 U.S.C. 2290. Jurisdiction and scope (a) JurisdictionâThere is jurisdiction, including extraterritorial jurisdiction, over an offense under this chapter if the prohibited activity takes place â (1) within the United States and within waters subject to the jurisdiction of the United States; or (2) outside United States andâ (A) an offender or a victim is a national of the United States (as that term is defined under section 101(a)(22) of the Immigration and Nationality Act (8 U.S.C. 1101(a)(22)); (B) the activity involves a vessel in which a national of the United States was on board; or (C) the activity involves a vessel of the United States (as that term is defined under section 2 of the Maritime Drug Law Enforcement Act (46 U.S.C. App. 1903). (b) ScopeâNothing in this chapter shall apply to otherwise lawful activities carried out by or at the direction of the United States Government. Adam Walsh Child Protection and Safety Act Amendments (Provisions added in italics) (Provisions repealed have been struck) 18 U.S.C. 2245. Sexual abuse resulting in death (a) In General . â A person who, in the course of an offense under this chapter [18 U.S.C. 2241-2248 relating to sexual abuse], or section 1591 [sex trafficking of children or by force, fraud, or coercion], 2251[sexual exploitation of children], 2251A [selling or buying children], 2260 [production of sexually explicit depictions of a minor for importation into the U.S.], 2421 [transportation for illicit sexual purposes], 2422 [coercion and enticement for illicit sexual purposes], 2423 [transportation for illicit sexual purposes involving minors], or 2425 [use of interstate facilities to transmit information about a minor], murders an individual engages in conduct that results in the death of a person shall be punished by death or imprisoned for any term of years or for life. 18 U.S.C. 3592. Mitigating and aggravating factors to be considered in determining whether a sentence of death is justified * * * (c) Aggravating factors for homicide. âIn determining whether a sentence of death is justified for an offense described in section 3591(c)(2), the jury, or if there is no jury, the court, shall consider each of the following aggravating factors for which notice has been given and determine which, if any, exist: (1) Death during commission of another crime. âThe death or injury resulting in death, occurred during the commission or attempted commission of, or during the immediate flight from the commission of , an offense under . . . section 2245 (offenses resulting death ). . . of this title . . . . | The USA PATRIOT Improvement and Reauthorization Act (Reauthorization Act), P.L. 109-177 , 120 Stat. 192 (2006) contains a number of death penalty related provisions. Some create new federal capital offenses making certain death-resulting maritime offenses punishable by death. Some add the death penalty as a sentencing option in the case of pre-existing federal crimes such those outlawing attacks on mass transit. Some make procedural alterations such as those governing federal habeas corpus provisions for state death row petitioners. Other proposals offered during the 109 th Congress would have followed the same pattern: some new crimes; some new penalties for old crimes; and some procedural adjustments. Other than the Adam Walsh Child Protection and Safety Act, P.L. 109-248 , 120 Stat. 587 (2006), which makes a federal capital offense commit a murder in the course of any of several federal sex offenses, none of the other proposals were enacted. Several, however, passed in one House or the other. Among these, H.R. 1279 would have amended the venue provision for capital cases and would have made it a federal capital offense to use the facilities of interstate commerce to commit multiple murders and another to commit murder during and in relation to a drug trafficking offense. As would have H.R. 4472 . H.R. 1751 ; and H.R. 4472 would have made it a federal capital offense to murder a federally funded public safety officer. H.R. 3132 would have created special expedited habeas review of state child murder cases. And S. 2611 would have made evasion of immigration, customs or agricultural border inspections when death resulted a federal capital offense. Of other capital proposals pending on adjournment, H.R. 4923 and S. 122 would have abolished the death penalty as a federal sentencing alternative and H.R. 379 would have imposed a moratorium barring the states from imposing or carrying out the death penalty. The report is available in an abridged formâwithout footnotes, citations to most authorities and appendicesâas CRS Report RS22433, The Death Penalty: An Abridged Look at Capital Punishment Legislation in the 109th Congress . |
The source of federal copyright law originates with the Copyright and Patent Clause of the U.S. Constitution, which authorizes Congress "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." The Copyright Act offers legal protection to creators of original works of authorship that are fixed in a tangible medium of expression. Such original works must be captured in some form that is sufficiently permanent or stable for it to be perceived, reproduced, or otherwise communicated for a period beyond a transitory duration. The types of creative works that are potentially eligible for copyright protection fall into several categories, including literary works; musical works; dramatic works; pantomimes and choreographic works; pictorial, graphic, and sculptural works; motion pictures and other audiovisual works; sound recordings; and architectural works. In addition, copyright protects compilations and derivative works. However, copyright protection does not extend to any underlying abstract idea, procedure, process, system, method of operation, concept, principle, or discovery, but rather it only protects the manner in which those ideas are expressed. Works of the federal government are statutorily excluded from the scope of copyright protection. This includes the written opinions of federal courts, federal reports and documents, administrative regulations, and public laws. These materials are considered to be in the public domain. Works in the public domain are available for anyone to use without concern of infringement. The grant of copyright bestows several rights upon the creator of a work (or the individual having a legal interest in the work) that permit the copyright holder to control the use of the protected material. These statutory rights allow a copyright holder to do or to authorize the following: the reproduction of the copyrighted work; the preparation of derivative works based on the copyrighted work; the distribution of copies or phonorecords of the copyrighted work; the public performance of the copyrighted work; and the public display of the copyrighted work, including the individual images of a motion picture. The Copyright Act contains several statutory limitations on the copyright monopoly. These include the "first sale doctrine" that limits the copyright owner's exclusive control over distribution of the material objects in which a work is expressed. The "first sale doctrine" permits the owner of a particular copy of a copyrighted work to sell or dispose of that copy without the copyright owner's permission. Other limitations involve allowing certain reproductions by libraries and archives, limited performances and displays for educational purposes or in the course of services at a place of worship, and certain performances for non-profit, charitable causes. The doctrine of "fair use" in copyright law recognizes the right of the public to make reasonable use of copyrighted material, under particular circumstances, without the copyright holder's consent. For example, a teacher may be able to use reasonable excerpts of copyrighted works in preparing a scholarly lecture or commentary, without obtaining permission to do so. The Copyright Act mentions fair use "for purposes such as criticism, comment, news reporting, teaching, scholarship, or research." However, a determination of fair use by a court considers four factors: the purpose and character of the use including whether such use is of a commercial nature or is for nonprofit educational purposes, the nature of the copyrighted work, the amount and substantiality of the portion used in relation to the copyrighted work as a whole, and the effect of the use upon the potential market for or value of the copyrighted work. Because the language of the fair use statute is illustrative, determining what constitutes a fair use of a copyrighted work is often difficult to make in advance—according to the U.S. Supreme Court, such a determination requires a federal court to engage in "case-by-case" analysis. In 1998, Congress passed the Digital Millennium Copyright Act (DMCA). Section 1201(a)(1) of the DMCA prohibits any person from circumventing a technological measure that effectively controls access to a copyrighted work. This newly created right of "access" granted to copyright holders makes the act of gaining access to copyrighted material by circumventing digital rights management (DRM) security measures, itself, a violation of the Copyright Act. Prohibited conduct includes descrambling a scrambled work; decrypting an encrypted work; or avoiding, bypassing, removing, deactivating, or impairing a technological measure, without the authority of the copyright owner. In addition, the DMCA prohibits the selling of products or services that circumvent access-control measures, as well as trafficking in devices that circumvent "technological measures" protecting "a right" of the copyright owner. In contrast to copyright infringement, which concerns the unauthorized or unexcused use of copyrighted material, the DMCA's anti-circumvention provisions prohibit the act of DRM circumvention, as well as the design, manufacture, import, offer to the public, or trafficking in technology used to circumvent those copyright protection measures, regardless of the actual existence or absence of copyright infringement activity. The rights conferred on a copyright holder do not last forever. Copyrights are limited in the number of years a copyright holder may exercise his/her exclusive rights. In general, an author of a creative work may enjoy copyright protection for the work for a term lasting the entirety of his/her life plus 70 additional years. At the expiration of a term, the copyrighted work becomes part of the public domain. The unauthorized use of one of the exclusive rights of the copyright owner constitutes infringement. For example, unauthorized copying of a copyrighted work is an infringement of the copyright owner's exclusive right of reproduction. Anyone interested in doing anything with a copyrighted work that implicates one of the holder's exclusive rights must either (1) obtain the permission of the copyright holder, (2) comply with the terms of compulsory licenses established by law, or (3) assert that such use falls within the scope of certain statutory limitations on the exclusive rights such as the "fair use" doctrine. The Copyright Act has both criminal and civil provisions for infringement. Civil copyright infringement involves a violation of any of the exclusive rights of the copyright owner that are provided by 17 U.S.C. §§ 106-122, 602, including the right to control reproduction, distribution, public performance, and display of copyrighted works. Criminal copyright infringement includes the following offenses: copyright infringement for profit, 17 U.S.C. § 506(a)(1)(A), 18 U.S.C. § 2319(b); copyright infringement without a profit motive, 17 U.S.C. § 506(a)(1)(B), 18 U.S.C. § 2319(c); pre-release distribution of a copyrighted work over a publicly accessible computer network, 17 U.S.C. § 506(a)(1)(C), 18 U.S.C. § 2319(d); circumvention of copyright protection systems in violation of the Digital Millennium Copyright Act, 17 U.S.C. § 1204; bootleg recordings of live musical performances, 18 U.S.C. § 2319A; unauthorized recording of motion pictures in a movie theater (camcording), 18 U.S.C. § 2319B; and counterfeit or illicit labels and counterfeit documentation and packaging for copyrighted works, 18 U.S.C. § 2318. The direct infringer is not the only party potentially liable for infringement; the federal courts have recognized two forms of secondary copyright infringement liability: contributory and vicarious. The concept of contributory infringement has its roots in tort law and the notion that one should be held accountable for directly contributing to another's infringement. For contributory infringement liability to exist, a court must find that the secondary infringer "with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another." Vicarious infringement liability is possible where a defendant "has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities." The statute of limitations for initiating a civil action for copyright infringement is within three years after the claim accrued, while a criminal proceeding must be commenced within five years after the cause of action arose. Federal courts determine the civil remedies in an action for infringement brought by the copyright owner, among those statutorily authorized. If the federal government chooses to prosecute individuals for copyright violations, the imprisonment terms are set forth in the statutes describing the particular copyright crime (mostly in 18 U.S.C. § 2319), while the criminal fine amount is determined in conjunction with 18 U.S.C. § 3571 (specifies the amount of the fine under Title 18 of the U.S. Code). For a copyright owner who prevails in a copyright infringement lawsuit, the court may approve the following legal remedies: injunctions, 17 U.S.C. § 502; impounding, destruction, or other reasonable disposition of all copies made in violation of the copyright owner's rights, as well as all plates, molds, matrices, masters, tapes, film negatives, or other articles by means of which such copies may be reproduced, 17 U.S.C. § 503; actual damages suffered by the copyright owner due to the infringement, and any profits of the infringer attributable to the infringement, 17 U.S.C. § 504(b); statutory damages (at the copyright owner's election to recover in lieu of actual damages and profits), in the amount of not less than $750 or more than $30,000 as the court deems just, 17 U.S.C. § 504(c)(1). For willful infringement, a court may increase the statutory damages award to a sum of not more than $150,000, 17 U.S.C. § 504(c)(2); and costs and attorney's fees, 17 U.S.C. § 505. Willful infringement of copyright for purposes of commercial advantage or private financial gain is subject to criminal prosecution, and is punishable by up to 10 years in prison and a fine of up to $250,000. Another additional remedy for criminal copyright infringement is civil and criminal forfeiture of all infringing copies and all devices and equipment used in the manufacture of such infringing copies. | This report provides a general overview of copyright law and briefly summarizes the major provisions of the U.S. Copyright Act. |
The management of federal real property has come under increased scrutiny in the 112 th Congress, as Members, mindful of the fiscal challenges the government and the nation face, look for opportunities to reduce expenditures and increase revenue. Real property reform is viewed as one way to achieve savings, because federal agencies own thousands of buildings that they do not need, and thousands more that they do not fully utilize. These properties could generate revenue if they were sold or redeveloped, and operating costs could decline if agency workspace were consolidated into fewer buildings and the size of the federal real property inventory were reduced. In addition to holding real property assets that are unneeded or underutilized, agencies have increasingly acquired new space by entering into leases, as opposed to the less expensive option of constructing new buildings—a complex problem that the Government Accountability Office (GAO) has repeatedly identified as a wasteful practice. By some estimates, the government could save billions of dollars in the next decade through improved real property asset management—funds which could be used to reduce the deficit, cut federal spending, or support other policy priorities. To that end, real property reform legislation has been introduced in both the House and the Senate in the 112 th Congress, including the Civilian Real Property Realignment Act of 2011 (CPRA, H.R. 1734 ). In addition, the House of Representatives has held hearings on real property asset management this session. CPRA is the most comprehensive real property reform bill proposed so far in the 112 th Congress. Introduced May 4, 2011, by Representative Jeff Denham, CPRA would draw on the military base realignment and closure (BRAC) model, by establishing an independent commission to assess civilian federal real property and to recommend actions for reducing the government's inventory of unneeded and underutilized holdings. During subcommittee markup of CPRA, Representative Denham offered an amendment in the nature of a substitute, which was passed by voice vote the same day, May 25, 2011. The bill was reported by the full committee on February 1, 2012, and passed by the House on February 7, 2012. CPRA would have a broad scope, applying to space owned and leased by all executive branch agencies and government corporations, although the bill would exclude several categories of properties, including certain military installations, properties excluded for reasons of national security, and properties owned by the United States Postal Service. The legislation would encompass most major real property asset management functions, collectively referred to as "realigning" actions, including the consolidation, reconfiguration, co-location, exchange, sale, redevelopment, and disposal of unneeded or underutilized properties. By comparison, other real property reform bills in the 112 th Congress focus on a narrower set of asset management functions—typically the sale or transfer of unneeded buildings—or cover a smaller number of properties, such as those that are selected for a property disposal pilot project. If enacted, the first step in the CPRA process would be for federal landholding agencies to develop their own recommendations for realigning their real property portfolios and for reducing operating and maintenance costs. Agencies would submit these recommendations to the Administrator of the General Services Administration (GSA) and the Director of the Office of Management and Budget (OMB) not later than 120 days after the start of each fiscal year, along with specific data on all of the properties they own, lease, or otherwise control. The GSA Administrator and the OMB Director would have two responsibilities under CPRA. First, they would work together to develop criteria that would be used when determining which properties should be realigned, and what type of realignment should be recommended (e.g., sale or consolidation). The bill specifies that nine "principles" must be taken into account when establishing the criteria: The extent to which a property aligns with the current mission of the agency The extent to which there are opportunities to consolidate similar operations across or within agencies The potential costs and savings over time The economic impact on existing communities in the vicinity of the property The extent to which the utilization rate is being maximized and is consistent with non-government standards The extent to which leasing long-term space is reduced The extent to which the property could be redeveloped The extent to which the operating and maintenance costs are reduced The extent to which energy consumption specifically is reduced As noted, the bill would require the OMB Director to establish a standard for utilization rates—usually defined as the ratio of occupancy to current design capacity—for government-owned and -leased space. The bill would permit the OMB Director to recommend actions that may improve space utilization at agencies where the ratio was below the standard. The OMB Director, in consultation with the GSA Administrator, would then review the recommendations submitted by the agencies and revise the submissions, as needed, using the new criteria. The Administrator would then submit the revised recommendations, along with the criteria, to a newly established Civilian Property Realignment Commission. Among the potential benefits of having GSA and the OMB Director review agency recommendations is that they are both currently heavily involved in real property management and have extensive expertise in both the disposal and acquisition of space. GSA handles the disposal of federal real property for all agencies, unless they have statutory authority to do so themselves. GSA also has the authority to acquire space for itself and for other agencies, either through leases or new construction, and oversees the Federal Buildings Fund (FBF), a multi-billion dollar revolving fund that finances GSA's real property acquisition activities. In addition, GSA promulgates the Federal Management Regulation, which establishes the real property management responsibilities for all GSA-controlled space. GSA also maintains the government's central real property database, the Federal Real Property Profile (FRPP), which includes data on the number of excess and surplus properties each agency holds, the condition of each property, and the annual costs of maintaining them. OMB works closely with agencies as they develop their capital asset plans, and chairs the Federal Real Property Council (FRPC). The FRPC is an interagency task force that includes the Senior Real Property Officers from each landholding agency, as well as representatives from OMB and GSA. The FRPC provides government-wide guidance on real property management and which data agencies are required to report to the FRPP. Given that GSA and OMB already work closely with agencies on real property issues, they may have sufficient expertise to take on the additional responsibilities of evaluating and revising agency recommendations prior to their submission to the Commission. GSA and OMB both currently develop government-wide real property guidance, so they have potentially useful experience if called upon to develop the government-wide criteria by which recommendations would be made under CPRA. On the other hand, GSA has been criticized for failing to manage its own properties effectively, as demonstrated by the fact that it holds many excess and underutilized properties itself. Some may view these criticisms as evidence that GSA should not be entrusted with developing the criteria for CPRA recommendations, in which case the criteria would need to be developed by another body, perhaps by the Commission itself with input from the private sector as well as federal agencies. A central component of CPRA is the establishment of a Civilian Property Realignment Commission, which would assess agency real property inventories and submit recommendations to the President regarding which properties should be realigned, and by what method. The Commission would be composed of nine members, each serving a six year term. The chairperson would be appointed by the President, with the advice and consent of the Senate. The President would appoint the other eight members of the Commission, but would also be required to consult with the Speaker of the House regarding the appointment of two members, the minority leader of the House regarding one member, the Senate majority leader regarding two members, and the minority leader of the Senate regarding one member. H.R. 1734 would also require that the Commission include members with expertise in commercial real estate and re-development, government management or operations, community development, or historic preservation. The Commission would terminate after six years. The Commission would perform its own analysis of agency real property inventories and of the recommendations submitted by the Administrator and OMB Director. The Commission would be required to hold public hearings and develop an accounting system to help evaluate the costs and returns of various recommendations. The Commission would then submit a report to the President that would include its findings, conclusions, and recommendations. While the Commission "shall seek to develop consensus" in its recommendations, the report may include recommendations supported by only a majority of Commission members. The Commission would also be required to establish a website and post its recommendations on it. CPRA would require GAO to publish a report on the recommendations, including how properties were selected for realignment. By requiring the President to seek the consent of the Senate and to consult with leaders in both chambers, Congress could influence the composition of the Commission. In addition, by establishing the types of background Commission members should have when appointed, CPRA could ensure that both public and private sector real property experience would be incorporated into the decision-making process. On the other hand, consultations with congressional leaders and Senate confirmation of the Commission chairperson could slow down the CPRA process, as happened during the 2005 BRAC round, when a Senator reportedly placed a hold on BRAC board nominees. As a result, eight of the nine board members were seated through recess appointments, which delayed the BRAC process for months. The President would be required to review the Commission's recommendations and submit, within 30 days of receiving them, a report to Congress that identifies which recommendations are approved, and which, if any, are not. If the President approves of all of the Commission's recommendations, then he must submit a copy of the recommendations to Congress along with a certification of his approval. If the President disapproves of some or all of the Commission's recommendations, he would be required to submit a report to Congress and to the Commission identifying the reasons for disapproval, and the Commission would have 30 days to submit a revised list of recommendations to the President. If the President approves of all of the revised recommendations, he must submit a copy of the revised recommendations along with a certification of his approval to Congress. If the President does not submit a report within 30 days of the receipt of the Commission's original or revised recommendations, then the CPRA process terminates for the year. In effect, the President would be able only to approve or reject a complete list of recommendations. He would not be able to amend the Commission's recommendations himself before approving them. After receiving the recommendations approved by the President, Congress would have 45 days to review them, and debate their merits. Congress would be required to vote on a joint resolution of approval by the end of that period. As with the President, Congress would have the authority only to act on the entire list, not to approve or disapprove of individual recommendations. Requiring Congress to approve the entire list of recommended actions, rather than approving or disapproving of actions regarding each individual property, could reduce conflict between various stakeholders interested in the properties in question. Some civilian agencies have found their disposal efforts complicated by the involvement of state and local governments, non-profits, businesses, and community leaders with competing agendas. In 2002, for example, the United States Postal Service (USPS) identified a number of "redundant, low-value" facilities that it sought to close in order to reduce its operating costs. As part of the facility closure process, USPS was required to formally announce its intention to close each facility and solicit comments from the community. USPS ultimately abandoned its plans to close many facilities it identified—including post offices that were underutilized, in poor condition, or not critical to serving their geographic areas—in part due to political pressure from stakeholders. By moving the locus of decision-making away from agencies and placing it in the hands of an independent commission, CPRA may reduce the amount of pressure that stakeholders exert on the process. While establishing a 45-day timeframe for congressional action does impose a measure of discipline on the legislative process, CPRA would limit the amount of time available to Congress for consideration of the recommendations—of which there may be hundreds—to a few weeks, which could reduce oversight of major real property actions. Consolidation projects, for example, are often complex, multi-year efforts, with long-term consequences for the agencies and communities involved, and for which Congress is asked to provide hundreds of millions, or even billions, of dollars. For this reason, Congress regularly holds hearings on major consolidation proposals. The effort to consolidate the Department of Homeland Security at St. Elizabeth's in the District of Columbia, to cite one ongoing project, is estimated to cost $3.26 billion, and has been the subject of several congressional hearings. The consequences of the project are wide ranging, and include changing traffic patterns in the District, relocating thousands of employees, and ensuring historic preservation requirements are met. Similar issues have been raised regarding the consolidation of Food and Drug Administration headquarters, a project that has received hundreds of millions of dollars since FY2000. Congress may not feel it has sufficient time, under the proposed time constraints, to thoroughly examine the costs, benefits, and implications of recommendations of a similar scale. If a joint resolution of approval were enacted, agencies would be required to begin implementation not later than two years from the date the President transmitted the recommendations to Congress, and to complete implementation no later than six years from the same date, unless notice is provided to the President and to Congress that "extenuating circumstances" have caused the delay. The GSA Administrator would be given the authority to "take such necessary and proper actions, including the sale, conveyance, or exchange of civilian real property, as required to implement the Commission recommendations," as enacted. Other federal agencies must either use their existing authorities to implement the recommendations, or work with GSA to do so. The Administrator would also have the authority to convey property for less than fair market value, or for no consideration at all. This would appear to permit agencies, either working through GSA or through their own authorities, to bypass steps in the existing disposal process. A property recommended for public sale, for example, may not have to go through the public benefit screening process. The House-passed version of the CPRA included an amendment, H.Amdt. 923 , which would require the Secretary of the Department of Housing and Urban Development to screen certain properties for homeless use as required under the McKinney-Vento Act, "to the extent practicable." The amendment would apply to properties identified for disposal in an enacted joint resolution of approval that were not more than 25,000 square feet or were valued at less than $5 million. Agencies have long argued that public benefit conveyance requirements, particularly those that require screening for homeless use, create an administrative burden that delays disposition and drives up maintenance costs. The Department of Energy, for example, told auditors that they had properties that they felt could be disposed of only by demolition, due to their condition or location, but that still had to go through the homeless screening process. VA officials have said the requirements of the McKinney-Vento Act can add as much as two years to the disposal process. These delays could be costly, as the government continues to incur operating and maintenance costs on unneeded properties until they are conveyed. CPRA, by generally limiting PBC screening to only those properties recommended for conveyance by the Commission, may generate savings by permitting agencies to bypass the screening process for certain properties. It is not clear how many properties would meet the criteria for homeless screening established by H.Amdt. 923 , and how much of the potential savings would be reduced as agencies held onto those properties until the screening process was complete. CPRA would establish two accounts: a salaries and expense account to fund the Commission's administrative and personnel costs, and an asset proceeds and space management fund (APSMF) which is to be used to implement recommended actions. Both accounts would receive funds from appropriations—the bill includes a one-time appropriation of $20 million for the salaries and expenses account and a $62 million appropriation for the APSMF—but the APSMF would also receive the proceeds generated by the sale of properties pursuant to the Commission's recommendations. The sales proceeds deposited in the APSMF account could only be used to cover the costs associated with implementing the Commission's recommendations. Agencies have long argued that permitting them to use net proceeds for further real property activities would help them dispose of more unneeded buildings. It is not clear, however, whether there will be sufficient net proceeds generated to enable agencies to undertake potentially costly real property actions as recommended by the committee, such as consolidating agency offices or bringing vacant buildings to market. For example, the cost of preparing properties for disposition—such as repairing structural or mechanical deficiencies—can be significant, and agencies often lack the funding needed to bring those properties to salable condition. The Department of Veterans Affairs, for example, estimated that it would need to spend about $3 billion to repair the buildings in its portfolio that it rated in "poor" or "critical" condition—56% of which were vacant or underutilized, and therefore could be candidates for realignment. However, in FY2009, the government sold 2,200 buildings, but only netted $50 million dollars. It is possible that the government owns higher-value properties that would generate a larger profit if sold—the market values of surplus properties are not made public—but with a soft real estate market, there may be limited potential for generating significant amounts of net proceeds in the immediate future. CPRA would require executive agencies seeking to acquire leased space to do so only by working through GSA. This restriction would not apply to properties of the Department of Veterans Affairs or to properties excluded for reasons of national security by the President. This requirement may facilitate oversight by consolidating leasing decisions with a single agency, although it is not clear whether this would restrict GSA's ability to delegate leasing authority to other agencies. If agencies were no longer able to use independent or delegated leasing authority, it could delay the acquisition of space needed to carry out their missions. | In an effort to reduce the costs associated with maintaining thousands of unneeded and underutilized federal buildings, and to generate revenue through the sale of such properties, the 112th Congress is considering several real property reform bills. Perhaps the most comprehensive of these proposals is H.R. 1734, the Civilian Property Realignment Act (CPRA) of 2011. CPRA was introduced on May 4, 2011, and reported by the House Committee on Transportation and Infrastructure, Subcommittee on Economic Development, Public Buildings, and Emergency Management on May 25, 2011. CPRA was reported by the full committee on February 1, 2012, and passed by the House on February 7, 2012. CPRA would establish a new, more centralized process for making decisions regarding the consolidation, reconfiguration, redevelopment, exchange, lease, sale, and conveyance of federal real property—actions collectively referred to as "realignment." It would apply to all space owned and leased by executive branch agencies and government corporations, although the bill would exclude several categories of properties, including certain military installations, properties excluded for reasons of national security, and properties owned by the United States Postal Service. The first step in the CPRA process would be for federal landholding agencies to develop recommendations for realigning their real property portfolios, and for reducing operating and maintenance costs. Agencies would submit these recommendations to the Administrator of the General Services Administration and the Director of the Office of Management and Budget, along with data on the properties owned and leased by each agency. The OMB Director, in consultation with the Administrator, would review the recommendations, revise them, and then submit the revised recommendations to a newly established Civilian Property Realignment Commission. The Commission would be composed of nine members, all appointed by the President, with the chairperson requiring the advice and consent of the Senate prior to being seated. The Commission would hold public hearings, conduct its own independent review of agency real property portfolios, analyze the recommendations it received from the Administrator, and submit a final list of recommendations to the President, who may return it to the Commission for revisions, submit it to Congress, or take no action. If Congress passes, and the President signs, a joint resolution approving the Commission's recommendations, then agencies would be required to begin implementing recommendations within two years of the date the President submitted recommended actions to Congress, and complete them within six years of that date. This report describes and analyzes each step in the recommendation process, evaluates provisions that are intended to facilitate implementation of the Commission's recommendations, and provides a discussion of additional transparency measures that may enhance congressional oversight of agency real property portfolios. |
This report presents an analysis of the discretionary appropriations for the Department of Homeland Security (DHS) for fiscal year 2013 (FY2013). It compares the President's request for FY2013 funding for the Department of Homeland Security (DHS), the enacted FY2012 appropriations for DHS, the House-passed and Senate-reported DHS appropriations legislation for FY2013, and the final DHS appropriations legislation included in Division D of P.L. 113-6 . It tracks legislative action and congressional issues related to these bills with particular attention paid to discretionary funding amounts. The report does not provide in-depth analysis of specific issues related to mandatory funding—such as retirement pay—nor does the report systematically follow any other legislation related to the authorization or amendment of DHS programs, activities, or fee revenues. For FY2013, the Administration requested $39.510 billion in adjusted net discretionary budget authority for DHS, as part of an overall budget request of $59.032 billion (including fees, trust funds and other funding that is not appropriated or does not score against the budget caps). This request amounts to a $90 million (0.2%) decrease below the $39.600 billion enacted for FY2012. The overall estimated size of the DHS budget for FY2013 is $681 million (1.1%) below the budget of $59.713 billion estimated for FY2012. The Senate Committee on Appropriations reported its version of the FY2013 DHS Appropriations bill on May 22, 2012 by a vote of 27-3. This report uses Senate-reported S. 3216 and the accompanying report ( S.Rept. 112-169 ) as the source for Senate-reported appropriations numbers. The Senate bill as approved by the committee would have provided a net discretionary appropriation of $39,514 million for DHS for FY2013, not including $254 million for overseas contingency operations and $5,481 million for disaster relief that would be paid for by adjustments to the discretionary spending cap under the BCA. With those exclusions, the Senate-reported bill would have provided less than $4 million above the Administration's request, and $87 million (0.2%) below the amount provided under P.L. 112-74 . On June 7, 2012, the House passed H.R. 5855 with several amendments. This report uses House-passed H.R. 5855 and the accompanying report ( H.Rept. 112-492 ) as the source for House-passed appropriations numbers. After floor action the House bill carried a net discretionary appropriation of $39,114 million for DHS for FY2013. Several floor amendments used management accounts as offsets, leaving funding for those activities 27% below the requested level. Increases proposed above the committee-recommended level for DHS activities included Customs and Border Protection's Border Security Fencing, Infrastructure, and Technology account, Coast Guard's Operating Expenses account, the Federal Emergency Management Agency's Urban Search and Rescue Response activities and grant programs. The President signed H.J.Res. 117 into law as P.L. 112-175 on September 28, 2012. This public law was a continuing resolution (CR) that allowed for the federal government to continue operations in absence of regular appropriations through March 27, 2013, at an annualized rate of $1.047 trillion. It passed the House by a vote of 329-91 on September 13, 2012, and the Senate by a vote of 62-30 on September 22, 2012. On March 26, 2013, the President signed H.R. 933 into law as P.L. 113-6 , the FY2013 Consolidated and Further Continuing Appropriations Act. Division D of that act is the Department of Homeland Security Appropriations Act, 2013, which includes $39.646 billion in adjusted net discretionary budget authority for DHS. According to Office of Management and Budget calculations, two across-the-board cuts unrelated to the March 1 sequestration that were included in the final legislation to ensure the bill complies with discretionary budget caps reduced the thet discretionary budget authority by $52.4 million. $38.348 billion in adjusted net discretionary budget authority from P.L. 113-6 was available for DHS to use after the impact of sequestration, according to the U.S. Department of Homeland Security Fiscal Year 2013 Post-Sequestration Operating Plan. Data used in this report for FY2012 amounts are taken from the President's Budget Documents, as well as H.Rept. 112-492 and S.Rept. 112-169 from the 112 th Congress. Information on the FY2013 request is from the President's Budget Documents, the FY2013 DHS Congressional Budget Justifications , and the FY2013 DHS Budget in Brief. Information on the House-passed FY2013 DHS Appropriations bill is from H.R. 5855 and H.Rept. 112-492 , while information on the Senate-reported version of the same is from S. 2316 and S.Rept. 112-169 . Information on the continuing resolution is from H.J.Res. 117 . Information on the final resolution of FY2013 appropriations for the department comes from P.L. 113-6 and the accompanying Senate explanatory statement. Post-sequester funding levels are drawn from the U.S. Department of Homeland Se curity Fiscal Year 2013 Post-Sequestration Operating Plan dated April 26, 2013. Historical funding data used in the appendices are taken from the Analytical Perspectives volume of the FY2006-FY2014 President's Budget request documents. Except when discussing total amounts for the bill as a whole, all amounts contained in this report are in budget authority and rounded to the nearest million. The Homeland Security Act of 2002 ( P.L. 107-296 ) transferred the functions, relevant funding, and most of the personnel of 22 agencies and offices to the new Department of Homeland Security created by the act. Appropriations measures for DHS have generally been organized into five titles: Title I contains appropriations for the Office of Secretary and Executive Management (OSEM), the Office of the Under Secretary for Management (USM), the Office of the Chief Financial Officer, the Office of the Chief Information Officer (CIO), Analysis and Operations (A&O), and the Office of the Inspector General (OIG). Title II contains appropriations for Customs and Border Protection (CBP), Immigration and Customs Enforcement (ICE), the Transportation Security Administration (TSA), the Coast Guard (USCG), and the Secret Service. Title III contains appropriations for the National Protection and Programs Directorate (NPPD), Office of Health Affairs (OHA) Federal Emergency Management Agency (FEMA). Title IV contains appropriations for U.S. Citizenship and Immigration Services (USCIS), the Science and Technology Directorate (S&T), and the Federal Law Enforcement Training Center (FLETC). Title V contains general provisions providing various types of congressional direction to the department. The structure of the bill is not automatically symmetrical between House and Senate versions. Additional titles are sometimes added to address special issues: For example, the FY2012 House full committee mark-up added a sixth title to carry a $1 billion emergency appropriation for the Disaster Relief Fund (DRF). The Senate version carried no additional titles beyond what is described above. Although the structure of the components in the proposed FY2013 appropriations bills were largely parallel, there were some differences in the structure of subcomponents and accounts which is noted throughout the body of the report. 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 amounts 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. 302(b) allocations may be adjusted during the year by the Appropriations Committee by issuing a report delineating the revised suballocations as the various appropriations bills progress towards final enactment. The FY2012 appropriations bills were the first appropriations bills that were affected by the Budget Control Act (BCA), which established discretionary security and nonsecurity spending caps for FY2012 and FY2013, and overall caps that will govern the actions of appropriations committees in both houses. For FY2013, the BCA had set a separate cap of $686 billion for security spending, defined to include the Departments of Defense and Veterans Affairs, Budget Function 150 for all international affairs programs, the National Nuclear Security Administration, and the Intelligence Community Management Account that funds the offices of the Director of National Intelligence. All other spending was capped at $361 billion out of the total of $1.047 trillion. In addition, the BCA 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 for controlling health care fraud and abuse. In the absence of a budget resolution for FY2013, these levels became the basis for enforcement in the Senate. In the House, the lower levels agreed to in the House-passed budget resolution ( H.Con.Res. 112 ) were made effective for purposes of enforcement in the House by H.Res. 614 and H.Res. 643 . The Budget Control Act (BCA) 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 consists 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 after enactment, under terms specified in the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), as amended by the BCA. For further information on the Budget Control Act, see CRS Report R41965, The Budget Control Act of 2011 , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. The American Taxpayer Relief Act (ATRA), enacted on January 2, 2013, made a number of significant changes to the procedures in the BCA that will take place during FY2013. 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, the 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 to each account containing non-exempt funds. Sequestration was applied at the program, project, and activity (PPA) level within each account. Because sequestration was implemented at the time that a temporary continuing resolution was in force, the reductions were calculated on an annualized basis and will be apportioned throughout the remainder of the fiscal year. The post-sequestration numbers in this report are derived from the FY2013 DHS operating plan, which only includes a breakdown of resources provided through P.L. 113-6 . It does not calculate—and this report does not speak to—the sequestration of resources provided in P.L. 113-2 , the FY2013 supplemental appropriation for disaster relief. Taken together, sections 3001 and 3004 of P.L. 113-6 are intended to eliminate any amount by which the new budget authority provided in the act exceeds the FY2013 discretionary spending limits in section 251(c)(2) of the Balanced Budget and Emergency Deficit Control Act, as amended by the Budget Control Act of 2011 and the American Taxpayer Relief Act of 2012. As enacted, Section 3001 provides two separate across-the-board rescissions—one for "nonsecurity" budget authority and one for "security" budget authority —to be applied at the program, project, and activity level. DHS falls under the "security" category, and therefore receives a 0.1% across-the-board cut. This across-the-board cut was made to bring the bill's budget authority as calculated by the Congressional Budget Office in line with the FY2013 discretionary spending limits. However, the Office of Management and Budget is the final arbiter of whether those spending limits have been exceeded. Therefore, Section 3004 provides two other separate across-the-board rescissions—again, one for nonsecurity budget authority and one for security budget authority—to be applied at the program, project, and activity level. The section requires the percentages to be increased if OMB estimates that additional rescissions are needed to avoid exceeding the limits. Subsequent to the enactment of P.L. 113-6 , OMB calculated that additional rescissions of 0.032% of "security" budget authority (which would apply to DHS) and 0.2% of "nonsecurity" budget authority would be required. Since these cuts were intended to reduce the amount of discretionary budget authority in the bill, funding that is not included in that total—specifically funding for Overseas Contingency Operations/Global War on Terror and funding designated as being for disaster relief under the Budget Control Act—are not subject to the across-the-board cuts. All tables and references to funding levels in this report include CRS calculations of the effect of both these across-the-board cuts. Table 2 shows DHS's initial 302(b) allocations for FY2013, and comparable figures for FY2012 and the President's request for FY2013. Three of the four justifications outlined in the BCA 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. No adjustment was madefor emergencies for FY2012 for DHS, and $258 million was provided for Coast Guard overseas contingency operations under P.L. 112-331 . The third justification—disaster relief—is limited. Under the BCA, the allowable adjustment for disaster relief is determined by the Office of Management and Budget (OMB), using the following formula: Limit on disaster relief cap adjustment for the fiscal year = Rolling average of the disaster relief spending over the last ten fiscal years (throwing out the high and low years) + the unused amount of the potential adjustment for disaster relief from the previous fiscal year. For FY2013, OMB determined the allowable adjustment for disaster relief to be $11,779 million, which was fully exercised, including $6,400 million in pre-sequestration resources through the FEMA Disaster Relief Fund in P.L. 113-6 . Table 3 includes a summary of funding included in the FY2012 regular DHS appropriations bill, the Administration's FY2013 appropriations request, the House-passed and Senate-reported versions of the FY2013 appropriations bill broken down by title, and the final DHS appropriations legislation included in Division D of P.L. 113-6 , prior to the impact of sequestration. The final column indicates the post-sequester level reported by DHS. The Administration proposed a 0.5% pay increase for all civilian federal employees in its budget request. Almost all DHS employees are considered civilians, with the significant exception of Coast Guard military personnel. The House rejected the proposed civilian pay raise, and that decision is reflected in a slight reduction in all appropriations that fund civilian salaries. The Senate Appropriations Committee, recommended funding the pay raise. Neither the part-year continuing resolution ( P.L. 112-175 ) nor P.L. 113-6 provides the resources for a civilian pay raise. Unlike some other appropriations bills, breaking down the DHS bill by title does not provide a great deal of transparency into where DHS's appropriated resources are going. The various components of DHS vary widely in the size of their appropriated budgets. Table 4 and Figure 1 show DHS's pre-sequester discretionary budget authority for FY 2013 broken down by component, from largest to smallest. Table 4 presents the raw numbers, while Figure 1 presents the same data in a graphic format, with additional information on the disaster relief and overseas contingency operations adjustments to the allocation allowed under the Budget Control Act ( P.L. 112-25 ). While they are reflected in the second to last line of Table 4 , Figure 1 does not include the impact of the bill's general provisions. These provisions include rescissions of prior-year budget authority, which reduced the net budget authority in the act to the totals discussed earlier in this report. The left column shows discretionary budget authority provided in P.L. 113-6 as scored against the bill's budget allocation, while the right column shows that plus resources available under the adjustments to the discretionary budget cap available under the BCA, including additional resources for DHS provided in P.L. 113-2 , the Supplemental Disaster Relief Appropriations Act, 2013. For the purposes of this report, funding provided under these adjustments is not treated as appropriations. It is important to note that Figure 1 , even with its accounting for discretionary cap adjustments, does not tell the whole story about the resources available to individual DHS components. Much of DHS's budget is not derived from discretionary appropriations. Some components, such as TSA, rely on fee income or offsetting collections to support a significant amount of their activities. Less than 4% of the budget for CIS is provided through direct appropriations—the rest relies on fee income. Figure 2 highlights how much of the DHS budget is not funded through discretionary appropriations. It presents a comparison of the Administration's FY2013 budget request and the enacted budget for FY2013 prior to the impact of sequestration, showing the discretionary appropriations, mandatory appropriations, and adjustments under the Budget Control Act, in the context of the total amount of budgetary resources available to DHS, as well as other non-appropriated resources. The graphic reflecting FY2013 enacted funding includes funding provided through P.L. 113-2 , the Disaster Relief Appropriations Act, 2013. Some of the amounts shown in these graphs are derived from the Administration's budget request documents, and therefore do not exactly mirror the data presented in congressional documents, which are the source for the other data presented in the report. Table 5 presents DHS appropriations, as enacted, for FY2003 through FY2013. The appropriation amounts are presented in current dollars and are not adjusted for inflation or sequestration. The amounts shown in Table 5 represent enacted amounts at the time of the start of the next fiscal year's appropriation cycle (with the exception of FY2009 and FY2011)—defined as the filing of the first committee report to accompany a version of a DHS appropriations bill. In instances which a previous year's data are not reflected in the report, as was the case for data for FY2011, the alternative source is noted. The House Appropriations Committee's full committee markup of H.R. 5855 on May 16, 2012, was the second earliest in the history of the DHS appropriations bill. The Senate Appropriations Committee's full committee markup of S. 3216 on May 22, 2012 was the earliest the Senate has ever marked up the DHS appropriations bill. Nevertheless, P.L. 113-6 represented the second-latest enactment of finalized annual appropriations for the department. Figure 3 shows the history of the timing of the DHS appropriations bills as they have moved through various stages of the legislative process. 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). The Administration requested $1,279 million for these accounts in FY2013, an increase of $147 million above the enacted level. The House-passed bill would have provided $1,020 million, a decrease of 20.2% from the requested level and 9.9% below FY2012. The Senate-reported bill would have provided $1,102 million, 13.8% below the request and 2.7% below FY2012. After the across-the-board cuts made under Division G of P.L. 113-6 , the act provides $1,086 million in appropriations for Title I, a decrease of 15.1% from the requested level and 4.1% below FY2012. The operating plan for DHS for FY2013 indicates sequestration reduced this to $1,026 million, prior to any transfers or reprogrammings that might mitigate the impact of sequestration in some areas and exacerbate it in others. Table 6 lists the enacted amounts for the individual components of Title I for FY2012, the Administration's request for these components for FY2013, the House-passed and Senate-reported appropriations for the same, the enacted level in P.L. 113-6 and the post-sequester level of available resources from P.L. 113-6 reported by DHS. 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 12 entities that report directly to the Secretary; the Under Secretary for Management (USM) and its components—the offices 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. In this section and in each section hereafter, a graphic follows that provides a numeric and graphic representation of the discretionary appropriation provided to each element of DHS described in the report. This graphic provides a quick reference to the relative size of the component to others in DHS as well as to the previous year's enacted level, the FY2013 request, the enacted level in P.L. 113-6 , and DHS-reported post-sequester level for FY2013. The FY2013 request compared to the FY2012 enacted appropriations as follows: OSEM, $134 million, an increase of $1 million (0.7%); USM, $222 million, a decrease of $14 million (5.9%); OCFO, $55 million, an increase of $5 million (9.0%); and OCIO, $313 million, an increase of $55 million (21.5%). The total request for departmental management activities in Title I for FY2012 was $724 million, not including the $89 million for the consolidation of DHS headquarters on the campus of St. Elizabeths, an effort discussed elsewhere in the report. See Table 7 for additional detail. The Administration requested $134 million for OSEM. The Administration's budget proposed separate line items for three offices—the Office of International Affairs, the Office of State and Local Law Enforcement, and the Private Sector Office—that are currently funded under the Office of Policy. Two program changes funded through this request were for the Citizenship and Immigration Services Ombudsman: $135,000 to continue the training program—"Counter Violent Extremism Through Community Partnerships"—for state, local, and federal law enforcement personnel; and more than a million dollars to allow the office "to further provide policy advice, investigations, and training" related to ICE Secure Communities and 287(g) programs. The Administration requested $222 million for the USM and 902 full-time employee equivalents (FTEs). Several program changes were proposed under this appropriation: The Immediate Office of the Under Secretary for Management (OUSM) includes an increase of $441,000 for the transfer of the Directives function from the Office of the Chief Administrative Officer to the OUSM; The OCHCO includes $26 million for salaries and expenses and $10 million for Human Resources Information Technology, including a requested increase of almost $2 million to realign the Safety function from the OCAO to the OCHCO; and The USM includes $5 million for continued improvements to the Nebraska Avenue Complex. The Administration requested $55 million for the OCFO, including $6.7 million for the Financial Systems Modernization effort. According to the OCFO justification, the money will be used to complete the implementation of "a new core financial system at the Federal Emergency Management Agency" in FY2013. The "new financial system is needed ... to accurately account for, track, and report on FEMA resources, and meet minimum federal financial system processing requirements." The Administration requested $313 million for the OCIO. Within the OCIO account, Infrastructure and Security Activities requested $122 million, including $65 million "to fully complete the data center migration activities for CBP, TSA, and USCIS." The justification stated that "execution of the planned timeline" for the migration "will enable continued closures of the major Component data centers and achieve the Secretary's goal of the Department's consolidation to two data centers across the enterprise." H.R. 5855 , as reported by the House Committee on Appropriations, would have provided the following appropriations as compared with the President's request: OSEM, $122 million ($12 million or 8.5% less); USM, $213 million ($9 million or 4% less); OCFO, $50 million ($5 million or 9% less); OCIO, $242 million ($71 million or 23% less). The total funding recommended by the House Appropriations committee for management activities under Title I was $627 million. This would have represented a decrease of $97 million, or 13.4%, from the President's request, not including the handling of the DHS Headquarters project. These reductions were justified by the committee not only on the basis of the need to cover the lack of revenue from unrealized funding proposals that were intended to offset the cost of the bill, but also due to failure to comply with several statutory requirements laid out in previous appropriations bills. On June 6, 2013, during floor consideration of the bill, a number of amendments were offered that used departmental management accounts as offsets. In total, the amendments that passed would have further reduced the budget for management by almost $33 million. The four largest were: H.Amdt. 1236 , to decrease funds for the Office of the Under Secretary for Management by $7,667,000 and increase funds for the Federal Emergency Management Agency Urban Search and Rescue Response System by $7,667,000, agreed to by voice vote; H.Amdt. 1237 , to reduce funds for the Office of the Under Secretary for Management by $10 million and increase funds for the Federal Emergency Management Agency State and Local Programs by $10 million, agreed to on a 211-202 vote (Roll No. 348); H.Amdt. 1238 , to reduce funds for the Office of the Under Secretary for Management by $10 million and increase funds for U.S. Customs and Border Protection Security Fencing, Infrastructure, and Technology by $10 million agreed to on a 302-113 vote (Roll No. 352); and H.Amdt. 1239 , to reduce funds for the Office of the Under Secretary for Management by $5 million and increase funds for Firefighter Assistance Grants by $5 million, agreed to by voice vote. These amendments would have left the USM with an appropriation of $180 million, $41 million (18.6%) less than the requested level. See Table 7 for additional detail. Within OSEM, funding of up to $45,000 was recommended for official reception and representation expenses, of which $17,000 was for international programs within the Office of Policy and activities related to the visa waiver program. These reception and representation expenses were the target of an amendment offered by Representative Flake, who proposed using the funds to increase U.S. Customs and Border Protection Salaries and Expenses by $43,000. The amendment was agreed to in the House by a voice vote on June 6, 2012. OSEM was also the target of significant provisions withholding appropriated funds from use. Some $71 million would have been withheld from obligation until all reports that were required, by statute, to be submitted with or in conjunction with the FY2014 budget request were received by the committee. A general provision (Section 549) went further, proposing to bar the use of Coast Guard-operated fixed wing aircraft by the Secretary of DHS, her deputy, the Commandant of the Coast Guard, or the Vice Commandant, except in case of emergency, until two key reports were submitted to the House and Senate appropriations committees. In addition, funding of $5 million was proposed to be withheld "from obligation for the Office of General Counsel until a final overseas aircraft repair station security regulation has been published." Under the USM appropriation, more than $124 million would have been withheld from obligation until the Committee received all reports that were, by statute, required to be submitted with or in conjunction with the FY2014 budget request. The House Appropriations Committee recommended a reduction of $7 million (10%) from the requested level for OCPO for "failure to comply with the statutory requirement to submit on time a comprehensive acquisition report with quarterly updates." Under the OCFO account, more than $29 million would have been withheld from obligation until the Committee received all reports and plans that were, by statute, required to be submitted with or in conjunction with the FY2014 budget request. The report also expressed the view that the House Appropriations Committee did not intend for the appropriations liaisons in OCFO—which were established to ensure the Appropriations Committees have the necessary access to budgetary information—to serve as intermediaries between the committees and department components. The report stated that "the Committee expects to hear from relevant components on their areas of responsibility directly." The House-recommended appropriation of $242 million for the Office of the Chief Information Officer would be allocated to two sub-appropriations: $117 million for salaries and expenses and $125 million for development and acquisition of information technology equipment, software, services, and related activities. The House-recommended appropriation also included $27 million for Information Technology Services and $55 million for Security Activities. The House report stated that the committee supported "the migration of component resources to the Department's two consolidated data centers," but would not have provided the proposed $65 million for the migration because of the significant shortfalls in the President's budget request mentioned above. S. 3216 , as reported by the Senate Committee on Appropriations, would have provided the following appropriations, as compared with the President's request: OSEM, $133 million ($1 million or 0.8% less); USM, $220 million ($2 million or 0.7% less); OCFO, $54 million ($2 million or 3.1% less); and OCIO, $248 million ($65 million or 20.7% less). The total funding provided by the Senate-reported bill for departmental management in Title I would have been $655 million. This would have represented a decrease of $69 million, or 9.5%, from the President's request, not including the funding for DHS headquarters consolidation at St. Elizabeths. See Table 7 for additional detail. The Senate committee report highlighted a requested programmatic increase for the Office for Civil Rights and Civil Liberties (OCRCL), "including $1,327,000 for OCRCL to ensure that the Department's immigration efforts comply with all applicable civil rights statutes and constitutional requirements." Even with this increase the Senate committee-recommended budget for OCRCL was down by roughly $1 million (3.5%) from FY2012 levels, although it would have matched the level requested for the office by the Administration. The committee report noted that DHS discontinued funding for its historian, who was tasked with maintaining the historical record of DHS, and encouraged the Secretary to fill the position again using funds provided in FY2013. The committee report also noted that funding for reception and representation expenses was reduced by 15% for FY2012 and was proposed to be further reduced by 10% for FY2013 "In recognition of a more constrained budget environment and to limit opportunities for waste and abuse." According to the report, the committee's recommendation under the USM would have included "funding for robust oversight of major acquisitions, recruitment and development of a skilled workforce, and security measures to safeguard DHS personnel, property, facilities, and information." The report stated that reductions in funding for individual offices below the request, unless otherwise specifically addressed, were "due to a constrained budget environment and to focus limited resources on the Department's critical operational missions." For the OCHCO, an appropriation of $35 million was recommended by the Senate Appropriations Committee, $1 million below the request, with the reduction coming in the Salaries and Expenses account. For the OCIO, the Senate Appropriations Committee-recommended appropriation of $248 million would have included $121 million for salaries and expenses and $127 million to be available through FY2015 for technology investments across the department that are overseen by the OCIO, including $57 million for development and acquisition of information technology equipment, software, services, and related activities. $65 million for data center migration would have been carried in a general provision in Title V, bringing the total in the bill for the OCIO to the level of the Administration's request. The committee report noted that investment in data center consolidation is expected to result in savings of nearly $3 billion by 2030. The law provides these appropriations (pre-sequester), as compared with the President's request: OSEM, $130 million ($4.3 million or 3.2% less); USM, $218 million ($3.5 million or 1.6% less); OCFO, $51 million ($4 million or 7.2% less); and OCIO, $243 million ($69 million or 22% less). The total funding provided by the law for departmental management in Title I is $643 million. This represents a decrease of $170 million or 21% from the President's request. According to the DHS Operating Plan, of the management accounts, only OCIO was subject to a funding reduction based on sequestration. This is in part because sequestration was calculated against the part-year appropriation provided under P.L. 112-175 . Under that particular circumstance, 2 USC 903 outlines a crediting mechanism that can be exercised that reduces the amount of sequestration applied to activities where the final FY2013 appropriation was below a baseline calculated by OMB. See Table 7 for additional detail on funding. Among the provisions and directives included in P.L. 113-6 was direction for the DHS CIO to submit to the appropriations committees, with the President's budget proposal for FY2014, a multi-year investment and management plan, to include each of fiscal years 2013 through 2016, for all information technology acquisition projects funded under the CIO or by multiple components through reimbursable agreements. The Senate's explanatory statement also directs: The Secretary to provide a report detailing all costs of official and nonofficial travel for each trip taken by the Secretary and the Deputy Secretary from FY2008 to the present, within all DHS appropriations; The Secretary to submit the contingency plan to address gaps between actual and budgeted collections of user fees mandated in the FY2010 DHS appropriations conference report as soon as possible, and a revised plan no later than 90 days after Act's enactment date, to the appropriations committees; The USM to submit, with the President's FY2014 budget proposal, a Comprehensive Acquisition Status Report (CASR) including the information specified in the FY2012 DHS appropriations joint explanatory statement, and to provide quarterly updates thereafter, within 45 days after the end of each quarter, to the appropriations committees. DHS to submit a detailed report on the implementation of the balanced workforce strategy to the appropriations committees, and to include, with the President's annual budget request, a detailed justification of any planned insourcing or outsourcing initiatives. The CFO to continue providing briefings, at least semiannually, on its financial systems modernization efforts. Table 7 outlines the funding levels for existing management accounts. Funding numbers for P.L. 113-6 reflect across-the-board spending cuts relative to FY2012 enacted amounts, but do not reflect the impact of sequestration. The "DHS Plan" column provides the department's assessment of budgetary resources available through P.L. 113-6 after sequestration was applied, as of April 26, 2013. It does not represent a final funding level as the department is likely to undertake transfers and reprogramming to mitigate the impact of sequestration in some areas. The reports of the House and Senate Appropriations committees that accompany H.R. 5855 and S. 3216 identified several issues before the department, including the Administration's proposal to add separate line items under OSEM for three offices, new revenue assumptions underlying the department's budget, the department's chronic lateness in submitting plans and reports required by statute, and conference spending by the department. Brief discussions of each of these issues follow. The Administration's budget proposed separate line items for three offices—the Office of International Affairs (OIA), the Office of State and Local Law Enforcement (SLLE), and the Private Sector Office (PSO)—that are currently funded under the Office of Policy. Under the proposal, each of the offices would have directly reported to the OSEM. This proposal was rejected at each stage of the legislative process, including P.L. 113-6 . The House committee noted that none of the offices are headed by individuals who are Senate-confirmed. Stating that the "proposal is inconsistent with the goal of a more streamlined department and of reducing administrative overhead" and that "international affairs policy formulation and coordination" is "an inherently appropriate function of the Office of Policy," the House committee report "directs the Department to report ... on the potential of establishing an external affairs office that might include, consolidate, and streamline the PSO and SLLE functions, and those of other existing external affairs offices (namely the Offices of Legislative Affairs, Intergovernmental Affairs, and Public Affairs) that currently report to the Secretary." The Senate committee report noted that DHS has not provided "a compelling rationale for why these offices need to be stand alone entities" and that "these functions have been performed adequately within the Office of Policy." The Administration's budget included three legislative proposals that would increase the budgetary resources available to Department: an increase in the aviation security fee, authorization for the use of customs fee revenues, and authority for the CBP to enter into reimbursement agreements with outside parties to provide customs services. The House rejected all three proposals, while the Senate included all three. The House committee report noted in the Chief Financial Officer's section that "the President's budget once again assumes that new revenue will be realized in the coming fiscal year," and that in the case of the new aviation security fee increase, the Congressional Budget Office estimates "a shortfall of $115 million" in the DHS budget because the assumptions are dependent "on enactment of new legislative authority that is outside the jurisdiction of the Committee." According to the report: As this Committee has underscored repeatedly over the past several Congresses, such an approach to budgeting is unrealistic and requires this Committee to take drastic measures to offset the unnecessary gap. The Committee reiterates its message—it rejects such budgetary legerdemain. The consequences, in terms of additional reductions to Department requests, are evident throughout this bill. If and when such proposals are enacted into law, the Committee will take them into account as it drafts legislation, and the Department should keep the Committee informed of any progress in this regard. However, until that occurs, such proposals will not be treated as relevant to its appropriations work. P.L. 113-6 included a general provision allowing CBP to initiate pilot projects for entering into reimbursable agreements to provide customs services. It did not include either other revenue provision. The House committee report expressed concern about the late submission of plans and reports and plans that are required by statute to be transmitted to Congress and, therefore, withheld a portion of funding from departmental management accounts as detailed in the section on FY2013 House-reported actions. According to the report: The Department has been egregiously late in responding to Congressional direction, including failing to submit the majority of statutorily required reports on time. This failure to comply with the law is wholly unacceptable.... The investment plans, expenditure plans, reports, and justifications outlined by the Committee are essential if it is to help DHS better protect the American people and live up to exacting standards of fiscal responsibility. Such plans are vital to the Committee's oversight work, yet in far too many instances such plans—which should reflect decisions already made by the Department to align current program priorities with resources—have been inexcusably late, incomplete, or have not yet been submitted at all. In some cases, expenditure plans that should have been submitted at the beginning of a fiscal year to show how the Department planned to expend its funding, instead have been submitted well after the end of the fiscal year. The Committee expects the Department to comply with these statutory requirements, with regard to both content and schedule. The Committee notes that the majority of statutorily required reports and plans are presently more than three months late.... The Senate-reported bill proposed withholding 59% of the budgets of OSEM, USM and CFO though a general provision "until all statutorily required expenditure reports are submitted on time." This generally would have had the same effect as the House provision (the House withholdings, proposed as fixed numbers, were roughly 58% of the committee recommended levels), but House floor action reduced the USM budget to the point that if its provisions were to become law for FY2013, 70% of the USM budget would have been withheld. Section 562 of P.L. 113-6 withholds 20% of the budgets of OSEM, USM, and CFO until the all the reports and plans due by May 1 under the bill have been submitted. The House committee report, noting the findings of the General Services Administration (GSA) inspector general with regard to GSA conference spending and the necessity for better "oversight of expenditures during the current fiscal climate," would require the department's Office of Inspector General to report on "whether the Department has effective procedures in place to ensure compliance with all applicable Federal laws and regulations on travel, conferences, and employee awards programs." The report would be submitted to the Committee within 30 days after the act's enactment. New general provisions related to conference spending were also included in the House and Senate bills. Both bills included a provision requiring a quarterly report to the DHS OIG on every "conference, ceremony or similar event" that costs the government more than $20,000. The OIG would then report to the committee after the end of FY2013 on the department's spending on these events. The Senate provision went on to restrict the use of grants or contracts funded by the department to fund conferences unrelated to the original purpose of the grant or contract award, and bars the use of funds for travel or conference activities that do not comply with OMB Memorandum M-12-12, which provides government-wide direction on spending on travel, conferences, real property, and fleet management. Section 3003 of Division G of P.L. 113-6 requires government-wide reporting on conference costs to departmental inspectors general or senior ethics officials, and mirrors the Senate's additional provisions on the subject. Both bills also would have limited the number of employees that can attend an overseas conference. The House would have limited attendance to 50 employees of DHS at any single conference outside the United States, unless the conference is a training or operation conference for law enforcement, and the majority of federal attendees are law enforcement officers. The Senate would have capped attendance at 50 employees per DHS component, unless the Secretary notified the Appropriations committees in advance that attendance is important to the national interest. Section 569 of P.L. 113-6 mirrors the Senate language. The Department of Homeland Security's headquarters footprint occupies more than 7 million square feet of office space in about 45 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 $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. $1.4 billion of this project was to be funded through the DHS budget, and $2 billion through the GSA. According to DHS, $1,366 million has been invested in the project so far through FY2012—$434 million through DHS and $933 million through GSA. Phase 1A of the project—a new Coast Guard headquarters facility—is nearing operational status with the funding already provided by Congress. 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. The Administration requested $89 million for the activities related to the St. Elizabeths DHS headquarters project as part of the budget for departmental operations. The funding was requested for a highway interchange that would handle some of the increased traffic generated by the consolidated headquarters facility. This is an element that would support the project, but that has not traditionally been funded through the Homeland Security appropriations bill. Usually these types of infrastructure elements would have been funded through the budgets of the General Services Administration or Department of Transportation. The Administration also requested $24.5 million under the Coast Guard operating expenses budget for the cost of moving the Coast Guard into its new facility in the third quarter of FY2013. No other requests for funding for the DHS consolidated headquarters project were included in the budget submission to Congress. The House Appropriations Committee recommended no funding for the highway interchange or any part of the St. Elizabeths project through the management accounts, noting the irregularity of funding a highway interchange through the Homeland Security bill. The bill would have provided the Administration's requested funding for the Coast Guard to move to the new facility. In addition, $10 million would have been provided through the Coast Guard's construction budget to provide additional support for the project. In the report accompanying H.R. 5855 , the committee noted the following: The Committee recommends no new construction funding in the bill for new Departmental Headquarters Consolidation expansion. This is $89,000,000 below the request. Funding is included, as requested, as part of the Coast Guard appropriation to cover the costs associated with completing the move of the Coast Guard headquarters to St. Elizabeths. Associated with this, as described below, is additional funding under Coast Guard construction to ensure completion of the current project, improve site access, and support analysis for follow on work and any necessary planning adjustments for schedule, scope, and cost. … The Committee understands that the Department, through USM, is actively exploring options to creatively modify or consolidate current leases, in the expectation that a permanent headquarters construction site will be significantly delayed or amended. The Committee encourages the Department to continue this effort and to inform the Committee of its progress in consolidation no later than 90 days after the date of enactment of this Act, including a revised schedule and cost estimates. Further, as noted above, the Committee includes $10,000,000 under the Coast Guard Acquisition, Construction, and Improvements account to complete Phase 1 of construction, ensure Coast Guard will be able to move in 2013 and that there will be no obstacles to access and transportation into the site, and to support orderly planning and analysis for the overall project. In the minority views accompanying the report, the ranking members of the subcommittee and full committee noted the following: The bill also fails to provide the $89 million for site access, including necessary road and interchange improvements, for DHS personnel to access the new DHS headquarters. The new DHS headquarters project has been shortchanged over the past few years, causing repeated schedule delays and increasing the costs from $3.4 billion to just over $4 billion if all three phases are constructed. In the interim, the Coast Guard may be the only tenant at this new facility for the next 3–5 years, as the bill funds only this relocation in 2013. The bill does not include any funding for Phase 2, which was to begin construction for DHS central headquarters and FEMA. No amendments were considered on the House floor addressing DHS headquarters consolidation. The Senate Appropriations Committee recommended $89 million for the highway interchange, although it was funded as a part of the Under Secretary for Management's office through a general provision rather than as a stand-alone appropriation in departmental operations as it was requested. The committee also recommended full funding for the Coast Guard's move under Coast Guard operating expenses. No funding was provided for the project through the Coast Guard construction budget. An attempt was made to use the $89 million for the highway interchange as an offset for an unrelated amendment in full committee markup of the bill. The amendment failed, and the funding remained in the reported version of the legislation. In the report accompanying S. 3216 , the committee noted the following: Pursuant to section 549, a total of $89,000,000 is provided for ''Office of the Under Secretary for Management'' for costs associated with headquarters consolidation and mission support consolidation. The Under Secretary shall submit an expenditure plan no later than 90 days after the date of enactment of this act detailing how these funds will be allocated, including a revised schedule and cost estimates for headquarters consolidation. Quarterly briefings are required on headquarters and mission support consolidation activities, including any deviation from the expenditure plan. According to the Department, an updated plan is being developed in coordination with the General Services Administration to complete the headquarters consolidation project in smaller, independent segments that are more fiscally manageable in the current budget environment. The Department expects this updated plan to be completed by the end of summer 2012 and it is to be submitted to the Committee upon its completion. The Committee expects the plan to identify the discrete construction segments, the associated resource requirements for each segment, and the proposed timeline for requesting funding to complete each segment. P.L. 113-6 provided no funding for headquarters consolidation in Title I of the legislation. $29 million is provided in a general provision for "necessary expenses to plan, acquire, design, construct, renovate, remediate, equip, furnish, improve infrastructure, and occupy buildings and facilities for the department headquarters project and associated mission support consolidation." According to the DHS operating plan, this amount was not reduced through sequestration. Funds included in the Analysis and Operations account support both the Office of Intelligence and Analysis (I&A) and the Office of Operations Coordination and Planning (OPS). 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. OPS 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 FY2013 request for the Analysis and Operations account was $322 million, a decrease of $16 million (4.7%) from the enacted FY2012 level of $338 million. The account request included funding for 849 FTE, a decrease of 2 FTE from 2012. H.R. 5855 would have provided $317 million for the Analysis and Operations account, $4.5 million (1.4%) below the amount in the President's FY2013 request. The recommendation was $21 million (6.1%) less than the amount enacted in FY2012. According to H.Rept. 112-492 , the House Committee on Appropriations also recommended denying the proposed: increase in executive service salaries for the Office of Operations Coordination and Planning; increase in funding associated with the Air Domain Intelligence Integration Element; and decrease to Cybersecurity Analysis (thus restoring funding for this function). No changes to those positions were made in House floor action. The Senate Appropriations Committee recommended $324 million for the Analysis and Operations account. This would have been a decrease of $14 million (4.1%) below the enacted FY2012 amount of $338 million and an increase of $2 million (0.6%) from the President's FY2013 request. It would have been an increase of $7 million (2.2%) above the amount passed in the House. According to S.Rept. 112-169 , the Senate Committee on Appropriations required DHS's Chief Intelligence Officer to submit an expenditure plan for FY2013 no later than 60 days after the enactment of the appropriations bill. The Committee directed DHS to focus the plan on I&A's functions that provide unique expertise or serve intelligence customers who are not supported by other components of the intelligence community. The Committee also directed I&A to continue its semi-annual briefings on the State and Local Fusion Centers program. P.L. 113-6 (pre-sequester) provides $322 million for the Analysis and Operations account and falls between the $317 million in H.R. 5855 and the $324 million in S. 3216 . The P.L. 113-6 figure is the same as the President's FY2013 request and 4.7% below FY2012. The explanatory statement reiterated the House's rejection of increases for executive service salaries and the Air Domain Intelligence Integration Element, as well as the Senate's direction regarding an expenditure plan and the semi-annual briefing on fusion centers. The operating plan for DHS for FY2013 indicates sequestration reduced this to $306 million, prior to any transfers and reprogrammings that might mitigate the impact of sequestration in some areas and exacerbate it in others. Some Members of Congress have voiced concerns about I&A's mission. For example, in January 2012, Representative Sue Myrick stated that "I&A historically has suffered from a lack of focus in its mission. This challenge partially stems from vague or overlapping authorities in some areas." Representative Myrick made these comments in an opening statement for a House of Representatives Permanent Select Committee on Intelligence Subcommittee on Terrorism, Human Intelligence, Analysis, and Counterintelligence hearing about DHS's role in the intelligence community. The hearing centered on a report about DHS's intelligence mission issued by the Aspen Institute. While not specifically covering I&A, the report suggested that intelligence activities at DHS should avoid duplication of efforts—such as general analysis of terrorist activities—performed by other agencies. Rather, according to the Aspen Institute, DHS's mandate should allow for collection, dissemination, and analytic work that is focused on more specific homeward-focused areas. First, the intelligence mission could be directed toward areas where DHS has inherent strengths and unique value (e.g., where its personnel and data are centered) that overlap with its legislative mandate. Second, this mission direction should emphasize areas that are not served by other agencies, particularly state/local partners whose needs are not a primary focus for any other federal agency. The language in S.Rept. 112-169 requiring DHS to provide an expenditure plan centered around I&A's functions also highlighted concerns regarding I&A's mission, particularly its potential duplication of intelligence efforts by other federal agencies. 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; keeps Congress informed about problems within the department's programs and operations; ensures DHS information technology is secure pursuant to the Federal Information Security Management Act; and reviews and makes recommendations regarding existing and proposed legislation and regulations to the department. The OIG reports to Congress and the Secretary of DHS. The OIG requested $144 million. New funding of $2.6 million was requested to fulfill the directive of the Implementing the Recommendations of the 9/11 Commission Act ( P.L. 110-53 ) "that the OIG conduct audits of all states that received FEMA grant funds to prevent, prepare for, protect against, or respond to natural disasters, acts of terrorism, and other disasters." According to the DHS justification, the new appropriation "will allow the OIG to conduct most of the remaining 23 audits in FY2013 and position the OIG to complete all 61 audits by the deadline." The House-passed bill included $109 million for the DHS OIG. Expressing "dissatisfaction with the quality of communication with the Committee with regard to border corruption investigations, and in particular, issues with coordinating these with ICE and CBP," the committee reduced the OIG appropriation by $10 million specifically for that reason. Furthermore, the Committee chose to fund $24 million of the OIG's budget through a transfer from FEMA's Disaster Relief Fund—rather than through direct appropriations from the treasury—specifically to pay for disaster-related audits and investigations. No changes were made to these provisions on the House floor. The Senate-reported bill included $123 million ($21 million less than the President's request) for the base appropriation for the DHS OIG. Like the House-passed bill, the Senate-reported bill expected $24 million to come from FEMA's Disaster Relief Fund (DRF), thus providing a net $3 million increase above the request. The Senate committee report indicated that the additional funding was to be used for investigating corruption and criminal conduct at CBP and ICE, and that the recommendation included the increase requested to complete all audits mandated under P.L. 110-53 of the State Homeland Security Program and grants under the Urban Area Security Initiative grants by the August 20, 2014, deadline. After the across-the-board cuts but prior to applying sequestration, the Consolidated and Further Continuing Appropriations Act of 2013 ( P.L. 113-6 ) provides $121 million in net budget authority for the OIG for FY2013, an increase of $4 million (3.4%) from last year's appropriation and a decrease of $23 million (15.6%) from the President's request. However, the legislation also includes a $24 million transfer from the Disaster Relief Fund, which was not included in the request and roughly brings the gross budgetary resources available to the OIG in line with the request. Sequestration reduced OIG budget authority by roughly $7 million, according to the DHS FY2013 expenditure plan. The plan projected gross total resources for the OIG in FY2013 to be $138 million, $3 million less than the FY2012 enacted levels. Both House and Senate bills and reports required the OIG to conduct reviews and provide reports, briefings, or determinations to the Appropriations Committees on a variety of matters including An expenditure plan for its budget, and monthly reports on transfers from the DRF; Steps taken to ensure the integrity of CBP and ICE officers; DHS expenditures on special events; DHS non-competitive contract awards; and Reviews of the operations of local law enforcement under 287(g) agreements. In addition the House directed that the OIG: Report on whether DHS has effective procedures in place to ensure compliance with all applicable federal laws and regulations on travel, conferences, and employee awards programs; Continue to conduct "red team" inspections of TSA screening; Brief the Committee on its assessment of adjudication fraud detection reforms by United States Citizenship and Immigration Services; and Review excessive delays in determinations concerning FEMA's public assistance programs. The Senate did not include those provisions, but instead directed in a general provision that the OIG provide a review of FEMA's application of its own rules regarding awarding public assistance funds for debris removal. This was reiterated in Section 565 of Division D of P.L. 113-6 . While not all of these provisions were explicitly reiterated in the explanatory statement accompanying P.L. 113-6 , the explanatory statement notes that the language carried in the House and Senate reports "should be complied with and carry the same emphasis as the language included in the explanatory statement," unless the act or explanatory statement specifically negate that report language. No such negation was included. Although in many cases these tasks represent new work for the OIG, with the exception of integrity investigations of ICE and CBP officers in P.L. 113-6 , no additional funding is dedicated for this work. The Senate explanatory statement accompanying P.L. 113-6 expressed a shared concern of the House and Senate appropriations committees that the current organization of the OIG hinders its independence and ability to report its results in a timely fashion. The statement directs GAO to review the organizational structure of the OIG, how it is organized to report the results of its audits and investigations, and whether its reporting functions are improperly placed in the office to maintain its compliance with independence standards. The report also notes that the OIG has a large number of senior positions filled by officials in acting roles, which may hinder its ability to fulfill its duties. Title II of the DHS appropriations bill, which includes over three-quarters of the budget authority provided in the legislation, contains the appropriations for U.S. Customs and Border Protection (CBP), U.S. Immigration and Customs Enforcement (ICE), the Transportation Security Administration (TSA), the U.S. Coast Guard (USCG), and the U.S. Secret Service (USSS). The Administration requested $30,759 million for these accounts in FY2013, a decrease of $768 million (2.4%) below the enacted level. The House-passed bill would have provided $30,946 million, an increase of 0.6% from the requested level and 1.8% below FY2012. The Senate-reported bill would have provided $30,974 million, 0.7% above the request and 1.8% below FY2012. After the across-the-board cuts made under Division G of P.L. 113-6 , the act provides $31,267 million in appropriations for Title II, an increase of 1.7% from the requested level and 0.8% below FY2012. The operating plan for DHS for FY2013 indicates sequestration reduced this to $30,184 million, prior to any transfers or reprogrammings that might mitigate the impact of sequestration in some areas and exacerbate it in others. Table 8 lists the enacted amounts for the individual components of Title II for FY2012, the Administration's request for these components for FY2013, the House-passed and Senate-reported appropriations for the same, the enacted level in P.L. 113-6 , and the post-sequester level of available resources from P.L. 113-6 reported by DHS. CBP is responsible for security at and between ports of entry (POE) along the border, with a priority mission of preventing the entry of terrorists and instruments of terrorism. CBP officers inspect people (immigration enforcement) and goods (customs enforcement) at POEs to determine if they are authorized to enter the United States. CBP officers and U.S. Border Patrol (USBP) agents enforce more than 400 laws and regulations at the border to prevent illegal entries. CBP's major programs include Border Security Inspections and Trade Facilitation , which encompasses risk-based targeting and the inspection of travelers and goods at POEs; Border Security and Control between Ports of Entry , which includes the Border Patrol; Air and Marine Interdiction ; Automation Modernization , which includes customs and immigration information technology systems; Border Security Fencing, Infrastructure, and Technology (BSFIT); Facilities Management ; and a number of immigration and customs user Fee Accounts . See Table 8 for account-level detail for all of the agencies in Title II, and Table 9 for subaccount-level detail for CBP appropriations and funding for FY2012-FY2013. Funding numbers for P.L. 113-6 reflect across-the-board spending cuts relative to FY2012 enacted amounts (i.e., P.L. 112-74 and P.L. 112-77 ), but they do not reflect additional spending cuts required by sequestration pursuant to the Budget Control Act of 2011 ( P.L. 112-25 ). The "DHS Plan" column provides the department's assessment of post-sequester resources provided by P.L. 113-6 as of April 26, 2013. It does not represent a final funding level as the department is likely to undertake transfers and reprogramming to mitigate the impact of sequestration in some areas. The Administration requested an appropriation of $10,345 million in net budget authority for CBP for FY2013, an increase of $190 million (1.9%) over the enacted FY2012 level of $10,155 million. The Administration's total request included $1,626 million in fees, mandatory spending, and trust funds, for a gross budget request of $11,971 million, which is a $320 million (2.8%) increase from the enacted FY2012 level of $11,651 million. The request included the following program changes from FY2012: Transfer of most of the U.S. Visitor and Immigrant Status Indicator Technology (US-VISIT) program from the National Protection Programs Directorate (NPPD) into CBP, with a $261.5 million increase to CBP; Increase of $31 million for the operation and maintenance of the Automated Targeting System (ATS), which screens incoming cargo and travelers, and of $38.7 million for the Office of Intelligence and Investigative Liaison and $8 million for the National Targeting Center, both of which work with the ATS to improve security-related targeting rules (see " Cargo Security " below); Increase of $13 million for the Container Security Initiative, which scans certain U.S.-bound cargo in foreign ports (see " Cargo Security " below); Increase of $10 million for intellectual property rights enforcement and of $3 million to expand CBP's Centers for Excellence and Expertise, which work with certain industries to facilitate the import process; Decrease of $68.2 million for the Office of Air and Marine Interdictions (OAM) from acquisition of fewer new aircraft than in the last two fiscal years, and a decrease of $7.1 million for Air and Marine salaries from fewer air missions; Decrease of $52.3 million in management and administration staffing and services from savings related to human resources activities and administrative staff and expenses within the Office of the Commissioner, the Office of Information Technology, the Office of Administration, and the Office of Public Affairs; Decrease of $41.2 million in fleet acquisition and management from deferring acquisition of new non-mission critical vehicles and reducing fuel and maintenance costs; Decrease of $36.8 million for information technology infrastructure and support by deferring replacement of equipment and technical upgrades; Decrease of $31 million for nonintrusive inspection (NII) operations and maintenance by relying exclusively on currently fielded NII equipment; Decrease of $21.1 million in CBP officer overtime expenses, $9.2 million in field support staff salaries and expenses from reductions in operational support, and $7 million in Air and Marine salaries and expenses from reducing low priority missions; Decrease of $14.7 million in training expenses by reducing certain specialized training programs; and Decrease of $12.3 million in CBP transportation program from lower workload requirements (due to fewer apprehensions) and cost reductions from a new transportation contract. The House approved $10,172 in net budget authority for CBP for FY2013, an increase of $17 million (0.2%) from last year's appropriation and a decrease of $173 million (1.7%) from the President's request. Under the House-passed bill, CBP would have received $11,689 in gross budget authority, which would have been a $37 million (0.3%) increase over last year's level and a $283 million (2.4%) decrease from the President's request. These numbers included several amendments to the House-reported version of the bill, including amendments to add $43,000 to CBP salaries and expenses to support completion of a staffing model; to add $10 million to the BSFIT account to fund communications infrastructure in border communities; and to cut $3 million from the BSFIT appropriation (a cut targeting environmental mitigation), with $624,000 added to the Office of Air and Marine Interdiction's Operations, Maintenance and Procurement account. The Senate Appropriations Committee proposed $10,454 million in net budget authority for CBP for FY2013, an increase of $299 million (3.0%) from last year's appropriation and of $109 million (1.1%) from the President's request. The Senate-reported bill included $11,971 in gross budget authority, which would have been a $319 million (2.7%) increase over last year's appropriation and a $0.6 million decrease from the President's request. After the across-the-board cuts but prior to applying sequestration, the Consolidated and Further Continuing Appropriations Act of 2013 ( P.L. 113-6 ) provides $10,356 million in net budget authority for CBP for FY2013, an increase of $201 million (0.02%) from last year's appropriation and of $12 million (0.001%) from the President's request. P.L. 113-6 includes $11,872 million in gross budget authority, which is a $98 million (.01%) decrease below last year's appropriation and a $222 million increase (0.02%) over the President's request. Sequestration further reduced CBP budget authority by roughly an additional $575 million, according to the DHS FY2013 expenditure plan. The plan projected gross total spending in FY2013 for CBP to be $11,298 million, $353 million less than the FY2012 enacted levels. A number of policy issues related to CBP came up during the FY2013 appropriations cycle, including questions about the U.S. Visitor and Immigrant Status Indicator Technology (US-VISIT) program, CBP staffing, reimbursement authority for CBP services, customs user fees, border surveillance technology (ground-based and aerial), and cargo security. Congress first mandated that the former Immigration and Naturalization Service (INS) implement an automated entry and exit data system that would track the arrival and departure of every alien in §110 of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 ( P.L. 104-208 ). The entry-exit system tracks the entry and exit and verifies the identity of foreign visitors to and from the United States by collecting and storing biographic (i.e., names, birthdates, and other identifying information) and biometric (i.e., fingerprints and digital photographs) identification information about them. Biographic entry-exit data are stored in DHS's Arrival and Departure Information System (ADIS) database, and biometric data are stored in the Automated Biometric Identification System (IDENT) database. This information is shared with a wide range of federal, state and local government agencies to help identify people who may pose a risk to the United States. The entry-exit system has been operational at almost all U.S. ports of entry since December 2006. DHS regulations issued in January 2009 require most non-citizens entering through air and seaports and most non-citizens subject to secondary inspection at land ports to provide biometric data when entering or re-entering the United States. The system does not collect biometric data from non-citizens exiting the United States, however. And while the system collects biographic data from passengers exiting through air and sea ports, no data are collected from most passengers exiting through land ports. The President's FY2013 budget request did not include funding for a biometric exit system. Instead, DHS has focused on an enhanced biographic exit program and an integrated U.S.-Canadian entry-exit system. Under the enhanced biographic exit program, air and sea carriers provide passenger manifest data to DHS, and the data are checked against entry records and against immigration, criminal, and national security databases. Overstays are identified, and high-priority overstays (i.e., persons with derogatory information in one of the database checks) are quickly flagged for follow-up investigations. Under the integrated U.S.-Canadian system, Citizenship and Immigration Canada (the Canadian immigration agency) provides DHS with biometric records of third country nationals entering Canada through land ports of entry on the Canadian border; and DHS treats these Canadian entry data as records of U.S. exits for purposes of the U.S. entry-exit system. Some Members of Congress have expressed frustration that a biometric exit system has not been implemented, and both chambers' appropriations reports directed DHS to report on the department's plans for a more comprehensive exit system. The entry-exit system's place in the DHS organizational structure has changed several times since it was created. The system was designated the U.S. Visitor and Immigrant Status Indicator Technology (US-VISIT) Program in 2003 and initially was coordinated out of DHS' Directorate of Border and Transportation Security (BTS), the directorate responsible at the time for CBP and ICE. Under the "second stage review" reorganization by former DHS Secretary Chertoff, DHS eliminated BTS and proposed placing US-VISIT within a new Screening Coordination Office (SCO) that would have included several DHS screening programs and reported directly to the Secretary. Funding for the SCO was never appropriated, however, and US-VISIT became a stand-alone office within Title II of the DHS appropriation in FY2006. In FY2008, DHS transferred US-VISIT into the new National Protection and Programs Directorate (NPPD). The FY2013 budget request proposed to move US-VISIT from NPPD and to divide its work between CBP and ICE in order to "identify potential operational and cost efficiencies" in "mission support and 'corporate' functions such as logistics and human resources." Neither chamber of Congress fully supported the proposed move, however. The House-passed bill would have transferred about $73 million to CBP and ICE offices involved with entry-exit policy and overstay analysis, but would have left the bulk of US-VISIT funding, about $191 million, within a new Office of Biometric Identity Management within NPPD. The Senate-reported bill would have transferred US-VISIT to CBP, but the committee recommended that US-VISIT be transferred as a stand-alone appropriation within CBP, rather than being incorporated within the existing CBP Salaries and Expenses account as the President had requested. Under P.L. 113-6 , the US-VISIT Program was replaced in its entirety by a new Office of Biometric Identity Management (OBIM) within NPPD. The President's FY2013 budget requested funding for 21,186 CBP officers and 21,370 U.S. Border Patrol agents. While both chambers' budget proposals would have supported the requested staffing levels, they also raised questions about how DHS sets such levels. The Senate report warned of adverse long-term consequences if DHS preserves high staffing levels during a period of budget tightening by cutting its investments in infrastructure; and also expressed concern that inspection fees have not increased in about ten years, which limits funds available for CBP officer salaries. The House report encouraged CBP to consider a number of changes to reduce OFO staffing requirements at POEs, including by reengineering POE processes to make them more automated, by improving risk-based targeting, by better managing short-term staffing demand surges, by exploring public-private partnerships, by expanding trusted trade and traveler programs that facilitate low-risk entries, and by relying on technology to increase officer efficiency. The House report also would have directed CBP to provide a more specific staffing and deployment plan for border patrol agents; and the Senate report would have requested a plan for OFO staffing at Northern Border ports of entry. About 37% of CBP officer salaries are funded by user fees, and report language accompanying P.L. 113-6 directs CBP to refine its model for forecasting user fee revenues in order to insure adequate funds are budgeted for such salaries (also see " Customs User Fees "). Some Members may disagree with efforts to reduce CBP staffing (or slow its growth), however. While border patrol staffing has increased 90% since FY2005 (up from 11,264 agents that year), OFO staffing at POEs has increased only 18% (up from 17,881 officers in FY2005), even as OFO responsibilities have expanded to include biometric data collection and enhanced cargo security requirements. Some people argue that increased enforcement between ports of entry has encouraged illegal migrants and drug smugglers to enter through POEs. Some supporters of increased OFO staffing argue that officers increase security while also facilitating legal admissions, and that officers are more effective at identifying and apprehending bad actors than are automated targeting systems, trusted trade and travel programs, and other technology. With the implementation of sequestration on March 1, 2013, DHS officials warned that the automatic spending cuts could result in furloughs of up to 14 days for frontline CBP personnel; reduce overtime hours; and decrease hiring to backfill positions, with the lost work hours adding up to the equivalent of cuts to over 5,000 Border Patrol agents and 2,750 CBP officers. DHS reportedly intends to minimize the impact of the sequester on frontline operations, including by eliminating employee performance awards and incentive payments, reducing outside contracts, limiting administrative expenditures, and working with congressional appropriators to reprogram and transfer certain funds. CBP officials also have indicated that the agency intends to rely on reductions to overtime and hiring freezes in an effort to avoid or minimize employee furloughs. Nonetheless, with 72% of CBP's budget tied to salaries and benefits—and with over 90% of the Border Security and Control between POEs Account going to salaries and benefits —it appeared likely that CBP frontline staffing would be subject to some combination of reduced overtime hours and furlough days, though specific plans had not been announced at the time of this report. One approach the administration has favored for leveraging current resources to provide enhanced services at ports of entry has been to rely on public-private partnerships as a source of funding for staffing and infrastructure. Yet U.S. customs law generally prohibits CBP from providing immigration or customs services on a fee-for-service basis, except under certain limited circumstances. Notwithstanding these restrictions, Section 560 of P.L. 113-6 incorporates language proposed by the administration to permit CBP to enter into up to five public-private partnerships during FY2013. The partnerships may permit persons to reimburse CBP for the costs of providing additional services at POEs (including by paying for officer overtime), for the provision of CBP services at new facilities, and for the expansion of CBP services at land ports of entry. CBP collects several different types of user fees, including fees paid by passengers and by cargo carriers and importers for the provision of customs services. These fees are often referred to as COBRA fees because they were passed as part of the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA, P.L. 99-272 ). Under 19 U.S.C. §§58c(f)(1)-(3), a portion of these fees directly reimburses CBP (i.e., as mandatory spending not reliant on separate annual appropriations) for certain customs functions, including overtime compensation and certain benefits and premium pay for CBP officers, certain preclearance services, foreign language proficiency awards, and—to the extent funds remain available—certain officer salaries. Another portion of COBRA fees—merchandise processing fees—is deposited in CBP's Customs User Fee Account to pay for additional customs revenue functions but is only available to the extent provided for in appropriations acts (i.e., as discretionary appropriations). Certain COBRA passenger fees have been collected and deposited in the Customs User Fee Account without a corresponding appropriation to pay for customs functions. Two recent examples of this have drawn Congressional interest. Section 521 of the NAFTA Implementation Act of 1993 ( P.L. 103-182 ) temporarily increased fees for all passengers entering the United States, including passengers from Canada, Mexico, and the Caribbean islands, who previously had been exempted from such fees. According to the Government Accountability Office, this temporary increase resulted in the collection of about $639 million from FY1994-FY1997. Section 601 of the United States-Colombia Trade Promotion Agreement Implementation Act of 2011 ( P.L. 112-42 ) also eliminated a passenger fee exemption for travelers from Mexico, Canada, and certain other Western Hemisphere states, resulting in an estimated increase in COBRA fees of $83 million in FY2012 and $110 million in FY2013 and thereafter. In both these cases, funds were directed (and in the case of Section 601, still are being directed) to the Customs User Fee Account but have not yet been obligated for customs revenue collection, as the provisions that raised this revenue stated that the funds—in contrast with other COBRA passenger fees—are available only to the extent provided in appropriations Acts. Some Members of Congress have raised questions about the disposition of these fees. The House Appropriations Committee report directed CBP to report to the committee about whether the Department has access to the $639 million identified by GAO, and how the department will eliminate those funds from its books. With respect to fees collected pursuant to P.L. 112-42 , CBP's budget justification for FY2013 included these fees in its budget for CBP officer salaries and expenses, but neither chamber included language in its appropriation bill to make these funds available to CBP, resulting in a shortfall for the agency. The House would have addressed this shortfall by shifting $70 million from CBP headquarters to CBP officer salaries, and would have relied on other increasing fee revenues to fill the remaining gap. The Senate report awaited a resolution to the shortfall to be proposed by the department. P.L. 113-6 appropriates an additional $110 million to make up for the budget shortfall in CBP salaries, and directs CBP and OMB to include a means of access, with appropriate offsets, to these COBRA fees in future budget requests. DHS' strategy for achieving and maintaining control of the Southwest Border includes the use of technology to monitor the border, to detect illegal entries, and to support efforts to target and interdict such entries. Since 1998, under a series of different initiatives, DHS and the former Immigration and Naturalization Service have attempted to develop a network of border cameras, radar, and sensors linked into an integrated computer system to provide "situational awareness" along key stretches of the border. To date, initiatives have failed to deliver the desired level of surveillance, however. The last two major surveillance programs, known as the America's Shield Initiative and SBI net (part of the Secure Border Initiative), both faced criticism for non-competitive contracting practices, inadequate oversight of contractors, and cost overruns. The Obama Administration cancelled SBI net in January 2011 and replaced it with the Arizona Border Technology Plan. The new plan calls for the rapid deployment of existing technology, including a mix of fixed and mobile video surveillance systems and existing SBI net integrated towers, and emphasizes the use of different technologies for different border regions. House and Senate appropriations reports expressed frustration with DHS' implementation of the new plan. The House report admonished CBP for not having procured and implemented new surveillance equipment during the first 16 months after announcing the plan. The Senate report described CBP's April 2012 call for proposals to use SBI net technology along certain stretches of the Arizona border premature given that existing SBI net towers have not yet proven successful. In light of these concerns, while both chambers recommended fully funding the President's request for the BSFIT account, indicating their overall support for the border surveillance mission, they each recommended rescinding unobligated balances from the account, with the House report calling for $40,412,000 in rescissions and the Senate calling for $92,000,000. P.L. 113-6 includes $73,232,000 in rescissions of prior year unobligated balances in the BSFIT account. CBP also relies on manned and unmanned aircraft to complement ground-based surveillance. The President's FY2013 budget request for the Office of Air and Marine Interdiction (OAM) supported 277 aircraft, which are involved in both drug interdiction and border surveillance activities, and included $3 million to support the "Big Pipe" project to transmit real time and near real time video and other data from aerial assets. OAM reported 81,045 flight hours in FY2012 and projected 65,000 hours in FY2013, down from 94,968 flight hours in FY2011 and 106,069 in FY2010. As of November 2012, CBP operated a total of 10 unmanned aerial systems (UAS), including two UAS on the Northern border, five on the Southwest border, and three in the Gulf of Mexico. UAS accounted for 5,737 flight hours in FY2012, up from 4,406 hours in FY2011. Some Members of Congress support the use of aircraft for border surveillance, including UAS in particular. On the other hand, the use of UASs in border security remains somewhat controversial because of concerns that UAS threaten people's privacy and because of questions about the cost effectiveness of UAS on the border. A May 2012 DHS Inspector General report also criticized CBP's unmanned aircraft systems program on the grounds that its planning process fails to provide UAS systems with adequate support resources and may result in under-utilization of UAS assets. Both appropriations committees recommended increases to the OAM budget over the President's request, with the House recommending an increase of $82,700,000 (partly funded by the BSFIT rescission) and the Senate recommending an increase of $70,997,000. Both increases would have been targeted toward upgrading the OAM fleet, increasing flight hours, and supporting UAS operations. P.L. 113-6 appropriated a total of about $799 million for Air and Marine Operations, including a shift of about $284 million from CBP's Salaries and Expenses account into a new Salaries and Expenses sub-account within the Air and Marine account. P.L. 113-6 report language directs CBP to restore overall and UAS flight hours to 2011 levels. CBP is responsible for screening cargo passing through U.S. ports of entry for contraband and dangerous materials. Under the Security and Accountability For Every Port Act of 2006 (SAFE Port Act, P.L. 109-347 ), as amended, CBP must ensure that all maritime cargo is scanned through radiation detection and nonintrusive inspection imaging scanners prior to being loaded on ships bound for the United States. Section 1701 of the Implementing Recommendations of the 9/11 Commission Act of 2007 (The 9/11 Act, P.L. 110-53 ) established a deadline of July 1, 2012, for DHS to begin excluding cargo that has not been scanned, though the law allows DHS to extend this deadline under certain circumstances; and in May 2012, Homeland Security Secretary Napolitano notified Congress that she would exercise her authority to extend the 100% scanning deadline. The 100% scanning requirement has raised questions about how to balance the security benefits of scanning more U.S.-bound cargo against the costs of such scans, including increased paperwork, the costs of maintaining scanning technology and personnel to operate scanners, and longer wait times for U.S. importers. DHS officials and some others have argued that the department should focus scanning on high-risk cargo, along with a random sample of lower-risk cargo, in order to cut costs, facilitate legal trade, and make the best use of existing resources. After requesting reductions to international cargo security screening programs in FY2011 and FY2012—with Congress providing funding levels above the President's request both years—the FY2013 budget request included a $13 million increase to the Container Security Initiative (CSI), CBP's primary program for customs inspections abroad, along with a total of $78 million in proposed increases to the Automated Targeting System and related programs used to screen incoming goods and travelers for security threats. House and Senate Appropriations Committee reports both supported the President's request for these programs. The House report and the explanatory statement accompanying P.L. 113-6 also acknowledge DHS' concerns about the costs of implementing a 100% scanning program at foreign ports, and call on DHS to propose an alternative scanning plan. ICE focuses on enforcement of immigration and customs laws within the United States. ICE develops intelligence to reduce illegal entry into the United States and is responsible for investigating and enforcing violations of the immigration laws (e.g., alien smuggling, hiring unauthorized alien workers). ICE is also responsible for locating and removing aliens who have overstayed their visas, entered illegally, or have become deportable. In addition, ICE develops intelligence to combat terrorist financing and money laundering, and to enforce export laws against smuggling, fraud, forced labor, trade agreement noncompliance, and vehicle and cargo theft. See Table 8 for account-level detail for all of the agencies in Title II. For ICE sub-account level detail, including appropriations and funding for FY2012 and FY2013, see Table 10 . Funding numbers for the Consolidated and Further Continuing Appropriations Act, 2013 ( P.L. 113-6 ) reflect across-the-board spending cuts relative to FY2012 enacted amounts (i.e., P.L. 112-74 and P.L. 112-77 ), but they do not reflect additional spending cuts required by sequestration pursuant to the Budget Control Act of 2011 ( P.L. 112-25 ). The tables also include account-level details from DHS's post-sequestration expenditure plan. For FY2013 for ICE, the Administration requested $5,332 million in net budget authority, which represents a decrease of $218 million (3.9%) from the enacted FY2012 level of $5,551 million. Overall, the Administration requested $5,644 million in gross budget authority for ICE in FY2013, a decrease of $218 (3.7%) from the FY2012 enacted amount. The budget request included the following changes: Increase of $40 million to expand the Alternatives to Detention (ATD) program; Increase of $6 million for ICE to consolidate personnel and operations (i.e., co-location strategy); Increase of $7 million for video conferencing expansion in detention facilities and Executive Office of Immigration Review (EOIR) courtrooms and offices; Increase of $18 million to transfer the U.S. Visitor and Immigrant Status Indicator Technology (US-VISIT) Program overstay analysis function from National Protection and Programs Directorate (NPPD) to ICE; Reduction of $17 million for the 287(g) program; Reduction of $5 million for the Office of Principle Legal Advisor (OPLA); Reduction of $53 million for detention beds; and Reduction of $41 million for Secure Communities. The House-passed H.R. 5855 would have given $5,474 million in net budget authority for FY2013, a figure which would have represented a decrease of $77 million (1.4%) from the FY2012 enacted level and an increase of $142 million (2.7%) over the Administration's request. House-passed H.R. 5855 would have provided ICE with total funding authority of $5,786 million, representing a decrease of $77 million (1.3%) from the FY2012 enacted level and an increase of $142 million (2.5%) over the Administration's request. Senate-Reported S. 3216 The Senate Appropriations Committee would have recommended that ICE receive $5,330 million in net budget authority for FY2013, a figure which would have represented a decrease of $2 million (less than 0.1%) from the Administration's request, and a decrease of $220 million (4.0%) from the FY2012 enacted amount. Senate-reported S. 3216 would have provided ICE with gross funding authority of $5,642 million, which would have represented a $2 million (less than 0.1%) decrease from the Administration's request, and a decrease of $220 million (3.8%) from the FY2012 enacted level. After the across-the-board cuts but prior to applying sequestration, the Consolidated and Further Continuing Appropriations Act of 2013 ( P.L. 113-6 ) provides $5,426 million in net budget authority for ICE for FY2013, a decrease of $125 million (2.3%) from last year's appropriation and an increase of $94 million (1.8%) from the President's request. P.L. 113-6 includes $5,738 million in gross budget authority, which is a $125 million (2.1%) decrease below last year's appropriation and a $94 million increase (1.5%) over the President's request. Sequestration further reduced ICE budget authority by roughly an additional $200 million, according to the DHS FY2013 expenditure plan. The plan projected gross total spending in FY2013 for ICE to be $5,442 million, $420 million less than the FY2012 enacted levels. Issues for Congress ICE is responsible for many divergent activities due to the breadth of the civil and criminal violations of law that fall under its jurisdiction. As a result, how ICE resources are allocated in order to best achieve its mission is a continuously debated issue. The FY2013 appropriations process has involved discussions about ICE's role in detaining and removing (deporting) aliens and on the role of state and local law enforcement agencies in immigration enforcement. Enforcement and Removal Operations Part of ICE's mission includes locating and removing deportable aliens, which involves determining the appropriate amount of detention space as well as which aliens should be detained. There are an estimated 10.8 million unauthorized aliens in the United States. In addition, there are an estimated 1.9 million aliens in the United States who have committed a crime. According to ICE, they have the capacity to remove 400,000 aliens a year. As a result, there has been ongoing debate about how ICE should prioritize the removal of removable aliens. During the floor debate of House-passed H.R. 5855 , several amendments were accepted that attempted to direct the Agency's immigration enforcement priorities. P.L. 113-6 states that of the appropriated funds, $1,600 million shall be available to identify aliens convicted of a crime who may be removable from the United States and to remove such aliens once ordered removed. The act also states that the Secretary of DHS shall prioritize the identification and removal of aliens convicted of a crime by the severity of the crime. ICE's Office of Enforcement and Removal Operations (ERO) provides custody management of the aliens who are in removal proceedings or who have been ordered removed from the United States. ERO also is responsible for ensuring that aliens ordered removed actually depart from the United States. Some contend that ERO does not have enough detention space to house all those who should be detained. Concerns have been raised that decisions regarding which aliens to release and when to release them may be based on the amount of detention space, not on the merits of individual cases, and that detention conditions may vary by area of the country leading to inequities. Some policymakers have advocated for the increased use of alternatives to detention programs for noncriminal alien detainees, citing these programs as a lower cost option than detention and a more proportional treatment relative to the violation. The number of detention beds maintained by ICE has been an issue. ICE maintained 34,000 detention bed spaces in FY2012, and the President's FY2013 budget requested a reduction in bed space to 32,800 beds. In the beginning of calendar year 2013, ICE released 2,228 detainees, maintaining that the release was necessary due to the fact that ICE was operating under a continuing resolution (CR) and the upcoming reductions were required by sequestration. At a hearing on the issue, ICE Director John Morton stated that although the CR had funded 34,000 beds, ICE's average daily detention population exceeded 35,000 individuals, including many who were not required to be detained under law. However, critics responded that the release was purely political and a way to pressure Congress to make a deal with the President to avert the sequestration reductions. P.L. 113-6 requires that ICE maintain 34,000 detention beds for FY2013. Due to the cost of detaining aliens, and the fact that many non-detained aliens with final orders of removal do not leave the country, there has been interest in developing alternatives to detention for certain types of aliens who do not require a secure detention setting. ICE's Alternatives to Detention (ATD) provides less restrictive alternatives to detention, using such tools as electronic monitoring devices (e.g., ankle bracelets), home visits, work visits, and reporting by telephone, to monitor aliens who are out on bond while awaiting hearings during removal proceedings or the appeals process. 91 The Administration had requested a decrease in detention bed space in conjunction with a request of an additional $40 million to expand the ATD program. H.R. 5855 , as passed by the House, would have maintained the current amount of beds, and increased funding for the ATD program by $20 million. Senate-reported S. 3216 would have decreased detention space by 600 beds, and increased funding for the ATD program by $24 million. P.L. 113-6 funds 34,000 detention beds and increases funding for the ATD program by $19 million (27%). Immigration Enforcement in State and Local Jails The Administration's request included $139 million (a $50 million decrease from FY2012 since most of the deployment has been completed) for Secure Communities, an information sharing program between DHS and the Department of Justice to check the fingerprints of arrestees against DHS immigration records. ICE has already deployed Secure Communities to 89% of all jurisdictions nationally, and is requesting the resources needed to finish expanding the system nationwide by the end of FY2013. ICE has the resources to confirm the identification of an estimated 282,000 more removable aliens in FY2012 than in FY2010, including an estimated 73,000 Level 1 offenders. House and Senate appropriators both expressed strong support for the continued expansion of Secure Communities and would have appropriated approximately the same amount as the Administration requested in their draft bills for FY2013. The enforcement of immigration laws by state and local law enforcement agents through agreements pursuant to §287(g) of the INA (the §287(g) program) and through screening for immigration violations in state and local jails through the §287(g) program and Secure Communities has sparked debate about the proper role of state and local law enforcement officials in this area. Many have expressed concern over proper training, finite resources at the local level, possible civil rights violations, and the overall impact on communities. Nonetheless, some observers contend that the federal government has scarce resources to enforce immigration law and that state and local law enforcement entities should be used. The Administration requested $51 million for 287(g) agreements, a decrease of $17 million from the FY2012 enacted level . The Administration contends that the Secure Communities screening process is more efficient and cost effective than 287(g) agreements in identifying and removing criminal and other priority aliens. ICE plans to discontinue the least productive 287(g) task force agreements in jurisdictions where Secure Communities is active and will not consider any requests for new 287(g) task forces. Senate-reported S. 3216 would have appropriated $51 million for 287(g) agreements while H.R. 5855 , as passed by the House, would have funded the 287(g) program at the FY2012 level of $68 million. During floor action, the House adopted an amendment to H.R. 5855 that would have also prohibited any funds under the act from being used to terminate a 287(g) agreement that is in existence on the date of enactment of the act. P.L. 113-6 funds the 287(g) program at the FY2012 level of $68 million. ICE Public Advocate In 2012, ICE created the Public Advocate Office "to assist individuals and representatives who have concerns about ICE operations and policies in the field." The office was created in response to critiques that the agency was unresponsive to the complaints of those who were detained or investigated. However, some contend that the program is not productive and is not a proper use of ICE resources. P.L. 113-6 states that no funds under the act may be used to fund the position of Public Advocate within ICE. TSA, created in 2001 by the Aviation and Transportation Security Act (ATSA, P.L. 107-71 ), is charged with protecting air, land, and rail transportation systems within the United States to ensure the freedom of movement for people and goods. In 2002, TSA was transferred from the Department of Transportation to DHS with the passage of the Homeland Security Act ( P.L. 107-296 ). TSA's responsibilities include protecting the aviation system against terrorist threats, sabotage, and other acts of violence through the deployment of passenger and baggage screeners; detection systems for explosives, weapons, and other contraband; and other security technologies. TSA also has certain responsibilities for marine and land modes of transportation including assessing the risk of terrorist attacks to all non-aviation transportation assets, including seaports; issuing regulations to improve security; and enforcing these regulations to ensure the protection of these transportation systems. TSA is further charged with serving as the primary liaison for transportation security to the law enforcement and intelligence communities. The TSA budget is one of the most complex components of the DHS Appropriations bill. The graphic above reflects net direct discretionary appropriations for the TSA, but that represents only a portion of the budgetary resources it has available. An airline security fee collection offsets a portion of aviation security costs, including $250 million dedicated for capital investments in screening technology. Other fees offset the costs of transportation threat assessment and credentialing. Since these amounts are not set through traditional appropriations provisions, they are not reflected in the above graphic. Table 11 presents a breakdown of TSA's total additional budgetary resources from all non-appropriated sources and those provided through direct appropriations. The President's request included gross budget authority of $7,645 million for TSA, offset by $2,515 million in proposed collections and fees, for a net direct discretionary appropriation of $5,130 million. This represents roughly a 2.5% decrease from the gross funding provided in FY2012, but a 7.1% drop in net appropriations. Of this request, $5,099 million in gross budget authority was for aviation security, a decrease of $155 million (3.0%) compared to FY2012. However, due to proposed increases in offsetting passenger security fees (discussed in more detail below), only $2,914 million in net appropriations would have been provided, a decrease of $310 million (9.6%) from FY2012 levels. The President's request proposed $124 million for Surface Transportation Security, a decrease of $10 million (7.8%) from FY2012. Requested decreases in funding amounts reflected planned reductions in procurement for both checked baggage and passenger checkpoint technologies, a reduction in screening technology maintenance costs, a 50% reduction in the Federal Flight Deck Officer (FFDO) program and flight crew training, and miscellaneous improvements in management efficiencies, such as reduced travel, training, and overtime costs. Funding for transportation threat assessment and credentialing (TTAC) would increase by $68 million (33%) under the request to $272 million. This includes a one-time increase of $30 million for TTAC infrastructure modernization (TIM) and adjustments to the fee-based Transportation Worker Identification Credential (TWIC) based on higher-than-anticipated worker turnover in the maritime industry. The requested funding level for Transportation Security Support was set at $970 million, a decrease of $62 million (6%) from FY2012 levels, and requested funding for the Federal Air Marshals Service (FAMS) specified $930 million, a decrease of $36 million (3.8%). See Table 8 for account level detail for all agencies in Title II and Table 12 for amounts specified for TSA budget activities. House-passed H.R. 5855 included gross budget authority of $7,498 million for TSA, offset by $2,400 million in collections and fees, for a net direct discretionary appropriation of $5,098 million. This represents a $147 million (1.9%) decrease from the gross funding requested by the administration, and a 0.6% drop in net appropriations from the request. The House-passed bill specified $5,041 million in gross budget authority for aviation security, $57 million (1.1%) less than requested. The House rejected the Administration's proposed increases in offsetting passenger security fees. Therefore, with a smaller offset, the appropriations for aviation security proposed in the bill actually rose $58 million (2.0%) above the Administration's request. The House report recommended additional cuts to screening operations including reductions in screener workforce costs and additional reductions in checked baggage explosives detection equipment procurement. The House-passed bill specified $126 million for surface transportation security, $2 million (1.7%) above the request, but $8 million (6.2%) less than the FY2012 enacted amount. The bill specified $193 million in direct appropriations and $80 million in fee collections for TTAC, roughly in line with the request. The House-passed bill, however, specified $929 million for transportation security support, $41 million (4.2%) below the request, and $880 million for FAMS, $50 million (5.4%) below the request. The House committee noted that many of these reductions to the request were made to offset a budget shortfall created by the administration's reliance on passenger security fee increases that have not been enacted. The Senate-reported bill specified gross budget authority of $7,633 million for TSA, offset by $2,715 million in collections and fees, for a net discretionary appropriation of $4,919 million. This amounted to an $11 million (0.2%) decrease from the gross funding requested by the Administration, and a $211 million (4%) reduction in net appropriations. This amount included $5,087 million in gross budget authority for aviation security, $11 million (0.2%) less than requested. The Senate accepted the Administration's proposed increases in offsetting passenger security fees, incorporating the full $315 million in revenue projections into the offset. Therefore, with a larger offset, the appropriations proposed in the bill for aviation security dropped $211 million (7.3%) from the Administration's request. These cuts reflected a $5 million (4.2%) reduction to checkpoint equipment procurement and a $10 million (8.5%) reduction for explosives detection systems procurement. In both cases, the Appropriations Committee report cited large unobligated prior-year balances in explaining the reductions. The amount also included an $8 million (0.3%) reduction to screener staffing due to delayed fielding of checkpoint body scanners. The committee specified $24 million for the FFDO program, $12 million (92%) above the request. The Senate Appropriations Committee recommended funding surface transportation security, TTAC, transportation security support, and FAMS at requested levels. P.L. 113-6 provided TSA with $7,551million in total gross budget authority, $290 million less than the FY2012 enacted level. Sequestration further reduced TSA budget authority by roughly an additional $339 million, according to the DHS FY2013 expenditure plan. The plan projected gross total spending in FY2013 for TSA to be $7,212 million, $629 million less than the FY2012 enacted levels. Table 12 outlines the funding levels for existing TSA program functions. The "DHS Plan" column provides the department's assessment of post-sequester resources provided by P.L. 113-6 as of April 26, 2013. It does not represent a final funding level as the department is likely to undertake transfers and reprogramming to mitigate the impact of sequestration in some areas. Under ATSA, passenger security fees are set at $2.50 per flight segment, not to exceed $5.00 per one-way trip. The fee has not been increased since 2001, and concerns have been raised that the per-segment application does not accurately reflect passenger usage, as in many cases individuals are screened only at the initial departure airport and do not need to be screened again upon changing planes. Airlines have argued against fee increases, raising concerns over their potential impact on passenger air travel. In the FY2013 budget submission, the Administration proposed changing the fee structure to apply a flat fee of $5.00 per one-way trip. This would, in effect, double the fee on direct flights, but would not change the fee currently paid by customers taking connecting flights. The Administration estimated that this change would increase revenue collections by $317 million. It proposed to apply $117 million of this amount as offsetting collections for aviation security costs and credit the additional $200 million toward deficit reduction. Both the George W. Bush and Obama administrations have previously submitted proposals to increase passenger security fees. While these past efforts garnered little congressional support, the current proposal was supported by the Senate Appropriations Committee, which included a provision to increase FY2013 fee collections to $5.00 per one-way trip. However, whereas the request sought to apply a portion of the increased revenue toward deficit reduction, the Senate committee measure would apply all passenger security fees as offsetting collections assigned to aviation security. While the Senate committee approved the proposal for FY2013, it noted that it lacked jurisdiction to provide permanent authority for the fee increase. The House Appropriations Committee, on the other hand, did not include the proposal, noting that it lacked jurisdiction over fees. The committee instead commented that it "was forced to find $115,000,000 in offsets to make up for the budget request's persistent and flawed assumption of increased aviation passenger fee collections." Ultimately, P.L. 113-6 did not change passenger security fees. TSA congressional justifications identify over $100 million in savings from improved management efficiencies compared to FY2012. This includes almost $99 million for aviation security programs, $9 million for surface transportation, more than $2 million for TTAC, and over $7 million for FAMS. Management efficiencies include reductions in items such as travel, conferences, miscellaneous purchasing, use of support contracts, and overtime pay. The identified savings through management efficiencies raised oversight questions as to why inefficiencies were not corrected sooner, and additional questions regarding procedures and policies established to ensure that FY2013 efficiency goals can be met. Efficiency improvements have been viewed as a key component of addressing budget sequestration impacts at TSA. TSA has initiated a number of risk-based screening initiatives to focus its resources based on intelligence-driven assessments of security risk. Initiatives include a new trusted traveler trial program called PreCheck, modified screening procedures for children 12 and under, and a trial program for screening known flight crew members using modified procedures. Trial programs are also underway for modified screening of elderly passengers similar to those procedures put in place for children. These various trial programs may allow for improved screening efficiencies and potential savings, which TSA indicates will be identified in future budgets. A cornerstone of TSA's risk-based initiatives is the PreCheck program. PreCheck is TSA's latest version of a trusted traveler program and is modeled on similar CBP programs including Global Entry, SENTRI, and NEXUS. It is currently available on a trial basis to members of those programs, frequent flyer program members of three major airlines, and, in some cases, to military service members, at a limited number of airports. TSA has planned further expansion of the PreCheck program in FY2013. The House committee cited the PreCheck program as an example of a more rational risk-based approach to screening that can help increase screening efficiency and reduce screener workforce requirements. The Senate committee also expressed support for TSA plans to expand the PreCheck program. It directed TSA to report on its expansion plans for PreCheck, including statistics on expansion of the eligible population, success indicators such as passenger satisfaction, efforts to raise public awareness of the program, time savings derived from PreCheck screening procedures, and security measures to ensure that PreCheck enrollees are verified to be low-risk. The Senate committee also expressed specific concern that TSA's known crew member pilot program is currently limited only to pilots, and included bill language to require TSA to expand the program to include flight attendants. While TSA's risk-based screening pilot programs have been viewed positively, its efforts to conduct behavioral-based observation and screening of passengers continue to come under scrutiny and criticism. While TSA proposed to increase the numbers of Behavior Detection Officers (BDOs) by 72 to 3,131, the House committee report did not support this increase, citing TSA's lack of clear evidence that BDOs provide protection against potential aviation security threats. The committee called for a formal cost-benefit analysis of the BDO program along with a robust risk-based strategy for BDO deployment. The explanatory statement accompanying P.L. 113-6 requires TSA to brief the appropriations committees on a semiannual basis on "progress in developing or applying trusted traveler approaches and any legal or budgetary impediments to their implementation." The budget justification specified a $13 million reduction (roughly a 50% cut) in funds for the Federal Flight Deck Officer (FFDO) program, which trains and deputizes armed airline pilots, and for the crew member self-defense training program. Neither the House nor the Senate Appropriations Committee have adopted this proposal. In addition to the House Appropriations Committee recommending to keep the FFDO program at FY2012 level, the House passed an amendment to increase FFDO funding by an additional $10 million to $36 million, $23 million above the request. The additional $10 million for the FFDO program is offset by reductions of $5 million each for Screener Payroll, Compensation, and Benefits (PC&B) and Screening Technology Maintenance. The House also included report language directing the TSA to revisit the use of FFDOs and other federal law enforcement assets that fly on commercial aircraft to serve as a force multiplier to complement the presence of air marshals through better coordinated scheduling, communications, and training. The Senate Appropriations Committee similarly disagreed with the request to reduce FFDO funding. It recommended $24 million for FFDO and crew member training programs, noting that the slight decrease compared to FY2012 reflects the constrained budget environment. The FFDO and crew member training programs were fully funded at $25 million under P.L. 113-6 , but were subject to sequestration cuts reducing projected spending on the programs in FY2013 to $23 million. The Coast Guard is the lead federal agency for the maritime component of homeland security. As such, it is the lead agency responsible for the security of U.S. ports, coastal and inland waterways, and territorial waters. The Coast Guard also performs missions that are not related to homeland security, such as maritime search and rescue, marine environmental protection, fisheries enforcement, and aids to navigation. The Coast Guard was transferred from the Department of Transportation to the DHS on March 1, 2003. The President requested a total of $8,377 million in discretionary appropriations for the Coast Guard, $257 million less than FY2012's enacted amount. This amount includes $6,791 million in operating expenses and $1,217 million in capital acquisitions. The House would have provided $212 million more than the President requested. Most of the difference is for the capital account which includes acquisition of vessels, aircraft, and improvements to shore facilities, as discussed further below. The Senate Appropriations Committee recommended about $282 million more than the President requested. Much of the difference was due to the Senate funding overseas contingency operations directly under the Coast Guard rather than transferring this amount from the DOD budget as the President requested. The largest differences with the President's request had to do with vessel procurement as shown in the following table and discussed further below. P.L. 113-6 provided USCG with $10,400 million in total gross budget authority after taking into account the across-the-board cuts in Division G of the law, $68 million more than the FY2012 enacted level. Sequestration reduced USCG budget authority by roughly an additional $268 million, according to the DHS FY2013 expenditure plan. The plan projected gross total spending in FY2013 for USCG to be $10,132 million, $200 million less than the FY2012 enacted levels. Table 13 outlines the funding levels for the USCG operating expenses and acquisition and construction functions for FY2013. The "DHS Plan" column provides the department's assessment of budgetary resources available through P.L. 113-6 after sequestration was applied, as of April 26, 2013. It does not represent a final funding level as the department is likely to undertake transfers and reprogramming to mitigate the impact of sequestration in some areas. The largest differences in FY2013 funding recommendations between the President's request and House and Senate bills concerned vessel and aircraft acquisition. The President requested $139 million for two new fast response cutters. The House bill funded four ($224 million), and the Senate bill funded six ($335 million). The President requested no funds for additional Response Boat Medium vessels. The House bill also would have provided no funds for the vessels but the Senate requested $8 million to build four more. Regarding aircraft, the House provided $90 million for one long-range fixed wing aircraft, and $28 million for two MH-60 helicopters. The President requested $64 million for the long-range aircraft, but made this request in the DOD's budget (to be transferred to the Coast Guard) and requested no funds for MH-60 helicopters. The Senate did not request funds for either of these aircraft under the Coast Guard's appropriation. P.L. 113-6 requires that a future-years capital investment plan for FY2014 through FY2018 be submitted to the appropriations committees at the same time as the President's budget request. DHS's sequestration operating plan indicates that $1,030 million is provided for vessel acquisitions, including $646 million for one national security cutter, $319 million for six fast response cutters, and $8 million to begin development of a new icebreaker. For aircraft, the DHS sequestration plan indicates a reduction from $191 million to $181 million for all aircraft acquisitions and provides $86 million specifically for long-range aircraft. The Coast Guard's effort to replace or modernize its fleet of vessels has been a major issue for Congress over the last several years. The House bill would have provided $56 million for Coast Guard housing and aids to navigation, which is about $41 million more than the $15 million requested by the President and recommended by the Senate committee. The $41 million recommended by the House included $31 million to address a shore facilities backlog list produced by the Coast Guard (the list was requested by Congress in FY2012 appropriations) and $10 million for the Coast Guard's new headquarters building on the St. Elizabeths campus in Washington, DC. P.L. 113-6 provided $30 million for housing and aids to navigation, which was reduced to $29 million according to DHS's sequestration plan. The House Appropriations Committee Report called on the Coast Guard to issue a final rule for implementing card readers at ports and on vessels for the Transportation Worker Identification Credential (TWIC), a biometric security card that port and vessel workers must have to access security sensitive areas. The Senate Committee on Appropriations requested a Coast Guard briefing on actions taken regarding Interagency Operations Centers at ports in light of a GAO report critical of the agency's development of these centers. The explanatory statement accompanying P.L. 113-6 directs "[t]he Coast Guard, the Department, and TSA ... to take all necessary action to expedite the completion and publication of a final TWIC reader rule." No further direction is provided on Interagency Operations Centers, which means that the Senate's direction stands as written. The U.S. Secret Service (USSS) has two broad missions, criminal investigations and protection. Criminal investigation activities encompass financial crimes, identity theft, counterfeiting, computer fraud, and computer-based attacks on the nation's financial, banking, and telecommunications infrastructure, among other areas. The protection mission is the most prominent, covering the President, Vice President, their families, and candidates for those offices, along with the White House and Vice President's residence, through the Service's Uniformed Division. Protective duties also extend to foreign missions in the District of Columbia and to designated individuals, such as the DHS Secretary and visiting foreign dignitaries. Aside from these specific mandated assignments, USSS is responsible for security activities at National Special Security Events (NSSE), which include the major party quadrennial national conventions as well as international conferences and events held in the United States. The NSSE designation by the President gives the USSS authority to organize and coordinate security arrangements involving various law enforcement units from other federal agencies and state and local governments, as well as from the National Guard. For FY2013, the Administration requested an appropriation of $1,601 million for the USSS. The Administration's request is $66 million (4%) less than was appropriated for the USSS in FY2012. The Administration requested approximately $988 million for its protection mission, $324 million for its investigation mission, and total of 7,061 FTE to meet its personnel needs. For FY2013, the House-passed version of the DHS appropriations bill recommended an appropriation of $1,613 million. This amount would have represented a decrease of $54 million (3.2%) from the FY2012 USSS appropriation. However, it was $12 million (0.8%) more than the Administration's FY2013 request. The decrease compared to FY2012 reflected the anticipated conclusion of the 2012 Presidential campaign season and the reduced demand for major presidential candidate protection. The reduction to the USSS budget would have been partially offset by restoration of $8 million in specific funding for USSS support for the Center for Missing and Exploited Children, which had been zeroed out in the Administration's request, and an $8 million increase for Electronic Crimes Special Agent Program and Electronic Crimes Task Forces. For FY2013, the Senate-reported version of the DHS appropriations bill recommended an appropriation of $1,613 million. This amount would have reflected a total decrease of $54 million (3.2%) from the FY2012 USSS appropriation. However, it was $12 million (0.8%) above the Administration's FY2013 request. Although the structure was different for two programs, the Senate also would have restored $8 million in specific funding for USSS support for the Center for Missing and Exploited Children, and would have provided $4 million above the request for unspecified priority domestic investigations. Additionally, in their report, the Senate Committee noted and approved of the USSS Director's actions to address the "improper behavior involving 12 Secret Service agents and officers in Cartagena, Colombia, on April 12, 2012." For FY2013, Congress appropriated $1.611 billion for USSS. This was $56 million less than the $1.667 billion appropriated in FY2012. Following the sequester, the Service plans to expend $1.527 billion, which is $84 million less than what was appropriated in P.L. 113-6 . This $84 million was reduced primarily from the Service's appropriations for its protection and investigation mission. Table 14 outlines in detail the funding levels for the Secret Service for FY2013. The "DHS Plan" column provides the department's assessment of budgetary resources available through P.L. 113-6 after sequestration was applied, as of April 26, 2013. It does not represent a final funding level as the department is likely to undertake transfers and reprogramming to mitigate the impact of sequestration in some areas. One potential ongoing issue for Congress concerning the USSS is the balancing of the investigative and protective missions of the Service, and how executing both missions affects overall USSS operations. USSS's protection mission, as opposed to its investigative mission, employs the majority of the Service's agents and receives a larger share of the agency's resources. Additionally, the majority of congressional action concerning USSS has been related to its protection mission and recent USSS agent misconduct. While Congress has maintained the Service's role in investigating financial crimes, such as combating counterfeiting, congressional action has primarily addressed, and continues to address, the Service's protection mission. Potential terrorist attacks and potential threats to the President have resulted in an increase in the need for the Service's protection activities. Advocates for expansion of the investigation mission, however, may contend that protection is enhanced through better threat investigation efforts. Title III of the DHS appropriations bill contains the appropriations for the National Protection and Programs Directorate (NPPD), the Office of Health Affairs (OHA), and the Federal Emergency Management Agency (FEMA). The Administration requested $5,911 million for these accounts in FY2013, an increase of $231 million above the enacted level. The House-passed bill would have provided $5,930 million, an increase of 0.3% above the requested level and 4.4% above FY2012. The Senate-reported bill would have provided $5,971 million, 1% above the request and 5.1% above FY2012. In addition, both House-passed and Senate-reported versions of this title also would have included a requested $5,481 million for disaster relief that is offset by an adjustment under the Budget Control Act (BCA). The adjustment would have been $919 million smaller than the adjustment provided in the FY2012 Disaster Relief Appropriations Act ( P.L. 112-77 ). After the across-the-board cuts but prior to applying sequestration, P.L. 113-6 provides $5,920 million, an increase of 0.2% from the requested level and 4.3% above FY2012. The act also included $6,400 million for disaster relief that is offset by an adjustment under the (BCA). Table 15 lists the enacted amounts for the individual components of Title III for FY2012, the Administration's request for these components for FY2013, the House-passed and Senate-reported appropriations for the same, the enacted level in P.L. 113-6 and the post-sequester level of available resources from P.L. 113-6 reported by DHS. The National Protection and Programs Directorate (NPPD) was formed by the Secretary for Homeland Security in response to the Post-Katrina Emergency Management Reform Act of 2006. The Directorate includes the Office of the Under Secretary for NPPD and accompanying administrative support functions (budget, communications, etc.), the Office of Infrastructure Protection and the Office of Cybersecurity and Communications, the latter including the National Cyber Security Division, the National Communications System and the Office of Emergency Communications. The Administration has proposed moving the activities of the US-VISIT program from NPPD to other locations within the Department. The House has proposed keeping some of those functions within the Directorate in a newly established Office of Biometric Identify Management. FY2013 Request The activities of the Office of the Under Secretary are supported by the Management and Administration Program. The activities of the Office of Infrastructure Protection and the Office of Cybersecurity and Communications are supported by the Infrastructure Protection and Information Security Program (IPIS). The IPIS program can be further broken down into projects related to infrastructure protection, cybersecurity, and communications. The Administration requested $1,217 million for NPPD activities in FY2013, $29 million (2.3%) less than what was appropriated for FY2012. The FY2013 Management and Administration budget request was $50 million (roughly even with the FY2012 level) and represents a current services budget request. It also reflects the transfer of functions previously performed by the Directorate's Office of Risk Management and Analysis to the DHS Office of Policy. The FY2013 request for IPIS was $1,167 million, an increase of $278 million (31.3%) above the FY2012 appropriation. A large share of the increase in the IPIS budget request was directed toward securing the federal government's information systems. The request included two major program increases. The first, a new $202 million initiative within the Federal Network Security project, would directly facilitate other federal agencies' compliance with Federal Information Security Management (FISMA) requirements, including development of continuous monitoring capabilities. The second is a $116 million (50.7%) increase to expand the Network Security Deployment project. The Network Security Deployment project supports deployment of the National Cybersecurity Protection System (NCPS, also known as the EINSTEIN project). The NCPS is an intrusion detection system that uses digital signatures developed by the National Security Agency. The extra funding would expand deployment of the 3.0 version of the system (which allows for active defenses against an intrusion) and development of version 2.2 (which would augment threat visualization and information sharing capabilities) across federal agencies. Other programmatic increases of note included $15 million for US-CERT to support analysis of the additional data being generated by the NCPS and $5 million in additional support for the Multi-State Information Security and Analysis Center (MS-ISAC) to assist state, local, territorial and tribal governments in their cybersecurity efforts and to integrate them with NPPD's national efforts. The FY2013 request decreased funding in other areas of the IPIS budget. Infrastructure protection funding was reduced $40 million (13.7%) below the FY2012 appropriation and activities in communications were reduced $7 million (4.7%) below FY2012 appropriated levels. Most of the reduction in infrastructure protection was due to a $19 million (20.1%) reduction in the budget requested for the Infrastructure Security Compliance project. This project supports activities to ensure compliance with Chemical Facility Anti-Terrorism Standards (CFATS) at covered facilities. The Administration considered the reduction a baseline adjustment, with $16 million of the adjustment attributed to the ability of NPPD to obligated funds. Another $8 million in reductions was associated with elimination of contract support for incident planning exercises. Incident planning exercise activities would continue as those activities, and the federal personnel associated with them, were transferred to other infrastructure protection projects. The House would have provided $1,347 million for NPPD: $45 million for Management and Administration, $1,110 million for IPIS, and $191 million for the Office of Biometric Identity Management (OBIM is discussed elsewhere in this report). The House would have provided $5 million (10%) less than requested for Management and Administration citing the Administration's use of unauthorized TSA fee increases, flaws in the treatment of CBP fee revenues, and the department's poor compliance with statutory requirements. Much of the reduction in the IPIS request was made in the Security Compliance project. Based on an internal review of the program which revealed major problems with the program's implementation, and the existence of unobligated funds, the House would have provided $29 million less than requested. The House also reduced by $17 million the funding requested for deployment of the NCPS, noting concern about NPPD's ability to obligate the funds. The House also would have directed the NPPD to work with the Coast Guard on program implementation, personnel management, and inspector training, and to consider the potential for using alternative security programs developed by the private sector for approving security plans under CFATS. Other reductions made by the House included $3 million in the Global Cybersecurity Management project (due to lack of sufficient justification) and $7 million in the Programs to Study and Enhance Telecommunications project. The House would have provided the full $202 million increase for the Federal Network Security project initiative. However, rather than transferring those funds to other agencies to develop continuous monitoring capabilities, the House would have directed NPPD to use the funds to develop security capabilities, including continuous monitoring, that other agencies could use. The Senate Appropriations Committee recommended $1,220 million for NPPD. The Committee recommended the requested amount for Management and Administration, but required an expenditure plan. The Committee recommended $1,170 million for IPIS. This included amounts above those requested for bombing prevention and vulnerability assessments. It also included $12 million more in funding than requested for the Security Compliance project. Acknowledging the existence of unobligated funds for the project and the Directorate's continuing internal deliberation on planning its way forward, the Committee stated that funds above those requested would be needed to implement any subsequent implementation plan later in the fiscal year. The Committee would have provided $18 million less than requested for the initiative within the Federal Network Security project to support the development of continuing monitoring capability and other security measures. In addition, the Committee recommended withholding $120 million of the $184 million proposed by the Senate for this effort until NPPD produces an expenditure plan for the initiative. Noting that NPPD had originally proposed a federated effort, but had restructured the project to a more unified project managed by DHS, the Committee also recommended that the expenditure plan explain how this new centralized structure will work. The Committee also recommended funding above that requested for the Global Cybersecurity Management project (setting aside $17 million for cybersecurity education) and the Critical Infrastructure Cybersecurity and Awareness project (citing the importance the Committee placed on improving the cybersecurity posture of state, local, territorial, tribal governments). On a related topic, the Committee cited the first National Cyber Security Review conducted by NPPD which assessed the cybersecurity capabilities of states, local, territorial, and tribal governments, and expressed its expectation that the review would be conducted annually to chart progress. The Committee also recommended increases for the Office of Emergency Communications and to other emergency communication-related projects, including the Next Generation Telecommunications project (which it increased $5 million above the requested level). After the across-the-board cuts by prior to applying sequestration, P.L. 113-6 provides $1,439 million for NPPD/IPIS and OBIM. This includes $50 million for Management and Administration, $1,157 million for the IPIS program, and $232 for Biometric Identity Management. According to information provided to Congress through its FY2013 operating plan, after sequestration, NPPD/IPIS and OBIM would receive $1,337 million, before the impact of transfers or reprogrammings that might ameliorate or exacerbate the impacts of sequestration. The operating plan indicates $48 million for Management and Administration, $1,065 million for IPIS, and $224 million for Biometric Identity Management for FY2014. Items of interest for IPIS specifically mentioned in the explanatory statement included $13.5 million for the Office of Bombing Prevention; $20.6 million for vulnerability assessments, and a briefing to the Committees on implementing recommendations recently made by GAO on how to better manage vulnerability assessments (Government Accountability Office, 2012); $16.9 million for cybersecurity education; $77.9 million for CFATS, with $20.0 million of that put on hold until Congress receives an expenditure plan for the program; and $202 million of the Federal Network Security program to be made available to assist the efforts of individual federal agencies to acquire and operate continuous monitoring and diagnostic equipment and software. These latter funds are not to supplant agency funds budgeted for this purpose. Additional instructions related to CFATS were provided in the Consolidated and Further Continuing Appropriations Act. GAO, in conjunction with the Coast Guard, is to continue to examine DHS progress in developing the CFATS program. In addition, once DHS has completed a sufficient number of inspections, GAO is to review how CFAT inspections were conducted, if the inspectors were adequately trained, and to identify any other barriers to managing compliance. NPPD was directed to provide semiannual reports on the compliance program and to provide a briefing on alternative security programs that might be used as models for the CFATS program. Additional instructions in the Consolidated and Further Continuing Appropriations Act related to cybersecurity included expenditure plans from each federal agency identifying the agency's efforts to improve cybersecurity. Agencies were further instructed to send quarterly reports on the execution of those plans to the Office of Management and Budget (OMB). OMB was instructed to provide a summary of these execution reports annually to Congress. Table 16 outlines the FY2012 and FY2013 funding levels for the for each PPA within the IPIS program. The "DHS Plan" column provides the department's assessment of post-sequester resources provided by P.L. 113-6 as of April 26, 2013. It does not represent a final funding level as the department is likely to undertake transfers and reprogramming to mitigate the impact of sequestration in some areas. Issues for Congress CFATS Compliance An internal review by NPPD at the end of last calendar year identified some major problems with implementing the CFATS compliance program. The Directorate is continuing to review the program and to develop ways to mitigate the problems identified. Congress, which has shown a continued interest in developing and ensuring compliance with CFATS, will likely be interested in oversight of this issue. Cybersecurity Congress has focused a fair amount of attention on cybersecurity during the 112 th Congress, including consideration of a number of bills addressing various aspects of the issue; e.g., information sharing, education and workforce development, clarifying roles and responsibilities in protecting federal information systems, and protecting information systems of critical infrastructure assets, including those owned and operated by the private sector. These bills and issues are beyond the scope of this report. However, any legislation expanding DHS's role in protecting the information systems of critical infrastructure may require DHS, presumably NPPD, to assume additional duties, which would likely require additional resources. The Federal Protective Service (FPS), within the National Protection and Programs Directorate (NPPD), is responsible for the protection and security of federal property, personnel, and federally owned and leased buildings. In general, FPS operations focus on security and law enforcement activities that reduce vulnerability to criminal and terrorist threats. FPS protection and security operations include all-hazards based risk assessments; emplacement of criminal and terrorist countermeasures, such as vehicle barriers and closed-circuit cameras; law enforcement response; assistance to federal agencies through Facility Security Committees; and emergency and safety education programs. FPS also assists other federal agencies, such as the U.S. Secret Service (USSS) at National Special Security Events (NSSE), with additional security. FPS is the lead "Government Facilities Sector Agency" for the National Infrastructure Protection Plan (NIPP). Currently, FPS employs approximately 1,225 law enforcement officers, investigators, and administrative personnel, and administers the services of approximately 13,000 contract security guards. The President's FY2013 budget request included 1,279 FTEs and $1,302 million for FPS. This was $40 million (3%) more than FPS received in FY2012. FPS does not receive a typical appropriation, but instead has a budget wholly offset by security fees charged to GSA building tenants in FPS-protected buildings and facilities. Of the total funding projected in the request, $272 million in fees would be collected for basic security operations, $509 million for building-specific security operations, and $521 million for Security Work Authorizations. For FY2013, House-passed H.R. 5855 projected no specific changes to the FPS budget and provided no additional direction for the service. The Senate Appropriations Committee recommended no specific changes to the FPS budget. However, the Senate Appropriations Committee report required the Office of Under Secretary for NPPD, in conjunction with the FPS Director, to brief the committee on FPS management and budget improvement efforts. No specific changes to the FPS budget were recommended in P.L. 113-6 or the accompanying explanatory statement. FPS was directed to brief the appropriations committees, however, on their progress in implementing recommendations made in GAO report GAO-12-852, "DHS Needs to Refocus Its Efforts to Lead the Government Facilities Sector." Due to the structure of the FPS budget, which is derived from fees collected from other federal entities, its overall resource levels were unaffected by sequestration. Congress continues to express concern over certain aspects of the FPS mission and how FPS is funded. Appropriators have expressed an interest in improving training of contract guards, federalizing contract guards, developing standards for checkpoint detection technologies for explosives and other dangerous items at federal facilities, and coordinating DHS efforts with the Interagency Security Committee for building security standards. Several pieces of legislation were introduced in the House and Senate in the 112 th Congress—including H.R. 176 , H.R. 2658 and S. 772 —to improve federal building security and strengthen the ability of FPS to protect the buildings, the federal employees who work in them, and the visiting public. None of this legislation was enacted prior to the end of the 112 th Congress. In the 113 th Congress, H.R. 735 , the Federal Protective Service Improvement and Accountability Act of 2013 has been introduced, which would set staffing levels in the FPS inspector force and create a pilot to expand the use of federal employees in place of contract guards. The Office of Health Affairs (OHA) has operational responsibility for several programs, including the BioWatch program, the National Biosurveillance Integration Center (NBIC), and the department's occupational health and safety programs. OHA also coordinates or consults on DHS programs that have a public health or medical component; these include several of the homeland security grant programs, and medical care provided at ICE detention facilities. OHA received $167 million in FY2012 appropriations. The Administration requested $166 million for OHA for FY2013, $1 million (0.6%) less than was appropriated for FY2012. The requested funding level would support 101 FTEs, 2 more than in FY2012. The proposed allocation is: $125 million for the BioWatch program; $8 million for NBIC; $1 million for the Chemical Defense Program; $5 million for Planning and Coordination (under which numerous leadership and coordination activities are implemented); and $28 million for Salaries and Expenses. (See Table 17 .) The House-passed bill would have provided $132 million for FY2013, $35 million (21.2%) less than for FY2012, and $34 million (20.7%) less than the President's request. The decrease largely reflected a decrease for the BioWatch program (discussed further below): $29 million below the FY2012 amount, and $40 million below the President's request. (See Table 17 .) The Senate-reported bill would have provided $168 million for FY2013, $1 million (0.5%) more than for FY2012 and $2 million (1.1%) more than the President's request. The Senate committee recommended the amounts requested by the Administration for BioWatch. The committee also recommended small increases for Planning and Coordination and Salaries and Expenses; and $2 million for the Chemical Defense Program, to support additional pilot programs. (See Table 17 .) After the across-the-board cuts, P.L. 113-6 provides $132 million for OHA, $35 million (21.0%) less than for FY2012, and $34 million (20.5%) less than the President's request. Because of the size of reduction in the OHA budget from FY2012, OHA did not face a further reduction in FY2013 as a result of sequestration. Reductions in total enacted budget authority for FY2013 largely reflect decreased funding for BioWatch, as recommended by the House. Table 17 presents the enacted funding amounts for OHA components for FY2012, and the following amounts for FY2013: the Administration's request; the House-passed and Senate-reported amounts; and the enacted amounts under P.L. 113-6 , reflecting across-the-board cuts. The "DHS Plan" column provides the department's assessment of post-sequester resources provided by P.L. 113-6 as of April 26, 2013. It does not represent a final funding level as the department is likely to undertake transfers and reprogramming to mitigate the impact of sequestration in some areas. In its report on FY2013 funding recommendations for DHS, the House Appropriations Committee noted the separation of the department's activities to monitor threats posed by weapons of mass destruction (WMD), in particular, the separation of the Domestic Nuclear Detection Office (DNDO), responsible for monitoring radiological and nuclear threats, and OHA, responsible for monitoring chemical and biological threats. The Committee directed the Secretary to submit to Congress a consolidation plan to merge DNDO and OHA into an Office of Weapons of Mass Destruction Defense for FY2014, and directed GAO to review the consolidation plan. Neither the Senate report nor the House explanatory statement carries a parallel directive. However, the Senate explanatory statement reiterates the House Committee's comments about coordination of WMD activities, and calls on the Secretary to submit a comprehensive review of its WMD operations, to include possible performance improvements and cost savings that could accompany an OHA/DNDO merger. This review is to be submitted to Congress in lieu of the report requested by the House, by September 1, 2013. The BioWatch program deploys sensors in more than 30 large U.S. cities to detect the possible aerosol release of a bioterrorism pathogen, in order that medications could be distributed before exposed individuals became ill. Operation of BioWatch accounts for the lion's share of OHA's budget. The program has sought for several years to deploy more sophisticated sensors (so-called "Generation-3" or "Gen-3" sensors) that could detect airborne pathogens in a few hours, rather than the day or more that is currently required. However, according to GAO, "BioWatch Gen-3 has a history of technical and management challenges." In particular, "Gen-3's estimated life cycle cost, some $5.8 billion, makes it one of the largest DHS acquisitions. And the question is, whether it justifies that level of investment." BioWatch performance has attracted the attention of Members of Congress since its inception. Congressional appropriators have at times sought to limit funding for program expansion and/or called for program reviews. The decreased amount provided for FY2013 effectively precludes continued development and deployment of Gen-3 capability for the remainder of the fiscal year. The primary mission of the Federal Emergency Management Agency (FEMA) is to reduce the loss of life and property, and protect the nation from all hazards. It is responsible for leading and supporting the nation's preparedness for manmade and natural disasters through a risk-based and comprehensive emergency management system of preparedness, protection, response, recovery, and mitigation. FEMA executes its mission through a number of activities. It provides incident response, recovery, and mitigation assistance to state and local governments, primarily appropriated through the Disaster Relief Fund (DRF) and the Pre-Disaster Mitigation Fund. It also supports disaster preparedness through a series of homeland security and emergency management grant programs. The Administration requested a total discretionary appropriation of $4,528 million in net budget authority for FEMA for FY2013, an increase of $261 million (6.1%) over the enacted FY2012 level of $4,267 million. In addition, the Administration requested an additional $5,481 million for the DRF, paid for by an adjustment to the discretionary budget cap under a mechanism established by the Budget Control Act. This adjustment, which is $919 million below the additional funding provided for the DRF in FY2012, is discussed more in detail below and earlier in the report. House-passed H.R. 5855 would have provided a total discretionary appropriation of $4,451 million for FEMA for FY2013, a decrease of $76 million (1.7%) from the President's request and an increase of 185 million (4.3%) from FY2012. This would have included $23 million added to FEMA's budget through floor amendments. The House also included the requested funding for the DRF. Senate-reported S. 3216 would have provided a total discretionary appropriation of $4,582 million for FEMA for FY2013, an increase of $55 million (1.2%) from the President's request and an increase of $316 million (7.4%) from FY2012. The Senate Appropriations Committee also included the requested funding for the DRF. After the across-the-board cuts by prior to applying sequestration, P.L. 113-6 provides $4,351 million for FEMA, $84 million (2%) more than for FY2012, and $177 million (4%) less than the President's request. This included $1 million less than requested for the DRF, due to the impacts of the across-the-board cuts. In addition, the bill includes $6,400 (pre-sequestration) for the DRF for the costs of major disaster under the Stafford Act, paid for by the disaster relief cap adjustment under the BCA. According to information provided to Congress through its FY2013 operating plan, after sequestration, FEMA would receive $4,150 million from the provisions in Title III, plus $6,076 million paid for by the disaster relief cap adjustment under the BCA. This is an assessment made before the impact of transfers or reprogrammings that might ameliorate or exacerbate the impacts of the sequester. These numbers do not represent the full range of appropriated resources available to FEMA, as the DRF received a significant infusion of capital from P.L. 113-2 . However, neither DHS nor the Administration has released an authoritative statement on the post-sequester funding levels provided by P.L. 113-2 . State and local governments have primary responsibility for most domestic public safety functions. When facing difficult fiscal conditions, state and local governments may reduce resources allocated to public safety and, consequently, homeland security preparedness, due to increasing pressure to address tight budgetary constraints and fund competing priorities. Since state and local governments fund the largest percentage of public safety expenditures, this may have a significant impact on the national preparedness level. On March 30, 2011, President Obama issued a presidential policy directive that directed the Secretary of DHS to develop and submit to the President a national preparedness goal. Presidential Policy Directive 8 (PPD 8) directed the Secretary to develop a national preparedness goal in coordination with federal, state, local, tribal, and territorial governments: The national preparedness goal shall be informed by the risk of specific threats and vulnerabilities – taking into account regional variations – and include concrete, measurable, and prioritized objectives to mitigate that risk. The national preparedness goal shall define the core capabilities necessary to prepare for the specific types of incidents that pose the greatest risk to the security of the Nation. This presidential policy directive supersedes a previous national preparedness homeland security directive (HSPD-8) issued after 9/11, which initiated the following national preparedness goal: Strengthen the preparedness of the United States to prevent and respond to threatened or actual domestic terrorist attacks, major disasters, and other emergencies by requiring a national domestic all-hazards preparedness goal. On October 7, 2011, The Secretary of DHS released the first National Preparedness Goal (NPG) developed under the provisions of PPD 8. The preparedness goal was a document that identified core capabilities and targets for which measures would be developed using an integrated, layered, and all-of-nation approach. The NPG defined success as: A secure and resilient Nation with the capabilities required across the whole community to prevent, protect against, mitigate, respond to, and recover from the threats and hazards that pose the greatest risk. Prior to 9/11, there were only three federal grant programs available to state and local governments to address homeland security: the State Domestic Preparedness Program administered by the Department of Justice, the Emergency Management Performance Grant (EMPG) administered by the Federal Emergency Management Agency (FEMA), and the Metropolitan Medical Response System (MMRS) administered by the Department of Health and Human Services. Since that time, several additional homeland security grant programs were added to ensure state and local preparedness, including the State Homeland Security Grant Program (SHSGP), Citizen Corps Program (CCP), Urban Area Security Initiative (UASI), Driver's License Security Grants Program (REAL ID), Operation Stonegarden grant program (Stonegarden), Regional Catastrophic Preparedness Grant Program (RCPG), Public Transportation Security Assistance and Rail Security Assistance grant program (Transit Grants), Port Security Grants (Port Security), Over-the-Road Bus Security Assistance (Over-the-Road), Buffer Zone Protection Program (BZPP), Interoperable Emergency Communications Grant Program (IECGP), and Emergency Operations Center Grant Program (EOC). While state and local governments receive federal assistance for preparedness activities, this federal assistance accounts for only a small percentage of overall state and local spending for public safety. On average, total expenditures for all state and local governments for public safety is $218 billion annually. Public safety expenditures include costs associated with the functions of police protection, fire protection, correction, and protective inspections and regulations. Federal grant programs for state and local preparedness account for less than one percent of state and local government public safety expenditures. The President requested $1.8 billion in federal grants for state and local government homeland security preparedness for FY2013, $400 million more than was appropriated for FY2012. The requested funding level would include funding to support the establishment of a National Preparedness Grant Program (NPGP), which was proposed as a means to consolidate the activities previously funded under a number of state and local preparedness grant programs. In its report on FY2013 funding recommendations for DHS, the House Appropriations Committee denied a request by the Administration to consolidate several state and local preparedness grant program activities under a National Preparedness Grant Program because it had not been authorized by Congress, lacked sufficient details regarding the implementation of the program, and lacked sufficient stakeholder participation in the development of the proposal. The Senate Appropriations Committee also expressed concern with the proposal to consolidate the state and local preparedness grants because it was unclear how risk assessments would be used and how funding would be allocated. The Senate Committee also noted its concern over the uncertainty surrounding the allocation of funding to individual grant programs. The House recommended $1.7 billion for State and Local Programs, approximately $300 million more than for FY2012, and $100 million less than the President's request. As mentioned above, the House Appropriations Committee rejected the consolidation proposal, recommending that the grant structure enacted in FY2012 for state and local programs be continued in FY2013. Grant funding would have been distributed at the discretion of the Secretary of Homeland Security under the authorities provided by the State Homeland Security Grant Program, Urban Area Security Initiative, Metropolitan Medical Response System, Citizen Corps Program, Public Transportation Security Assistance and Railroad Security Assistance, Over-the-Road Bus Security Assistance, Port Security Grants, Driver's License Security Grants Program, Interoperable Emergency Communications Grant Program, Emergency Operations Centers, Buffer Zone Protection Program, and high-risk non-profit organizations described under Section 501(c)(3) of the Internal Revenue Code. Of the $1.7 billion, the House provided $55 million to Operation Stonegarden, $150 million for the highest risk areas, and $232 million for education, training, and exercises. The Senate Appropriations Committee recommended $1.6 billion for FY2013, $200 million more than appropriated in FY2012, and $200 million less than the President's request. Of the $1.6 billion, the committee recommended $470 million for the State Homeland Security Grant Program, of which $55 million was recommended for Operation Stonegarden; $676 million for Urban Area Security Initiative, of which $13 million was recommended for non-profit security grants; $132 million for Public Transportation Security/Bus Assistance, of which $13 million was recommended for Amtrak; $132 million for Port Security Grants; and $234 million for education, training, and exercises. After the across-the-board cuts but prior to applying sequestration, P.L. 113-6 provides $1,467 million for state and local programs, a decrease of 20.3% from the requested level and 8.6% above FY2012. Sequestration further reduced budget authority for FEMA's state and local grants program by roughly an additional $77 million, according to the DHS FY2013 expenditure plan. The plan projected $1,400 million for state and local programs, roughly $50 million more than the FY2012 enacted levels. However, it is important to note that P.L. 113-6 removes a transfer from the grant programs that had paid FEMA's administrative costs, which means the actual funding available for grants as accounted for in the operating plan is $132 million higher in total than in FY2012. Table 18 outlines the funding levels for FEMA state and local programs. The "DHS Plan" column provides the department's assessment of post-sequester resources provided by P.L. 113-6 as of April 26, 2013. It does not represent a final funding level as the department is likely to undertake transfers and reprogramming to mitigate the impact of sequestration in some areas. The Administration's FY2013 budget proposed $670 million for firefighter assistance, including $335 million for AFG and $335 million for SAFER. Under the Administration proposal, firefighter assistance grants would be categorized under First Responder Assistance Programs (FRAP), one of three activities under FEMA's State and Local Programs (SLP) appropriation. Historically, DHS has requested that a percentage of AFG funding (up to 5%) be set aside for management and administration of the grant program. Starting in FY2013, according to the Administration proposal, grant administration would be shifted to the SLP Management and Administration office. Regarding SAFER grants, the Administration requested that legislative language be provided to allow these grants to be used to maintain firefighter staffing level, not just increase them. This language has been carried in appropriations legislation since FY2009. The House-passed bill would have funded firefighter assistance at $675 million ($337.5 million AFG, $337.5 million SAFER), identical to the FY2012 level. The House-passed bill also would have denied the Administration's request to shift AFG and SAFER into the State and Local Programs account. Unlike the Administration request, the House-passed bill would have designated up to 4.7% of the amount appropriated to firefighter assistance for program administration. The Senate-reported bill would have proposed $675 million for firefighter assistance, including $337.5 million for AFG and $337.5 million for SAFER. Like the House-passed bill, the Senate Committee would have denied the Administration's request to shift AFG and SAFER into the State and Local Programs account. The Senate-reported bill also would have included the requested SAFER waiver authority language, and the Committee stated its expectation that DHS would take into consideration economic hardship when exercising the waiver authority. Post-sequestration, P.L. 113-6 funds firefighter assistance at $642 million (AFG and SAFER at $321 million each). P.L. 113-6 provides that administrative costs are to be derived from the FEMA Salaries and Expense account, rather than (as is typically the case) from a 5% carve-out from the firefighter assistance appropriations account. P.L. 113-6 also continues to grant DHS the requested SAFER waiver authority for FY2013. The DRF is the main account used to fund a wide variety of programs, grants, and other forms of emergency and disaster assistance to states, local governments, certain nonprofit entities, and families and individuals affected by disasters. The DRF is funded yearly through regular appropriations; however, the account often is depleted before the end of the fiscal year due to accumulated need for disaster assistance. This is due in part to ongoing recovery efforts from major events such as the Gulf Coast hurricanes of 2005. However, in recent years it has been argued that the reliance on supplemental funding has primarily been due to underfunding the DRF. For example, between 2005 and 2011, the average regular appropriation for the DRF was $1,749 million. Yet, the average monthly expenditures for the DRF were $383 million (which would extrapolate to $4,596 million annually). The Administration requested $6,088 million for the DRF through the regular appropriations process for FY2013. This was a decrease of $1,011 million (14.2%) from the $7,100 million enacted for FY2012—however, that total included a $6,400 million supplemental. The request can be broken out into two categories. First, $608 million was requested for activities not directly tied to major disasters under the Stafford Act (including activities such as assistance provided to states for emergencies and fires). This is sometimes referred to as the DRF's "base" funding. The second (and significantly larger) category is for disaster relief costs for major disasters under the Stafford Act, for which the administration requested $5,481 million. This structure reflects the impact of the Budget Control Act, which allows these costs incurred by major disasters to be paid through an "allowable adjustment" to the discretionary spending caps, rather than having them count against the discretionary spending allocation for the bill. The FY2013 request was more than three times the size of the request from FY2012. The Administration requested funding for the DRF based on what FEMA planned to spend on all past declared catastrophic events, plus the 10-year average for non-catastrophic events, and a $500 million reserve to prevent shortfalls. This was adjusted downward by $1,200 million to account for projected recovery of funds not needed for past disasters. Both the House-passed bill and the Senate-reported bills carried the same level of funding for the DRF as the Administration requested for FY2013. Both pieces of legislation also contained an unrequested transfer of $24 million out of the DRF to the DHS Office of Inspector General to conduct audits and investigations on disaster-related spending. After the across-the-board cuts, but prior to applying sequestration, P.L. 113-6 funds the DRF at $7,007 million. $24 million of this amount is to be transferred to the DHS Office of Inspector General to carry out audits on public assistance projects that exceed $10 million as well as an examination of FEMA's debris removal decisions with regard to Hurricane Gustav in 2008. Notwithstanding the transfer to the Inspector General, P.L. 113-6 provides roughly $918 million more (15%) than the Administration's initial request of $6,088 for the DRF. The operating plan for DHS for FY2013 indicates sequestration reduced the $7,007 million by 5% (to $6,653 million). The Budget Control Act (BCA) included a series of provisions that directed the Office of Management and Budget (OMB) to annually calculate an "allowable adjustment" for disaster relief to the BCA's discretionary spending caps. That adjustment, if used, would make additional budget authority available for the federal costs incurred by major disasters declared under the Stafford Act beyond what is allowed in the regular discretionary budget allocation. Without an adjustment to the discretionary budget caps, federal spending over the allocation could trigger a sequestration. It is important to note that "disaster relief" funding under the BCA and the Disaster Relief Fund are not the same. The BCA defines funding for "disaster relief" as funding for activities carried out pursuant to a major disaster declaration under the Stafford Act. This funding comes not only from FEMA, but from accounts across the federal government. While a portion of funding for the DRF is eligible for the allowable adjustment under the BCA, the DRF is not wholly "disaster relief" by the BCA definition. When Hurricane Sandy struck the northeastern United States in October 2012, the DRF had access to roughly $7.3 billion, as a result of P.L. 112-175 , the six-month continuing resolution that the government was operating under at the time—which carried over the $6,400 in supplemental disaster assistance provided to the DRF in FY2012, and used a portion of the $11,779 million allowable adjustment for disaster relief for FY2013. The anticipated demand on the DRF was high enough, however, that Congress approved $11,485 million in additional pre-sequester resources for the fund through P.L. 113-2 , the Disaster Relief Appropriations Act, 2013. If all of these resources were designated as being for a major disaster under the Stafford Act, in an effort to exercise the allowable adjustment for disaster relief for FY 2013, the total would have exceeded the remaining available allowable adjustment—before even accounting for the tens of billions in other additional disaster assistance requested by the Administration. The Administration sought, and Congress provided, emergency funding designations to cover most of the relief that exceeded the allowable adjustment. As a result, FY2013 represented the first time the DRF received all of the funding available under the BCA's allowable adjustment for disaster relief. The Administration's proposal for the PDM program suggested its eventual elimination. No additional funds were requested and it was suggested that the program duplicated the work of the Hazard Mitigation Grant Program (HMGP) which is Section 404 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act and other mitigation programs funded by the National Flood Insurance Program. While the HMGP program and the PDM program fund similar projects, PDM is distinguished from HMGP by uniquely making such awards prior to disaster events. In addition, while programs under NFIP address similar projects, they only apply to flood hazards. PDM and HMGP on the other hand, apply to all types of hazards. The Administration noted that there was more than $174 million in unobligated balances that would permit the PDM program to continue awarding grants for several years as it was phased out. Neither the House-passed bill nor the Senate-reported bill included legislative language ending the program. However, the small amounts proposed to be appropriated, $14.3 million by the House-passed bill and $35 million by the Senate-reported bill, appeared to signal a concern with the slow pace of awards made by the program and the recognition of the large unobligated balance. In addition to the reduced awards from the $36 million level of FY2012, each chamber would have also rescinded some funding from the unobligated balance, specifically congressionally directed funding that local communities have not used. According to the DHS operating plan for FY2013, the post-sequester amount for PDM is just under $25 million. Funding at this level presents challenges to the administration of the program. For example, state minimum awards become difficult to fund. Also the reduced award amounts make a full, new round of applications (and assembling peer review panels to judge those applications) and awards impractical. Given these circumstances, FEMA may work from existing, unfunded applications to continue the program funding cycle. For several years the Administration has proposed reduced funding for the EFS program. FY2013 continued that practice by again requesting $100 million for the program, a reduction of $20 million from the appropriated level of funding in FY2012. The program has historically received increased funding during times of high unemployment. In FY2012, Congress funded the program at $120 million, $20 million over the requested level. For FY2013, the House has placed the funding level again at $120 million while the Senate has suggested raising the amount to $150 million. According to the DHS operating plan for FY2013, the post-sequester funding level for FY2013 for the EFS program is just under $114 million. This represents the lowest funding total for the program since FY2000. In addition to reduced funding, there are also some concerns over the program's delayed distribution of funds during FY2012. FEMA and the National Board took nine months to begin distributing the EFS assistance, nearly double the amount of time directed in its authorizing legislation, the McKinney-Vento Homeless Assistance Act. Title IV of the DHS appropriations bill contains the appropriations for 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. The Administration requested $1,561 million for these accounts in FY2013, a decrease of $229 million below the enacted level. The House-passed bill provides $1,510 million, a decrease of 3.3% from the requested level and 13.4% above FY2012. The Senate-reported bill provides $1,535 million, 1.7% below the request and 15.2% above FY2012. After the across-the-board cuts but prior to applying sequestration, P.L. 113-6 provides $1,520 million, a decrease of 0.5% from the requested level and 2.2% above FY2012. Table 19 lists the enacted amounts for the individual components of Title IV for FY2012, the Administration's request for these components for FY2013, the House-passed and Senate-reported appropriations for the same, the enacted level in P.L. 113-6 , and the post-sequester level of available resources from P.L. 113-6 reported by DHS. Three major activities dominate the work of the U.S. Citizenship and Immigration Services (USCIS): (1) adjudication of all immigration petitions, including nonimmigrant change of status petitions, family-based petitions, employment-based petitions, work authorizations, and travel documents; (2) adjudication of naturalization petitions for legal permanent residents to become citizens; and (3) consideration of refugee and asylum claims, and related humanitarian and international concerns. The above graphic only indicates the amount of direct appropriations for USCIS. This does not include fee income, which, while referenced in the comparative statement of budget authority found in the back of the report, is not appropriated by this bill. USCIS funds the processing and adjudication of immigrant, nonimmigrant, refugee, asylum, and citizenship benefits largely through revenues generated by the Examinations Fee Account. As part of the former Immigration and Naturalization Service (INS), USCIS was directed to transform its revenue structure with the creation of the Examinations Fee Account. In the last decade, the agency has received annual direct appropriations that have been directed largely towards specific projects such as reducing petition processing backlogs and the E-verify program. The agency receives most of its revenue from adjudication fees of immigration benefit applications and petitions. Table 20 , below, shows the requested USCIS gross budget authority for FY2013 at $3,005 million. This figure includes $143 million from direct appropriations and $2,862 million from fee collections. The requested direct appropriation of $143 million includes $112 million for the E-Verify program and $11 million for the Immigrant Integration Initiative. It also includes $20 million for the Systematic Alien Verification Entitlements (SAVE) Program to assist state, local, and federal agencies to determine individuals' eligibility for public benefits based on their immigration status. The remaining $2,862 million in gross budget authority in the request was expected to be funded by fee collections. Of this FY2013 amount, $2,391 million would fund USCIS adjudication services, $89 million would fund information and customer services, and $382 million would fund administration expenses. The House-passed H.R. 5855 would have proposed USCIS gross budget authority for FY2013 at $3,004 million, comprised of $112 million from direct appropriations and $2,892 million from fee collections. The proposed appropriations would have been $31 million less than the requested amount but $9.5 million above the amount provided in FY2012. The recommended level would not have included funds for the authorization's requested pay increase. The House Appropriations Committee continued to direct USCIS to use fee revenues for all its costs with the exception of E-Verify for which it recommended funding as requested. The Committee stressed the importance of monitoring USCIS' fee revenues and obligations against its fee collections. The Committee recommended that USCIS allocate $20 million of its user fee revenues for the Systematic Alien Verification for Entitlements (SAVE) program. The Committee also directed USCIS to allocate at least $29 million of fee revenues toward the digital conversion of immigration records. The Committee would not have provided funding for military naturalizations which it contended should be funded by the Department of Defense (DoD). It would have directed USCIS to codify this agreement in a memorandum of understanding with DoD. The House Committee expressed concerns about the findings of a 2012 OIG report on USCIS adjudication procedures and fraud detection. The Committee directed USCIS to provide a progress report on its corrective action plan and OIG to brief on its assessment of USCIS actions. The Senate-reported S. 3216 would have proposed USCIS gross budget authority for FY2013 at $2,999 million, comprised of $117 million from direct appropriations and $2,882 million from fee collections. The proposed appropriations would have been $26 million less than the requested amount but $14.5 million above the amount provided in FY2012. The Committee recommended no direct appropriations for the SAVE program, and instead directed USCIS to allocate $20 million of its user fee revenues for the program. The Senate Appropriations Committee recommended $112 million for the E-Verify program, as requested. The Senate Appropriations Committee recommended $5 million for Immigrant Integration grants in direct appropriations and directed that an additional $5 million be made available for these grants via fees. However, the Committee directed that no appropriations be used to operate the Office of Citizenship Services and that its operations continue to be fee-funded. Additionally, the Committee continued to express concern that costs to administer the Immigrant Integration grant program might have exceeded 11% of the grant award total, and therefore directed that no more than 5% of the grant funding level from either appropriated dollars or fees be used to administer the program in FY2013. After the across-the-board cuts directed by P.L. 113-6 but prior to applying sequestration, the Consolidated and Further Continuing Appropriations Act of 2013 ( P.L. 113-6 ) provides $114 million, a decrease of $29 million or 20.3% from the requested level of $143 million but $12 million or 11.8% above the FY2012 enacted level of $102 million. The DHS FY2013 operating plan indicates sequestration would reduce this to $109 million prior to any transfers and reprogrammings that might mitigate the impact of sequestration in some areas and exacerbate it in others. Table 20 lists the enacted amounts for USCIS for FY2012, the Administration's request for USCIS for FY2013, the House-passed and Senate-reported appropriations for the same, the pre-sequester level of funding provided through P.L. 113-6 that includes across-the-board cuts enacted as part of that legislation, and the post-sequester level reported by DHS. For the FY2013 budget cycle, potential issues for Congress included ongoing concerns about fee-generated funding of the agency, immigrant integration grants, the USCIS Transformation program to convert the immigration benefit application and petition process from a paper-based to a computerized online-based system, E-Verify operability, paper record digitization, and the administration of refugee and humanitarian processing. Because USCIS supports itself primarily through fee revenue, it must accurately monitor its fee revenues and obligations against its fee collections to avoid building backlogs or over-budgeting projects. The House Committee directed USCIS to include the costs of operations, such as asylum and refugee processing, as it assesses the need for future fee adjustments, and to continue to brief the Committee quarterly on fee revenues and obligations. How immigrant integration grants should be funded continues to be an issue for Congress. While the Administration requested $11 million in appropriations in its FY2013 budget request, the House and Senate Committees both stated that program funding come from the fee revenue. Accordingly, Section 546 of P.L. 113-6 requires that USCIS allocate $7.5 million of Immigration Examinations Fee Account funds in FY2013 for its immigrant integration grants program. However, the bill also allocates $2.5 million in appropriations for such grants. As in the past, the act requires that none of the funds made available to USCIS for such grants be used to provide services to aliens who have not been lawfully admitted for permanent residence. The House Committee continued to express disappointment with the lack of progress on the USCIS Transformation program that will convert the application and petition process for immigration benefits from a paper-based system to a computerized online-based system. The Committee questioned whether continued investment in the current contract was justified given that the obligated $597 million from FY2006 to January 2012 had delivered little capability to USCIS customers. The Committee directed USCIS to provide regular updates on its efforts to deliver the first application form release and, if not successfully deployed, its decision regarding contract termination and other remediation. Congress continues to be concerned about operability of the E-Verify program. The House bill extended the authorization of E-Verify for one year, as proposed by the President's budget request. To ensure no work-authorized individual is falsely identified as ineligible to work, the House Committee directed USCIS to create a review process for E-Verify final non-confirmations. The Senate Committee directed USCIS to report on the cost of expanding E-Verify generally and to brief it on recommendations regarding how the E-Verify system can be most effectively used in the agricultural industry. Implementation challenges commonly encountered in agriculture include non-office-based hiring, limited access to high-speed Internet, prevalence of seasonal employment, and high turnover. The House Committee continued its support for efforts to increase efficiency, reduce expenses, ensure immediate access to information, and reduce the need to retain millions of paper files. The Committee deplored occurrences of the loss of personal documentation through shipping errors or waiting times for paper processing to move cases forward. In this regard, the Committee directed USCIS to continue its efforts to convert immigration records to digital format through the Enterprise Document Management System (EDMS). Similarly, it directed USCIS and CBP to brief Congress on progress toward eliminating the paper version of USCIS Form I–94, a process the agency has begun. The House Committee expressed concerns about detrimental impacts of inadequately coordinating security and non-security clearance procedures on processing vulnerable individuals in need of resettlement to the United States. The Committee urged DHS to work with other relevant Federal agencies to conduct a review of refugee processing, including security clearances, in order to streamline processing while maintaining security vetting, and to brief the Committee on the results of its review. The Senate Committee encouraged DHS to use its parole authority under Section 212(d)(5) of the Immigration and Nationality Act to address urgent humanitarian needs, particularly in the interest of family unity and to address medical emergencies, following exceptionally calamitous natural disasters such as the Haitian earthquake on January 2010. The Committee urged the Secretary to allocate sufficient resources for similar appropriate responsiveness to rare and exceptionally deadly and destructive natural disasters in the future. The Federal Law Enforcement Training Center (FLETC) provides basic and advanced law enforcement instruction to 91 federal entities with law enforcement responsibilities. FLETC also provides specialized training to state and local law enforcement entities, campus police forces, law enforcement organizations of Native American tribes and international law enforcement agencies. By training officers in a multi-agency environment, FLETC intends to promote consistency and collaboration across its partner organizations. FLETC administers four training sites throughout the United States, but also uses online training and provides training at other locations when its specialized facilities are not needed. The Center employs approximately 1,100 personnel. The Administration proposed a budget of $258 million for FLETC, a reduction of $13 million (4.8%) from FY2012's appropriation of $271 million. The FLETC budget in recent years has been made up of two appropriations—Salaries and Expenses (proposed at $229 million, down $10 million from FY2012), and Acquisition, Construction, Improvements, and Related Expenses (proposed at $29 million, down $3 million from FY2012). Most of the reduction in the Salaries and Expenses appropriation was from efficiencies, along with a $4 million reduction in the budget for basic training. The proposed reduction in Acquisition, Construction, Improvements, and Related Expenses was the result of deferring construction work. House-passed H.R. 5855 included $256 million for FLETC, $16 million (5.7%) below last year's level and $2 million (1.0%) below the request. The House-passed bill would have cut less than $1 million (0.2%) from Salaries and Expenses and would have reduced the Acquisition, Construction, Improvements, and Related Expenses appropriation by $2 million (6.8%). The House Appropriations Committee report accompanying the bill cited the Administration's reliance on as-yet-unauthorized fee increases to fund parts of its budget as the reasoning behind the reductions to the acquisition budget. Senate-reported S. 3216 would have included $258 million for FLETC, the same level and distribution of funding as requested by the President. After the across-the-board cuts directed by P.L. 113-6 but prior to applying sequestration, the Consolidated and Further Continuing Appropriations Act of 2013 ( P.L. 113-6 ) provides $257 million for FLETC, a decrease of $1 million from the requested level but $14 million (5.2%) below the FY2012 enacted level of $271 million. The DHS FY2013 operating plan indicates sequestration would reduce this to $245 million prior to any transfers and reprogrammings that might mitigate the impact of sequestration in some areas and exacerbate it in others. The Directorate of Science and Technology (S&T) is the primary DHS organization for research and development (R&D). Headed by the Under Secretary for Science and Technology, it performs R&D in several laboratories of its own and funds R&D performed by the DOE national laboratories, industry, universities, and others. It also conducts testing and other technology-related activities in support of acquisitions by other DHS components. See Table 21 for a breakdown of S&T Directorate funding for FY2012 and FY2013. The Administration requested $831 million for the S&T Directorate for FY2013. This was 25% more than the FY2012 appropriation of $668 million. The request for Research, Development, and Innovation (RDI) was an increase of $212 million (79.9%) above the FY2012 level. Of the six thrust areas within RDI, the largest requested increase (from $61 million in FY2012 to $144 million in FY2013) was for disaster resilience R&D. A reduction of $50 million in the request for Laboratory Facilities was due in part to the lack of a request for construction funding for the National Bio and Agro-Defense Facility (NBAF), a planned replacement for the Plum Island Animal Disease Center. The $50 million appropriated in FY2012 for the start of NBAF construction was one-third of what the Administration had requested. At the time of the FY2013 request, DHS had announced plans for an assessment of whether and for what purpose a facility like NBAF should be built. The assessment was to consider current threats and was to review cost, safety, and alternatives to the NBAF plan. The House-passed bill would have provided $826 million for the S&T Directorate, or $6 million less than the request. Within this total, it included $72 million less than the request for RDI. The House Appropriations Committee directed DHS to determine how to allocate that reduction across the six thrust areas. In Laboratory Facilities, the bill would have provided $75 million more than the request. The committee directed that this increase should be spent on NBAF construction. The Senate Appropriations Committee recommended S&T funding levels that were the same as the Administration's request. Within RDI, however, it specified separate amounts for each of the six thrust areas, rather than a single total. In recommending no funding for NBAF construction, the committee noted a total cost estimate for the facility of $1.138 billion. After the across-the-board rescissions, but before applying sequestration, P.L. 113-6 provides $834 million for the S&T Directorate. The act includes $28 million less than the request for RDI. The explanatory statement directs DHS to submit a breakout of how it allocates RDI funding by thrust area. For Laboratory Facilities, the act provides $37 million more than the request, to be spent on NBAF construction. The post-sequester total for the S&T Directorate, as reported by DHS, is $801 million. Table 21 outlines the funding levels for existing S&T program functions. The "DHS Plan" column provides the department's assessment of post-sequester resources provided by P.L. 113-6 as of April 26, 2013. It does not represent a final funding level as the department is likely to undertake transfers and reprogramming to mitigate the impact of sequestration in some areas. The Domestic Nuclear Detection Office (DNDO) is the primary DHS organization for combating the threat of nuclear attack. It is responsible for all DHS nuclear detection research, development, testing, evaluation, acquisition, and operational support. See Table 22 for a breakdown of DNDO funding for FY2012 through FY2013. The Administration requested $328 million for DNDO for FY2013, an increase of 13% above the FY2012 appropriation of $290 million. The request included an increase of $44 million (109.7%) for Transformational R&D. The Administration no longer proposed transferring this program to S&T as it had in FY2011 and FY2012. The increase for Transformational R&D was partially offset by a reduction of $23 million (44.3%) for Systems Development. In the Systems Acquisition account, the request for human-portable radiation detectors was an increase of $20 million (251.3%), while the request for radiation portal monitors was a decrease to $1 million (80.6%) from $7 million in FY2012. The House-passed bill would have provided $316 million for DNDO, or $12 million (3.6%) less than the request. Most of the reduction would have been in the Transformational R&D program. The House-passed bill directed DHS to provide an updated implementation plan for its responsibilities under the domestic portion of the global nuclear detection architecture. The House Appropriations Committee stated in its report accompanying the bill that it intended this plan to be an annual requirement. The committee report also advocated consolidation of DNDO with the DHS Office of Health Affairs (OHA). It stated that consolidation could result in cost savings and "could provide greater awareness and coordination ... by creating a more visible focal point for ... coordination and strategic planning" of efforts against weapons of mass destruction (WMDs). The committee directed DHS to develop and submit a plan to merge DNDO and OHA into an Office of Weapons of Mass Destruction Defense for FY2014. The Senate Appropriations Committee recommended DNDO funding levels that were the same as the Administration's request. Like the House-passed bill, the Senate-reported bill directed DHS to provide an updated implementation plan for its responsibilities under the domestic portion of the global nuclear detection architecture. The accompanying report from the Senate Appropriations Committee lacked the House language about this plan being an annual requirement. The Senate committee report did not address the potential consolidation of DNDO and OHA. After the across-the-board rescissions, but before applying sequestration, P.L. 113-6 provides $318 million for DNDO. The act includes $9 million less than the request for Transformational R&D. Like the House-passed and Senate-reported bills, the act directs DHS to provide an updated implementation plan for its responsibilities under the domestic portion of the global nuclear detection architecture. The explanatory statement does not address whether this should be an annual requirement. Regarding consolidation, the explanatory statement directs DHS to review its WMD programs and evaluate the potential advantages of consolidation, including the option of merging DNDO and OHA, but this review is in lieu of the House mandate for a DNDO-OHA consolidation plan in FY2014. The post-sequester total appropriation for DNDO, as reported by DHS, is $303 million. Table 22 outlines the funding levels for existing DNDO program functions. The "DHS Plan" column provides the department's assessment of post-sequester resources provided by P.L. 113-6 as of April 26, 2013. It does not represent a final funding level as the department is likely to undertake transfers and reprogramming to mitigate the impact of sequestration in some areas. Title V of the DHS appropriations bill contains the general provisions for the bill. General provisions typically include rescissions of funding from previous years that partially offset the score of the bill. Occasionally appropriations for special initiatives are found here as well. This section of the report limits its discussion to new general provisions not mentioned elsewhere in the report and those with a direct impact on the budgetary scoring of the bill. The Administration generally requests rescissions in the accounts where they are made, rather than in this title, and requested no direct funding through general provisions for FY2013. The Administration proposed not carrying forward 35 of the general provisions from the FY2012 DHS Appropriations bill (Division D of P.L. 112-74 ). Three of these were rescissions, which are one-time provisions. Eleven other provisions were viewed as one-time provisions, including two appropriations and one provision on fees. Five of the provisions the Administration suggested not carrying forward were permanent changes in the U.S. Code—therefore not requiring repetition—and one the Administration said was obsolete. The other fifteen were deemed by the Administration to be "restrictive" in one form or another and therefore a hindrance to the ability of the Department to manage its affairs or conduct its mission. The Administration also proposed adding five new general provisions: To add a new provision extending the termination deadline for E-Verify, which is still technically a pilot program, until the end of FY2013. To add a new provision allowing FEMA to use earmarked Predisaster Hazard Mitigation grant funds that have not or will not be applied for by their intended recipient. To add a new provision to establish an outreach program connected to FEMA's dam safety efforts. To add a new provision intended to make certain fees collected under the United States Colombia Trade Promotion Agreement available for pay for customs inspectors and equipment. To add a new provision that would allow CBP to enter into reimbursable fee agreements to provide services. House-passed H.R. 5855 includes $292 million in rescissions in Title V, all of which reduce the net scoring of the bill. Those are the only provisions in this title that impact the score of the bill. The House concurred with the Administration's request to drop 22 general provisions, although it did not concur with the Administration's position that 13 other provisions did not merit repetition or were no longer necessary. The House Appropriations Committee added one of the five general provisions requested by the Administration, extending the termination deadline for E-Verify. The House added 13 general provisions to the bill during floor action. These amendments prohibited the use of funds made available by the legislation to do the following: Contravene several key constitutional and legal protections against racial, ethnic or religious profiling; Finalize or enforce a proposed ICE rule that would allow undocumented aliens with children eligible for U.S. citizenship to stay in the country while seeking a waiver of a re-entry ban based on their illegal presence in the United States; Pay for the position of Public Advocate within ICE; Enforce a section of the Energy Independence and Security Act of 2007 ( P.L. 110-140 ) that prohibits the government from contracting for alternative transportation fuels (other than for research) that do not produce less greenhouse gases over their lifecycle than the equivalent conventional petroleum fuel; Implement, administer or enforce Section 1301(a) of title 31, United States Code (31 U.S.C. 1301(a)) with respect to the use of CBP funds, thereby allowing CBP to use its Salaries and Expenses appropriation to pay for CBP operations in Puerto Rico in the event of a shortfall in the Puerto Rico Trust Fund; Restrict a government official from sending or receiving information regarding an individual's immigration status to or from the Immigration and Naturalization Service, in violation of current law; Lease or buy new light duty vehicles except in accordance with the May 24, 2011, Presidential Memorandum on alternative-fuel vehicles; Contravene Title 8, Chapter 12 of the U.S. Code, and all laws, conventions, and treaties of the United States relating to the immigration, exclusion, deportation, expulsion, or removal of aliens; Buy, operate, or maintain armed unmanned aerial vehicles; Contravene Section 236(c) of the Immigration and Nationality Act (8 U.S.C. 1226(c)), which outlines the authority of the Attorney General to detain and release criminal aliens; Enforce an executive order requiring federal agencies to implement a system that allows people with limited English-language proficiency to meaningfully access their services without unduly burdening the fundamental mission of the agencies; Finalize, implement, administer, or enforce three policy memos issued by the director of ICE that establish priorities for civil immigration enforcement activities; and Terminate an existing agreement allowing local officials to act as immigration officers under Section 287(g) of the Immigration and Nationality Act (8 U.S.C. 1357(g)). Senate-reported S. 3216 includes $192 million in rescissions in Title V, as well as several other provisions that impact the scoring of the bill, including appropriations and changes in fee programs. Taken together, these Senate bill provisions offset its cost by $68 million. The Senate concurred with the Administration's request to drop 15 general provisions, although it did not agree that 17 other provisions did not merit repetition or were no longer necessary. In addition, three provisions providing funding to DHS initiatives were essentially modified to apply to FY2013, rather than being dropped as proposed by the Administration: Reimbursement of security costs to state and local governments for National Special Security Events ($8 million); migration and consolidation of DHS data centers ($65 million); and DHS headquarters consolidation ($89 million) were all funded in the general provisions of the Senate-reported bill. Like the House, the Senate Appropriations Committee added one of the five general provisions requested by the Administration, although they chose to add the provision allowing CBP to enter into reimbursable fee agreements for providing CBP services. P.L. 113-6 includes $307 million in rescissions in Title V, as well as several other provisions that impact the scoring of the bill, including appropriations. In total, these general provisions offset the cost of the act by $202 million, according to CBO. The enacted bill dropped ten general provisions the Administration sought to remove (not including rescissions), and included a modified form of one of the general provisions sought by the Administration. In addition, as was the case in the Senate bill, several provisions providing funding to DHS initiatives were included Immigrant integration grants ($10 million, of which $7.5 million is offset by fees); reimbursement of security costs to state and local governments for National Special Security Events ($5 million); migration and consolidation of DHS data centers ($55 million); and DHS headquarters consolidation ($29 million) were all funded in the general provisions of the Senate-reported bill. Appendix A. Appropriations Terms and Concepts Budget Authority, Obligations, and Outlays Federal government spending involves a multi-step process that begins with the enactment of budget authority by Congress. Federal agencies then obligate funds from the 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 that was enacted by Congress. Budget authority may also be indefinite, as when Congress enacts language providing "such sums as may be necessary" to complete a project or purpose. Budget authority may be available on a one-year, multi-year, or no-year basis. One-year budget authority is only available for obligation during a specific fiscal year; any unobligated funds at the end of that year are no longer available for spending. Multi-year budget authority specifies a range of time during which funds can be obligated for spending; 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 multi-year and no-year budget authorities may be obligated over a number of years, outlays do not always match the budget authority enacted in a given year. Additionally, budget authority may be obligated in one fiscal year but spent in a future fiscal year, especially with certain contracts. In sum, budget authority allows federal agencies to incur obligations and authorizes payments, or outlays, to be made from the Treasury. Discretionary agencies and programs, and appropriated entitlement programs, are funded each year in appropriations acts. Discretionary and Mandatory Spending Gross budget authority, or the total funds available for spending by a federal agency, may be composed of discretionary and mandatory spending. Discretionary spending is not mandated by existing law and is thus appropriated yearly by Congress through appropriations acts. The Budget Enforcement Act of 1990 defines discretionary appropriations as budget authority provided in annual appropriation 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 appropriation acts and is typically not appropriated each year. However, some mandatory entitlement programs must be appropriated each year and are included in the appropriations acts. Within DHS, the 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 offsets to outlays or collection of a fee. These funds are not counted as revenue. Instead, they are counted as negative outlays. DHS net discretionary budget authority, or the total funds that are appropriated by Congress each year, is composed of discretionary spending minus any fee or fund collections that offset discretionary spending. Some collections offset a portion of an agency's discretionary budget authority. Other collections offset an agency's mandatory spending. These mandatory spending elements are typically entitlement programs under which individuals, businesses, or units of government that meet the requirements or qualifications established by law are entitled to receive certain payments if they establish eligibility. The DHS budget features two mandatory entitlement programs: the Secret Service and the Coast Guard retired pay accounts (pensions). Some entitlements are funded by permanent appropriations, others by annual appropriations. The Secret Service retirement pay is a permanent appropriation and as such is not annually appropriated, whereas the 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. Appendix B. DHS Appropriations in Context Federal Government-Wide Homeland Security Funding Since the terrorist attacks of September 11, 2001, there has been an increasing interest in the levels of funding available for homeland security efforts. The Office of Management and Budget, as originally directed by the FY1998 National Defense Authorization Act, has published an annual report to Congress on combating terrorism. Beginning with the June 24, 2002, edition of this report, homeland security was included as a part of the analysis. In subsequent years, this homeland security funding analysis has become more refined, as distinctions (and account lines) between homeland and non-homeland security activities have become more precise. This means that while Table B -1 is presented in such a way as to allow year-to-year comparisons, they may in fact not be strictly comparable due to the increasing specificity of the analysis, as outlined above. With regard to DHS funding, it is important to note that DHS funding does not comprise all federal spending on homeland security efforts. In fact, while the largest component of federal spending on homeland security is contained within DHS, the DHS homeland security budget for FY2012 accounted for nearly 52% of total federal funding for homeland security. The Department of Defense comprised the next highest proportion at nearly 26% of all federal spending on homeland security. The Department of Health and Human Services at 6%, the Department of Justice at nearly 6%, and the Department of State at more than 3% rounded out the top five agencies in spending on homeland security. These five agencies collectively accounted for approximately 93% of all federal spending on homeland security. It is also important to note that not all DHS funding is classified as pertaining to homeland security activities. The legacy agencies that became a part of DHS also conduct activities that are not homeland security related. Therefore, while the enacted FY2012 budget bills and existing law included total homeland security budget authority of $35.1 billion for DHS, the total budget authority for DHS was $52.5 billion. Moreover, the amounts shown in Table B -1 will not be consistent with total amounts shown elsewhere in the report. This same inconsistency between homeland security budget authority and requested total budget authority is also true for the budgets of the other agencies listed in the table. Due to the fact that the Administration's budget was released without an estimate for FY2013 that accounted for P.L. 113-6 or the impact of sequestration, no authoritative data for FY2013 is available as of the date of publication. | This report describes the FY2013 appropriations for the Department of Homeland Security (DHS). The Administration requested $39.510 billion in adjusted net discretionary budget authority for DHS for FY2013, as part of an overall budget of $59.501 billion (including fees, trust funds, and other funding that is not appropriated or does not score against the budget caps). The request amounted to a $90 million, or 0.2%, decrease from the $39.600 billion enacted for FY2012 through the consolidated appropriations act (P.L. 112-74). Congress did not enact final FY2013 appropriations legislation prior to the beginning of the new fiscal year. From October 1, 2012, through March 26, 2013, the federal government (including DHS) operated under the terms of P.L. 112-175, a part-year continuing resolution. While operating under this resolution, two major events impacted the DHS budget. First, Hurricane Sandy struck the east coast of the United States, which started a legislative process that resulted in enactment of legislation that provided $50.7 billion in disaster relief and emergency appropriations, including $12.072 billion for DHS, and $9.7 billion in additional borrowing authority for the National Flood Insurance Program. Weeks later, On March 1, 2013, an across-the-board reduction in budget authority, or sequestration, was ordered as required under the terms of the Budget Control Act (P.L. 112-25). The Office of Management and Budget's sequestration report indicated that DHS would lose $3.191 billion as a result of sequestration. On March 26, 2013, the President signed into law P.L. 113-6, the FY2013 Consolidated and Further Continuing Appropriations Act. Division D of that act is the Department of Homeland Security Appropriations Act, 2013, which includes $39.646 billion in adjusted net discretionary budget authority for DHS. Two across-the-board cuts unrelated to the March 1 sequestration that were included in the final legislation to ensure the bill complies with discretionary budget caps reduced this by $54 million to $39.592 billion. According to a DHS operating plan for FY2013, after the impact of sequestration, P.L. 113-6 provided $38.348 billion in adjusted net discretionary budget authority for DHS. This report will be updated as events warrant. |
Some Members of Congress have expressed interest in the rules governing patentable subject matter for many years. The term "patentable subject matter" refers to the requirement of Section 101 of the Patent Act of 1952 that an invention must consist of a "process, machine, manufacture, or composition of matter" in order to be patented. Most recently, the Leahy-Smith America Invents Act (AIA) of 2011 stipulated that "no patent may issue on a claim directed to or encompassing a human organism." The AIA also limited the availability of patents claiming tax avoidance strategies. The courts and the U.S. Patent and Trademark Office (USPTO) have historically understood the language of Section 101 to allow an expansive range of patentable subject matter. However, the courts have long held that several implicit exceptions exist to the four categories of patentable subject matter set out in Section 101. In particular, laws of nature, natural phenomena, and abstract ideas have been held to be unpatentable. For many years, Section 101 was arguably a coarse filter that was rarely used to invalidate an issued patent or reject an application pending at the USPTO. This situation changed over the past decade due to a series of decisions issued by the Supreme Court of the United States. Four Supreme Court opinions have issued since 2010 addressing patentable subject matter. In each instance the Court concluded that the invention before it was unpatentable under Section 101. Since the Supreme Court issued its decisions, Section 101 has been more frequently invoked to invalidate issued patents and reject pending patent applications at the USPTO. Further, numerous patents granted by the USPTO under earlier standards would likely be held invalid if they were subject to scrutiny by the agency or the courts. Views differ on whether the recent prominence of Section 101 in the U.S. patent system has been desirable. Concerned observers have declared the U.S. patent system to be in a "state of crisis" due to "confusing" legal standards established by the Supreme Court. The former Chief Judge of the U.S. Court of Appeals for the Federal Circuit, the tribunal with exclusive jurisdiction over patent appeals, reportedly described the Supreme Court decisions as creating "total chaos" and marking "a very harmful and completely unnecessary departure from a sensible patent policy." Other observers believe that these decisions may lead to patents of appropriate scope, curb abusive patent litigation, and encourage patent lawyers to draft and procure higher quality patents. This report reviews the current law governing patentable subject matter and recent proposals for legislative reform. It begins by providing a basic overview of the patent system and introducing the principles of patentable subject matter. It then considers the leading Supreme Court decisions construing Section 101 of the Patent Act. The report then considers the implications of these decisions within the information technology and life sciences industries. The report closes with a review of legislative reform options. Individuals and enterprises must prepare and submit applications to the USPTO if they wish to obtain patent protection. USPTO officials, known as examiners, assess whether the application merits the award of a patent. Under the Patent Act of 1952, a patent application must include a specification that so completely describes the invention that skilled artisans are able to practice it without undue experimentation. The Patent Act also requires that applicants draft at least one claim that particularly points out and distinctly claims the subject matter that they regard as their invention. The patent acquisition process is commonly known as "prosecution." While reviewing a submitted application, the examiner will determine whether the claimed invention fulfills certain substantive standards set by the patent statute. Two of the most important patentability criteria are novelty and nonobviousness. To be judged novel, the claimed invention must not be fully anticipated by a prior patent, publication, or other knowledge within the public domain. The sum of these earlier materials is termed the "prior art." To meet the standard of nonobviousness, an invention must not have been readily within the ordinary skills of a competent artisan based upon the teachings of the prior art. The invention must also be useful, a requirement that is satisfied if the invention is operable and provides a tangible benefit. Even if these requirements of novelty, nonobviousness, and utility are met, an invention is not patentable unless it falls within at least one category of patentable subject matter. Section 101 of the Patent Act provides Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title. The statute defines the term "process" to mean a "process, art, or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material." Process patents claim a series of steps that may be performed to achieve a specific result. Process patents typically relate to methods of manufacture or use. A process patent may claim a method of making a product, for example, or a method of using a chemical compound to treat a disease. The other three categories of patentable subject matter pertain to products. The Supreme Court has held that the term "machine" includes "every mechanical device or combination of mechanical powers and devices to perform some function and produce a certain effect or result." The Court has construed to term "manufacture" to mean "the production of articles for use from raw or prepared materials by giving to these materials new forms, qualities, properties, or combinations, whether by hand-labor or by machinery." The term "composition of matter" has been held to mean "all compositions of two or more substances and ... all composite articles, whether they be the results of chemical union, or of mechanical mixture, or whether they be gases, fluids, powders or solids." Although the wording of Section 101 is quite broad, courts and the USPTO have nonetheless established certain limits upon the sorts of processes that may be patented. In particular, laws of nature, natural phenomena, and abstract ideas have been judged not to be patentable. The Supreme Court has described these sorts of inventions as the "basic tools of scientific and technological work" that should be "free to all men and reserved exclusively to none." As explained by Supreme Court Justice Stephen Breyer, this rule "reflects a basic judgment that protection in such cases, despite its potentially positive incentive effects, would too severely interfere with, or discourage, development and the further spread of future knowledge itself." If the USPTO determines that a patent application satisfies Section 101 and the other requirements for patenting, it will allow the application to issue as a granted patent. The patent proprietor then obtains the right to exclude others from making, using, selling, offering to sell or importing into the United States the claimed invention. The term of the patent is ordinarily set at twenty years from the date the patent application was filed. Patent title therefore provides inventors with limited periods of exclusivity in which they may practice their inventions, or license others to do so. The grant of a patent permits inventors to receive a return on the expenditure of resources leading to the discovery, often by charging a higher price than would prevail in a competitive market. A patent proprietor bears responsibility for monitoring its competitors to determine whether they are using the patented invention. Patent owners who wish to compel others to observe their intellectual property rights must usually commence litigation in the federal courts. Although issued patents enjoy a presumption of validity, accused infringers may assert that a patent is invalid or unenforceable on a number of grounds. The Federal Circuit possesses national jurisdiction over most patent appeals. The Supreme Court retains discretionary authority to review cases decided by the Federal Circuit. Until its recent spate of decisions, the last time the Court addressed the law of patentable subject matter was nearly four decades ago. In its 1980 decision in Diamond v. Chakrabarty , the Court held that a genetically engineered microorganism could be patented. Similarly, in its 1981 opinion Diamond v. Diehr, the Court ruled that a process for curing artificial rubber through the use of a computer and a mathematical formula was patentable. These two decisions arguably set the stage for a period where the range of patentable subject matter was quite broad, both for information technologies and the life sciences. Since they issued, the lower courts and USPTO arguably made only occasional use of Section 101 to invalidate issued patents or reject pending patent applications. The Supreme Court revisited the law of patentable subject matter in a series of four decisions issued from 2010 through 2014. In each instance, the Court held each invention it considered to be unpatentable under Section 101. As one commentator asserts: "No one can reasonably deny that the Supreme Court's decisions narrowing patent eligibility have had a significant impact on the patent system." This report discusses each decision in the order of issuance. In its 2010 decision Bilski v. Kappos , the Supreme Court considered the patentability of a method of hedging risk in the field of commodities trading. The patent application before the Court claimed: A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of: initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer; identifying market participants for said commodity having a counter-risk position to said consumers; and initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions. The USPTO rejected the application as claiming subject matter that was ineligible for patenting under Section 101. On appeal, the Federal Circuit characterized the "true issue before us then is whether Applicants are seeking to claim a fundamental principle (such as an abstract idea) or a mental process." The Federal Circuit explained A claimed process is surely patent-eligible under §101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. Applying this standard, the Federal Circuit concluded that Bilski's application did not claim patentable subject matter. The Court of Appeals acknowledged Bilski's admission that his claimed invention was not limited to any specific machine or apparatus, and therefore did not satisfy the first prong of the Section 101 inquiry. The Federal Circuit also reasoned that the claimed process did not achieve a physical transformation. According to then-Chief Judge Michel, "[p]urported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances." As a result, the USPTO decision to deny Bilski's application was affirmed. After agreeing to hear the case, the Supreme Court issued a total of three opinions, consisting of a plurality opinion for the Court and two concurring opinions. No single opinion was joined by a majority of Justices for all of its parts. The opinion for the Court, authored by Justice Kennedy, agreed that Bilski's invention could not be patented. But the plurality rejected the Federal Circuit's conclusion that the machine or transformation test was the sole standard for identifying patentable processes. Rather, that standard was deemed "an important and useful clue." The Court instead resolved the case based on the traditional rule that abstract ideas were not patentable subject matter. Justice Kennedy reasoned that hedging was a "fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class." He explained that "[a]llowing petitioners to patent risk hedging would pre-empt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea." Justice Stevens, joined by Justices Breyer, Ginsburg, and Sotomayor, issued a lengthy concurring opinion on the day of his retirement from the Supreme Court. He agreed that the machine-or-transformation test was "reliable in most cases" but "not the exclusive test." In his view, the Court should "restore patent law to its historical and constitutional moorings" by declaring that "methods of doing business are not, in themselves, covered by the statute." Justice Breyer also issued a concurring opinion that Justice Scalia joined in part. Justice Breyer identified four points on which all nine justices agreed: (1) the range of patentable subject matter is broad but not without limit; (2) the machine-or-transformation test has proven to be of use in determining whether a process is patentable or not; (3) the machine-or-transformation test is not the sole standard for assessing the patentability of processes; and (4) not everything that merely achieves a "useful, concrete, and tangible result" qualifies as patentable subject matter. In its next Section 101 case, Mayo Collaborative Services v. Prometheus Laboratories, Inc. , the Supreme Court shifted focus from information technologies to the life sciences. Prometheus Laboratories, Inc., is the sole licensee of two patents (U.S. Patent Nos. 6,355,623 and 6,680,302) claiming methods for determining optimal dosages of thiopurine drugs used to treat autoimmune diseases. Stated generally, the patents claim methods of (a) administering a thiopurine drug to a patient, and (b) determining the levels of the drug or the drug's metabolites in red blood cells in the patient. The measured metabolite levels are then compared to known metabolite levels. If the measured metabolite levels in the patient are outside the known range, then the physician should increase or decrease the level of drug to be administered so as to reduce toxicity and enhance treatment efficacy. Claim 1 of the `623 patent, which reads as follows, was representative of the claims of the two patents at issue: A method of optimizing therapeutic efficacy for treatment of an immune-mediated gastrointestinal disorder, comprising: (a) administering a drug providing 6-thioguanine to a subject having said immune-mediated gastrointestinal disorder; and (b) determining the level of 6-thioguanine in said subject having said immune-mediated gastrointestinal disorder, wherein the level of 6-thioguanine less than about 230 pmol per 8x10 8 red blood cells indicates a need to increase the amount of said drug subsequently administered to said subject and wherein the level of 6-thioguanine greater than about 400 pmol per 8x10 8 red blood cells indicates a need to decrease the amount of said drug subsequently administered to said subject. In a unanimous decision authored by Justice Breyer, the Supreme Court concluded that the claims were directed towards natural laws and were therefore unpatentable. The Court reviewed its precedents in order to explain that phenomena of nature and abstract concepts could not be patented because the "monopolization of these basic tools through the grant of a patent might tend to impede innovation more than it would tend to promote it." The earlier cases recognized that all inventions at some level embody or apply laws of nature, however, and that processes that applied natural laws in a particular, useful way were eligible for patenting under Section 101 of the Patent Act. Applying these principles to the case at hand, the Court recognized that the claims in part recited "laws of nature," in particular relationships between the concentration of thiopurine metabolites and the likelihood that a dosage of a thiopurine drug will prove ineffective or harmful. However, the claims included steps in addition to the law of nature—in particular, they called for "administering" the thiopurine drug and "determining" the level of the relevant metabolites, "wherein" the drug dosage should be adjusted. According to Justice Breyer, the question before the Court was whether the claims amounted merely to the natural laws, or whether they added enough to the statement of the correlations to qualify as patent-eligible processes that applied natural laws. The Court reasoned that the three additional claimed steps did not suffice to render the claimed inventions patentable subject matter. Justice Breyer explained that the "administering" step referred simply to the relevant audience of the invention, namely, physicians who treat patients with certain diseases with thiopurine drugs. However, merely limiting the use of a natural law to a particular technological environment cannot render the principle patentable. Similarly, the "determining" step merely advised physicians to measure the level of metabolites in a patient's blood—a step that had been done for years and was routine in the field. Justice Breyer stated that conventional or obvious pre-solution activity did not convert an unpatentable law of nature into a patent-eligible application of such law. Finally, the "wherein" clauses simply informed physicians that they should take account of pertinent natural laws in their practices. According to Justice Breyer, an unpatentable law of nature does not become patentable merely by advising individuals to use the law. As a result, the Court concluded that the three steps recited in the claim did not "transform unpatentable natural correlations into patentable applications of those regularities." The Supreme Court's opinion in Mayo v. Prometheus addressed a number of additional contentions raised during the litigation. First, the Court rejected the argument that the Prometheus patents satisfied the machine-or-transformation test. The Federal Circuit had reasoned that the patents-in-suit transformed both human blood (by analyzing it to measure metabolite levels) and the human body (by administering a thiopurine drug). Justice Breyer countered that the claims at issue required only that the metabolite levels be measured, not that human blood be transformed. And he also explained that the transformation of the human body was not pertinent to the patentability determination, for that claim limitation merely identified the group of individuals who might be interested in applying the law of nature. The Court also responded to the position that virtually any step beyond a statement of a law of nature should be deemed to fulfill Section 101 standards. Under this view, Section 101 might be satisfied fairly readily; other requirements imposed under the Patent Act, including novelty and nonobviousness, would play a more significant role in deciding whether the patent should issue or not. Justice Breyer rejected this proposal, stating that the policy concerns that underlie Section 101 were distinct from those of the other patentability requirements. Third, the Court responded to concerns that rejecting the Prometheus patents would discourage diagnostic research. Justice Breyer observed that other interested parties had asserted that patents claiming the body's natural responses to illness and medical treatment should not be granted because they might limit physician access to critical scientific data. In view of these competing views, the Court was reluctant to depart from precedent denying patents on natural laws. In a June 2013 decision, the Supreme Court of the United States ruled in Association for Molecular Pathology v. Myriad Genetics, Inc., that genomic DNA was ineligible for patenting under 35 U.S.C. §101 because of the "product of nature" doctrine. Under longstanding case law, products of nature (preexisting substances found in the wild) may not be patented, per se . However, the courts have also determined that such a product of nature may be patentable if significant artificial changes are made. By purifying, isolating, or otherwise altering a naturally occurring product, an inventor may obtain a patent on the product in its altered form. Adopting the view that isolated and purified genomic DNA satisfied this exception to the "product of nature" doctrine, the USPTO issued over 50,000 patents relating at least in part to DNA. However, some experts believed that the decision to patent human genes misconstrued the "product of nature" principle. In their view, the fact that scientists have isolated a gene is a "technicality" that did not allow genes to be patented. The Supreme Court decision in Myriad reflects this latter position. The litigation commenced on May 12, 2009, when the Association for Molecular Pathology and 19 other plaintiffs, including individual physicians, patients, and researchers, filed a lawsuit against the USPTO, Myriad Genetics, Inc., and the Directors of the University of Utah Research Foundation. The plaintiffs challenged several patents owned by Myriad that claim isolated human genes known as BRCA1 and BRCA2. Certain alterations or mutations in these genes are associated with a predisposition to breast and ovarian cancers. Due to its intellectual property rights, Myriad was the sole commercial provider of genetic testing related to breast and ovarian cancer associated with the BRCA1 and BRCA2 genes. The plaintiffs asserted that Myriad's gene patent claims were invalid because, in their view, human genes are naturally occurring products that do not constitute patentable subject matter. The U.S. District Court for the Southern District of New York sided with the plaintiffs and held that Myriad's gene patent claims were invalid under 35 U.S.C. §101. Judge Sweet reasoned that Myriad's claimed isolated DNA was not "markedly different from native DNA as it exists in nature" and therefore could not be patented. Following an appeal, the Federal Circuit reversed this holding. The Court of Appeals reasoned that "isolated" DNA is not merely "purified" DNA—rather, it has been "manipulated chemically so as to produce a molecule that is markedly different from that which exists in the body." Under this reasoning, human genes consist of patentable subject matter. The Supreme Court subsequently agreed to hear the Myriad case but did not issue a ruling in the matter. Rather, on March 26, 2012, the Court vacated the judgment and remanded the matter back to the Federal Circuit with instructions to reconsider the appeal. The Federal Circuit responded by once again upholding Myriad's claims. The Supreme Court then agreed to hear the case. Justice Thomas, writing for the Court, initially observed that Myriad had neither created nor altered the generic information encoded in the BRCA1 and BRCA2 genes. Rather, Myriad had discovered the precise location and genetic sequence of those genes. According to Justice Thomas, then, "Myriad did not create anything. To be sure, it found an important and useful gene, but separating that gene from its surrounding genetic material is not an act of invention." The Supreme Court also was unimpressed that Myriad claimed DNA that had been isolated from the human genome through the severing of chemical bonds, with a non-naturally occurring molecule as a result. According to Justice Thomas, "Myriad's claims are simply not expressed in terms of chemical composition, nor do they rely in any way on the chemical changes that result from the isolation of a particular section of DNA" The Court took a more favorable view of a second set of claims pertaining to "complementary DNA," however. More commonly known as cDNA, these claims were directed to synthetic DNA in which the sequence of bases is complementary to naturally-occurring DNA. Observing that "cDNA retains the naturally occurring exons of DNA, but it is distinct from the DNA from which it was derived," Justice Thomas concluded that cDNA did not constitute a "product of nature" and therefore could be patented. Justice Thomas also found it important to note what the Myriad opinion did not implicate. The case involved neither an innovative method of manipulating genes while searching for the BRCA1 and BRCA2 genes, the Court explained, nor new applications of knowledge about those genes. The Court also indicated that it had not considered the patentability of DNA in which the order of the naturally occurring nucleotides has been altered. Instead, the Court "merely [held] that genes and the information they encode are not patent eligible under §101 simply because they have been isolated from the surrounding genetic material." The opinion of Justice Thomas was joined in full by seven of his colleagues. Justice Scalia contributed a one-paragraph concurring opinion that joined the judgment of the Court and all of its opinion except those portions "going into fine details of molecular biology." Justice Scalia found himself "unable to affirm those details on my own knowledge or even my own belief." This shortcoming did not prevent him from concluding that isolated genomic DNA was identical to its natural state, however, while cDNA could be patented because it was a synthetic creation not found in nature. In the most recent of its Section 101 decisions, the Supreme Court considered the patentability of a computer-implemented financial exchange system. The inventions at issue in Alice Corp. v. CLS Bank International were designed to mitigate "settlement risk"—the risk that only one party to a financial transaction will pay what it owes. The patents at issue were more specifically directed to (1) a method for exchanging financial obligations (the method claims); (2) a computer system used to carry out those methods (the computer system claims); and (3) a computer-readable medium, such as disk or memory stick, containing program code for performing those methods (the computer-readable media claims). The district court concluded that the inventions were unpatentable because they represented a "basic business or financial concept" that "remains a fundamental, abstract concept." The patent owner appealed the decision to the Federal Circuit, which affirmed the district court's ruling. The Supreme Court agreed to hear the case in order to address "whether claims to computer-implemented inventions—including claims to systems and machines, processes, and items of manufacture—are directed to patent-eligible subject matter within the meaning of section 101." The Supreme Court unanimously upheld the Federal Circuit's determination that the patents were directed to a patent-ineligible abstract idea. Writing for the Court, Justice Thomas explained that the Court's Section 101 precedent established a two-part test for identifying patents that claim laws of nature, natural phenomena, and abstract ideas. First, the claim should be analyzed to determine whether it claims one of these types of excluded subject matter. If it does, then the claim should be reviewed to determine whether the claim recites additional elements that transform the claim into a patent-eligible application of a law of nature, natural phenomenon, or abstract idea. Justice Thomas described this second test as determining whether the claim incorporates an "inventive concept" that amounts to more than merely applying the law of nature, natural phenomenon, or abstract idea to a particular technological environment. With this framework established, Justice Thomas turned first to the method claims. Applying the two-step process it established in Mayo v. Prometheus, the Court first determined that the method claims were drawn to the abstract idea of intermediated settlement—a fundamental and longstanding economic practice. The Court then turned to the second prong of the Mayo inquiry—namely, whether the claim contains "an 'inventive concept' sufficient to 'transform' the claimed abstract idea into a patent-eligible application." The Court determined that the patented claims amounted to nothing more than implementation of an abstract idea on a computer. According to Justice Thomas, the "mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention." To hold otherwise, he explained, would allow any abstract principle to become patentable simply by incorporating everyday computer hardware into the claim. The Court rejected the computer system and computer-readable media claims for the same reason. Justice Thomas explained that the claims recited only generic computer hardware that failed to do more than generally link the invention to a specific technological environment—that is to say, computer implementation. Because these claims were not meaningfully restricted by these system and media limitations, they too were unpatentable. The Supreme Court decisions in Bilski, Mayo v. Prometheus, Myriad, and Alice present the current law of the land with respect to whether a particular invention is eligible for patenting. Several key themes may be gleaned from these four opinions. First, the courts and USPTO conduct a two-part test developed from the case law. That test asks (1) whether the claim recites a law of nature, natural phenomenon, or abstract idea; and (2) if so, whether the claim includes additional, inventive elements that indicate the claim applies one of the three excluded subject matters, rather than being a fundamental concept per se . With regard to this second step, the Court will analyze a patent claim to determine if it preempts a field of activity. If a claim covers every practical application of a fundamental concept, then it cannot be patented under Section 101. In addition, the Court does not consider a claim's recitation of routine, nominal hardware—such as a general-purpose computer—to ameliorate concerns over Section 101 eligibility. Finally, although the machine-or-transformation test does not exclusively govern the patent eligibility of processes, it remains a useful guidepost within the decisionmaking process. Section 101 determinations have proven amenable to resolution early within the process of litigation, often at the pleading stage or a prompt summary judgment motion. In addition, the courts have often not required a formal construction of the patent's claims in order to resolve Section 101 challenges. Statistical analyses suggest that when these motions are raised, the moving party enjoys a good probability of invalidating the challenged claims. In particular, one empirical study concluded As of June 19, 2016 (i.e. Alice 's two-year mark), courts have examined 568 challenged patents brought under §101 motions citing Alice , resulting in 190 valid patents and 378 patents invalidated with an average invalidation rate of 66.5%. Specifically, the Federal Circuit upheld 3 patents and invalidated 34 patents—an average invalidation rate of 91.9%. The [USPTO] has rejected over 36,000 published patent applications under Alice , where over 5,000 such applications were abandoned. Notably, these statistics do not suggest that approximately two-thirds of all issued patents do not comply with Section 101. Rather, they indicate that when attorneys assert that a particular patent claim is invalid in view of the existing law of patentable subject matter or a nonfrivolous argument for modifying existing law, they have a good chance of success. Such motions are not routinely brought with regard to such claimed subject matter as chemicals, consumer devices, electronics, medical devices, pharmaceuticals, tools, vehicles, and any number of other technologies. However, these statistics may be read to suggest that recent Supreme Court interest in patentable subject matter has animated a patent validity doctrine with implications for both information technologies and the life sciences. This report briefly considers these two fields next. The implications of recent Supreme Court case law have arguably been most keenly felt with respect to information technologies. The courts have invalidated numerous patents on computer-related inventions following the standards established in Bilski and Alice . As a general matter, patent claims that do not describe specific solutions to a problem, or identify an "improvement in the functioning of technology," tend to be the most vulnerable to a Section 101 challenge. Among the patent claims invalidated were those directed towards the following inventions: a computer system of generating a second menu from a first menu that allows users to select particular categories and items; a computer system and method for collecting, analyzing, and displaying information relating to an electric power grid using conventional computer and network technology; a method of (1) extracting data from hard copy documents using an automated digitizing unit such as a scanner, (2) recognizing specific information from the extracted data, and (3) storing that information in a memory, using conventional scanners and computers; systems and methods for administering and tracking the value of life insurance policies in separate accounts; and a computer-aided method and system for processing credit applications over electronic networks. The patent invalidated in another representative decision, Affinity Labs of Tex. v. DIRECTV, LLC , claimed a broadcast system in which a cellular telephone located outside the territory of a regional broadcaster (1) requests and receives content from the broadcaster via a streaming signal, (2) downloads an application for performing those functions, and (3) contains a display that allows the user to select particular content. Applying the Supreme Court's two-part test for patentable subject matter, the Federal Circuit first deemed the concept of providing out-of region access to a local broadcast to constitute an abstract idea. Judge Bryson explained that the "practice of conveying regional content to out-of-region recipients has been employed by nearly every form of media that has a local distribution," ranging from the mailing of local newspaper to distant locations, to the delivery of broadcasts of sporting events to a national audience. Second, Judge Bryson observed that "nothing in claim 1 [was] directed to how to implement out-of-region broadcasting on a cellular telephone. Rather, the claim is drawn to the idea itself." In particular, the patent did not describe how the invention accomplished the claimed functions. It merely confined the idea to one particular technological environment—cellular telephones. Under Supreme Court case law, the Federal Circuit concluded, these circumstances did not satisfy Section 101. The Federal Circuit has not accepted a Section 101 challenge in every case. For example, the court of appeals has upheld patents directed towards an e-commerce system and method, an information management and database system, a method and system of filtering Internet content, and a method of automatically animating lip synchronization and facial expressions of three-dimensional animated characters. As a general matter, claims have been more likely to survive Section 101 if they avoid broad functional language and recite discrete structures to achieve specific results. The Supreme Court decisions in Mayo v. Prometheus and Association for Molecular Pathology v. Myriad Genetics have held consequences for the life sciences industry. Due to Mayo v. Prometheus , predictive diagnostic methods that depend on the presence or absence of a biomarker, as well as diagnostic methods that measure that biomarker, may be subject to narrow patents or be difficult to patent at all. In turn, the Myriad case appears to make any isolated bodily substance, including genes, proteins, and cell lines, of doubtful patentability. On the other hand, even slightly altered genes and other naturally derived substances likely pass the §101 threshold. Fewer published judicial opinions have addressed the interaction of Section 101 with respect to the life sciences than to information technologies. However, one such decision, the 2015 ruling of the Federal Circuit in Ariosa Diagnostics, Inc. v. Sequenom, Inc. , has been subject to considerable discussion within the patent community. That case involved a non-invasive pre-natal diagnostic method useful for determining the gender and blood type of the fetus, as well as whether the fetus was subject to any genetic disorders. Sequenom was the exclusive licensee of U.S. Patent No. 6,258,540. Claim 1 of that patent recited 1. A method for detecting a paternally inherited nucleic acid of fetal origin performed on a maternal serum or plasma sample from a pregnant female, which method comprises amplifying a paternally inherited nucleic acid from the serum or plasma sample and detecting the presence of a paternally inherited nucleic acid of fetal origin in the sample. The Federal Circuit explained that the inventors had discovered cell-free fetal DNA (cffDNA) in maternal plasma or serum. The inventors then used known laboratory techniques to implement a method for detecting the small fraction of paternally inherited ccfDNA in material plasma or serum to determine fetal characteristics. The Federal Circuit determined that this invention failed the two-part patentable subject matter test because: (1) the claims were directed to a naturally occurring phenomenon, cffDNA; and (2) the claims simply instructed physicians to apply well-understood, conventional techniques when seeking to detect cffDNA. Judge Linn contributed a concurring opinion that joined the majority but expressed dissatisfaction with the result. He explained that prior to the patented invention, prenatal diagnosis involved invasive techniques that could potentially harm the mother and the pregnancy. According to Judge Linn, "no reason, in policy or statute" suggested "why this breakthrough invention should be deemed patent ineligible." Congress possesses several apparent options with respect to the law of patentable subject matter. If the current situation is deemed acceptable, then no action need be taken. Congress could otherwise alter the law of patentable subject matter through legislation. As of the date this report was published, no bill has been introduced before Congress addressing the law of patentable subject since the enactment of the Leahy-Smith America Invents Act in 2011. However, at least three different industry associations have suggested modifications to Section 101. Two of these organizations, the American Intellectual Property Law Association (AIPLA), a voluntary bar association, and the Intellectual Property Owners Association (IPO), a trade association for proprietors of patents and other intellectual property rights, have generated highly similar proposals. The AIPLA proposal would replace the existing Section 101 with the following language: 35 U.S.C. § 101—Inventions Patentable (a) Eligible Subject Matter .—Whoever invents or discovers any useful process, machine, manufacture, composition of matter, or any useful improvement thereof, shall be entitled to a patent therefor, subject only to the conditions and requirements set forth in this title. (b) Sole Exceptions to Subject Matter Eligibility .—A claimed invention is ineligible under subsection (a) only if the claimed invention as a whole exists in nature independent of and prior to any human activity, or can be performed solely in the human mind. (c) Sole Eligibility Standard .—The eligibility of a claimed invention under subsections (a) and (b) shall be determined without regard to the requirements or conditions of sections 102, 103, and 112 of this title, the manner in which the claimed invention was made or discovered, or whether the claimed invention includes an inventive concept. The IPO proposal reads almost identically. A third organization, the American Bar Association (ABA) Section of Intellectual Property Law, has offered a related proposal. The ABA proposal would amend Section 101 to read § 101. Conditions for patentability: eligible subject matter. (a) Eligible Subject Matter. - Whoever invents or discovers any useful process, machine, manufacture, or composition of matter, or any useful improvement thereof, shall be entitled to obtain a patent on such invention or discovery, absent a finding that one or more conditions or requirements under this title have not been met. (b) Exception. - A claim for a useful process, machine, manufacture, or composition of matter, or any useful improvement thereof, may be denied eligibility under this section 101 on the ground that the scope of the exclusive rights under such a claim would preempt the use by others of all practical applications of a law of nature, natural phenomenon, or abstract idea. Patent eligibility under this section shall not be negated when a practical application of a law of nature, natural phenomenon, or abstract idea is the subject matter of the claims upon consideration of those claims as a whole, whereby each and every limitation of the claims shall be fully considered and none ignored. Eligibility under this Section 101 shall not be negated based on considerations of patentability as defined in Sections 102, 103 and 112, including whether the claims in whole or in part define an inventive concept. The AIPLA asserts that Section 101 was intended to act as an "enabling provision" rather than "provide the standard for whether a particular technical advance should receive patent protection." Similarly, the ABA Section on Intellectual Property asserts that recent Supreme Court decisions "have injected ambiguity into the eligibility determination by requiring courts and the [USPTO] to apply criteria such as 'well known,' 'routine,' 'conventional or obvious,' factors that were previously relevant only to novelty and obviousness, in order to ignore limitations and render a claim patent ineligible and in effect have turned the gateway function of patent eligibility into a patentability test better left to the other statutory provisions.... " For its part, the IPO explains that the Supreme Court's analysis "is contrary to [c]ongressional intent, too restrictive, technologically incorrect, unsound from a policy standpoint, and bad law." Not everyone agrees that legislative reform is necessary. One commentator finds no evidence that more restrictive patent eligibility rules "have affected innovation or investment in any meaningful way." In his view, the proposed amendments would "essentially do away with any limits to software patenting." Another observer believes that these proposals would "eliminate any real constraint on subject matter eligibility." He also observes that the AIPLA proposal would also change the current statutory phrase "may obtain a patent subject to the conditions and requirements of this title" to "shall be entitled to a patent only subject to the conditions and requirements set forth in this title." In his view, this language would have the perhaps unintended effect of eliminating other common law patentability standards, including the so-called "obviousness-type double patenting" rule. Patents in the fields of software and life sciences have proven controversial for decades. Recent Supreme Court interest in the topic of patentable subject matter, which has made patenting in these fields more difficult, has led to a heated debate. Many knowledgeable observers believe that Section 101 helps ensure an appropriate balance between the innovative contributions of inventors and the scope of the rights that they receive. However, other experts express concern that the lack of availability of patent rights will decrease innovation and investment in the United States. Collectively, these debates may promote further inquiry into the sorts of inventions that may be appropriately patented. | The term "patentable subject matter" refers to the requirement of Section 101 of the Patent Act of 1952 that an invention must consist of a "process, machine, manufacture, or composition of matter" in order to be patented. The Leahy-Smith America Invents Act (AIA) of 2011, P.L. 112-29, additionally stipulated that "no patent may issue on a claim directed to or encompassing a human organism." The AIA also limited the availability of patents claiming tax avoidance strategies. The courts and the U.S. Patent and Trademark Office (USPTO) have generally construed the language of Section 101 broadly. As a result, inventions from many different fields of human endeavor may be patented, so long as other statutory requirements such as novelty and nonobviousness are met. However, the courts recognize several implicit exceptions to the four statutory categories of patentable subject matter. In particular, laws of nature, natural phenomena, and abstract ideas have been held to be unpatentable. For many years, Section 101 was arguably used only infrequently to invalidate an issued patent or reject an application pending at the USPTO. This situation changed over the past decade due in large part to four decisions issued by the Supreme Court of the United States since 2010 addressing patentable subject matter. In each instance the Court concluded that the invention before it was unpatentable. The four cases were Bilski v. Kappos, pertaining to a business method; Mayo Collaborative Services v. Prometheus Laboratories, considering a method of medical diagnosis; Association for Molecular Pathology v. Myriad Genetics, addressing human genes; and Alice Corp. v. CLS Bank, relating to computer software. These decisions collectively hold that an invention is unpatentable if (1) it consists of a law of nature, natural phenomenon, or abstract idea; and (2) does not include additional, inventive elements that indicate the claim applies one of the three excluded subject matters, rather than being a fundamental concept per se. With regard to this second step, the Court analyzes a patent claim to determine if it covers every practical application of a fundamental concept. Claims with this preemptive scope cannot be patented under Section 101. In addition, the Court does not consider a claim's recitation of routine, nominal hardware—such as a general-purpose computer—to ameliorate concerns over Section 101 eligibility. Since the Supreme Court issued these decisions, Section 101 has been more frequently invoked to invalidate issued patents in the courts and in certain administrative patent revocation proceedings, and also to reject pending patent applications at the USPTO. Further, numerous patents granted by the USPTO under earlier standards would likely be held invalid if they were subject to scrutiny today. If the current situation is deemed acceptable, then no action need be taken. However, several stakeholder groups have recommended legislative reforms to Section 101. In general, these proposals assert that an invention should be deemed patentable subject matter unless it exists in nature independently of human activity or it can be performed solely in the human mind. These proposals also state that whether an invention is implemented through conventional means is irrelevant to whether it is patentable subject matter or not. As of the date of publication of this report, legislation has yet to be introduced before Congress addressing reform of the law of patentable subject matter. |
U.S. borders are complex. They feature varied terrain, where disparate threats are met with varying levels of federal surveillance and resource allocation. Customs and Border Protection (CBP), within the Department of Homeland Security (DHS), is tasked with securing America's borders and promoting legitimate trade and travel. Within CBP, the U.S. Border Patrol (Border Patrol) is charged with securing the border between ports of entry. A reoccurring challenge for DHS and the Border Patrol has been establishing what a secure border means. Their efforts to develop a measure for this have created a continual evolution of metrics. Metrics can describe important phenomena, such as an estimate of how many unauthorized migrants enter the United States every year and what proportion is apprehended by the Border Patrol. These data can help evaluate the effectiveness of border security, influence decisionmaking, and inform Congress and the public. CBP has stated that "securing our borders means first having the visibility to see what is happening on our border, and second, having the capacity to respond to what we see." Furthermore, "Border Patrol characterizes a secure border as one of low risk, where there is a high probability of detection coupled with a high probability of interdiction." Border security can be assessed at both the strategic and operational levels. At the strategic level, DHS can use performance metrics to provide understanding on whether efforts to secure the border are effective or efficient. These metrics also hold DHS and its components accountable and can affect its decisionmaking. At the operational level, Border Patrol uses the identification of risk and the estimation of its magnitude in its day-to-day operations to secure the border. Such assessment helps the Border Patrol align its resources against specific threats and can help describe how secure a border sector is. It is unclear whether metrics at these two levels interact with one another and if they do, how they influence or affect one another. Understanding the security risks at the border and developing methods to measure the performance of the Border Patrol in allaying these risks are fundamental to congressional oversight of the Border Patrol, CBP, and DHS more broadly. Some Members of Congress have asked for a clear measure of how many unauthorized migrants cross the border and/or of the overall state of border security. However, determining unauthorized border flows is difficult for many reasons, such as unauthorized migrants' desire to avoid detection. Still, metrics, at both the strategic and operational levels, ideally provide Congress with a sense of the current state of the border that helps inform public debate and possible legislation. For example, in past discussions around comprehensive immigration reform, some have said that legislation must include measures to increase border security, while others have urged that the border first be secured before other immigration reforms take place. This report reviews the use of metrics at the department (i.e., DHS) and agency level (i.e., CBP ). The report begins by describing the performance metrics at the strategic level that DHS is developing (the level of unauthorized entry of migrants) and has used (the recidivist rate and the effectiveness rate). Next, the report summarizes DHS's, and the former Immigration and Naturalization Service's (INS's), use of metrics since the early 2000s. The report also addresses the Border Patrol's metrics at the operational level. It concludes with a discussion of select issues Congress may consider when evaluating measures of border security. The Appendix includes information on additional data and methodologies that have been reviewed or recommended by scholars and think tanks. DHS's, and the former INS's, efforts in developing different performance metrics at the strategic level to depict the state of the border have resulted in an array of measures that focus either on border security as a whole or on a component of it ( Figure 1 ). Over time, performance metrics have come and gone, offering little continuity and opportunity for historical assessment. In recent years, DHS has been developing a new measure to estimate unauthorized entry of migrants into the United States. While DHS has shown intent to continually improve its measurement of border security, this new metric is subject to influence by external factors that are outside of the control of DHS and may not directly measure border security. DHS currently reports the recidivism rate and the rate of interdiction effectiveness. These measures, though subject to limitations, are meant to estimate the Border Patrol's effectiveness in apprehending migrants and deterring migrants from re-entering the United States. DHS's continual re-evaluation of its performance metrics has created a history of past metrics that have either attempted to comprehensively measure border security, such as optimal deterrence and operational control, or have reported only single metrics, such as apprehensions. DHS has been working to create a new generation of performance metrics in an effort to better measure border security at the strategic level. For instance, in 2011 DHS announced that CBP was developing a new "border conditions index" (BCI), which would have included measures of estimated unauthorized flows between ports of entry, wait times to cross the border at ports of entry, the efficiency of legal flows at ports of entry, public safety, and quality of life in border regions. In 2013, DHS officials determined that the BCI would not satisfy the demands for a single comprehensive measure of border security and discontinued its development. Abandoning efforts to establish a single, comprehensive measure of border security, in FY2015 DHS began to develop a means of estimating another component of border security: the level of unauthorized entry into the United States. The measure would only cover migration, not drug smuggling or other security concerns. It appears that DHS opted to fashion what may be a baseline figure upon which it can build broader, more nuanced estimates of performance. Through the use of this metric, DHS hopes to inform its strategic efforts and decisionmaking, while also informing the public and Congress. According to DHS officials, the agency has begun efforts to estimate the level of unauthorized entry of migrants into the United States. DHS commissioned the Institute for Defense Analyses (IDA) to produce a baseline estimate for this new metric through the use of the repeated trials method (RTM), also known as the capture-recapture method. The basic model calculates the probability of apprehension by examining a group of migrants who have been apprehended and removed previously, with the assumption that the migrant will continue to attempt crossing the border. The probability of apprehension for a given trip is calculated as: The probability of apprehension can then be used to estimate the level of unauthorized entry by: An advantage of RTM is that it relies on observable administrative enforcement data—apprehensions and recidivists—to calculate key border security metrics: apprehension rates and unauthorized flows. The model has limitations grounded in certain assumptions, such as that the pool of migrants is fixed, the probability of being apprehended is the same for each attempt, and those who have been arrested have not succeeded in entering the United States between arrests. The basic model also does not account for migrants who are deterred from attempting to cross the border again because it uses the basic assumption that migrants will continue to attempt crossing the border until they are successful. Furthermore, given that this metric measures migrant volume and is influenced by the push and pull factors of migration that are outside the control of DHS's components (e.g., economic, social, and political factors in source countries and countries of destination), it does not speak directly to the effectiveness of border security efforts. DHS is working to factor deterrence into RTM in order to control for migrants who will be deterred from attempting to re-cross the border. DHS is using a survey that measures the characteristics, volumes, tendencies, and effects of migrant flows between the United States and Mexico. The survey, Encuestas sobre Migración en la Frontera Norte de Mexico (EMIF Norte), is conducted by the Colegio de la Frontera Norte (COLEF) and other agencies of the Mexican government, who sample potential migrants at busy departure points in Northern Mexico and migrants removed from the United States. With the incorporation of deterrence, the probability of deterrence is then calculated as: EMIF Norte provides information on other migrant populations, outside of Mexicans. RTM models are most useful when sensitive to how migrants from other source countries could affect results. In addition to RTM, DHS is developing two other methods to validate its estimates. One method is based on the Encuesta Nacional de Ocupación y Empleo (ENOE), a representative Mexican household survey. The second method is based on an econometric analysis of apprehension records used to validate deterrence. These new measurements are to be included in DHS's State of the Border report that is to be produced alongside its 4 th Quarter BorderStat Report. DHS also plans to create "BorderStat," modeled on law enforcement's CompStat, which would provide current and historical trends for performance metrics along with statistics specific to subpopulations among the unauthorized population who enter the United States. In addition to estimating the level of unauthorized entry of migrants into the United States, DHS has also begun to turn its attention to evaluating the performance of the technology used to secure the border. A 2014 Government Accountability Office (GAO) report found that CBP had identified how technologies contribute to its mission but that it had not yet created performance metrics to evaluate them. DHS databases allow for CBP to collect data on "asset assists," which are "instances in which a technology, such as a camera, or other asset such as a canine team, contributed to an apprehension or seizure." Currently, Border Patrol agents are not required to record these data and therefore the data on asset assists are incomplete. GAO stated that "requiring the reporting and tracking of asset assist data could help CBP determine the extent to which its surveillance technologies are contributing to CBP's border security efforts." According to DHS officials, the agency's FY2016 border research agenda will include an analysis on the effectiveness of border investments on outcomes. The study is to focus on the change in unauthorized entries and forecast future unauthorized entries (incorporating law enforcement and non-enforcement determinants). The study is to also include an analysis of the effectiveness of CBP border investments. At the strategic level, DHS has used two other performance metrics: the percentage of people apprehended multiple times along the Southwest border, or the recidivism rate (introduced in 2013), and the rate of interdiction effectiveness along the Southwest border between ports of entry, or the effectiveness rate (introduced in 2014). These performance metrics, as reported in DHS's FY2015-FY2017 Annual Performance Report, were used to assess the department's efforts in reaching its goal of securing the U.S. borders. These metrics signal DHS's efforts to improve measuring practices, but they are not without limitations. Since 2000, the Border Patrol has tracked the number of unique subjects the agency apprehends per year by analyzing biometric data (i.e., fingerprints and digital photographs) of persons apprehended. These data are used to obtain the percentage of people apprehended multiple times along the Southwest border, which represents the percentage of individuals who are recidivists (also referred to as the recidivism rate). CBP holds that "effective and efficient application of consequences for illegal border crossers will, over time, reduce overall recidivism." Therefore, the Border Patrol uses recidivism data as a method to evaluate if it is effectively deterring additional unauthorized crossings. The recidivism rate is calculated as: The recidivism rate has some weaknesses as a performance measurement. For example, it is not sensitive to the distance between the United States' border and migrants' source countries. The farther an individual's source country is from the United States, the more difficult it is for the migrant to attempt multiple entries. Therefore, increases in the number of migrants traveling from outside of Mexico could lower the recidivism rate, but such a dip in the rate would not necessarily indicate b etter border security. Furthermore, recidivism rates are not only determined by deterrence migrants may have experienced, but also the probability of apprehension. A decreasing recidivism rate that may be interpreted as a successful increase in deterrence could also be the result of a falling apprehension rate. Moreover, intensified enforcement could increase both rates of deterrence and apprehension, offsetting one another and resulting in no change to the recidivism rate, thereby obscuring results. Annual Southwest border recidivism rates, tracked by the Border Patrol since 2005, increased slightly between FY2005 (25%) and FY2007 (29%), but have fallen since that time, reaching 14% in FY2014 and FY2015. DHS's Annual Performance Report for Fisc al Years 2015 -201 7 set the target for this metric at less than 17% for FY2015, FY2016, and FY2017. The rate of interdiction effectiveness along the Southwest border between ports of entry, also referred to as the effectiveness rate, reports the percentage of all detected unauthorized entrants who are either apprehended or turned back. The Border Patrol achieves this outcome by maximizing the percentage of unauthorized entrants it apprehends or that return to their source countries (turn backs) and minimizing those that evade apprehension (got aways). The rate of interdiction effectiveness is calculated as: DHS's Annual Performance Report for Fiscal Years 2015 -201 7 set the goal for this metric at 80% for FY2015 and 81% for FY2016 and FY2017. In FY2015, DHS met its target by interdicting 81.01% of unauthorized crossers. The Border Patrol stated that this metric is "used to determine the effectiveness of border security operation at the tactical—or zone—level but can also affect strategic decisionmaking," such as evaluating whether it is employing the appropriate mix and placement of personnel and assets and whether they are being deployed efficiently and effectively. The interdiction effectiveness rate has drawbacks. This measure is based only on observable events reported by the Border Patrol and therefore excludes undetected entry. The data used are also based on events and not unique subjects, allowing for potential double counting. Moreover, GAO found that this metric's inclusion of turn back and got away data, the reporting of which can vary across sectors, impedes its ability to compare the rate across sectors. While using enforcement data to measure border security can raise a number of methodological concerns, the effectiveness rate may have an advantage over other enforcement metrics because, as a ratio, it may be somewhat less sensitive to the level of enforcement resources in place. The federal government has collected data on immigration since 1892. This information has been publicly reported since the 1950s. Over time, there have been multiple efforts to expand data collection, improve analysis, and develop performance metrics. DHS's attempts to measure border security beyond output have resulted in different iterations of performance metrics. For example, in the last 15 years DHS has used five different performance metrics and, as discussed, a new metric is currently under development (see " Level of Unauthorized Entry of Migrants "). The INS's 2001 and 2002 annual performance reports established "high priority entry corridors demonstrating optimal deterrence," as a performance metric for effectively controlling the border. Optimum deterrence was defined as "the level at which applying more Border Patrol agents and resources would not yield a significant gain in arrests/deterrence." Analyses were conducted for each corridor, including the examination of variables such as apprehensions, border related crimes, recidivism, shifts in illegal activity, smuggling fees, property values, and others. In FY2003, 9 corridors had reached optimum deterrence, and in FY2004 this increased to 11 corridors. When DHS was created in 2003, it continued to report optimum deterrence through 2004. In 2005, the concept of operational control, also referred to as effective control, replaced optimum deterrence. Section 2 of the Secure Fence Act of 2006 ( P.L. 109-367 ) defined operational control of the border as "the prevention of all unlawful entries into the United States, including entries by terrorists, other unlawful aliens, instruments of terrorism, narcotics, and other contraband." Operational control describes the number of border miles where the Border Patrol can detect, identify, respond to, and interdict cross-border unauthorized activity. In February 2010, the Border Patrol reported that 1,107 miles (57%) of the Southwest border were under operational control. After 2010, DHS ceased to use operational control as a metric because the Border Patrol station and sector chiefs could not accurately and reliably use its coding scheme to assess different border regions and the agency did not view it as useful for evaluating border security on a mile-by-mile basis. From 2011 to 2013, DHS used apprehensions as a performance metric for border security in annual performance reports. Though apprehension data can inform activity levels and aid CBP in identifying emerging issues and trends, multiple factors outside of U.S. border security resources and tactics affect it. Such factors could include immigration enforcement in transit countries and economic and political conditions and demographic changes within the United States and source countries. Additionally, apprehension data are imperfect indicators because they exclude migrants who successfully enter and remain in the United States and migrants who are deterred from entering the United States. The data are also limited in that they count events rather than unique subjects and therefore may result in the double counting of those who are apprehended more than once in a given time period. Furthermore, RAND reported that "a measure that reflects successful performance whether it rises or falls has limited value as a management tool." This critique refers to how a decrease in apprehensions can be seen as a success for the Border Patrol in deterring migration but it can also be seen as failure for the Border Patrol in interdicting migrants. GAO also reported that apprehension data "[do] not inform program results or resource identification and allocation decisions, and therefore until new goals and measures are developed, DHS and Congress could experience reduced oversight and DHS accountability." At the operational level, the Border Patrol estimates risk at the border through the use of risk assessments. These assessments are not used as metrics themselves. However, the Border Patrol's methodology for risk assessments monitors certain metrics, along with other information, in order to estimate the level of risk at the sector level. DHS defines risk as "the potential for an unwanted outcome resulting from an incident, event, or occurrence, as determined by its likelihood and the associated consequences." The process of risk assessment identifies and evaluates potential risks or hazards and analyzes what could happen if the hazard went unchecked. The Border Patrol conducts risk assessments at an operational level to determine the level of risk present in specific border sectors. They are meant to inform and not dictate decisionmaking with respect to resource allocation and response. Furthermore, risk assessments are not designed to measure overall performance, though DHS uses certain risk measurements that may be able to speak to performance. CBP's 2012-2016 Border Patrol Strategic Plan (BPSP) focuses on "identifying high risk areas and targeting ... response[s] to meet" threats in those areas. This plan employs a risk-based strategy, which departs from the previous, resource-based 2004 National Border Patrol Strategy. According to Border Patrol officials, they employ the "State of the Border Risk Methodology," which the agency claims is "a scientifically valid, adaptable, and quantifiable means of assessing the relative risks of the corridors and sectors of the Southwest Border." This approach has three components: "intelligence," "situational awareness," and "risk methodology." Intelligence refers to information gathered and analyses performed by U.S. intelligence agencies that offer insight into terrorist or criminal efforts to exploit the U.S. border and undermine security measures. The Border Patrol works with other agencies to obtain and share different intelligence. The information collected through these collaborations reportedly gives the Border Patrol the opportunity to predict threats and act proactively. Situational awareness refers to understanding conditions at specific locations on the border. The Border Patrol increases its situational awareness through two methods. First, the traditional method is used in areas of high threat and activity along the U.S. border, where agents employ different tracking strategies and coordinated patrols. Second, the technical method is used in areas of low activity, where the Border Patrol uses geospatial intelligence. If activity is detected by geospatial intelligence technology, sectors are notified by DHS and they investigate the activity. As of August 24, 2015, 1,279.84 border miles (877.10 on the Southwest border and 402.74 on the Northern border) employed geospatial intelligence and 95.4% of those miles confirmed no activity present. The risk methodology is comprised of 12 indicator metrics that were created by isolating key concepts involved in apprehending undocumented migrants and seizing contraband. For example, some indicators are the average apprehensions per recidivist, daily average apprehensions, and the percentage of first time apprehensions. In addition, other metrics the Border Patrol uses are the recidivist rate and the effectiveness rate, the same metrics that DHS uses as performance metrics. However, the Border Patrol reviews these metrics at the sector level to make operational decisions, while DHS examines them for the entire border to make strategic decisions. For each sector, the Border Patrol standardizes each indicator in order to create a common unit of measure. The average measure for each indicator is noted and if there is a significant deviation from that norm in the wrong direction, meaning it is noticeably different from that sector's average, it is determined to be risky. Depending on how different the measure is from its average, the Border Patrol determines whether the risk is classified as low, medium, or high. Therefore, in this methodology, risk is determined by detecting variations or changes from the norm for each sector. Though intelligence, situational awareness, and the risk methodology are all important to determining risk, when intelligence contradicts the risk methodology's findings, intelligence holds more weight. This is because the risk methodology's indicators examine past information while intelligence focuses on the future. In reviewing current metrics and those under development, Congress may consider whether these metrics adequately measure border security. For example, is DHS's new metric in development, unauthorized entry of migrants into the United States, satisfactory or will additional metrics be needed to sufficiently measure border security? Furthermore, is a comprehensive border security metric, like operational control, still desirable or necessary or can border security be measured by other metrics that look at different components of security? A clear measure of border security is an important tool to help Congress conduct oversight and evaluate if CBP is reaching its intended goals. Congress may want to consider what type of review and oversight should be required with respect to measurement of performance. For the purposes of maintaining accountability within DHS and the Border Patrol, Congress may also want to review what it means to be "effective," and more specifically what the targets or meaningful thresholds for different metrics should be. For example, what is an acceptable level of risk at the border? An evaluation of metrics, at the strategic and operational levels, may also help Congress analyze how to most efficiently use resources at the border. For example, should enforcement expenditures be maintained, increased, or decreased? Furthermore, Congress could consider whether the allocation of funding between different enforcement programs should remain the same or be adjusted. Congress may also be interested in the implementation of metrics at operational and strategic levels and how they interact with one another. For instance, what changes are happening at the departmental level and how do they affect the day-to-day work of Border Patrol agents? In theory, metrics should be used not only to hold DHS accountable but also to inform decisionmaking and the development of strategies for improvement. Therefore, implementation of metrics and how they are used may be of interest to Congress. Congress could consider whether other data and methodologies should be used to measure border security. For instance, the unintended consequences and secondary effects of border security demonstrate some of the tradeoffs present in maintaining or changing the level of security present at the border. This calls into question whether certain secondary effects are negative and acceptable and whether they impact what is considered to be effective border security. Furthermore, additional or improved data and methodologies could be used to adjust measurements to incorporate shifting migrant demographics, such as increases in unaccompanied child migrants, asylum claims, and migrants from countries other than Mexico. Some migrants coming from countries not adjacent to the United States also face border security and immigration enforcement in transit countries, such as Mexico. Therefore, Congress may also consider whether DHS's metrics account for the actions of transit countries and whether DHS is capturing the correct data. For example, a decrease in apprehensions at the Southwest border may not be only a result of successful deterrence by the Border Patrol, it may also be the result of increased apprehensions of unauthorized migrants in Mexico, who are therefore prevented from reaching the U.S. border. Several pieces of legislation have been introduced in the 114 th Congress that include reporting and measurement requirements. For example, some legislation would direct DHS to submit a Northern border threat analysis. Other legislation would require the Secretary of Homeland Security to gain and maintain operational control and situational awareness of the Northern and Southern borders of the United States, while also strengthening DHS's measurement and evaluation of its activities and progress. Research by scholars and think tanks has recommended the collection of additional data and the use of varied methodologies in order to obtain meaningful performance-based metrics to measure border security. Some have suggested collecting data other than enforcement data in order to view a greater breadth of factors impacting border security. Additionally, expanding on the types of methodologies with which enforcement and other data are collected and analyzed can allow for broader perspectives and new findings. New data and methodologies also allow for inclusion of metrics that may be able to provide a more complete or holistic view of border security. Data In addition to traditional enforcement statistics, survey data based on interviews with migrants and potential migrants are additional sources of information on unauthorized migration. Surveys can collect different information about their subjects than is found in enforcement data. This is because they can be conducted within the United States as well as in migrant countries of origin, and they may capture more information about successful unauthorized inflows and the deterrent effects of enforcement. In 2011, DHS commissioned a comprehensive study by the National Research Council (NRC) on the use of surveys and related methodologies to estimate the number of unauthorized U.S.-Mexico border crossings. The NRC recommended that DHS use survey data along with enforcement data to measure unauthorized flows and the effectiveness of border enforcement. RAND has recommended the use of respondent-driven sampling for migrant surveys. This method would involve a nonrandom sample of individuals from the population of interest who invite others to participate, and they would invite more individuals to participate. Researchers can account for social networks and recruitment patterns in order to obtain estimates of population characteristics. To account for potential inaccurate responses from migrants, RAND also suggested the use of "group answers" that group illicit and licit activities together, therefore allowing migrants to answer questions without revealing any unlawful activities. This suggestion responds to migrants' possible hesitation to participate in a survey or provide accurate information for fear of subsequent law enforcement action. Surveys also pose certain limitations, such as issues about whether samples are representative of the overall migrant population, which is related to who is surveyed and where. Similarly, the composition of the migrant populations can also affect the ability of a survey to fully capture migration metrics. For instance, recent decreases in the proportion of unauthorized Mexican migrants entering the United States may call for the development of survey methodology that accounts for different source countries. Since migrant flows cannot be measured directly, some have suggested the use of models that create estimates of unauthorized entry using proxy data. With respect to migrant flows, researchers have suggested human smuggler fees as a possible proxy for border control effectiveness. In theory, more effective border enforcement would make it more difficult for a smuggler to pass the border; this additional cost to them could be passed on to migrants through higher fees. However, smuggling fees are also sensitive to other factors, such as the risks and costs associated with providing "coyote" services, the cost of attempting to cross the border without a coyote, migration alternatives, the size and structure of the coyote service industry, migrants' ability to afford services, and the specific services the coyote is contracted to provide. A model using proxy data would need to account for other influencing factors in order to create a more reliable flow estimate. Methodologies Different methodologies can employ the use of enforcement data and other data in order to analyze the effectiveness of border security. For example, population surveys can be used to estimate flows of migrants to and from countries. Similar to the residual method used to estimate the undocumented population in the United States, Mexico's Censo de Población y Vivienda could be used to identify emigration risk factors by monitoring annual changes in population demographics that are not explained away by births or deaths. Additionally, comparisons across each country's population surveys could produce broad estimates of unauthorized migrant flows to and from each country. However, population surveys do have limitations, such as their relatively high costs, infrequent administration, and the possibility of undercounting those without stable housing. Regression models could be used to estimate the size of the population that is likely to migrate and the proportion that will attempt to enter the United States. Models can account for and link changes in the risk population to economic, demographic, and social factors that may influence the decision to migrate. In order to obtain statistically significant results in a regression model, a sizable sample would be needed. Furthermore, the model would need to be sensitive to specific time periods and certain migrant cohorts. Stratified sampling of border crossers would involve the Border Patrol randomly placing resources across sectors, taking into account the likelihood of resources being placed in a certain region and the number of apprehensions made there. This methodology could be used to estimate total apprehensions that would have been made if resources were placed in all sectors. Incidentally, this method could also assist in improving Border Patrol performance by increasing the chance of detecting new transportation routes and strategies by allowing for random placement. Another method for estimating detection in a sampled area would involve "red teaming," where migrants or agents are recruited to attempt crossing the border in order to establish the probability of interdiction. | Understanding the risks present at the U.S. borders and developing methods to measure border security are key challenges for the Department of Homeland Security (DHS) and the U.S. Border Patrol, the agency within DHS charged with securing the border between ports of entry. Metrics for border security are used at both the strategic level, by DHS, and at the operational level by Customs and Border Protection (Border Patrol). This report reviews DHS's and the Border Patrol's use of metrics in evaluating their objective to secure the border between ports of entry. DHS and the Border Patrol can use metrics to measure their performance and estimate risks at the border. Additionally, metrics provide Congress with an understanding of DHS's and Border Patrol's progress in securing the border. At a strategic level, DHS uses performance metrics to understand its ability to meet border security objectives. However, DHS has struggled to create a comprehensive measure of border security. Most recently, DHS has labored to create a new generation of performance metrics, through the estimation of unauthorized entry of migrants into the United States. This measure represents the volume of migration entering the United States and can be influenced by factors outside of DHS's control, and therefore may not directly speak on border security. Congress may want to consider whether this is an adequate performance metric for border security and whether additional and/or more comprehensive and targeted metrics are required. DHS's Annual Performance Report for FY2014-FY2016 reported two other performance metrics used to measure its progress in securing the border. First, the percentage of people apprehended multiple times along the Southwest border, or the recidivism rate, is used to capture the ability of the Border Patrol to deter migrants from re-entering the United States. Second, the rate of interdiction effectiveness along the Southwest border between ports of entry, or the effectiveness rate, measures the Border Patrol's ability to apprehend unauthorized migrants. In the past, DHS has used several different performance metrics. For example, from 2001 to 2004, DHS, and the former Immigration and Naturalization Service (INS), used optimum deterrence as a measure for border security, defining it as the level where applying more border security would not significantly increase apprehensions or deterrence. In 2005, DHS began to use operational control as a new measure, describing it as the miles along the border where the Border Patrol had the ability to detect, identify, respond to, and interdict cross-border unauthorized activity. When operational control was retired as a metric, migrant apprehensions became the interim measure for border security from 2011 to 2013. At an operational level, the Border Patrol uses metrics within its risk assessments. The estimation of risk at the sector level assists the Border Patrol in making day-to-day decisions with regard to how to best align its resources against different threats. The agency determines risk through its "State of the Border Risk Methodology." A secured border is characterized as low risk. The Border Patrol's methodology estimates the magnitude of risk by gathering and understanding intelligence information, developing a detailed awareness of threats at the border, and applying a standardized measurement of risk. These assessments are not used as metrics themselves. However, the Border Patrol's methodology monitors certain metrics at the sector level, such as the recidivist rate and effectiveness rate, which may be able to speak to the Border Patrol's performance. Metrics can provide an understanding of the state of the border. In reviewing border security metrics, Congress may be interested in issues surrounding the oversight of DHS's measurement practices, the determination of acceptable levels of risk for each metric, and the implementation of strategic and operational metrics and how they relate to one another. Moreover, Congress may consider how metrics can be used to inform decisions on expenditures and whether additional data and methodologies are needed to provide a more holistic view of border issues. Lastly, with migrant demographics shifting and some transit countries conducting their own enforcement of unauthorized migration, Congress may consider how these practices affect data and outcomes and what can be done to account for these changes. |
In February 2002, controversy erupted over the Bush Administration's proposal, which Congress accepted, to not request renewal of the Superfund taxes in its FY2003 budget submission âa decision repeated in each subsequent budget proposal (FY2004-FY2009). The tax authority expired in 1995, but the fund's balance remained positive until FY2003. Although several Members of Congress have introduced bills to reinstate the taxes during these years, such efforts have lacked the necessary support. The Superfund trust fund is used to clean up sites contaminated by releases of hazardous substances. Without dedicated taxes, and with a relatively small balance in the trust fund, Congress has been using general revenues for a larger percentage of cleanup funds. This report reviews income sources for the fund, provides Superfund program funding estimates for FY2009, and discusses whether this funding will be adequate to meet projected program needs. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), which was greatly expanded by the Superfund Amendments and Reauthorization Act of 1986 (SARA, P.L. 99-499 ), created the Superfund program to clean up the nation's worst hazardous waste sites and directed the Environmental Protection Agency (EPA) to prepare a National Priorities List (NPL) to identify sites that present the greatest risk to human health and the environment. The Superfund account in EPA's budget funds the agency's efforts to remove contamination that presents an immediate risk and to remediate contamination for which there is a potential pathway of exposure. Although federal facilities are subject to CERCLA provisions, the costs of remediation at federal facilities are paid by the federal agency that caused the contamination, rather than out of the Superfund account. In a majority of cases, Superfund cleanups are paid for by potentially responsible parties (PRPs)âusually current or previous owners/operators of the site. According to EPA, PRPs conduct cleanup at more than 70% of the sites on the NPL. At approximately 30% of the NPL sites, either EPA cannot locate PRPs for these properties, or the PRPs located do not have the necessary financial resources to assist with cleanup. It is primarily at this group of NPL sites that EPA uses funds from the trust fund to conduct cleanup activities. The Superfund funding debateâthat is, whether the trust fund should be supported by a dedicated tax or general Treasury revenuesâapplies to this subset of NPL sites. The trust fund has had several sources of revenue over the years, the most important being dedicated taxes on petroleum, chemical feedstocks, and corporate income. The taxes on petroleum (9.7 cents per barrel) and on chemical feedstocks and imported chemical derivatives (varying amounts, depending on the chemical) were based on the assumption that many of the hazardous substances to be cleaned up were derived from these sources. The third tax (referred to as the Corporate Environmental Income Tax), pegged at 0.12% of corporate income in excess of $2 million, was meant to raise funds from a wide range of companies that may have used and disposed of hazardous substances. Proponents of the Superfund taxes argue that the taxes are justified based on the "polluter pays" principle. Both the Bush Administration and its critics say they support the "polluter pays" principle, but they mean different things when using that phrase. When Administration spokespersons support "polluter pays," they mean cleanup funded by responsible parties at sites where such parties have been identified as owners, operators, or contributors of the waste requiring cleanup. From this perspective, "polluters" would not include industrial sectors or corporations that may not have contributed directly to a specific site's contamination. The Administration's critics use the "polluter pays" term in a broader sense, however, to mean that the tax money that is used to clean up the other 30% of the sites should come from industries that profited from the sale or use of the chemicals being cleaned up, but who may not be directly related to a particular release of a hazardous substance. Thus, they support resumption of the dedicated taxes on petroleum and chemical feedstocks as well as the Corporate Environmental Income Tax, arguing that this approach is more appropriate than funding the trust fund through general Treasury revenues. Lesser sources of income to the fund have included interest on the fund's balance (which is invested in government securities until expended); cost recoveries from PRPs; reimbursements to EPA from other federal agencies for emergency removal activities; and collection of fines and penalties. Funds from general Treasury revenues have also contributed to the Superfund program to some degree, including years when the tax was active. Table 1 shows the sources of revenue to the fund from 1991 to 1995 (the last five years before the taxes expired). The three dedicated taxes provided an average of $1.45 billion per year, 65.8% of total revenues during the period. The taxes generated nearly four times as much as the contribution from general revenues, which averaged $369 million per year, or 16.8% of total Superfund revenues during the period. The remainder of the fund's income came from interest on investments ($200 million per year) and cost recoveries ($180 million per year). The taxes that supported the trust fund expired at the end of 1995. The Republican leadership, notably the Chairman of the House Ways and Means Committee during the 104 th through 106 th Congresses, opposed reinstating the taxes except as part of a comprehensive CERCLA reauthorization that would remove or modify Superfund's liability provisions. No consensus was reached on reauthorization, and the taxes were not reinstated. When the taxes expired, the Office of Management and Budget (OMB) reported that the fund had an unobligated balance of nearly $4 billion and, even after expiration of the taxes, money continued to be added to it from interest payments, cost recoveries, and other sources. Thus, the lapse in taxing authority initially had little effect on the ability to fund the program. The Clinton Administration requested reinstatement of the taxes annually in its budget submission, but Congress took no action on these requests. Congress continued to fund the program through a combination of the existing unobligated trust fund balance and general revenues. To make the fund last longer, the contribution of general revenues to the annual appropriation was increased from $250 million annually in FY1993 to FY1998 to $634 to $700 million in FY2000 to FY2002. The Bush Administration requested $700 million from general revenues in FY2003 and $1.1 billion in FY2004. In FY2005, the entire appropriation ($1.25 billion) came from general revenues. Although the Superfund starting balance has improved in recent years, the vast majority of the annual appropriations continued to come from general revenues. In FY2006 and FY2007, the beginning year balance was $95 million and $178 million, respectively. OMB estimated that the FY2008 starting balance was $273 million; the FY2009 balance is projected to be $176 million. Regardless, general revenues remain as the primary source of program funding for both FY2008 and FY2009. In recent years, attention has focused on the dwindling amount of unobligated funds in the Superfund Trust Fund. As shown in Figure 1 , this balance began a steady decline starting in FY1998. By the end of FY2001, the fund's unobligated balance had declined to $860 million. The President's FY2003 and FY2004 budgets projected further declines, to $427 million at the end of FY2002 and to $159 million at the end of FY2003. These numbers were revised in the FY2005 budget submission (and in Figure 1 ) to reflect actual cost recoveries and other transactions in FY2002 and FY2003. The actual amounts show a balance of $564 million at the beginning of FY2003 and a zero balance at the beginning of both FY2004 and FY2005. Although FY2005 started with a zero balance, it ended with $97 million in the account, creating a starting balance of $97 million in FY2006. This trend has continued in recent years: FY2007 started with a balance of $178 million; OMB estimated that FY2008 and FY2009 will begin with $273 million and $176 million, respectively. However, these starting balances do not approach the balances that existed when the trust fund was supplied mainly by the Superfund taxes. Based on OMB estimates of starting balances in FY2008 and FY2009, general Treasury revenues will continue to supply the vast majority of the program needs. The Office of Management and Budget (OMB) produces annual estimates of the Superfund trust fund's starting and ending fiscal year balances and revenue from its funding sources. OMB includes these estimates in the Appendix to the annual Budget of the United States Government (hereafter referred to as the President's budget request for a particular fiscal year). As shown in the annual budget request, funds that contribute to the trust fund fall into five categories: (1) corporate income taxes, (2) interfund transactions, (3) cost recoveries, (4) interest and profits on investments, and (5) fines and penalties. As discussed above, the corporate income taxes category, originally a dedicated source of program revenue, expired at the end of 1995. Therefore, this category is listed at zero. The next category, interfund transactions, represents the estimated contribution from general Treasury revenues, which is a function of both the level of congressional appropriation and the trust fund's fiscal year starting balance. Similar to recent years, the Administration's FY2009 budget request proposed $1.26 billion for the Superfund appropriation to consist of "sums available in the Trust Fund on September 30, 2008" (i.e., the end of FY2008, therefore the FY2009 starting balance) and "up to [$1.26 billion] as a payment from general revenues," if the trust fund balance is not sufficient to fund the total appropriation. Therefore, any remaining balance from FY2008 would go toward the FY2009 appropriation, and general Treasury revenues would fund the remainder of the appropriation, up to the maximum level enacted by Congress. The other three fund categoriesâcost recoveries, interest and profits, and fines and penaltiesâhelp generate the end-of-year balance that is used in the next fiscal year. Cost recoveries represent payments to the fund from potentially responsible parties to reimburse the government for cleanup expenditures at sites for which these private parties are legally responsible. Recoveries vary from year to year; projecting them in advance is difficult and may have a larger potential margin of error than other categories of revenue. During the six-year period of fiscal years 1997-2002, they averaged $272 million per year, but they declined steadily from $147 million in FY2003 to $60 million in FY2006. Although FY2007 saw recoveries of $234 million, OMB estimated recoveries of $76 million for both FY2008 and FY2009. Like other government trust funds, the Superfund trust fund earns interest on its current balance until the money is actually expended. Expenditures can lag obligations by several years, so there can be a substantial difference between the unexpended and unobligated balances in the fund. The unexpended Superfund balance was estimated at $2.9 billion at the beginning of FY2008. Due to the size of the unexpended balance, the fund is still earning substantial amounts of interest. According to the President's FY2009 budget request, OMB estimated $151 million in interest earned for FY2008 and $125 million for FY2009. These projections assume an interest rate that is historically low. If interest rates are higher than OMB expects, interest earned on the unobligated balance would be higher. Fines and penalties have generally contributed only a minor portion to the Superfund trust fund. EPA collected $1 million in FY2007, and OMB forecasts $2 million in fines and penalties for both FY2008 and FY2009. The Administration requested a $10 million increase in program funding for FY2009: $1.26 billion compared with the $1.25 billion appropriated in FY2008. OMB estimated that of the total FY2009 appropriation, $1.09 billion would come from general Treasury revenues in FY2009. If the appropriation language were enacted as proposed, the actual amount of general Treasury revenues would depend on the fund's starting balance and the appropriation ceiling enacted by Congress. Regardless, the vast majority of the FY2009 appropriation would come from general Treasury revenues. To estimate general revenue funding needs for Superfund in 2008 and later years, it is first necessary to identify future program needs. In July 2001, Resources for the Future (RFF), as directed by Congress in the FY2000 VA-HUD-Independent Agencies appropriation ( P.L. 106-74 ) conference report, released a comprehensive study to Congress identifying those needs and projecting future costs for fiscal years 2000-2009. The study looked at all major elements of the Superfund program, including the removal program (for emergency and short-term cleanups); the remedial program (long-term cleanup); site assessment activities; program staff, management, and support costs; program administration; and Superfund-related work of other programs and agencies. The authors developed alternative scenarios for estimating the number, type, and cost of sites likely to be added to the program in coming years. RFF estimated the FY2009 program needs to be $1.6 billion. This was the report's "base case"âdescribed as "our best judgement of the future cost of the Superfund program, given the full body of our research, analyses, and interviews." The report also estimated a high and low case, to reflect uncertainties about the factors used in their cost models. The low estimate for FY2009 was $1.4 billion; the high estimate was $1.8 billion. There are at least three factors contributing to RFF's increased need projections. First, the fund's unobligated balance, which remained relatively high (see Figure 1 ) during the years of Superfund taxes (and the two fiscal years following the tax expiration), has decreased steadily since FY1997, reaching zero at the end of FY2003. As discussed earlier, the current sources of the balanceâcost recoveries, interest, and feesâprovided significantly less funding support than the Superfund taxes. Second, the amounts needed for cleanup were projected to increase beginning in FY2002, as numerous "mega sites" moved beyond the analysis and design phases and into actual construction of remedies. Although mega sites are generally classified as sites with a projected cleanup cost of $50 million or more, RFF projected the average cost at mega sites to be $140 million. In the RFF analysis, the cost of remedial action was projected to remain above historic levels through FY2007, and the cost of the Superfund program as a whole was projected to remain above FY2001 levels through at least FY2009. Third, EPA's Office of Inspector General (IG) highlighted the concern that hardrock mining sites may have a significant financial impact on the trust fund. The IG identified "156 hardrock mining sites nationwide that have the potential to cost between $7 billion and $24 billion to cleanup." Although the IG points out there is uncertainty regarding the risks to human health and the environment at these sites, there is also uncertainty concerning PRPs and their ability to pay for cleanup. Evidence from prior years indicates that in FY2002 through FY2004, cleanup was delayed at numerous sites because of a lack of funds. According to a report from the EPA IG, "EPA obligated a total of $320 million" to remedial action construction activities in FY2002, "a difference of $97 million from the Regions' total need of $417 million." The IG report identified seven sites for which the Regions requested construction funding but got none, and five other sites that together received only $15 million of the $38 million requested. In addition, the agency obligated only $43 million of the $60 million requested for Long-Term Response Actions at sites where construction was complete but a need for continuing treatment activities (most likely for ground water) remained. In FY2003, the remedial action program was $175 million short of the Regions' total needs, according to the IG. The IG identified an additional 11 sites that could not begin construction because of a funding shortfall, and at least five other sites that did not receive their full funding request in that year. Although the IG did not report on the subject in FY2004, a survey of EPA staff by the House Energy and Commerce Committee Democratic staff found a reported shortfall of $263.1 million. EPA challenged some of the committee data, but it confirmed in letters to House and Senate Democrats that it did not start construction at 19 sites that were ready for construction in FY2004 because of a lack of funding. Congress could increase appropriation levels, in order to meet the increased funding needs, such as those identified by RFF. The Administration noted that it requested increases in funding in both its FY2004 request for $1.39 billion and its FY2005 request for $1.38 billion, which Congress did not provide. Congress cut the FY2004 and FY2005 requests by $132 million and $134 million, respectively. In fact, between FY2004 and FY2007, the President's Superfund budget proposals exceeded the annual amount that was subsequently appropriated by Congress. This trend halted in FY2008: Congress appropriated $9 million more than was requested by the Administration. Given RFF's projected funding needs for the Superfund program and the relatively minimal amounts available to the fund from sources other than general revenues, Congress will face competing interests if it attempts to appropriate all of Superfund's needs. RFF estimates that general Treasury revenue contributions as high as $1.5 billion per year would be needed to finance Superfund through the rest of the decade in the continued absence of Superfund taxes. This could prove difficult in light of current interest in deficit reduction. The adequacy of funding for Superfund and whether to reinstate the Superfund taxes have generated substantial debate in recent years. In the past two Congresses, Members introduced several bills or amendments that sought to increase Superfund funding or reinstate the Superfund tax. Interest in these issues will likely continue in the 110 th Congress. During a briefing for reporters on June 8, 2005, EPA Administrator Stephen L. Johnson said that he opposed reimposing the tax on the chemical industry that was formerly used to fund the trust fund. Instead, Johnson said he will seek to fund additional cleanups through "additional efficiency to be gained in the program." Johnson stated he will "keep the focus on responsible parties," noting that these are who should pay, "not the taxpayers." | This report discusses the role of dedicated taxes and other sources of revenue in funding the Hazardous Substance Superfund Trust Fund. Congress makes annual appropriations to the Environmental Protection Agency (EPA) from this trust fund and from general Treasury revenues for the purpose of supporting the Superfund program. The Superfund program addresses both short-term (emergency) and long-term cleanup activity of hazardous substances at contaminated sites. Three dedicated taxes (on petroleum, chemical feedstocks, and corporate income) historically provided the majority of the trust fund's income. The taxes expired at the end of 1995, however, and the amount of unobligated money in the fund gradually dwindled. By the end of FY2003, the fund's unobligated balance was zero, down from a high of $3.8 billion in 1996. The Administration's decision to not request reinstatement of the taxes has been supported by Congress, although some Members introduced legislation to do so. The annual budgets have compensated for the lack of dedicated tax revenue by increasing the contribution from the general fund of the U.S. Treasury. In fiscal years 2004-2008, virtually the entire Superfund program appropriation came from general Treasury revenues. Proponents of reinstating the dedicated taxes contend that the cleanup of hazardous waste sites and releases (e.g., spills and leaks) should rely on taxes paid by the chemical and petroleum industries and companies that used the hazardous substances being cleaned up, not taxpayers. Proponents refer to this as the "polluter pays" principle. They also contend that in the context of federal budget deficits, it may be difficult to maintain spending at needed levels without dedicated taxes. Opponents of reinstating the tax argue, for example, that the tax is overreaching and unfair, as it applies to all industry sectors and to both compliant and noncompliant companies. In general, this funding debate applies to 30% of the sites on the National Priorities List; the remaining 70% of the sites, according to EPA, are cleaned up by responsible parties. Several reports, including one for the House and Senate Appropriations Committees and reports by the EPA Inspector General, have concluded that spending has fallen short of the program's needs. From FY2004 through FY2008, the President's Superfund budget requests declined each year. However, during most of those years, the President's Superfund budget proposals exceeded the amounts appropriated by Congress. |
The F-35 Joint Strike Fighter (JSF), also called the Lightning II, is a strike fighter airplane being procured in different versions for the Air Force, Marine Corps, and Navy. The F-35 program is DOD's largest weapon procurement program in terms of total estimated acquisition cost. Current Department of Defense (DOD) plans call for acquiring a total of 2,456 F-35s for the Air Force, Marine Corps, and Navy at an estimated total acquisition cost, as of December, 2017, of about $325.1 billion in constant (i.e., inflation-adjusted) FY2012 dollars. U.S. allies are expected to purchase hundreds of additional F-35s, and eight foreign nations are cost-sharing partners in the program. The Administration's proposed FY2019 defense budget requested about $10.7 billion in procurement funding for the F-35. This would fund the procurement of 48 F-35As for the Air Force, 20 F-35Bs for the Marine Corps, 9 F-35Cs for the Navy, and continuing development. The proposed budget also requested about $1.3 billion for F-35 research and development. The Joint Strike Fighter was conceived as a relatively affordable fifth-generation aircraft that could be procured in highly common versions for the Air Force and the Navy. Initially, the Marine Corps was developing its own aircraft to replace the AV-8B Harrier, but in 1994, Congress mandated that the Marine effort be merged with the Air Force/Navy program in order to avoid the higher costs of developing, procuring, and operating and supporting three separate tactical aircraft designs to meet the services' similar, but not identical, operational needs. All three versions of the F-35 will be single-seat aircraft with the ability to go supersonic for short periods and advanced stealth characteristics. The three versions will vary in their combat ranges and payloads (see the Appendix ). All three are to carry their primary weapons internally to maintain a stealthy radar signature. Additional weapons can be carried externally on missions requiring less stealth. From a common airframe and powerplant core, the F-35 is being procured in three distinct versions tailored to the varied needs of the military services. Differences among the aircraft include the manner of takeoff and landing, fuel capacity, and carrier suitability, among others. The Air Force plans to procure 1,763 F-35As, a conventional takeoff and landing (CTOL) version of the aircraft. F-35As are to replace Air Force F-16 fighters and A-10 attack aircraft, and possibly F-15 fighters. The F-35A is intended to be a more affordable complement to the Air Force's F-22 Raptor air superiority fighter. The F-35A is not as stealthy nor as capable in air-to-air combat as the F-22, but it is designed to be more capable in air-to-ground combat than the F-22, and stealthier than the F-16. If the F-15/F-16 combination represented the Air Force's earlier-generation "high-low" mix of air superiority fighters and more-affordable dual-role aircraft, the F-22/F-35A combination might be viewed as the Air Force's intended future high-low mix. The Air Force states that "The F-22A and F-35 each possess unique, complementary, and essential capabilities that together provide the synergistic effects required to maintain that margin of superiority across the spectrum of conflict…. Legacy 4 th generation aircraft simply cannot survive to operate and achieve the effects necessary to win in an integrated, anti-access environment." The Marine Corps plans to procure 353 F-35Bs, a short takeoff and vertical landing (STOVL) version of the aircraft. F-35Bs are to replace Marine Corps AV-8B Harrier vertical/short takeoff and landing attack aircraft and Marine Corps F/A-18A/B/C/D strike fighters, which are CTOL aircraft. The Marine Corps decided to not procure the newer F/A-18E/F strike fighter and instead wait for the F-35B in part because the F/A-18E/F is a CTOL aircraft, and the Marine Corps prefers aircraft capable of vertical operations. The Department of the Navy states that "The Marine Corps intends to leverage the F-35B's sophisticated sensor suite and very low observable, fifth generation strike fighter capabilities, particularly in the area of data collection, to support the Marine Air Ground Task Force well beyond the abilities of today's strike and EW [electronic warfare] assets." The Navy plans to procure 273 F-35Cs, a carrier-suitable CTOL version of the aircraft, and the Marines will also procure 67 F-35Cs. The F-35C is also known as the "CV" version of the F-35; CV is the naval designation for aircraft carrier. The Navy plans in the future to operate carrier air wings featuring a combination of F/A-18E/Fs (which the Navy has been procuring since FY1997) and F-35Cs. The F/A-18E/F is generally considered a fourth-generation strike fighter. The F-35C is to be the Navy's first aircraft designed for stealth, a contrast with the Air Force, which has operated stealthy bombers and fighters for decades. The F/A-18E/F, which is less expensive to procure than the F-35C, incorporates a few stealth features, but the F-35C is stealthier. The Department of the Navy states that "the commonality designed into the joint F-35 program will minimize acquisition and operating costs of Navy and Marine Corps tactical aircraft, and allow enhanced interoperability with our sister Service, the United States Air Force, and the eight partner nations participating in the development of this aircraft." The F-35 is powered by the Pratt & Whitney F135 engine, which was derived from the F-22's F119 engine. The F135 is produced in Pratt & Whitney's facilities in East Hartford and Middletown, CT. Rolls-Royce builds the vertical lift system for the F-35B as a subcontractor to Pratt & Whitney. Consistent with congressional direction for the FY1996 defense budget, DOD established a program to develop an alternate engine for the F-35. The alternate engine, the F136, was developed by a team consisting of GE Transportation—Aircraft Engines of Cincinnati, OH, and Rolls-Royce PLC of Bristol, England, and Indianapolis, IN. The F136 was a derivative of the F120 engine originally developed to compete with the F119 engine for the F-22 program. DOD included the F-35 alternate engine program in its proposed budgets through FY2006, although Congress in certain years increased funding for the program above the requested amount and/or included bill and report language supporting the program. The George W. Bush Administration proposed terminating the alternate engine program in FY2007, FY2008, and FY2009. The Obama Administration did likewise in FY2010. Congress rejected these proposals and provided funding, bill language, and report language to continue the program. The General Electric/Rolls Royce Fighter Engine Team ended their effort to provide an alternate engine on December 2, 2011. Fuller details of the alternate engine program and issues for Congress arising from it are detailed in CRS Report R41131, F-35 Alternate Engine Program: Background and Issues for Congress . The F-35 is currently in low-rate initial production, with 280 aircraft delivered as of April 2018. At least 250 of those were in U.S. service. Four to five aircraft are currently delivered each month, with the production rate scheduled to increase to 120 per year by 2019. In keeping with the acquisition plan that overlapped development and production (known as "concurrency"), the F-35 was also in system development and demonstration (SDD), with testing and software development ongoing, from October 2001 until April 11, 2018. The SDD phase will formally continue until the end of Initial Operational Test and Evaluation, when a "Milestone C" full-rate production decision will be made. Significant developments since the previous major edition of this report (July 18, 2016) include the following, many of which are discussed in greater detail later in the report: In the latest Selected Acquisition Report, DOD disclosed an intention to acquire F-35s through multiyear contracting. From FY 2021 to the end of the program, the USAF production profile assumes one 3-year multi-year procurement (FY 2021-FY 2023) followed by successive 5-year multi-year procurements beginning in FY2024, with the required EOQ investments and associated savings. The Department of Navy (DoN) did not include EOQ funding in the PB 2019 submission for a multiyear in FY 2021-2023 for either the F-35B or F-35C. The DoN plans to reassess that decision in the coming FY 2020 budget cycle. Therefore, the DoN PB 2019 production profile assumes annual procurements from FY 2021-2023, followed by successive 5-year multi-year procurements from FY 2024 to the end of the program with necessary EOQ investments and associated savings. The F-35 Joint Program Office declared the 17-year System Development and Demonstration (SDD) effort complete on April 11, 2018. "(T)he developmental flight team has conducted more than 9,200 sorties, accumulated 17,000 flight hours and executed more than 65,000 test points." The end of the flight test effort does not mark the actual end of SDD, though; that will occur at Milestone C, following the completion of initial operational test and evaluation (IOT&E). "Preparations for IOT&E are progressing, although the program will not meet several of the readiness criteria until late CY18; as a result, formal entry into IOT&E will not occur before then." The Navy expects IOT&E entry in September 2018. The Director of Operational Test and Evaluation notes that "IOT&E, which provides the most credible means to predict combat performance, likely will not be completed until the end of 2019, at which point over 600 aircraft will already have been built." As noted, the F-35 is an international program, with commitments from program partners and other countries to share in the development costs and acquire aircraft. The other nations' plans have varied over time. The latest Selected Acquisition Report projects 741 international sales—609 to partners in the program and 132 through foreign military sales. Most recently: Australia took delivery of two F-35As in 2014 and 2015, and has announced a new order for 58 follow-on aircraft, with the next deliveries in 2018. However, Australia decided not to acquire F-35Bs. Belgium received U.S. State Department approval for 34 F-35s, although the Belgian government has yet to decide on the winner of its current fighter competition. Following the election of a new government, Canada canceled its decision to acquire 65 F-35s. Canada has remained a formal partner in the program, and the Trudeau government has included the F-35 as a candidate for its follow-on fighter requirement. According to the F-35 program manager, a Canadian exit could increase the price of an F-35A to the United States by "about .7 to 1 percent," or about $1 million. Denmark has confirmed an order for 27 F-35As, possibly going to 30; it had initially been expected to order 48, although the government also reportedly considered withdrawing from the program altogether. The initial contract is expected to be signed in 2018. Japan 's buy, initially reported as 42, may be 68 F-35s. Norway has taken delivery of the first 10 of the 52 jets it plans to buy, with 3 based in country and 7 in the United States for training. The Netherlands received 2 of its planned 37 aircraft. Singapore "is still to confirm an order, or even to announce its preferred F-35 variant," but is still "seriously considering" the jet. South Korea is looking at ordering 20 more F-35As and 6 F-35Bs in addition to the 40 already on order. Section 146 of the FY2017 National Defense Authorization Act ( P.L. 114-328 ) required DOD to examine alternative management structures for the F-35 program. Proponents argued that the overhead structure of a joint office, even if needed for development of a joint aircraft, is not needed once production has been established, and further that the F-35 is functionally three separate aircraft, with much less commonality than earlier envisioned. "[E]ven the Program Executive Officer of the F-35 Joint Program Office, General Christopher Bogdan, recently admitted the variants are only 20–25 percent common." Supporters cited the requirement by the United States to support international customers and to oversee further software and other upgrades as reasons to keep the office in place. The Joint Program Office employs 2,590 people, and the annual cost to operate it is on the order of about $70 million a year. In a letter to Congress accompanying that report, Under Secretary of Defense for Acquisition and Sustainment Ellen Lord declared an intention to begin a deliberate, conditions-based, and risk-informed transition ... from the existing F-35 management structure to an eventual management structure with separate Service-run F-35A and F-35B/C program offices that are integrated with and report through the individual Military Departments. Specific timing of the transition, and the responsibilities to be transferred to the services, have not been announced. On December 21, 2017, the Air Force announced Naval Air Station Joint Reserve Base Fort Worth, TX, as the preferred alternative for the first F-35A reserve component base. Davis-Monthan Air Force Base, AZ; Homestead Air Reserve Base, FL; and Whiteman AFB, MO, were also candidate bases. At the same time, Truax Field, WI, and Dannelly Field, AL, were announced as the next Air National Guard F-35A bases, with aircraft slated to arrive in 2023. Gowen Field ANGB, ID; Selfridge ANGB, MI; and Jacksonville Air Guard Station, FL, were also considered. Burlington Air National Guard Base, VT, had previously been selected. Active component F-35As had already been announced as going to Hill AFB, UT, and RAF Lakenheath, England. Eielson AFB, AK, had earlier been announced as the preferred base for the first overseas F-35 squadron. In March 2018, DOD stopped accepting new F-35s pending resolution of a dispute with Lockheed Martin over who should pay to repair identified issues with corrosion on F-35s. As of April 12, 2018, five aircraft had been deferred. This is not the first time acceptances have been stopped. "Last year, the Pentagon stopped accepting F-35s for 30 days after discovering corrosion where panels were fastened to the airframe, an issue that affected more than 200 of the stealthy jets. Once a fix had been devised, the deliveries resumed, and Lockheed hit its target aircraft delivery numbers for 2017." At the heart of the dispute is the government's inspection of the planes during Lockheed's production, which failed to discover problems with the fastenings, the sources said. Because neither party caught the issue at the time each is pointing the finger at the other to pay for the fix. In testimony before the House Armed Services Committee on April 12, 2018, DOD officials noted that the corrosion issue then in dispute was not the same found in 2016. DOD's annual testing report stated, "As of November 6, 2017, the JPO had collected data and verified performance to close out 252 of 476 (53 percent) contract specification paragraphs; 2,516 of 3,452 (73 percent) success criteria derived from the contract specifications had been completed." However, The operational suitability of the F-35 fleet remains at a level below Service expectations and is dependent on work-arounds that would not be acceptable in combat situations. Over the previous year, most suitability metrics have remained nearly the same or moved only within narrow bands, which are insufficient to characterize a trend of performance. Overall fleet-wide monthly availability rates remain around 50 percent, a condition that has existed with no significant improvement since October 2014, despite the increasing number of new aircraft. Testers found numerous other deficiencies, warning that "The JPO completed two reviews of remaining mission systems testing in CY17 and deleted test points in an attempt to keep developmental flight testing on schedule." The cost of F-35 Block 4 software, previously estimated at $8 billion, will now require $10.8 billion through FY2024, according to F-35 program executive officer Vice Admiral Mathias Winter. Of that cost, $3.7 billion would be borne by international partners, with the United States paying $7.1 billion. Since 2015, operations and sustainment costs for the F-35 fleet's lifecycle have been estimated at more than $1 trillion. The latest F-35 Selected Acquisition Report speaks (in language unusual for that document) to the need to reduce those costs: At current estimates, the projected F-35 sustainment outlays are too costly. Given planned fleet growth, future U.S. Service O&S budgets will be strained. The prime contractor must embrace much-needed supply chain management affordability initiatives, optimize priorities across the supply chain for spare and new production parts, and enable the exchange of necessary data rights to implement the required stand-up of planned government organic software capabilities. A media report indicated that the Air Force was considering reducing its buy of F-35As due to the support costs. "The shortfall would force the service to subtract 590 of the fighter jets from the 1,763 it plans to order ... the Air Force faces an annual bill of about $3.8 billion a year that must be cut back over the coming decade." "'If you can afford to buy something but you have to keep it in the parking lot because you can't afford to own and operate it, then it doesn't do you much good,' says F-35 JPO Program Executive Officer Vice Adm. Mat Winter." The Joint Strike Fighter (JSF) program that became the F-35 began in the early- to mid-1990s. Three different airframe designs were proposed by Boeing, Lockheed, and McDonnell Douglas (teamed with Northrop Grumman and British Aerospace). On November 16, 1996, the Defense Department announced that Boeing and Lockheed Martin had been chosen to compete in the concept demonstration phase of the program, with Pratt and Whitney providing propulsion hardware and engineering support. Boeing and Lockheed were each awarded contracts to build and test-fly two aircraft to demonstrate their competing concepts for all three planned JSF variants. The competition between Boeing and Lockheed Martin was closely watched. Given the size of the JSF program and the expectation that the JSF might be the last fighter aircraft program that DOD would initiate for many years, DOD's decision on the JSF program was expected to shape the future of both U.S. tactical aviation and the U.S. tactical aircraft industrial base. In October 2001, DOD selected the Lockheed design as the winner of the competition, and the JSF program entered the system development and demonstration (SDD) phase, with SDD contracts awarded to Lockheed Martin for the aircraft and Pratt and Whitney for the aircraft's engine. General Electric continued technical efforts related to the development of an alternate engine for competition in the program's production phase. As shown in Table 1 , the first flights of an initial version of the F-35A and the F-35B occurred in the first quarter of FY2007 and the third quarter of FY2008, respectively. The first flight of a slightly improved version of the F-35A occurred on November 14, 2009. The F-35C first flew on June 6, 2010. The F-35B's ability to hover, scheduled for demonstration in November 2009, was shown for the first time on March 17, 2010. The first vertical landing took place the next day. In November 2009, DOD's Joint Estimating Team issued a report (called JET II) stating that the F-35 program would need an extra 30 months to complete the SDD phase. In response to JET II, the then-impending Nunn-McCurdy breach, and other developments, on February 24, 2010, Pentagon acquisition chief Ashton Carter issued an Acquisition Decision Memorandum (ADM) restructuring the F-35 program. Key elements of the restructuring included the following: Extending the SDD phase by 13 months, thus delaying Milestone C (full-rate production) to November 2015 and adding an extra low-rate initial production (LRIP) lot of aircraft to be purchased during the delay. Carter proposed to make up the difference between JET II's projected 30-month delay and his 13-month schedule by adding three extra early-production aircraft to the test program. It is not clear how extra aircraft could be added promptly if production is already behind schedule. Funding the program to the "Revised JET II" (13-month delay) level, implicitly accepting the JET II findings as valid. Withholding $614 million in award fees from the contractor for poor performance, while adding incentives to produce more aircraft than planned within the new budget. Moving procurement funds to R&D. "More than $2.8 billion that was budgeted earlier to buy the military's next-generation fighter would instead be used to continue its development." "Taken together, these forecasts result in the delivery of 122 fewer aircraft over the Future Years Defense Program (FYDP), relative to the President's FY 2010 budget baseline," Carter said. This reduction led the Navy and Air Force to revise their dates for IOC as noted above. On March 20, 2010, DOD formally announced that the JSF program had exceeded the cost increase limits specified in the Nunn-McCurdy cost containment law, as average procurement unit cost, in FY2002 dollars, had grown 57% to 89% over the original program baseline. Simply put, this requires the Secretary of Defense to notify Congress of the breach, present a plan to correct the program, and to certify that the program is essential to national security before it can continue. On June 2, 2010, the Under Secretary of Defense for Acquisition, Technology and Logistics issued an Acquisition Decision Memorandum (ADM) certifying the F-35 Program in accordance with section 2433a of title 10, United States Code. As required by section 2433a, of title 10, Milestone B was rescinded. A Defense Acquisition Board (DAB) was held in November 2010.... No decision was rendered at the November 2010 DAB.... Currently, cumulative cost and schedule pressures result in a critical Nunn-McCurdy breach to both the original (2001) and current (2007) baseline for both the Program Acquisition Unit Cost (PAUC) and Average Procurement Unit Cost (APUC). The breach is currently reported at 78.23% for the PAUC and 80.66% for the APUC against the original baseline and 27.34% for the PAUC and 31.23% for the APUC against the current baseline. With the FY2013 budget, F-35 acquisition was slowed, with the acquisition of 179 previously planned aircraft being moved to years beyond the FY2013-2017 FYDP "for a total of $15.1 billion in savings." The Marine Corps declared F-35B Initial Operational Capability (IOC) on July 31, 2015. The Air Force declared F-35A IOC on August 2, 2016. The Navy IOC may be delayed to 2019, which is within its projected threshhold. The F-35A, F-35B, and F-35C were originally scheduled to achieve IOC in March 2013, March 2012, and March 2015, respectively. In March 2010, then-Pentagon acquisition chief Ashton Carter announced that the Air Force and Navy had reset their projected IOCs to 2016, while the Marines' projected IOC remained 2012. Subsequently, the Marines' IOC was delayed. Congress required a formal declaration of IOCs in Section 155 of the National Defense Authorization Act for Fiscal Year 2013 ( P.L. 112-239 ). The current dates (by fiscal year) are shown in Table 1 . It should be noted that IOC means different things to different services: F-35A initial operational capability (IOC) shall be declared when the first operational squadron is equipped with 12-24 aircraft, and Airmen are trained, manned, and equipped to conduct basic Close Air Support (CAS), Interdiction, and limited Suppression and Destruction of Enemy Air Defense (SEAD/DEAD) operations in a contested environment. Based on the current F-35 Joint Program Office (JPO) schedule, the F-35A will reach the IOC milestone between August 2016 (Objective) and December 2016 (Threshold).... F-35B IOC shall be declared when the first operational squadron is equipped with 10-16 aircraft, and US Marines are trained, manned, and equipped to conduct CAS, Offensive and Defensive Counter Air, Air Interdiction, Assault Support Escort, and Armed Reconnaissance in concert with Marine Air Ground Task Force resources and capabilities. Based on the current F-35 JPO schedule, the F-35B will reach the IOC milestone between July 2015 (Objective) and December 2015 (Threshold).... Navy F-35C IOC shall be declared when the first operational squadron is equipped with 10 aircraft, and Navy personnel are trained, manned and equipped to conduct assigned missions. Based on the current F-35 JPO schedule, the F-35C will reach the IOC milestone between August 2018 (Objective) and February 2019 (Threshold). Additionally, Each of the three US services will reach initial operating capability (IOC) with different software packages. The F-35B will go operational for the US Marines in December 2015 with the Block 2B software, while the Air Force plans on achieving IOC on the F-35A in December 2016 with Block 3I, which is essentially the same software on more powerful hardware. The Navy intends to go operational with the F-35C in February 2019, on the Block 3F software. One complication regarding the Navy's operational capability is that the Navy reportedly will not be able to airlift F-35 engines to carriers at sea until the introduction of the CMV-22 carrier onboard delivery aircraft in 2021. The Navy will not declare IOC until software Block 3F is fully proven. The F-35 program includes a planned total of 2,456 aircraft for the Air Force, Marine Corps, and Navy. This included 13 research and development aircraft and 2,443 production aircraft: 1,763 F-35As for the Air Force, 273 F-35Cs for the Navy, and 67 F-35Cs and 353 F-35Bs for the Marine Corps. DOD began procuring F-35s in FY2007. Figure 2 shows F-35 procurement quantities authorized through FY2018, requested procurement quantities for FY2019, and projected requests through the FYDP. The figures in the table do not include 13 research and development aircraft procured with research and development funding. (Quantities for foreign buyers are discussed in the next section.) Previous DOD plans contemplated increasing the procurement rate of F-35As for the Air Force to a sustained rate of 80 aircraft per year by FY2015, and completing the planned procurement of 1,763 F-35As by about FY2034. The current Air Force plan increases the rate to 54 per year beginning in 2021; the 1,763 fleet target has not changed. Past DOD plans also contemplated increasing the procurement rate of F-35Bs and Cs for the Marine Corps and Navy to a combined sustained rate of 50 aircraft per year by about FY2014, and completing the planned procurement of 680 F-35Bs and Cs by about FY2025. The FY2019 budget submission shows a combined F-35B and -C production rate of 44 per year in 2021, toward a fleet goal of 693. F-35s are currently produced under Low-Rate Initial Production (LRIP), with agreements reached for the first 10 lots of aircraft. Each LRIP lot includes both U.S. and international partner aircraft. Contracted unit prices for F-35s have continued to decline with each production lot. "For example, the price (including airframe, engine and profit) of an LRIP Lot 8 aircraft was approximately 3.6 percent less than an LRIP Lot 7 aircraft, and an LRIP Lot 7 aircraft, was 4.2 percent lower than an LRIP Lot 6 aircraft." In LRIPs 5, 6, and 7, any cost overruns associated with concurrent development and production would be split equally between the contractor and the government. Prior to LRIP 4, the government bore those costs alone. Beginning with LRIP 8, the contractor is liable for 100% of any cost overrun; if actual cost is lower than the contracted cost, the contractor will receive 80% of the savings, the government 20%. Although previous LRIP contracts had been arrived at through negotiation between the F-35 Joint Program Office and Lockheed Martin, the LRIP 9 contract was not agreed to by both sides. After prolonged negotiation, the government invoked its right to issue a unilateral contract. Negotiations continue on LRIP 11, with public posturing by both sides. Block buy contracts commit the government to purchasing certain quantities of aircraft over a number of years, which allows the contractor to acquire parts in greater quantity and plan workforce levels in advance, helping to reduce cost. "By purchasing supplies in economic quantities, Lockheed Martin and Pratt & Whitney estimate that 8 percent and 2.3 percent cost savings, respectively, could be achievable." The F-35 program office is reportedly considering a block buy contract for international customers, and possibly for U.S. F-35s in subsequent lots. "Executing the 'block buy' would require commitments to procuring as many as 270 U.S. aircraft, as well as commitments by foreign partners to purchasing substantial numbers of aircraft." Lockheed Martin expected to reveal a block buy proposal in March 2018. This follows on an earlier mooted block buy: The buy would begin in low-rate, initial production (LRIP) lot 11, which includes deliveries in 2019.... The international block buy is one of multiple steps toward reducing the per-unit price of the F-35A to $80-85 million in 2019, Bogdan says. "A full block buy, including US jets, could save anywhere from $2 billion to $2.8 billion, according to industry estimates." Congressional approval would be required for a U.S. block buy. In a related development, Section 141 of the Fiscal Year 2018 National Defense Authorization Act included language authorizing DOD to enter into economic order quantity contracts for advance parts for F-35s to be procured in FY2019 and FY2020. The JSF program is jointly managed and staffed by the Department of the Air Force and the Department of the Navy. Service Acquisition Executive (SAE) responsibility alternates between the two departments. When the Air Force has SAE authority, the F-35 program director is from the Navy, and vice versa. Navy Vice Admiral Mathias Winter became the F-35 program manager, succeeding Air Force Lt. Gen. Christopher Bogdan, on May 25, 2017. DOD has announced an intention to reorganize F-35 procurement now that the bulk of development has been completed, with procurement responsibilities moving from a central joint office to the military services. (This is consonant with broader congressional direction to decentralize acquisition and increase the acquisition authority of the military services.) As noted, Congress required DOD to examine alternative F-35 management structures. Proponents argued that the overhead structure of a joint office, even if useful in overseeing development of a joint aircraft, is not needed once production has been established. Further, they argue that the F-35 is functionally three separate aircraft, with much less commonality than envisioned erarly in the program. "[E]ven the Program Executive Officer of the F-35 Joint Program Office, General Christopher Bogdan, recently admitted the variants are only 20–25 percent common." Supporters cited the requirement by the United States to support international customers and to oversee further software and other upgrades as reasons to keep the office in place. In a letter to Congress accompanying that report, Under Secretary of Defense for Acquisition and Sustainment Ellen Lord declared an intention to begin a deliberate, conditions-based, and risk-informed transition...from the existing F-35 management structure to an eventual management structure with separate Service-run F-35A and F-35B/C program offices that are integrated with and report through the individual Military Departments. Specific timing of the transition, and the responsibilities to be transferred to the services, have not been announced. You can see from its angled lines, the F-35 is a stealth aircraft designed to evade enemy radars. What you can't see is the 24 million lines of software code which turn it into a flying computer. That's what makes this plane such a big deal. The F-35's integration of sensors and weapons, both internally and with other aircraft, is touted as its most distinctive aspect. As that integration is primarily realized through complex software, it may not be surprising to observe that writing, validating, and debugging that software is among the program's greatest challenges. F-35 operating software is released in blocks, with additional capabilities added from one block to the next. I'm concerned about the software, the operational software.... And I'm concerned about the ALIS [Autonomic Logistics Information System], that is another software system, basically that will provide the logistics support to the systems. – Frank Kendall, Under Secretary of Defense for Acquisition, Technology & Logistics. Kendall's concern was echoed by then-F-35 program manager Air Force Lieutenant General Christopher Bogdan. In testimony to the House Armed Services Subcommittee on Tactical Air and Land Forces, he noted that it is the "complexity of the software that worries us the most.... Software development is always really, really tricky... We are going to try and do things in the final block of this capability that are really hard to do." Among them is forming software that can share the same threat picture among multiple ships across the battlefield, allowing for more coordinated attacks. Development of the F-35 follow-on Block 4 software, an effort now known as Continuous Capability Development and Delivery (C2D2), had been expected to cost as much as $8 billion. More recent estimates put that figure at $10.8 billion through FY2024. Some in Congress argue that a program of that size should part with traditional procurement practice for an upgrade and be run as a separate Major Defense Acquisition Program, with its own budget line and the concomitant reporting requirements; language to this effect was included in the Senate's version of the FY2017 National Defense Authorization Act. This is discussed further in " Issues for Congress ," below. The issues cited above focused on software development for the F-35's onboard mission systems. A supporting system, the Autonomic Logistics Information System (ALIS), also requires extensive software development and testing. "ALIS is at the core of operations, maintenance and supply-chain management for the F-35, providing a constant stream of data from the plane to supporting staff." DOD's Director of Operational Test & Evaluation stated that "ALIS 3.0, planned for use in IOT&E and the completion of SDD, will likely not be ready for fielding until early to mid-CY18. ALIS version 3.0 is necessary to provide full combat capability. However, the program will likely not field ALIS 3.0 until early 2018 due to delays with ALIS 2.0.2.4. The program deferred to ALIS 4.0 capabilities previously designated for ALIS 3.0." GAO reported that ALIS may not be deployable: ALIS requires server connectivity and the necessary infrastructure to provide power to the system. The Marine Corps, which often deploys to austere locations, declared in July 2015 its ability to operate and deploy the F-35 without conducting deployability tests of ALIS. A newer version of ALIS was put into operation in the summer of 2015, but DOD has not yet completed comprehensive deployability tests. ALIS does not have redundant infrastructure: ALIS's current design results in all F-35 data produced across the U.S. fleet to be routed to a Central Point of Entry and then to ALIS's main operating unit with no backup system or redundancy. If either of these fail, it could take the entire F-35 fleet offline. To date, the F-35's operators have been coping with ALIS's shortcomings. "Most capabilities function as intended only with a high level of manual effort by ALIS administrators and maintenance personnel. Manual work-arounds are often needed to complete tasks designed to be automated." Some of the problems reportedly stem from ALIS's 1990s-based architecture. Air Force Lt. Gen. Chris Bogdan told reporters that the plane could fly without the $16.7 billion ... ALIS for at least 30 days. The software, which runs on ground computers, not the plane itself, manages the aircraft's supply chain, aircraft configuration, fault diagnostics, mission planning, and debriefing – none of which are critical to combat flight. As of December 2017, the total estimated acquisition cost (the sum of development, procurement, and military construction [MilCon] costs) of the F-35 program in constant (i.e., inflation-adjusted) FY2012 dollars was about $325.1 billion, including about $59.8 billion in research and development, about $260.9 billion in procurement, and about $4.4 billion in MilCon. In then-year dollars (meaning dollars from various years that are not adjusted for inflation), the figures are about $406.1 billion, including about $55.5 billion in research and development, about $345.4 billion in procurement, and about $5.3 billion in military construction. Through FY2017, the F-35 program has received a total of roughly $122.6 billion of funding in then-year dollars, including roughly $54.7 billion in research and development, about $65.7 billion in procurement, and approximately $2.7 billion in military construction. As of December 2017, the F-35 program had a program acquisition unit cost (or PAUC, meaning total acquisition cost divided by the 2,456 research and development and procurement aircraft) of about $110.0 million and an average procurement unit cost (or APUC, meaning total procurement cost divided by the 2,443 production aircraft) of $89.8 million, in constant FY2012 dollars. However, this reflects the cost of the aircraft without its engine, as the engine program was broken out as a separate reporting line in 2011. As of December 2017, the F-35 engine program had a program acquisition unit cost of about $21.6 million and an average procurement unit cost of $16.4 million in constant FY2012 dollars. Just as the reported airframe costs represent a program average and do not discriminate among the variants, the engine costs do not discriminate between the single engines used in the F-35A and C and the more expensive engine/lift fan combination for the F-35B. However, beginning in December 2016, DOD's Selected Acquisition Reports broke out unit recurring flyaway costs of the three engines as well as the separate airframes, as follows: Critics note that the costs reported in the Selected Acquisition Reports contain a number of assumptions about future inflation rates, production learning curves, and other factors, and argue that these figures do not accurately represent the true cost of developing and acquiring the F-35. In a recent report on the F-35 program, the Government Accountability Office questioned DOD's ability to afford the current F-35 program given other demands on budgets. This is a contrast to earlier reports, which focused more on the program's ability to meet its cost targets. Although the estimated F-35 ... program acquisition costs have decreased since 2014, the program continues to face significant affordability challenges.... The program will require an average of $12 billion per year to complete the procurement of aircraft through 2038. The program expects to reach peak production rates for U.S. aircraft in 2022, at which point DOD expects to spend more than $14 billion a year on average for a decade... These affordability challenges will compound as the program competes with other large acquisition programs including the long range strike bomber and KC-46A Tanker. At the same time, the number of operational F-35 aircraft that DOD will have to support will be increasing. The F-35 program continues efforts to make the F-35 cost-competitive with previous-generation aircraft. (It should be noted that the articles cited below reference the cost of the F-35A, the simplest model.) F-35 fighter jets will sell for as little as $80 million in five years, according to the Pentagon official running the program. "The cost of an F-35A in 2019 will be somewhere between $80 and $85 million, with an engine, with profit, with inflation," U.S. Air Force Lieutenant General Christopher Bogdan, the Pentagon's manager of the program, told reporters in Canberra today. That article dated from 2014. More recently, efforts have been increased to reach the same target: [Lockheed Martin] will invest up to $170 million over the next two years to extend its existing "Blueprint for Affordability" measure ... to drive down the unit cost of an F-35A to $85 million by 2019. As noted in Table 4 , the average unit flyaway cost of an F-35A is officially projected at $77.5 million. In 2013, engine maker Pratt & Whitney embarked on a program to reduce the F-35 engine's cost. Following release of data showing the "cost of acquiring the planned 2,443 airframes and associated systems rose 1%, while engine costs climbed 6.7%," the program manager reportedly singled out Pratt for criticism "after having improved relations with the F-35's prime contractor, Lockheed Martin Corp., securing lower prices for each batch of new airframes and closing deals far quicker than in the past." Subsequently, Pratt & Whitney has signed contracts for engines through LRIP 10 that show a steady percentage decrease in cost. The LRIP 10 announcement included a figure of $1.95 billion for 99 engines, although as that includes program management, engineering support, production nonrecurring efforts, spare modules and spare parts, it is not possible to derive a specific cost for each engine. "[Pratt & Whitney] is claiming competitive privilege in its sole-source deal for F-35 engines in not releasing its actual numbers." Pratt says that "unit prices for 86 conventional takeoff and landing (CTOL) and carrier variant (CV) propulsion systems were reduced by 2.6 percent, and unit prices for 13 LRIP 10 short takeoff and vertical landing (STOVL) propulsion systems, including Rolls-Royce Lift Systems, were reduced by 4.2 percent" compared to the previous contract. The issue of engine cost transparency is addressed in " Issues for Congress ," below. The degree of concurrency in the F-35 program, in which aircraft are being produced while the design is still being revised through testing, appears to make upgrades to early-production aircraft inevitable. The cost of those upgrades may vary, depending on what revisions are made during the testing process. However, the cost of such upgrades is not included in the negotiated price of each production lot. The first F-35As, for example, were loaded with a basic software release (Block 1B) that provides basic aircraft control, but does not have the degree of sensor fusion or weapons integration expected in later blocks. "The initial estimate for modifying early-production F-35As from a basic configuration to a capable warfighting level is $6 million per jet, plus other associated expenses not included in that figure." That would make the current cost of upgrading the earliest F-35As to Block 3F about $100 million. In order to increase capability, the Air Force intends to upgrade the aircraft step-by-step as new software releases become available rather than waiting and jumping to the final release of Block 3F. The cost of the major upgrade to Block 4 is discussed in " Issues for Congress ," below. Since 2015, Selected Acquisition Report projected lifetime operating and sustainment costs for the F-35 fleet have been estimated at slightly over $1 trillion, "which DOD officials have deemed unaffordable. The program's long term sustainment estimates reflect assumptions about key cost drivers that the program does not control, including fuel costs, labor costs, and inflation rates." "The eye-popping estimate has raised hackles at the Defense Department and on Capitol Hill since it was disclosed in 2011. It covers the cost of fuel, spare parts, logistics support and repairs." It may be worth noting that "the F-35 was ... the first big Pentagon weapons program to be evaluated using a 50-year lifetime cost estimate—about 20 years longer than most programs—which made the program seem artificially more expensive." Operations and sustainment costs as of the December 2017 Selected Acquisition Report were reported at $620.8 billion in 2012 dollars (or $1.12 trillion in then-year dollars). However, that figure had not been recalculated since FY2015; a new estimate is in progress. "The operation and sustainment cost is a bigger issue," (Air Force acquisition chief William) LaPlante said. "It's the one that will say whether or not we can afford (the F-35) in the longer run." Operations costs are being addressed on several fronts, including changes in training, basing, support, and other approaches. To attack this problem, the F-35 program office in October 2013 set up a "cost war room" in Arlington, Va.... A team of government and contractor representatives assigned to the cost war room are investigating 48 different ways to reduce expenses. They are also studying options for future repair and maintenance of F-35 aircraft in the United States and abroad. The U.S. Air Force is looking to slash the number of locations where it will base F-35 Joint Strike Fighter squadrons to bring down the jet's estimated trillion-dollar sustainment costs.... "When you reduce the number of bases from 40 to the low 30s, you end up reducing your footprint, making more efficient the long-term sustainment," David Van Buren, the service's acquisition executive, said in a March 2 exit interview at the Pentagon. More recently, "Lockheed, Northrop and BAE are also starting a 'sustainment cost reduction initiative' aimed at cutting operations and maintenance expenses by 10 percent during fiscal 2018 through fiscal 2022. The vendors will invest $250 million and hope to reap at least $1 billion in savings over five years." The F-35 is manufactured in several locations. Lockheed Martin builds the aircraft's forward section in Fort Worth, TX. Northrop Grumman builds the midsection in Palmdale, CA, and the tail is built by BAE Systems in the United Kingdom. Final assembly of these components takes place in Fort Worth. Final assembly and checkout facilities have also been established in Cameri, Italy, and Nagoya, Japan. The Pratt & Whitney F135 engine for the F-35 is produced in East Hartford and Middletown, CT. Rolls-Royce builds the F-35B lift system in Indianapolis, IN. The F-35 program is DOD's largest international cooperative program. DOD has actively pursued allied participation as a way to defray some of the cost of developing and producing the aircraft, and to "prime the pump" for export sales of the aircraft. Allies in turn view participation in the F-35 program as an affordable way to acquire a fifth-generation strike fighter, technical knowledge in areas such as stealth, and industrial opportunities for domestic firms. Eight allied countries—the United Kingdom, Canada, Denmark, The Netherlands, Norway, Italy, Turkey, and Australia—are participating in the F-35 program under a Memorandum of Understanding (MOU) for the SDD and Production, Sustainment, and Follow-On Development (PSFD) phases of the program. These eight countries have contributed varying amounts of research and development funding to the program, receiving in return various levels of participation in the program. International partners are also assisting with Initial Operational Test and Evaluation (IOT&E), a subset of SDD. The eight partner countries are expected to purchase hundreds of F-35s, with the United Kingdom's 138 being the largest anticipated foreign fleet. Two additional countries—Israel and Singapore—are security cooperation participants outside the F-35 cooperative development partnership. Israel has agreed to purchase 33 F-35s, and may want as many as 50. Japan chose the F-35 as its next fighter in October 2011, and South Korea committed to the F-35 in 2014. Sales to additional countries are possible. Some officials have speculated that foreign sales of F-35s might eventually surpass 2,000 or even 3,000 aircraft. Sales to Israel, Japan, and South Korea are conducted through the standard Foreign Military Sales process, including congressional notification. F-35 sales to nations in the consortium, conducted under 22 U.S.C. 2767, are not reviewed by Congress. The UK is the most significant international partner in terms of financial commitment, and the only Level 1 partner. On December 20, 1995, the U.S. and UK governments signed an MOU on British participation in the JSF program as a collaborative partner in the definition of requirements and aircraft design. This MOU committed the British government to contribute $200 million toward the cost of the 1997-2001 Concept Demonstration Phase. On January 17, 2001, the U.S. and UK governments signed an MOU finalizing the UK's participation in the SDD phase, with the UK committing to spending $2 billion, equating to about 8% of the estimated cost of SDD. A number of UK firms, such as BAE and Rolls-Royce, participate in the F-35 program. The cost of F-35s for U.S. customers depends in part on the total quantity of F-35s produced. As the program has proceeded, some new customers have emerged, such as South Korea and Japan, mentioned above. Other countries have considered increasing their buys, while some have deferred previous plans to buy F-35s. It is perhaps noteworthy that the latest Selected Acquisition Reports reduced the number of assumed international sales for cost purposes from 673 to 612. Recent updates to other countries' purchase plans are detailed in " Changes in International Orders ," above. Other international competitions in which the F-35 is or could be a candidate include the following: As noted, a significant question remains over whether Canada will continue as an F-35 partner. The Trudeau government repudiated the previously announced purchase of 65 (which had originally been 80). Subsequent plans to acquire F-18s instead have been put on hold. Lockheed Martin has stated that if Canada withdraws as a customer, Canadian work share will suffer. DOD and foreign partners in the JSF program have occasionally disagreed over the issues of work shares and proprietary technology. For example, the United States rejected a South Korean request for transfer of four F-35 technologies that could assist in the development of a Korean indigenous fighter program (although 21 other technologies were approved). The governments of Italy and the United Kingdom have lobbied for F-35 assembly facilities to be established in their countries. In July 2010, Lockheed and the Italian firm Alenia Aeronautica reached an agreement to establish an F-35 final assembly and checkout facility at Cameri Air Base, Italy, to deliver aircraft for Italy and the Netherlands. The facility opened in July 2013. A similar facility has opened in Nagoya, Japan, with the first aircraft delivered in 2017. Turkey, Norway, and the Netherlands will host engine overhaul and logistics facilities. Table 5 shows the Administration's FY2019 request for Air Force and Navy research and development and procurement funding for the F-35 program, along with FY2017 and FY2018 funding levels. Table 6 shows the procurement request in greater detail. The F-35's cutting-edge capabilities are accompanied by significant costs. Some analysts have suggested that upgrading existing aircraft might offer sufficient capability at a lower cost, and that such an approach makes more sense in a budget-constrained environment. Others have produced or endorsed studies proposing a mix of F-35s and upgraded older platforms; yet others have called for terminating the F-35 program entirely. Congress has considered the requirement for F-35s on many occasions and has held hearings, revised funding, and added oversight language to defense bills. As the arguments for and against the F-35 change, the program matures, and/or the budgetary situation changes, Congress may wish to consider the value of possible alternatives, keeping in mind the program progress thus far, funds expended, evolving world air environment, and the value of potential capabilities unique to the F-35. A potential issue for Congress concerns the total number of F-35s to be procured. As mentioned above, planned production totals for the various versions of the F-35 were left unchanged by a number of reviews. Since then, considerable new information has appeared regarding cost growth and budget constraints that may challenge the ability to maintain the expected procurement quantities. "'I think we are to the point in our budgetary situation where, if there is unanticipated cost growth, we will have to accommodate it by reducing the buy,' said Undersecretary of Defense Robert Hale, then Pentagon comptroller." Some observers, noting potential limits on future U.S. defense budgets, potential changes in adversary capabilities, and competing defense-spending priorities, have suggested reducing planned total procurement quantities for the F-35. A September 2009 report on future Air Force strategy, force structure, and procurement by the Center for Strategic and Budgetary Assessments, for example, states that [A]t some point over the next two decades, short-range, non-stealthy strike aircraft will likely have lost any meaningful deterrent and operational value as anti-access/area denial systems proliferate. They will also face major limitations in both irregular warfare and operations against nuclear-armed regional adversaries due to the increasing threat to forward air bases and the proliferation of modern air defenses. At the same time, such systems will remain over-designed – and far too expensive to operate – for low-end threats.... Reducing the Air Force plan to buy 1,763 F-35As through 2034 by just over half, to 858 F-35As, and increasing the [annual F-35A] procurement rate to end [F-35A procurement] in 2020 would be a prudent alternative. This would provide 540 combat-coded F-35As on the ramp, or thirty squadrons of F-35s[,] by 2021[, which would be] in time to allow the Air Force budget to absorb other program ramp ups[,] like NGB [the next-generation bomber]. Development of the F-35 Block 4 software, part of an effort now called Continuous Capability Development and Delivery (C2D2), is expected to cost as much as $10.8 billion over the next six years. "The F-35 Joint Program Office (JPO) plans to transition into the next phase of development – Continuous Capability Development and Delivery (C2D2) – beginning in CY18, to address deficiencies identified in Block 3F development and to incrementally provide planned Block 4 capabilities." "The JPO's latest plan for F-35 follow-on modernization ... C2D2, relies heavily on agile software development—smaller, incremental updates to the F-35's software and hardware instead of one big drop, with the goal of speeding follow-on upgrades while still fixing remaining deficiencies in the Block 3F software load." Some in Congress argue that a program of that size should part with traditional procurement practice for an upgrade and be run as a separate Major Defense Acquisition Program (MDAP), with its own budget line and the concomitant reporting requirements. At a March 23, 2016, hearing of a House Armed Services subcommittee, Government Accountability Office (GAO) Director of Acquisition and Sourcing Management Michael Sullivan argued that the Block 4 estimated cost justifies its management as a separate program, but F-35 Program Executive Officer (PEO) Air Force Lt. Gen. Christopher Bogdan countered that breaking it off would create an administrative burden and add to the program's price tag and schedule. Section 1087 of the Senate's version of the FY2017 National Defense Authorization Act ( S. 2943 ) required the Department of Defense to treat the F–35 follow-on modernization program (Block 4 development) as a separate MDAP. An amendment to the House version of the FY2017 NDAA ( H.R. 4909 ) to do likewise failed in markup by a vote of 28-41. Section 223 of the conference report on the FY2018 National Defense Authorization Act ( H.Rept. 115-404 , accompanying H.R. 2810 ) included language limiting funds to be expended on F-35 follow-on modernization (i.e., the Block 4 software) pending receipt of a previously required report that contains the basic elements of an acquisition program baseline for that modernization. Lieutenant General Bogdan's comments regarding the difficulty of cost control in a sole-source environment (see " Engine Costs ," above) reflect a broader issue affecting defense programs as industry consolidates and fewer sources of supply are available for advanced systems. Congress may wish to consider the merits of maintaining competition when overseeing system procurements (for example, the use of competition to maintain cost pressure was a principal argument in favor of the F-35 alternate engine program). On the F-35 program, that competition could include contracting for lifecycle support. In the specific case of the F-35, Pratt & Whitney and the Joint Program Office have declined to reveal the cost per engine in each LRIP contract, replacing dollar costs with percentage savings and aggregate contract values that include items other than the engines themselves. Congress may wish to consider whether this approach is sufficient to provide useful oversight, and weigh that value against a contractor's right to protect competition-sensitive data. A possible analogue can be found in the debate over whether public disclosure of the contract value for the B-21 bomber might reveal more data than prudent, or whether that is a reasonable cost to allow proper program oversight. An additional potential issue for Congress for the F-35 program concerns the affordability of the F-35, particularly in the context of projected shortfalls in both Air Force fighters and Navy and Marine Corps strike fighters. Although the F-35 was conceived as a relatively affordable strike fighter, some observers are concerned that in a situation of constrained DOD resources, F-35s might not be affordable in the annual quantities planned by DOD, at least not without reducing funding for other DOD programs. As the annual production rate of the F-35 increases, the program will require more than $10 billion per year in acquisition funding at the same time that DOD will face other budgetary challenges. The issue of F-35 affordability is part of a larger and long-standing issue concerning the overall affordability of DOD's tactical aircraft modernization effort, which also includes procurement of F/A-18E/Fs. Some observers concerned about the affordability of DOD's desired numbers of F-35s have suggested procuring upgraded F-16s as complements or substitutes for F-35As for the Air Force, and F/A-18E/Fs as complements or substitutes for F-35Cs for the Navy. F-35 supporters argue that F-16s and F/A-18E/Fs are less capable than the F-35, and that the F-35 is designed to have reduced life-cycle costs. The issue of F-35 affordability occurs in the context of a projected shortfall of up to 800 Air Force fighters that was mentioned by Air Force officials in 2008, and a projected shortfall of more than 100 (and perhaps more than 200) Navy and Marine Corps strike fighters. In the interim, "in light of delays with the F-35 Lightning II Joint Strike Fighter, the U.S. Air Force is set to begin looking at which of its newer F-16s will receive structural refurbishments, avionics updates, sensor upgrades or all three." Another potential issue for Congress regarding the F-35 program concerns its potential impact on the U.S. tactical aircraft industrial base. The award of the F-35 SDD contract to a single company (Lockheed Martin) raised concerns in Congress and elsewhere that excluding Boeing from this program would reduce that company's ability to continue designing and manufacturing fighter aircraft. Similar concerns regarding engine-making firms have been raised since 2006, when DOD first proposed (as part of the FY2007 budget submission) terminating the F136 alternate engine program. Some observers are concerned that if the F136 were cancelled, General Electric would not have enough business designing and manufacturing fighter jet engines to continue competing in the future with Pratt & Whitney (the manufacturer of the F135 engine). Others argued that General Electric's considerable business in both commercial and military engines was sufficient to sustain General Electric's ability to produce this class of engine in the future. Exports of the F-35 could also have a strong impact on the U.S. tactical aircraft industrial base through export. Most observers believe that the F-35 could potentially dominate the combat aircraft export market, much as the F-16 has. Like the F-16, the F-35 appears to be attractive because of its relatively low cost, flexible design, and promise of high performance. Competing fighters and strike fighters, including France's Rafale, Sweden's JAS Gripen, and the Eurofighter Typhoon, are positioned to challenge the F-35 in the fighter export market. Some observers are concerned that by allowing foreign companies to participate in the F-35 program, DOD may be inadvertently opening up U.S. markets to foreign competitors who enjoy direct government subsidies. A May 2004 GAO report found that the F-35 program could "significantly impact" the U.S. and global industrial base. GAO found that two laws designed to protect segments of the U.S. defense industry—the Buy American Act and the Preference for Domestic Specialty Metals clause—would have no impact on decisions regarding which foreign companies would participate in the F-35 program, because DOD has decided that foreign companies that participate in the F-35 program, and which have signed reciprocal procurement agreements with DOD to promote defense cooperation, are eligible for a waiver. Congress consolidated the JAST and ASTOVL programs after finding "no apparent willingness or commitment by the Department to examine future needs from a joint, affordable, and integrated warfighting perspective." DOD states that the F-35 program "was structured from the beginning to be a model of acquisition reform, with an emphasis on jointness, technology maturation and concept demonstrations, and early cost and performance trades integral to the weapon system requirements definition process." A subsequent RAND Corporation study found that the fundamental concept behind the F-35 program—that of making one basic airframe serve multiple services' requirements—may have been flawed. Congress may wish to consider how the advantages and/or disadvantages of joint programs may have changed as a consequence of evolutions in warfighting technology, doctrine, and tactics. Table A-1 summarizes key performance parameters for the three versions of the F-35. | The largest procurement program in the Department of Defense (DOD), the F-35 Lightning II is a strike fighter aircraft being procured in different versions for the United States Air Force, Marine Corps, and Navy. Current DOD plans call for acquiring a total of 2,456 F-35s. Allies are expected to purchase hundreds of additional F-35s, and eight nations are cost-sharing partners in the program with the United States. The F-35 promises significant advances in military capability. Like many high-technology programs before it, reaching that capability has put the program above its original budget and behind the planned schedule. The Administration's proposed FY2019 defense budget requested about $10.7 billion in procurement and R&D funding for the F-35 program. This would fund the procurement of 48 F-35As for the Air Force, 20 F-35Bs for the Marine Corps, 9 F-35Cs for the Navy, and continuing development. FY2018 defense authorization act: The FY2018 defense authorization bill funded F-35 procurement at $9.9 billion for 90 aircraft (56 F-35As, 24 F-35Bs, and 10 F-35Cs, an increase of 20 aircraft and $2.4 billion from the Administration's request), plus $1.5 billion in advance procurement, the requested level. The conference report accompanying the bill included language authorizing economic order contracting for up to $661 million in parts for F-35s to be procured in fiscal years 2019 and 2020; limiting funds to be expended on F-35 follow-on modernization (Block 4 software) pending a previously-required report that contains the basic elements of an acquisition program baseline for that modernization, and; requiring the congressional defense committees be notified if Congress takes any action that would delay development of F-35 dual-capable aircraft (meaning those able to deliver nuclear weapons). FY2018 defense appropriations bill: The final omnibus budget bill funded F-35 procurement at $10.2 billion for 90 aircraft (56 F-35As, 24 F-35Bs, and 10 F-35Cs, an increase of 20 aircraft and $2.6 billion over the Administration's request), plus $1.5 billion in advance procurement, the requested level. |
Several tax options have been proposed to provide financing for health care reform. President Obama initially proposed restricting itemized deductions for high-income taxpayers, along with some narrower provisions for other reforms or to reduce the tax gap. On May 20, 2009, the Senate Finance Committee provided a list of options for health-related tax provisions. They include modifying the tax exclusion for employer-provided health care (by capping it, limiting it by income, or replacing it with a deduction or credit), revising other tax provisions relating to health care, increasing taxes on alcoholic beverages, and imposing an excise tax on non-diet sweetened beverages. Individuals testifying at a May 12, 2009, round-table discussion have also proposed a number of other options. The House Ways and Means Committee has proposed financing the reform largely through a surtax on high-income individuals, which was passed by the House on November 14, 2009 ( H.R. 3962 ), and reflected legislation that the three House committees with jurisdiction have reported out ( H.R. 3200 ). The Senate Finance Committee reported S. 1796 relying in part on an excise tax on insurers for high-cost plans; the bill passed by the Senate on December 24, 2009, H.R. 3590 , largely reflects the revenue-raising provisions in that plan. President Obama proposed a new compromise proposal, which generally uses H.R. 3590 as a starting point, but offers several changes to the revenue provisions of this bill. The President's proposal would delay the effective date for the tax on high-cost employer plans proposed in H.R. 3590 from 2013 to 2018 and raise the exemption threshold for this tax to $27,500 for families and $10,200 for individuals. In addition, the new plan offered by the Administration would broaden H.R. 3590 's proposed increase of the Medicare Hospital Insurance (HI) tax for high-income households by adding a tax on unearned income at a 3.8% rate. On March 22, 2010, the House passed the Senate proposal, H.R. 3590 , and H.R. 4872 . The President is signed H.R. 3590 ( P.L. 111-148 ) on March 23; H.R. 4872 was approved by the House and Senate on March 25 and signed by the President ( P.L. 111-152 ) on March 30. Detailed revenue estimates of the three versions (the House bill, the Senate bill, and the Senate bill with the reconciliation modifications, the enacted bill) are in the Appendix . The tax proposals differ in their effects on behavior and where the burden falls in the income distribution. Although most taxes rise with income in absolute amounts, the burden relative to income may fall more heavily on higher-income taxpayers (a progressive change), about equally on all taxpayers (a proportional change), or more heavily on lower-income taxpayers (a regressive change). For instance, the limit on itemized deductions increases taxes for high-income taxpayers (roughly the top 2%) and is a highly progressive change; similarly, the tax on high adjusted gross incomes largely affects the top 1%. The burden of limiting health-related income and payroll-tax exclusions tends to increase taxes as a percent of income proportionally more in the middle income brackets, with smaller effects at both the low and high ends of the income distribution. Excise taxes tend to be regressive and fall more heavily on lower-income classes. Note that the distributional analysis in this report refers only to the financing mechanism and not to the distributional effects of the entire health care reform proposals, as the health care benefits are likely to favor lower-income families. Thus even with a regressive revenue source, the overall proposal might redistribute in favor of lower-income individuals. After a brief summary of the provisions adopted, this report reviews the revenue raisers proposed in the House and Senate bills and by President Obama. Other financing proposals are presented including earlier proposals made by the Obama Administration and those introduced in earlier congressional work. The final sections discuss other proposals suggested by the round-table discussion participants. The most important revenue raiser in the final legislation is the increased Medicare tax (an additional 0.9% of wage income and a 3.8% tax on investment income), which accounts for 48% of the revenue over FY2010-FY2019. The next largest revenue raisers are also health related: the fee on health insurance providers (14%), the "Cadillac" tax on employer health insurance premiums above certain levels (7%), and the fee on branded drugs (6%). The next largest provision over the 10-year period is the cellulosic biofuel credit (5%), followed by another health provisions (fees on medical devices, also 5%), and then by a non-health tax compliance provision, the information reporting of payments over $600 by firms (4%). Altogether these account for about 90% of revenues. The shares change somewhat over time, because some provisions are delayed and some expire. In 2019, the Medicare tax is 44% of the total, but the Cadillac tax is 22%. Health insurance fees are the same share (14%), the drug fee falls to 3%, and the biofuel provision has expired. The shares reflecting fees on medical devices and corporate reporting are, respectively, 4% and 3%. A list of provisions enacted by the new law and their revenue effects can be found in the last column of Table A-1 . A more extensive discussion of individual provisions can be found in the proposals discussed in the remainder of this report. On July 14, 2009, the House Ways and Means Committee announced several revenue- and tax-related provisions to fund health care reform, with the centerpiece being a tax on high-income individuals. By October 2009, the three committees with jurisdiction over the bill had reported out legislation, the America's Affordable Health Choices Act of 2009 ( H.R. 3200 ). More recently, most of the provisions of H.R. 3200 were included in the Affordable Health Care for America Act, H.R. 3962 , which included some modifications to proposals in H.R. 3200 along with new proposals. H.R. 3962 was passed on November 14, 2009. This section of the report first summarizes the initial provisions and then explains the modifications. The main modifications involve a revision to the surtax on high-income taxpayers and adding some additional revenue raisers. In the initial proposal to fund health care reform in H.R. 3200 , which resulted in $583.1 billion for FY2010-FY2014 as estimated by the Joint Committee on Taxation, $543.9 billion would be generated by a surtax on individual taxpayers. This surtax was to be imposed on adjusted gross income (not taxable income) and would have been 1% on income from $350,000 to $500,000, 1.5% on income from $500,000 to $1 million, and 5.4% on income over $1 million. The 1% and 1.5% rates would have doubled in 2013 unless a certain amount of savings occurs in health programs; they could also be eliminated. The income levels are for married couples; singles would have the tax imposed at income levels that are 80% of those for married couples. The initial House proposal also included a provision, raising $8 billion, to conform the definition of medical expenses for health savings accounts and similar accounts to those for itemized deductions for health care (a provision also discussed in the Senate Finance Committee's review). (This provision is now estimated to raise $5 billion.) The plan also included three revenue raisers related to international taxation and tax evasion. A delay in the revised allocation of interest for the foreign tax credit (a provision that increases the amount of allowable foreign tax credits) would raise $26.1 billion over 10 years. A provision relating to the use of treaties to avoid U.S. tax would raise $7.5 billion, and a provision to codify the economic substance doctrine (again to deal with tax sheltering by corporations) would raise $3.6 billion. The proposal also had a provision to expand the definition of dependents for certain health-related tax purposes, which costs $4 billion. The most recent revenue raisers included in H.R. 3962 imposed only the 5.4% surtax on incomes more than $1 million for joint returns but imposed the tax on single taxpayers at half the income level ($500,000), raising $460.5 billion over the FY2010-FY2014 period. H.R. 3962 also includes the three revenue raisers related to international taxation and tax evasion introduced in H.R. 3200 . A delay in the revised allocation of interest for the foreign tax credit was originally in H.R. 3200 and projected to raise $26 billion; this provision was included in other legislation and the current repeal provision is projected to raise $6.0 billion. The provision relating to the use of treaties to avoid U.S. tax is the same. The economic substance doctrine provision was modified to include penalties for underpayments and is estimated to raise $5.7 billion and the conforming of the definition of medical expenses estimate was $5.0 billion. In addition, H.R. 3962 has some additional restrictions on health related tax provisions: it would limit health flexible spending arrangements in cafeteria plans to $2,500, indexed to inflation ($13.3 billion); increase the penalty for nonqualified distributions from health savings accounts to 20% ($1.3 billion); and disallow the deduction for subsidies related to Medicare Part D ($3.0 billion). It would also impose a 2.5% excise tax on the first taxable sale of medical devices (i.e., not at the retail level) ($20.0 billion). The plan also requires information reporting on payments to corporations ($17.1 billion). (Currently, firms are required to report payments of more than $600 to unincorporated businesses; this change would extend the requirement to corporations, which would increase third party reporting and tax compliance.) There would be a small loss ($4 billion) for extending certain health benefits for spouses and dependents and a small gain ($2.0 billion) for fees on insured and self-insured health plans imposed on a per participant basis at a rate that raises a fixed amount of revenue. There is also a provision to exclude Indian Tribe health benefits from gross income that has a negligible cost. The proposal for the tax on the sale of medical devices and a number of other provisions is also included in the Senate Finance Committee proposal and the legislation under consideration, discussed below in " The Senate Proposal " section, but in a different form. Several provisions that were included in the Finance Committee bill and added in the final version of H.R. 3962 are discussed below in the section on the Senate bill. The following subsections discuss some of the major proposals in the House bill. The original surtax on high-income individuals would, like an itemized deduction limit, be concentrated on the top 1.2% of taxpayers. Those subject to the highest surtax would constitute only two-tenths of 1% of taxpayers. Thus, the proposal is highly progressive. The surtax proposal in H.R. 3962 would, according to the committees' summary, affect 0.3% of taxpayers. Particular concerns have been expressed about the effect of the surtax on small businesses, which are suggested to be the source of new jobs, and on entrepreneurship in general. Only about 4% of businesses would be affected by the surtax in the initial proposal. (Note that other parts of the health proposal, not addressed in this discussion, could impact small business both positively and negatively.) The committees' summary indicates that 1.2% of unincorporated businesses would pay the revised surtax. A larger share of income would be affected, because higher-income individuals have a larger share of income. For example, returns with income more than $1 million account for 15.1% of adjusted gross income according to the Internal Revenue Service (IRS) statistics of income but only 0.2% of returns, and taxpayers with income more than $500,000 account for 22.4% of income but 0.7% of returns. These statistics indicate the degree to which income is concentrated at higher income levels. In addition, business income is more concentrated in higher-income levels than other income. On the whole, labor income accounts for about three-quarters of overall income, with the remainder divided almost evenly between passive capital income (interest, dividends, and capital gains), pensions, and business income, whereas in the top 1% labor income is less than half of income. Individuals with incomes more than $1 million account for 33% of unincorporated business net income for businesses with positive income, and individuals with incomes more than $500,000 account for 39%. This concentration primarily reflects partnership and Subchapter S firms rather than proprietorships. Returns with adjusted gross income of $1 million or more accounted for 7.5% of total proprietorship income, whereas returns with income more than $500,000 accounted for 12.6%. For partnerships and Subchapter S firms (corporations that elect to be taxed as partnerships), returns with income more than $1 million accounted for 49% of net income and returns with income more than $500,000 accounted for 64% of net income. Supporting this finding, a 2007 Treasury study indicated that taxpayers at the top tax rate (constituting a similar share of returns to those covered by the surcharges) are responsible for 61% of business flow-through income. Some of the income in partnership and proprietorship incomes may reflect passive income and income from tax shelters, however. According to IRS data, almost 85% of partnership income is in limited liability companies or limited partnerships. (Subchapter S firms were more broadly distributed.) Thus these business income shares include income that is passive rather than involving active business and also significant income that is in businesses that are of less concern with respect to entrepreneurship. The Treasury study indicated that these high-income taxpayers accounted for only 46% of active positive business income. Supporting this notion that many of these businesses are not active, the Tax Policy Center found that of the returns affected by the surtax with business income only 22.8% had business income that was more than half of total income. This small income share also suggests much of this income is passive investment income that, absent the current rules that permit firms to operate with limited liability but not be subject to the corporate tax, would be in the form of corporate dividends and capital gains. Much of partnership income, in particular, reflects activities that might not be the subject of interest, with respect to entrepreneurship and job creation. About two-thirds of partnerships reflect finance, real estate, oil and gas extraction (which includes passive partnerships), and services (such as doctors and lawyers). About 8% of total income was from real estate and oil and gas respectively, 19% from finance and insurance with almost 80% of that total from securities and investment firms, 15% in professional services (with about 60% of the total legal services) and 5% in health (with about half physicians and dentists). These data suggest that while business income may be somewhat more concentrated than income overall, much of small business income is associated with passive investments, stockbrokers, lawyers, doctors, and accountants who are unlikely to be innovators or important sources of job creation for lower and moderate income individuals. Thus, very little of the increased tax revenue is likely to be collected from the businesses of interest. In addition, questions could be raised about the argument that small businesses are important as sources of new jobs. Small businesses create more jobs but also are the greatest sources of job loss. They do create more net new jobs, but, according to Edmiston, this evidence is not entirely clear because of migration across size classifications; moreover, although this sector of the economy may offer more opportunities to women and minorities, it pays less, is less stable, and has fewer fringe benefits. Aside from the issue of the number and quality of jobs, there is no need for a permanent policy to create jobs. Although a stimulus aimed at creating jobs may be needed in an economic downturn, there is no need for a permanent policy directed at this purpose; the economy creates its own jobs as evidenced by the growth in the employment supply over time. If a major objection to the provision is the effect on small businesses, income from selected types of business operations (presumably not for lawyers, doctors, or stockbrokers) could be excluded from the surcharge. Flow through income is a larger share of income of the top 1% (about one-quarter) than of the population as a whole (about 9%). An exclusion of all of this income would sacrifice around one-quarter of revenue, but the loss would be much smaller if passive income and income from finance, real estate, insurance, oil and gas extraction, and professional services were not permitted an exclusion. The other provisions that raise revenue have much smaller revenue effects. In the initial bill, one provision would enact the proposal also considered in the Senate Finance Committee options to disallow spending on over-the-counter medications as qualified uses of flexible spending plans, health savings accounts, and similar tax-favored plans. Most of the other provisions are discussed under those options are minor. Two health-related tax expenditures, the limits on flexible spending accounts in cafeteria plans and conforming the definition of medical expenses for health savings accounts and other plans to the same definition as for itemized medical deductions, are discussed below under the Senate proposal. Some health related provisions are implemented earlier in the Senate bill. The remaining significant provisions, except for the tax on medical devices (a similar provision is included in the Senate Finance Committee proposal), relate to corporation taxes and the tax gap and have been proposed in the past as revenue offsets. Before turning to those issues, however, a brief discussion of the excise tax on medical devices is provided. The tax on medical devices follows the philosophy of raising revenue from health-related provisions. Both the House and Senate bills contain a tax on medical devices, although, as discussed below, the form of the Senate provision is different and in imposed in the form of a fixed fee. (The Senate proposal has other fees as well.) The tax rate in the House bill is 2.5% of the value of the devices and is imposed on manufacturers and importers (and therefore does not reflect tax on the retail value, which would have been marked up). For ordinary medical devices with many producers, the tax should be fully passed on to consumers, although some of the cost, depending on the device, will be paid by insurers and lead to higher insurance payments, still ultimately falling on consumers. For unique devices already existing and under patent, where the producer has a monopoly position, some of the costs will be absorbed by the producer, although to the extent that the costs are covered by health insurance that effect would be muted. In the longer run, the tax could discourage investment in developing new innovative devices, an argument that has been made by industry spokesmen. Again, that effect would be reduced to the extent that consumers do not pay the full price because of health insurance coverage. The interest allocation proposal would repeal a provision adopted in 2004 that allowed worldwide interest allocation for the foreign tax credit. When income from abroad is subject to U.S. tax (either as branch income or repatriated income), a foreign tax credit is allowed for foreign taxes paid up to the U.S. tax due. For firms that have more foreign taxes paid than allowable credits, increasing the amount of income allocated abroad increases allowable foreign tax credits and reduces U.S. tax liability. Under rules absent the 2004 provision, U.S. source interest was allocated between foreign and domestic incomes based on relative magnitude of foreign and domestic assets. The 2004 provision included interest on foreign borrowing as well as debt-financed investment in the calculation, which would allocate more domestic interest to domestic source income, reduce interest allocated to foreign income, and result in an increase in the foreign tax credit limit. Another provision relating to international tax issues is intended to reduce "treaty-shopping." The United States imposes withholding taxes on interest, royalties, and similar payments to foreigners, but also engages in a number of treaties with other countries where these withholding rates are reduced. A firm in a country without a treaty can benefit by setting up a subsidiary in a treaty country to avoid the withholding tax, and this provision would eliminate that benefit. The third provision would codify the economic substance doctrine. Firms that enter into tax savings arrangements that are found not to have economic substance can have their tax benefits disallowed by the courts under what has become known as the economic substance doctrine. Proposals to introduce legislative standards into the doctrine, which is sometimes interpreted differently by different courts, have been included in a number of recent legislative proposals and such a provision was included in President Obama's budget proposals. Generally, these proposals would require a transaction to meet both an objective test (profit was made) and a subjective test (profit was intended). Penalties are also imposed. Supporters argue that the stricter test will not only reduce tax avoidance but also make treatment more consistent across the courts. Some tax attorneys are concerned that more specific rules might provide a roadmap to structuring arrangements that will pass the test. H.R. 3962 includes an additional provision to require information reporting by firms on payments to corporations. Under current law, firms that pay $600 or more to another firm have to report these amounts unless the firm is a corporation. This reporting helps aid in the enforcement of tax on self-employed individuals who have a significant amount of noncompliance according to tax gap estimates. Over time, more and more small businesses have had ways of incorporating, and there may be many smaller corporations where compliance is a problem (large corporations are closely audited by the Internal Revenue Service). A disadvantage of the provision is that it will increase the compliance burden on businesses. In addition, the current information reporting is on a calendar year basis, but some corporations have a different tax year, which may reduce the value of the information. The change could also simplify the reporting requirement in one respect, because it does not require the reporting firm to determine corporate or noncorporate status. The provision modifies the cellulosic biofuels producer credit to exclude any fuel with significant water, sediment, or ash content, such as black liquor. Prior to enactment, black liquor was eligible for the cellulosic biofuels producer credit, a non-refundable credit equal to $1.01 per gallon of conventional fuel displaced under I.R.C. Section 40(b). Note the original black liquor credit, the alcohol fuel mixture credit (under Section 6426(e)), expired at the end of 2009. The black liquor provision was generally viewed as an unintended recipient of a blended fuel credit, aimed at reducing the use of fossil fuels, which was used by the paper industry to qualify a by-product of production. For further reading, see CRS Report RL34494, The Foreign Tax Credit's Interest Allocation Rules , by [author name scrubbed] and [author name scrubbed]; CRS Report R40468, Tax Treaty Legislation in the 111 th Congress: Explanation and Economic Analysis , by [author name scrubbed]; and CRS Report RS22846, The Economic Substance Doctrine: Legal Analysis of Proposed Legislation , by [author name scrubbed]. Under current law, firms are required to report payments (on form 1099-MISC) to any unincorporated business that provides services costing over $600 per year. If they cannot obtain the vendor's taxpayer identification number they must withhold taxes. The purpose of these reporting requirements is to increase third party reporting to address the significant amount of missing income that is not reported by businesses, especially small businesses. Most other types of income have much higher estimated compliance rates (wages, interests, dividend, income of large corporate firms). The scope of the reporting requirements reflects that compliance objective. Although the reporting requirements cover a significant share of payments, only a small fraction of firms file this information return. It is not clear what share of those who do not file these forms are noncompliant. There are two different parts to the revision. One is to expand the existing reporting of payments for services to corporations. This proposal has been made for many years by Administrations from both parties. There were two potential reasons for this expansion in addition to the general increase in compliance. The first is that there has been a significant expansion of small firms in corporate status through both legislation and other changes. Second, this change could simplify compliance for firms who may find it difficult to know if their providers are corporate or unincorporated businesses. The second change is to expand the reporting to goods as well as services. This was a relatively newer idea and has not been studied as much. It would expand the amount of reporting, but firms would not have to differentiate between goods and services. The expansion of the scope of reporting should increase the share of firms expected to file these forms, and make enforcement of information reporting, as well as compliance with income reporting by smaller businesses, more successful. Ending the differentials between types of firms (corporate and unincorporated business) and types of expenditures (goods and services) would simplify certain aspects of compliance. Businesses have criticized these provisions as providing an increased cost and administrative burden that is not justified by the potential revenue gain. They also suggest that IRS would not have the resources to make use of the additional information. If concerns arise enough to consider scaling back the proposal (which has been adopted in the final bill but is leading to some controversy), one option is the raise the minimum dollar reporting requirement, which has not been indexed for inflation. Another is to only require this additional information to be reported to the IRS, and not to the payee (unless withholding occurs). The Senate Finance Committee reported S. 1796 , America's Healthy Future Act of 2009. Out of $381 billion of revenues over the 2010-2019 period, the largest provision is $201.4 billion of gain from a 40% excise tax on health coverage in excess of $8,000 for singles and $21,000 for families. This provision was scaled back somewhat in H.R. 3590 , passed by the Senate; overall, the bill raises $398.1 billion, with $148.9 billion raised from a provision imposing a 40% excise tax on health coverage in excess of $8,500 for singles and $23,000 for families. H.R. 3590 also reduced the fee on medical devices and introduced additional provisions—one of them, an increase in the payroll tax for hospital insurance (HI) for high-income earnings, was the second-largest revenue raiser, while the others (a 10% excise tax on indoor tanning facilities and a change in the treatment of Blue Cross) raised smaller amounts of revenue. H.R. 3590 also included a temporary fee on insured and self-insured plans, liberalized the adoption credit, and excluded assistance provided to participants in state student loan repayment programs for certain health professionals. Except for a provision requiring information reporting for corporations (also in the House bill, raising $17.1 billion), the revenue raisers relate to health tax provisions or health issues. The plan has a number of provisions that are in the House bill: to conform the definition of medical expenses for health savings accounts and similar accounts to those for itemized deductions for health care ($5 billion); limit health flexible spending arrangements in cafeteria plans to $2,500, but indexed to inflation ($14.6 billion); increase the penalty for nonqualified distributions from health savings accounts to 20% ($1.3 billion); and disallow the deduction for subsidies related to Medicare Part D ($5.4 billion). The proposal contains a provision discussed in the options but not in the House bill to raise the 7.5% of adjusted gross income floor for itemized deductions for medical costs to 10% ($15.2 billion). It also limits deductions for remuneration to officers, employees, directors, and service provided of health insurance providers to $500,000 per year ($0.6 billion) and restricts current tax benefits to Blue Cross ($0.4 billion). As in the House bill, there is also a provision to exclude Indian Tribe health benefits from gross income that has a negligible cost. The proposal includes a fee on manufacturers and importers of medical devices ($19.2 billion) and a larger fee on health insurance providers ($59.6 billion) than the House bill. It also imposes a fee on manufacturers and importers of branded drugs ($22.2 billion) and an excise tax of 10% on indoor tanning facilities ($2.7 billion). The plan also includes a fee on insured and self-insured health plans ($2.6 billion) expiring after September 31, 2019. Another important revenue raising provision is an additional 0.9% HI payroll tax on wages in excess of $200,000 for singles and $250,000 for joint returns projected to raise $86.8 billion. This tax is the Medicare part of payroll taxes. The plan also has three provisions that have a negligible cost: additional requirements for community benefits for non-profit hospitals, employer reporting on the W-2 of the value of health benefits, and a safe harbor for nondiscrimination rules in cafeteria plans for small employers. It has some revenue losing provisions: a qualifying therapeutic discovery project credit (a cost of $0.9 billion), an exclusion of funds provided to participants in state student loan repayment programs for certain health professionals (a cost of $0.1 billion), and a provision making the adoption tax credit refundable, increasing the qualifying expense threshold, and extending the credit through 2011 (a cost of $2.2 billion). Two sections below discuss the excise tax on health insurance coverage and the fees on drugs, medical devices, health insurance providers, the excise tax on cosmetic procedures, and the increased HI tax. The excise tax falls on insurance companies, on the plan administrator for some types of plans, and on the employer for certain self-insured plans. The tax would not be deductible. Since its 40% rate is roughly equivalent to the top marginal income tax rate if the 2001 tax cuts expire (39.6%) and is lower than that rate combined with the Medicare tax, it is probably a reasonably good proxy for taxing employer benefits to the recipients for high-income taxpayers and is slightly larger for others. The provision would be expected to be passed on to individuals in higher premiums or lead to a reduction in the size of benefits for these plans (which would increase their tax liability). The latter effect would also increase the price for medical care and presumably reduce demand. This provision is estimated to gain $148.9 billion in revenue over 10 years, smaller than the $201.4 billion in the Finance Committee Plan. The $8,500 and $23,000 thresholds would be increased by the CPI plus one percentage point. The thresholds would be higher initially for plans in the 17 states with the highest costs in the first three years: 20% higher in 2013, 10% higher in 2014, and 5% higher in 2015. The limits would also be higher for those over 55 and for those in risky professions (such as law enforcement; firefighting; rescue; construction, including those installing telecommunications lines; mining; agriculture, but not manufacturing of agricultural products; forestry; and fishery). These limits would be $9,850 for single plans and $26,000 for family plans for those who qualify under either or both of these exceptions. A study by the Committee on Budget Policy and Priorities indicates that 90% of plans would be unaffected by the Senate Finance Committee version of this provision, which applied to amounts in excess of $8,000 and $21,000. That study cited an example of the directors of Goldman Sachs, who receive approximately $40,000 in health insurance coverage; it also noted that the limits were one-third more generous than those of most Members of Congress. If health care costs continue to rise significantly faster than general price levels, more plans would fall under the tax over time. The pattern of revenue estimates suggests that is the case. The argument for the excise tax approach is to discourage rising health care costs. Generally, the economic and distributional effects would be similar to an across-the-board dollar cap on the exclusion, as the tax should be passed on in price. Either the tax would be collected at the insurance-company level or the health insurance plans' cost would be reduced and wages payments substituted, which would raise taxes. Such a tax would give rise to the same fairness issues. It could also potentially tax benefits for lower-income employees who do not have tax liability or are taxed at lower rates more than would a cap on the exclusion. It would be less complicated to collect. Two questions with such a proposal are how firms that self-insure would be treated and whether the excise tax would be deductible from the firm's income tax. An excise tax's revenues are generally reduced by about 25% to account for this interaction. Moreover, if the tax is deductible, a net tax advantage for these benefits would remain for high tax rate individuals (although it would be smaller than the current benefit). H.R. 3590 would increase the HI payroll tax (which funds Medicare) by 0.9% for earnings in excess of $200,000 for single persons and $250,000 for joint returns; the provision raises the next-largest amount of revenue, $86.8 billion. This tax would be collected by the employer on any compensation in excess of $200,000 without regard to a spouse's earnings, and the employee would be responsible for any discrepancy between withholding and liability. As is the case with the surtax, this provision would raise revenue from high-income taxpayers and be very progressive, although it would not fall on capital income, which is more important at higher income levels. The fees on health insurance providers are the next-largest revenue raisers ($59.6 billion) and all fees and excise taxes together account for $106.3 billion from FY2010 through FY2019. The fees on branded drugs account for $22.2 billion and the fees on medical devices account for $19.2 billion. (This latter fee was larger, at $38.6 billion, in the Finance Committee plan.) The fees rise over time for health insurance providers and medical devices. For health insurance providers they are $2 billion for 2011, $4 billion for 2012, $7 billion for 2013, $9 billion for 2014 through 2016, and $10 billion thereafter. The fees on medical devices are $2 billion per year from 2011 through 2017 and $3 billion per year thereafter. The fee on branded drugs is $2.1 billion per year. Fixed nominal aggregate fees will, subsequently, become increasingly less important over time. The fees on insured and self-insured plans are much smaller ($2.6 billion), are designed to finance the Patient-Centered Outcomes Research Trust fund, and expire after September 31, 2019. As noted above in the discussion of the House bill, these taxes could increase prices, reduce profits of the producer, and be passed on to insurance companies (and ultimately the consumer), depending on the circumstances; the fee could also discourage new device and drug development. An argument made for these fees is that providers of health services will receive a windfall from the increased demand because of expanded health insurance coverage and fees will capture some of this effect. All three provisions for fees provide for a fixed amount of revenue to be collected, with the shares apportioned according to the share of sales. The medical device fee exempts certain devices with a retail cost $100 or less, designed to exclude small items such as pregnancy tests, contact lenses, and blood pressure monitors. The medical device fee and the branded drug fee also have a sliding scale that reduces the effect on small producers. In determining the total sales for the apportionment for the medical device fee, the first $5 million is not counted, and 50% of the amount over $5 million but less than $25 million is counted. In the case of drugs, the shares are as follows: 0% of the first $5 million, 10% of the next $5 million-$25 million, 40% of the next $125 million-$225 million, 75% of the next $225 million-$400 million, and 100% of the amount over $400 million. For insurance, the first $25 million of premiums is not included and half of premiums between $25 million and $50 million will be included. In the case of third-party administrators, the first $5 million will be excluded and half of the amounts between $5 million and $10 million will be excluded. The fees are not deductible. Imposing the fee as a fixed amount with apportionment produces a tax at the margin without providing additional revenue, although it is a lower tax than would be produced if the tax rate were constantly reduced to raise a specific amount of revenue. The tax at the margin depends on the share of sales produced by any individual firm. If there are a large number of firms, and the firm's share is small, the tax is virtually the same as the current rate. H.R. 3590 also imposes a 10% excise tax on indoor tanning facilities, which would raise $2.7 billion over 10 years. This provision was not in the Finance Committee plan. A provision for taxing cosmetic producers was discussed during the debate, but was not included in the final bill. The tax is in the form of a standard excise tax, which in a competitive environment should be borne by consumers, but might be absorbed in part by providers. The tax is imposed on the customer and thus is effectively deductible by the provider who would not include it in income. Under current law, hospitals that are characterized as charitable organizations are eligible to receive several benefits including exemption of tax on income, ability to receive tax-exempt charitable contributions, and eligibility for certain private-activity tax-exempt bond financing. Whether a hospital is a charitable organization depends on whether they have met a "community benefit" standard. A concern is the degree of charity care and whether nonprofit hospitals provide benefits that justify their charitable and tax-exempt status. The Congressional Budget Office released a study in 2006 that found that nonprofit hospitals overall provided only slightly more charity care than for-profit hospitals. That study also reported an estimate by the Joint Committee on Taxation indicating that the benefits of federal tax exemptions for nonprofit hospitals was about $6 billion in 2002. The Senate Finance Committee held hearings on the topic "Taking the Pulse of Charitable Care and Community Benefits at Non-Profit Hospitals," on September 13, 2006, and the House Ways and Means Committee held hearings on "The Tax Exempt Hospital Sector," on May 26, 2005. A staff discussion draft released July 18, 2007, by Senator Grassley (ranking member of the Senate Finance Committee), raised the following concerns about nonprofit hospitals: establishing and publicizing charity care, the amount of charity care and community benefits provided, conversion of nonprofit assets for use by for-profits, ensuring an exempt purpose for joint ventures with for-profits, governance, and billing and collection practices. Subsequently, on October 24, 2007, Senator Grassley authorized a round-table to discuss the draft. Also in July 2007, the IRS released an interim report on nonprofit hospitals that found that the median share of revenues spent on charity care was 3.9% and almost half of hospitals spent 3% or less. The average nonprofit hospital spent 7.4% of revenues on charity care. The staff discussion draft expressed concerns that, since a 1969 revenue ruling issued by the Internal Revenue Service, nonprofit hospitals had not been required to demonstrate specific standards for charity to qualify for exempt status (and in some cases to be eligible to receive tax-deductible charitable contributions); rather they must meet a community benefit standard that is not quantitatively defined. The proposal would codify rules for determining charitable status that include a community needs standard and a minimum annual level of charitable patient care. The provision might have relatively little effect on revenues but might increase the level of charity care. Flexible spending accounts (FSAs) allow reductions in taxable income to fund certain program benefits, which may be chosen under a cafeteria plan or otherwise provided by the employer. A plan provided under a cafeteria approach allows employees to opt for a reduction in salary to provide contributions. Amounts can also be specified under health reimbursement arrangements. Options for raising revenue (in addition to counting these plans as part of benefits for purposes of imposing a general cap) include limits to the amounts contributed or eliminating these contributions. An important reason for concerns about these plans is the "use it or lose it" nature of the plan, with amounts remaining in the account forfeited at the end of the year. For health FSAs, there are concerns that this rule induces excessive spending for individuals with amounts unspent toward the end of the year. Both the House and Senate bills limit these arrangements to $2,500. H.R. 3590 indexes the amounts by the CPI after 2011. The cost of over-the-counter medication does not count for purposes of the itemized deduction for expenditures in excess of the 7.5% floor, but is covered under health savings accounts, health flexible spending accounts, and health reimbursement accounts. This provision would conform eligible spending for these employer account purposes to those governing the itemized deduction, so that expenditures on over-the-counter medication such as aspirin would not qualify as tax-excludible expenditures from these accounts. Both the House and Senate bills contain these provisions. Individuals are allowed an itemized deduction for medical expenses above 7.5% of adjusted gross income. JCT estimates the cost at $10.7 billion per year. The provision, with a significant floor, is aimed at taxpayers who have large medical costs relative to income. It may be more frequently used by those without insurance or for uncovered costs for those with insurance (such as mental health care, dental care, and long-term care). It is claimed by about 12 million taxpayers, or about 9% of tax returns. In part because of the percentage-of-income floor, the medical expense deduction tends to be relatively more beneficial to middle-class taxpayers than other itemized deductions. According to IRS statistics for 2006, 50% of total itemized deductions are claimed by those with $100,000 or more of income, whereas only 15% of the medical expense deduction is claimed by these higher-income groups. Similarly, whereas 26% of all itemized deductions are claimed by those with incomes in excess of $200,000, less than 4% of the medical expense deductions are claimed by these groups. Although the deduction may encourage individuals to forego insurance and has an uneven subsidy effect depending on the tax rate of the individual, an argument for retaining the deduction is that individuals with extraordinary medical expenditures are less able to pay. The Senate bill increases the floor to 10%. The floor remains at 7.5% for individuals aged 65 and older and their spouses through 2016. Blue Cross and Blue Shield, along with a few other companies that existed in 1986 and were tax exempt, are eligible for a special deduction of 25% of claims and expenses in excess of surplus (a measure of profit). They are also provided an exception from a rule that approximates the taxation of unearned premiums (premiums that are due under contracts but not received). The revenue loss from this provision is about $1 billion a year. These provisions were substituted in 1986 for a general tax exemption that arose (in turn) from the perception that these organizations were community service organizations. In 1986, these firms' tax exemptions were removed given the view that their activities were highly similar to commercial insurance. The special benefits were provided as a substitute. The Blues continue to provide some specialized and community rates provisions, which presumably are aided by the tax benefit, but the tax provision also benefits shareholders and other groups. A proposal in the Senate bill would disallow these tax benefits for firms whose premiums are greater than 85% of claims. On February 22, 2010, the Obama Administration released a new compromise proposal, which uses H.R. 3590 as a starting point, but offers several modifications to the revenue provisions of this bill. In particular, this new proposal adopts the tax on high-cost health insurance plans included in the Senate-passed H.R. 3590 , but delays the effective date of this provision from 2013 to 2018. The President's proposal also modifies this proposed high-cost plan tax by raising the exemption amount to $27,500 for families and to $10,200 for individuals. To make up for the revenue lost by these proposed changes to H.R. 3590 's tax on high-cost plans, the Administration's proposal would broaden the Medicare HI tax for high-income taxpayers. Specifically, the President's proposal adopts the revenue provision offered in H.R. 3590 that imposes a 0.9% increase on the HI tax rate to 2.35% for married couples earning more than $250,000 and individuals earning more than $200,000. But in addition, the President's plan would also implement a 2.9% assessment on income from interest, dividends, annuities, royalties, and other unearned income for married couples earning more than $250,000 or individuals earning more than $200,000. The President's compromise proposal also includes two revenue provisions contained in the House-passed H.R. 3962 . First, the Administration's plan would clarify that certain liquid byproducts derived from paper or pulp processing (known as "black liquor") are not eligible for a cellulosic biofuel tax credit provided for under current law. Secondly, the President's proposal would seek to codify the economic substance doctrine. The reduction and delay in the tax on high-cost insurance reduces the FY2010-FY2019 revenue from $148.9 billion to $32 billion. The additional Medicare tax on high-income taxpayers' investment income increases the revenue gain from $86.8 billion to $210.2 billion. The Medicare tax on investment income is set at 3.8%. On March 22, 2010, the House passed the Senate bill, H.R. 3590 , and the President is expected to sign the bill on March 23. The House also passed H.R. 4872 , and the Senate is now considering that legislation. Amounts paid by firms on behalf of their employees for health insurance are excluded from wages and are subject to neither income nor payroll taxes. These health insurance benefits include purchase of group insurance on behalf of employees or self insurance, where employers pay claims. Health coverage may also be selected as part of a "cafeteria" plan where employees choose among a menu of benefits. Deductible contributions may occur through specialized health savings accounts (HSAs) and flexible spending accounts (FSAs) (discussed subsequently). All of these expenses can be excluded from taxable income. The option of capping the exclusion for employer-supplied health insurance was included in the Senate Finance Committee's revenue options in May 2009. Some other commentators have proposed the elimination of the exclusion. The Finance Committee's options include a dollar limit based on a benchmark plan (such as the Federal Employees Plan) or limits related to income, or both. The Advisory Panel on Tax Reform in the Bush Administration proposed a cap (based on the average cost of insurance) in their tax reform plan. The employer exclusion has been discussed in part because of the committee's interest in finding health-related financing options. The employer exclusion is the largest health-related income tax benefit, as measured by revenue loss, estimated by the Joint Committee on Taxation (JCT) to cost $132.7 billion in 2008. The benefits are also excluded from the payroll tax, which causes additional tax revenue losses of $93.5 billion. The Urban Brookings Tax Policy Center estimated these amounts at $144.8 billion and $95.7 billion in 2010, and growing at an average of about 8% per year. The increased tax revenue from the payroll tax would eventually be offset, in part, by benefit increases. A cap would recover only part of this revenue. The JCT has estimated the revenue effect of capping health benefits (including the self-employed deduction, health savings accounts, and flexible savings accounts) at the 75 th percentile of employer health insurance costs in 2009 and indexed for inflation at $14 billion in 2010, $25 billion in 2011, and continuing to rise. This amount is about 10% of the total revenue lost from the tax exemption related to income and payroll taxes. The revenue from a cap depends on whether the cap is indexed or not. If it is indexed, a further consideration is whether the index is for general price inflation or indexed for health price inflation. The Tax Policy Center estimates that a cap based on average health insurance costs in 2009 would, if not indexed, raise $18.2 billion in 2010 and grow at an average rate of 32%, to reach $226.5 billion in 2019. If indexed for general price inflation, it would raise $17.4 billion in 2010, grow at a 29.2% rate, and raise $174.6 billion in 2019. If indexed for health price inflation it would raise $10.2 billion in 2010, grow at a rate of 9.8% and raise $23.6 billion in 2019. A cap at the 90 th percentile would raise $4.9 billion in 2010, rising to $188.8 billion in 2019 if not indexed; it would raise $4.6 billion rising to $130.7 billion in 2019 if indexed to general price inflation; and it would raise $2.4 billion in 2010 and grow to $5.8 billion by 2019 if indexed to health price inflation. As these estimates indicate, caps need to be indexed to health price inflation to maintain a relatively even revenue stream. (A benchmark plan would be expected to grow at the health price inflation rate.) The employer exclusion has been criticized on two grounds in addition to the revenue loss involved: the "upside-down" nature of the subsidy that favors high-income employees, and the incentive to purchase too much insurance, which in turn increases the demand for health care and adds to health care costs. Higher-income individuals are more likely to be covered by employer health care insurance and their tax advantages are greater (at least with respect to the income tax) because they have higher marginal tax rates. Every dollar of excluded income in the highest bracket saves an individual $0.35 in income taxes, but saves the average taxpayer (in the 15% bracket) $0.15 in income taxes. (In 2011, after the 2001 tax cuts expire, the top bracket will be 39.5%, increasing the value of the deduction for high-income taxpayers.) The benefits of the payroll-tax exclusion are not as targeted toward higher-income families. Payroll taxes are flat rate taxes, with the Social Security portion subject to an income cap. In addition, the excluded income in the form of health insurance benefits is not likely to rise with an individual's income because group plans provide the same coverage for everyone in the group. Thus it would not be expected to keep pace with income as is the case with many tax deductions and exclusions. These effects suggest that the tax benefit might not rise as a percentage of income and, therefore, that the additional burden from repealing the tax benefit would not necessarily be progressive. As shown in Table 1 , although coverage and the tax increases generally rise with income, the tax effects as a percentage of income (percentage change in after-tax income) are highest in absolute value in the middle income brackets and suggest a tax benefit from the current exclusion that is proportional to income across much of the population. This change would be largely a proportional tax change (relatively constant as a share of income) across the middle income brackets, and with smaller relative burdens on lower- and higher-income taxpayers. A similar relative distribution occurs for across-the-board caps, but a cap related to income would lead to a different distribution. Note that the average tax increase from repealing the exclusion in Table 1 , column 4, cannot be directly tied to average size of the health insurance benefit package, which can be quite large. These amounts are averaged across participants and non-participants. Thus the $1,578 average tax would be $3,336 if averaged over covered employees. If taxes average around 20% to 25%, the excluded income would be around $15,000. The exclusion has been supported because it reduces adverse selection in the health care market, where less healthy individuals wish to purchase insurance and thereby drive up costs and reduce participation for more healthy individuals. Employer health insurance also covers 62% of the non-elderly population, and there are concerns that altering or reducing the tax subsidies might reduce employer participation. (Such concerns would be different if a health care plan were required for employees by an employer mandate or if employers that provided no coverage faced penalties.) One advantage to a cap is that it might address the problem of the tax benefit resulting in purchasing more insurance than would be otherwise desirable, without having much effect on coverage. A challenge to imposing a cap on the exclusion is the determination of includable income for tax purposes, which could produce inequities as well as administrative burdens. To impose a cap, income must be assigned to the employee to reflect the health insurance exclusion. The true economic costs of health insurance for an employee, and thus for employee groups, vary by geographic location, number of individuals covered (that is, if other family members are included), age, sex, and health status as well as generosity of benefits and the provider network. These individual costs are not separately stated and employer plans involve implicit cost shifting. For example, the young may subsidize the old, and small families may subsidize large ones. Firms that purchase insurance would find their premiums affected by the characteristics of the group, and firms that self-insure would find their claims affected by the group characteristics. Although varying the amounts of employer insurance benefits included in income by health status is not consistent with the insurance objective of risk sharing, varying by number in the family, age, and location are legitimate issues to consider. Most proposals would envision variations by family coverage, but not necessarily age. Providing for variation by age on an individual basis would result in large inclusions in income of older individuals, which might better reflect the implicit benefits of health insurance but may be undesirable because the costs might be onerous. It might also shift the burden somewhat more toward higher incomes, because older individuals tend to earn more. At the same time, requiring income imputations that do not vary with age might reflect lifetime benefits better but would also impose burdens on younger individuals with lower incomes and may discourage them from participation. Moreover, not varying the imputed income from health benefits by age will still produce inequities across employees as the average premiums (or costs in the case of the self insured) will differ for firms with older workers or other characteristics. Thus employees who receive essentially the same benefit would have a higher tax imputation in firms with more women, with older employees, and with a less healthy workforce. These characteristics would also vary by geographic location and size (since small firms have higher administrative costs). It might be possible to make adjustments for these characteristics, but that would add to the administrative burden. Several discussions have suggested that benefits included in income could be set under the same rules as COBRA benefits (provisions under the Consolidated Omnibus Budget Reconciliation Act of 1985, P.L. 99-272 ) that allow for continuation of insurance on leaving a job. Whatever rules are built into this provision would then govern the allocation. The Senate Finance Committee options document also indicates that the exclusion could be reformulated as a deduction, a credit, or a combination of the two. Credits would equalize the treatment across taxpayers of different incomes, and refundable credits would extend the benefit to those without tax liability. An alternative to the complexities of allocating benefits for employees would be to restrict deductions for employers. Employers are currently allowed to deduct the costs of providing fringe benefits as well as the costs of wages paid. Thus, rather than having income included in employees' income, the deduction available to employers could be reduced or eliminated for insurance costs in excess of a floor (which would correspond to a cap on the employee exclusion under the previous approaches discussed). This approach would also raise revenues and discourage excessively generous health insurance packages. Explicit issues of assignment of benefits to individual employees would not arise, although there would still be issues of equity across firms. Other health-related income tax expenditures were considered and listed in the Senate Finance Committee's report. The second-largest tax expenditure is the revenue loss from excluding Medicare benefits from income for tax purposes, estimated by the JCT at $40.6 billion. Altering this provision would involve significant administrative problems and has not been included in the options. Similarly, the exclusion of medical benefits for military dependents and military retirees ($3.3 billion) is not included. A health savings account (HSA) is allowed for individuals with a high-deductible employer health plan, and it allows tax-deductible contributions to an HSA as well as exclusions (from both income and payroll tax) for contributions from employers. Investment earnings are not taxable, and income is not taxable when paid out if spent on medical costs. Distributions for other purposes are includable in income and subject to a 10% additional tax. The contributions have a dollar cap. Foregone taxes due to HSAs cost about $0.5 billion per year according to JCT estimates, but the cost is expected to grow somewhat. HSAs are advantageous because they allow individuals to purchase insurance against catastrophic costs but not for more routine costs, thereby reducing the incentive to spend too much on health care because insurance pays for much of the cost. At the same time, they exacerbate adverse selection, because they attract more healthy individuals out of other insurance pools. The Finance Committee options paper discusses limiting the amount that can be contributed by the individual under a high deductible health plan and an increase in the penalty for non-medical uses. Distributions from an HSA would only be excludible from income as spending on medical costs if substantiated by the employer or an independent third party. The proposals would also include HSA contributions under a general employer cap. Under current law, students (at a school, college, or university) are excepted from paying FICA taxes (Social Security and Medicare) on certain services while employed by the school they attend. The scope of this exception has been a subject of uncertainty, especially with respect to medical residents. The government's position that this exception does not apply to medical residents has been overturned by some courts. The Senate Finance Committee proposal would codify recent regulations addressing circumstances where services and the course of study are intermingled, clarify the definition of educational institution and study, and also establish a dollar limit for the exception. The Senate Finance Committee proposal would extend the Medicare coverage and associated taxes to all state and local employees; employees hired before March 31, 1986, not covered by a voluntary agreement, and covered by a retirement plan are not currently subject to payroll taxes. This provision would increase HI taxes (health insurance payroll taxes that finance Medicare). This change would eventually lead to increased Medicare costs due to expanded coverage. The May 20, 2009, Senate Finance Committee options paper discusses two excise tax provisions, an increase in taxes on alcoholic beverages and the imposition of a tax on sugared beverages. Other commentators have proposed increases in tobacco taxes, although, this tax was recently increased substantially (from $0.39 per pack to slightly over $1) to finance the state children's health insurance program (SCHIP) and is not included in the options paper. Alcoholic beverage taxes apply at different rates to different types of beverages. For distilled spirits, the tax is $13.50 per proof gallon. Because a proof gallon is 50% alcohol, this tax is the equivalent of $0.21 per ounce of alcohol. Beer is taxed at $18 per barrel. Because a beer barrel contains 31 gallons, if beer is 4.5% alcohol, the alcohol in beer is taxed at $0.10 per ounce, about half the rate for distilled spirits. Wine is taxed by type. For ordinary table wine of not more than 14% alcohol, the wine is taxed at $1.07 a gallon. Assuming an alcohol content of 12.5%, the tax per ounce of alcohol is $0.07. Alcohol taxes are levied per unit and their real value falls over time due to inflation. They have been revised infrequently, with the last revision in 1991. If the $13.50 per gallon rate on distilled spirits in 1991 were to have kept pace with inflation, it would be about $19.60 currently. Many of the same issues arise with respect to alcohol taxes that are raised with respect to tobacco. Alcohol use has consequences for health costs not only because of the health consequences of heavy drinking (although not necessarily of moderate drinking), but also because it is implicated in auto accidents. Most studies indicate that the external costs imposed by alcohol are larger than the current taxes, while that is not the case for tobacco; they also indicate that consumption is responsive, although not greatly so, to price changes. Alcohol taxes, like tobacco taxes, tend to be regressive, collecting a larger percentage of the income of low-income individuals. Unfortunately, there is little current distributional data on the effects of individual federal excise taxes; the latest distributional data are from a 1990 Congressional Budget Office study. Table 2 shows expenditures on alcoholic beverages as a percentage of income by quintile, for total alcohol, and for each type of alcohol. The relative burden of alcohol taxes as a percentage of income, however, would be expected to be more concentrated in lower income classes than is suggested by expenditure data, because higher income classes are likely to buy more expensive alcohols. An upscale bottle of whisky may cost many times that of an inexpensive bottle. Wine prices probably vary by a larger amount. Since the tax would be distributed by alcohol content and not by price, the regressivity of the tax could be significantly greater than suggested by this table. For example, if the average price of distilled spirits is twice as much for the top quintile than for the bottom one, the burden relative to income would be 333% larger rather than 116% larger. The unit tax nature of excise taxes tends, therefore, to make them more regressive than sales taxes. Alcohol taxes are not likely to be quite as regressive as tobacco taxes, however, because the prevalence of purchasing alcohol tends to rise as income increases. Alcohol taxes also burden individuals who do not abuse alcohol but rather consume socially and responsibly and thus are horizontally inequitable. The proposal would bring the taxes on beer and wine up to the level of that on distilled spirits, and also increase the distilled spirits tax to $16. With this change, the tax on beer at a 4.5% alcohol level would be $44.64 cents per barrel and the tax on table wine at a 12.5% alcohol level would be $3.88 per gallon. Current federal alcohol taxes (2008) collect $9.4 billion in revenues, with $4.8 billion for distilled spirits, $0.9 billion for wine, and $3.8 billion for beer. (The effect for wine may be a little overstated because it is based on standard table wine, and other products would tend to have smaller increases.) Based on the rate changes the tax on distilled spirits would increase by 18.5% or by $0.9 billion, the tax on wine would increase by 225% or by $2.2 billion, and the tax on beer by 148% or $5 billion. This increase would raise about $5.7 billion in revenue per year, an amount that is less than the total of excise tax increases of $8.1 billion due to offsetting reductions in income tax revenues from the deductibility of excise taxes and behavioral responses. The increase in price should result in a decrease in consumption. The most recent price elasticity estimates (percentage change in quantity divided by percentage change in price) suggest that consumption is not highly responsive to price. These estimates indicate that the elasticity for beer consumption is 0.16 (that is, a 10% increase in price leads to a 1.6% decrease in consumption). The elasticity for wine consumption is 0.58, and the elasticity for consumption of spirits 0.39. The overall elasticity for a proportional change in price is 0.52. Current sales of alcohol are $99.3 billion for beer, $61.1 billion for distilled spirits, and $27.2 billion for wine, for a total of $187.6 billion. For beer, prices would rise by 5%, for wine 8.1%, and for spirits 1.5%. Applying these elasticities suggests a 0.8% decrease in beer consumption, a 4.7% decrease in wine consumption, and a 0.6% decrease in consumption of spirits. Older elasticity estimates were somewhat higher: 0.3 for beer, 1.0 for wine, and 1.5 for spirits. These elasticities would imply a 1.5% decrease for beer, an 8.1% decrease for wine, and a 2.2% decrease for spirits. This proposal would impose a tax on non-diet sweetened beverages. According to testimony at the Senate Finance Committee roundtable discussion, a tax of one cent per 12-ounce can would raise about $1.5 billion per year, and a tax of one cent per ounce would raise about $17 billion. Unlike with alcohol and tobacco, neither the effect of consumption of these beverages on health nor the imposition of additional costs on society has been the subject of a great deal of study. Like any per unit tax, the tax is likely to be regressive. Some might question the singling out of this particular food source, since taxes could be imposed on many other unhealthy items (e.g., candy, snacks, fast food). Most food items without close substitutes have small price elasticities. Individual taxpayers may elect to take a standard deduction, or they may itemize deductions: these deductions include certain taxes paid at the state and local level, home mortgage interest, charitable contributions, medical expenses above a floor, and casualty losses above a floor, as well as some minor miscellaneous deductions. As noted above, one such deduction is medical expenses, but it accounts for less than 6% of the total. The largest share of itemized deductions are those for mortgage interest (36%) and taxes (35%). Almost 60% of taxes that are deducted reflect income taxes and most of the remainder are property taxes on owner-occupied homes. The charitable deduction accounts for the third-largest share, about 15% of the total. A primary feature of President Obama's tax proposals to fund health care reform is capping the value of itemized deductions for the top two tax rates to 28%. Under current law these rates are 33% and 35%; after 2010, when the 2001 tax cuts expire, these rates will rise to 36% and 39.5%. This provision, when fully effective (in FY2012), would be expected to raise revenues by about $25 billion. Itemized deductions benefit only about one-third of taxpayers and, as with any deduction or exclusion, the value rises with the marginal tax rate. Thus a dollar of tax, interest, or charitable contribution benefits a taxpayer in the top bracket by $0.35 on the dollar, whereas it benefits the taxpayer in the 15% bracket by $0.15. When the 2001 tax cut expires after 2010, the top tax rate will be 39.6%. This proposal's tax increases would be concentrated on high-income taxpayers, who constitute the top 2% of incomes. The provision would primarily affect taxpayers with incomes more than $250,000. The $200,000-to-$500,000 income class accounts for 11.4% of itemized deductions and the $500,000-and-over income class about 14.6%. Thus, these taxpayers probably account for around one-fifth of itemized deductions. While the shares of different types of deductions are similar for the $200,000-to-$500,000 class as they are for taxpayers as a whole, the $500,000-and-above class accounts for about 4% of mortgage interest deductions, about 3% of property taxes deductions on homes, and about 32% of charitable contributions deductions. Thus while some concern was expressed about the effect of this provision on housing, the major issue surrounding these proposals was the potential effect on charitable contributions. Several studies have, however, suggested that this effect is likely to be modest, perhaps around a 1% reduction in giving depending on the assumptions. This small effect occurs because of the small effect of the limit on the tax benefit of the deduction, the limited share of total charitable giving affected, and the limited behavioral responses. Those charitable objectives more favored by higher-income individuals, such as health, art, and education, would have larger effects, while giving to religious organizations or for basic welfare would have smaller effects. If charitable giving is the primary concern, these deductions could be excluded from the cap; this change would sacrifice about one-quarter of the expected revenue gain. Other commentators have included much more significant restrictions on the value of itemized deductions. Burman, for example, discusses an option of limiting all itemized deductions to 15%, which he projects would raise $141 billion in 2011. President Obama proposes some additional base-broadening provisions whose revenues would be dedicated to financing health care reform. The first category of these proposals is a set of provisions to reduce the tax gap and increase compliance by increasing information reporting and providing some additional administrative changes. Altogether, these tax provisions result in about $1 billion of revenue gain when fully in place. A second set of provisions involves some relatively narrow revisions that fall into three basic categories: tax provisions affecting financial institutions and insurance companies, revisions of certain tax accounting methods, and revisions in the estate tax, primarily limiting the amount of valuation discounts. Taken together, this second set of provisions raises around $5 billion to $6 billion per year. The largest single provisions over the 10-year budget window, in revenue loss, are the restrictions on valuation discounts for family-owned assets for purposes of the estate tax (raising slightly under $2 billion in the initial years), the modification of corporate-owned life insurance (slightly under $1 billion in the earlier years), and the repeal of a certain inventory valuation method that allows the use of the lower of cost or market value (causing a rise up to almost $2 billion and then a decline to $0.3 billion). A wide variety of other income tax provisions could potentially be used to provide additional revenues, including rate increases, widening the rate brackets, expanding the base, or increasing the tax rate on favored income items, such as dividends and capital gains. Burman, for example, suggests reducing the indexing of the rate brackets to the Consumer Price Index (CPI) minus 1% rather than the CPI. The justification for this revision is that the CPI overstates the cost of living change because it does not account for the shift in the composition of spending to those items with smaller relative price increases. This proposal is estimated to raise $8 billion in 2010 and $50 billion in 2019. It also has the advantage of growing over time, which may be helpful in financing a growing health care plan. Shea suggested increasing the capital gains tax, taxing carried interest (certain earnings of investment fund managers) as ordinary income, reforming international tax enforcement, and repealing LIFO (last-in, first-out inventories). Revenue estimates for a number of these items are contained in the Treasury's "Greenbook": raising tax rates on capital gains and dividends would raise about $5 billion, carried interest would initially raise about $3 billion, and LIFO repeal would raise about $6 billion. The revenue raised from international reforms depends on the nature of the changes, but international provisions in the President's proposal in total raise more than $20 billion. Another source of revenue would be increases in payroll taxes, either by raising the rates or raising the earnings ceiling. Burman estimates that an increase in both the employee and the employer share of payroll taxes would raise about $100 billion in revenue per year. He also estimates that eliminating the Social Security earnings cap would raise $84 billion. In the latter case, some of the savings would eventually be offset by benefit increases unless the earnings were decoupled from benefits. Another possibility for raising revenue is to turn to an entirely new revenue source. Burman, for example, proposed a 10% value added tax (VAT), which would raise $600 billion. Another option for an additional revenue source is a carbon tax or the auction revenue from a cap and trade carbon emissions permit system. The VAT, in addition, would be a new tax with all of the administrative compliance problems associated with such a tax. If very large sources of revenue are not desired, it might not be worth the administration and compliance costs. It would also be difficult to put into place quickly and would involve a number of transition and other problems. The carbon tax or cap and trade would also be difficult to put into place and would involve other important program issues that need to be settled. As with excise taxes, these taxes would be regressive. Table A-1 provides a comparative list of all revenue provisions and revenue-related reform proposals currently included in H.R. 3962 and H.R. 3590 . The final column shows the provisions enacted into law in P.L. 111-148 and P.L. 111-152 . | Several tax options were proposed to provide financing for health care reform. President Obama initially proposed restricting itemized deductions for high-income taxpayers, along with some narrower provisions. H.R. 3962 passed in the House on November 14, 2009; its largest source of increased revenues was from additional income taxes for higher-income taxpayers. On December 24, 2009, the Senate adopted H.R. 3590, whose revenue provisions are similar to those in the bill reported by the Senate Finance Committee (S. 1796). Taxing insurance companies on high-cost employer plans was the largest single source of revenue in that plan. Both plans included health-related provisions, including fees or excise taxes, along with some other provisions. On February 22, 2010, the Obama Administration released a new compromise proposal, which generally uses H.R. 3590 as a starting point, but offered several changes to the revenue provisions of this bill. The President's proposal would have delayed the effective date for the tax on high-cost employer plans proposed in H.R. 3590 from 2013 to 2018 and raised the exemption threshold for this tax to $27,500 for families and $10,200 for individuals. In addition, the new plan offered by the Administration would broaden H.R. 3590's proposed increase of the Medicare Hospital Insurance (HI) tax for high-income households by adding a tax on unearned income at a 3.8% rate. On March 22, 2010, the House passed the Senate bill, along with the revenue revisions (H.R. 4872). The President signed H.R. 3590 on March 23 (P.L. 111-148); the Senate and House agreed on H.R. 4872 on March 25, 2010, and it was signed by the President (P.L. 111-152) on March 30. Several proposals for revenue, considered during the health care financing debate of 2009, have not been included in legislation reported out by congressional committees. These proposals include eliminating tax benefits from the exclusion of employer-provided health insurance, which has a significant revenue potential, and limiting tax savings to 28% of itemized deductions for the top two brackets, which was the centerpiece of the President's initial health reform tax proposals. These provisions differ in their potential revenue gain, and behavioral and distributional effects. Some proposals are progressive (imposing higher relative burdens on higher income groups), some impose larger relative burdens on lower-income families, and some tend to fall on middle-class groups. The distributional analysis, however, relates only to finance: the total health care program may redistribute in favor of lower-income families even if the revenue sources do not. The House bill (H.R. 3962) included a high-income surtax of 5.4% on income above $1 million (income levels are 50% as large for singles). The proposal would have initially raised more than $30 billion per year. One concern that has been raised about this surtax is the effect on small business, entrepreneurship, and job creation; however, much of this income is passive income or income of professions (e.g., stockbrokers, doctors). The proposal also includes some narrower, largely corporate provisions and restrictions on health-related tax expenditures. The Senate bill (H.R. 3590) would have imposed an excise tax on insurance companies for high-cost employer plans. Most of the remaining revenue is raised from restricting health-related tax expenditures; increasing the Medicare payroll tax for high-income earners; and imposing fees on medical devices, branded drugs, and health insurance providers. One revenue raising provision that has produced some recent controversy is the requirement for information reporting by firms for all payments over $600. H.R. 5141, to repeal this provision, has been introduced. |
O n November 21, 2013, the Senate reinterpreted Senate Rule XXII, lowering the number of Senators needed to invoke cloture on most nominations from three-fifths of the Senate to a simple majority. Cloture places time limits on consideration of a matter, and so may be employed as a means of overcoming filibusters. Since the reinterpretation of the rule, the use of cloture on nominations has changed considerably. This report was originally written prior to the reinterpretation of the rule. It presents data on all nominations on which cloture motions were offered from 1949, when the Senate altered the rule to allow cloture to be moved on any matter, including nominations, until November 20, 2013 (see Table 6 ). It also presents data on the outcomes of these attempts, the development over time of Senate practice in seeking cloture on nominations until the rule was reinterpreted, and the positions in relation to which cloture has been offered. Before entering into these discussions, the report sketches some general features of cloture and considerations pertinent to interpreting its meaning. Senate rules place no general limits on how long consideration of a nomination (or most other matters) may last. Owing to this lack of general time limits, opponents of a nomination may be able to use extended debate or other delaying actions to prevent a final vote from occurring. The use of debate and procedural actions for the purpose of preventing or delaying a vote is termed a "filibuster." The only procedure by which the Senate can vote to place time limits on its consideration of a matter is the motion for cloture provided for in paragraph 2 of Senate Rule XXII. This motion, therefore, is the Senate's most common means of attempting to overcome a filibuster. When the Senate adopts a motion for cloture on a matter, known as "invoking cloture," further consideration of the matter becomes subject to a time limit, and upon the expiration of that time, a vote will occur. For most matters, the time limit prescribed by the cloture rule is 30 hours, although under a standing order that was in effect only in the 113 th Congress (2013-2014), this 30-hour limit was lowered for all but high-level executive and judicial nominations. By invoking cloture, the Senate may be able to ensure that a question will ultimately come to a vote. Until November 21, 2013, however, the Senate could impose the constraints of cloture only by a supermajority vote. Three-fifths of the full Senate (60 votes, if there is no more than one vacancy) was required to invoke cloture. In earlier Congresses, as a result, even if a majority of Senators supported a nomination, opponents could possibly prevent a vote on it by defeating any attempt to invoke cloture, and continuing to extend consideration. As a result, although any nomination can always be approved by a simple majority of Senators present and voting, prior to November 2013 the support of a supermajority was required to limit consideration and enable the Senate to reach a vote. After the reinterpretation of the rule in November of 2013, the number necessary to invoke cloture was lowered to a simple majority, but other features of the cloture rule remained the same. With the new majority cloture rule, therefore, Senators can still extend post-cloture consideration of a nomination, within the limits of the cloture rule, including a limit of one hour of debate for each Senator and a total time limit of 30 hours of consideration on each nomination. The large number of nominations submitted to the Congress, particularly at the outset of a new presidential administration, can lead the majority to seek unanimous consent rather than cloture in order to approve nominations more quickly. Although cloture affords the Senate a means for overcoming a filibuster, it is erroneous to assume that cases in which cloture is sought are always the same as those in which a filibuster occurs. Filibusters may occur without cloture being sought, and cloture may be sought when no filibuster is taking place. The reason is that cloture is sought by supporters of a matter, whereas filibusters are conducted by its opponents. It is possible, as a result, that opponents of a matter may use debate and other procedural actions to delay a vote without supporters deciding to move for cloture. This situation appears not to be common today, but does seem to have occurred in relation to nominations in earlier times. Supporters may refrain from seeking cloture either because they think they lack the votes to obtain it, because they believe they can overcome any delaying actions and reach a vote without resorting to cloture, or because they hope to resolve the matter in dispute by some negotiated accommodation. On the other hand, leaders of the majority party, or other supporters of a matter, may move for cloture even when opponents deny that they are conducting a filibuster, or at a point when no extended debate or delaying actions have actually occurred. They may do so in response to a threat or perceived threat of a filibuster, or simply in an effort to speed action. It often appears that Senate leaders attempt to avoid bringing to the floor matters, including legislation as well as nominations, on which they foresee a likelihood that filibusters will occur. These agenda choices may be motivated in part by a desire to avoid expending scarce floor time on matters that cannot be brought to a successful conclusion. Compounding the potential for misunderstanding, in recent times observers have increasingly extended the use of the term "filibuster" to apply to situations in which opponents of a matter attempt in advance to discourage its consideration on the Senate floor. These situations are also sometimes described as "silent filibusters." They may arise, for example, when Senators inform their respective party floor leaders that they prefer the nomination (or other matter) not to receive floor consideration, an action that has become known as placing a "hold" on a matter. Although a "hold" has no formal procedural force under Senate rules, it may represent an implicit threat to filibuster that may discourage the majority leader from bringing the matter to the floor. This newer sense of the term "filibuster" is sharply distinct from the historically better-established usage described above, which refers to actions actually taken during floor consideration. Cloture motions cannot be used to identify "filibusters" in the sense of matters withheld from floor consideration, because action under the cloture rule is, itself, something that occurs only in the course of floor proceedings. Except by unanimous consent, indeed, cloture can be moved only on a question already pending on the floor. On matters on which a filibuster is in prospect, as a result, the possibility of cloture can arise only if the leadership determines to bring the matter to the floor despite the possibility of filibuster, and at that point the previously "silent filibuster" either becomes an overt filibuster or fails to materialize. Furthermore, in Congresses just prior to the reinterpretation of the rule, when the possibility of a filibuster was foreseen, the Senate occasionally agreed by unanimous consent to consider a nomination under time limits, but required 60 votes for its approval. Under this arrangement, the so-called "60-vote hurdle" or "60-vote threshold" preserved the possibility for a minority (if sufficiently large) to prevent approval, yet the time limit made it unnecessary to offer any cloture motion. As a result, these cases of potential filibuster also are not identifiable from the presence of cloture motions. The reinterpretation of the cloture rule further complicates using cloture motions as a method for identifying filibusters, particularly when making comparisons over time. After the reinterpretation of the rule, a Senate majority of the President's party became far more likely to attempt cloture. While the majority party might claim the increased use of cloture reflects increased obstruction by the minority, the minority might claim the increased use of cloture reflects a majority more readily and perhaps routinely relying on a simple majority process, regardless of any actual or perceived threat to filibuster. The incomparability of the periods before and after the rules reinterpretation made it inappropriate to extend the data presented in this report past the point of the rule reinterpretation. If cloture cannot serve directly as a measure of filibusters, however, neither can any other specific procedural action. A filibuster is a matter of intent; any proceedings on the floor might constitute part of a filibuster if they are undertaken with the purpose of blocking or delaying a vote. Yet any of the procedural actions that might be used to delay or block a vote might also be used as part of a normal course of consideration leading without difficulty to a final decision. As a result, filibusters cannot simply be identified by explicit or uniform criteria, and there is no commonly accepted set of criteria for doing so. Instead, determining whether a filibuster is occurring in any specific case typically requires a degree of subjective judgment. For all these reasons, it would be a misuse of the following data, which identify nominations on which cloture was sought, to treat them as identifying nominations subjected to filibuster. It would equally be a misinterpretation to assume that all nominations on which cloture was not sought were not filibustered (especially for periods before 1949, when, as discussed later, it first became possible to move cloture on nominations). This report provides data only on nominations on which cloture motions were offered. It is not to be taken as providing systematic data on nominations that were or were not filibustered. It would not be feasible to develop a list of measures filibustered unless a commonly accepted standard for identifying what constitutes filibustering could first be established. At most, the data presented here may be regarded as identifying some potentially likely cases in which a filibuster (by some appropriate definition) may have occurred prior to the reinterpretation of the cloture rule in 2013. The Senate first adopted a cloture rule (paragraph 2 of Rule XXII) in 1917. Until 1949, cloture could be moved only on legislative measures; nominations could not be subjected to cloture attempts. From 1949 through November 20, 2013 (81 st Congress through the start of the 113 th Congress), cloture was sought on 143 nominations. (This total and other data presented in this report do not include four failed cloture attempts on four nominations that occurred prior to November 21, 2013, because subsequent successful cloture votes were held on all four nominations after the reinterpretation of the rule.) Table 6 , following the text of this report, identifies the 143 nominations, the number of separate cloture motions filed on each, the ultimate outcome of the cloture attempt in each case, and the disposition of each nomination. As shown by the summary in Table 1 , the Senate invoked cloture on 59 of these 143 nominations. On another 56 of these nominations, cloture motions were offered, but never came to a vote, because the motions were withdrawn or vitiated by unanimous consent, or because they fell (that is, became moot before the cloture vote occurred). On the remaining 28 of the 143 nominations, the Senate voted against imposing cloture. Of the 143 nominations on which cloture was sought, 118 ultimately won confirmation. The 118 nominations confirmed include all 59 on which the Senate invoked cloture and all but three of the 56 on which no cloture vote occurred. Even among the 28 nominations on which the Senate voted only against cloture, 6 were nevertheless able to achieve confirmation (completing the total of 118 nominations confirmed). The remaining 22 nominations on which the Senate ultimately rejected cloture failed of confirmation, in each case because, at some point after the final vote to reject cloture, the nomination was withdrawn from consideration, so that no final vote occurred. Overall, none of the 25 nominations that failed of confirmation following a cloture motion was rejected by the Senate on an "up-or-down" vote. This pattern is consistent with Senate action on nominations generally; in contemporary practice, nominations that reach a final vote are very seldom rejected. The assertion is sometimes made that filibusters against nominations were infrequent until recent years. Little comprehensive knowledge, however, exists about such filibusters in earlier times. One reason is that until 1929, the Senate normally considered nominations in closed session. Until 1917, moreover, the Senate had no rule for bringing debate on any matter to a close, and even thereafter, as noted above, the cloture rule did not apply to nominations until 1949. For any earlier years, accordingly, it would not be even possible to try to use cloture as a measure of filibustering on nominations. Certainly, some historical accounts reference instances of lame duck sessions preceding a change in party control of the presidency in which the Senate generally declined to confirm nominations by the outgoing President. Even in these cases, however, it is not clear that the nominations often failed as a result of filibusters on the floor. There is, nevertheless, some reason to think that in earlier periods, filibustering on nominations was, indeed, infrequent. It is not clear, however, that this condition prevailed chiefly because Senate practice discouraged filibustering in such cases. Instead, it appears that Presidents often may have submitted nominations only after prior consultation with Senators. There also seems reason to suppose that often, when any Senators strongly objected to a nomination, the Senate might decline to bring the matter to the floor in the first place. The custom of "Senatorial courtesy," under which the Senate would decline to consider a nomination to a position in the home state of a Senator who declared the nomination "personally obnoxious" to him, represented an instance of such practices. To the extent that these suppositions are well founded, it might be said, in effect, that during these earlier periods, obstacles to the confirmation of nominations manifested themselves more often in the form of what today might be called "silent filibusters" than through overt opposition during floor consideration. The prevalence of such situations, of course, could not be ascertained from the examination of floor proceedings. Even after Senate rules began to permit the use of cloture on nominations in 1949, it was not deemed necessary to seek cloture on any until 1968 (90 th Congress), when a motion to proceed to consider the nomination of Supreme Court Associate Justice Abe Fortas to be Chief Justice was debated at length. After the Senate rejected cloture on the motion to proceed, 45-43, President Lyndon B. Johnson withdrew the nomination. In 1969 and 1970, the nominations of Clement F. Haynsworth and G. Harrold Carswell to the Supreme Court were defeated after lengthy debate, but no cloture motion was filed on either. When the Senate considered the nomination to the Supreme Court of William H. Rehnquist late in the 1971 session, however, cloture was quickly sought. Though the Senate did not invoke cloture (52-42), the nomination was subsequently confirmed. Cloture was sought on no other nomination until 1980. That occurrence was the first in which cloture was sought on a nomination to an executive branch position, that of William G. Lubbers to be General Counsel of the National Labor Relations Board. Cloture was invoked, and the nomination was confirmed. In the meantime, the majority required for invoking cloture on most matters, including nominations, had been changed in 1975 from two-thirds of Senators present and voting to three-fifths of the full membership of the Senate (60 votes, assuming no more than one vacancy). This change in the rules generally meant that the threshold for invoking cloture was lowered: if all 100 Senators participated in the vote, the previous rule required the votes of 67 to invoke cloture; the new rule normally required 60 votes, regardless of how many Senators participated. Since 1980, as Table 2 illustrates, the frequency with which nominations have been subjected to cloture attempts has continually tended to increase (a development that parallels a trend in the frequency of cloture motions overall). In this table (and Table 3 below), data on each Congress in which cloture was moved on more than 10 nominations are set forth separately, but data for suitable groups of consecutive Congresses with less frequent cloture action on nominations are consolidated in a single row. Not only do the data in Table 2 manifest a generally rising trend, but the pattern displayed in Congresses beginning with the 108 th (2003-2004) is sharply distinct from that of earlier ones. From the 90 th through the 107 th Congress (1967-2002), cloture was only once (103 rd Congress, 1993-1994) sought on more than five nominations. In the five Congresses from the 108 th through the 113 th (2003-2013), by contrast, cloture was only once (110 th Congress, 2007-2008) sought on fewer than 14 nominations. The 103 rd , 107 th , and 111 th Congresses were each the first of a new presidential Administration, so that the number of nominations to be considered was presumably large. Nevertheless, the new level of nominations with cloture attempts that was reached in the 103 rd Congress remained exceptional until the 108 th Congress, but the pattern of activity from then on has increasingly come to make the 103 rd Congress look like a forerunner of practices that became typical. It is also pertinent, however, that the President's party had a Senate majority in the six Congresses before 2014 in which cloture was sought on 12 or more nominations. This pattern suggests that highly controversial nominations may now be more likely to be brought to the Senate floor if it is the President's party that can set the agenda. In the 108 th Congress (2003-2004), the pattern of Senate action on nominations on which cloture was sought displayed several distinctive features. This was the Congress during which extensive contestation occurred over attempts to secure confirmation for a series of judicial nominations by President George W. Bush, and the prospect arose that an attempt would be made to change Senate rules for considering nominations through proceedings (known as the "nuclear" or "constitutional option") that would not require supermajority support. The maximum number of cloture motions offered on any single nomination was markedly higher in the 108 th Congress. Only three times previously had as many as three cloture motions been offered on a single nomination, and only four times subsequently have as many as two cloture motions been offered on the same nomination. In the 108 th Congress, by contrast, one nomination was subjected to seven cloture motions and another to four. These events suggest the intensity with which supporters of these nominations were attempting to secure Senate votes thereon. The pattern from that time until the reinterpretation of the rule, by contrast, suggests that Senate leaders became less willing to invest extensive floor time on attempts to secure confirmation for nominations that did not command sufficient support for cloture. The Senate in the 108 th Congress also rejected cloture with much greater frequency on nominations on which it was moved. In that Congress the Senate ultimately voted against cloture on more than three-quarters of such nominations, which suggests that opponents were persisting in contesting those nominations much more intensely than was otherwise the case. In all other Congresses (or, when cloture was attempted on only a few nominations in each of several consecutive Congresses, as shown in Table 2 , in the group of consecutive Congresses as a whole), the Senate ultimately voted against cloture on no more than one-quarter of the nominations in question. This finding reflects the observation offered earlier that only a few nominations have been blocked by failure to obtain cloture. Over the full period under examination, as shown by Table 3 , cloture action occurred on nominations to positions in the judiciary and in the executive branch in roughly comparable numbers. Until the 111 th Congress, however, a majority of the nominations on which cloture was sought were to positions on the federal bench. This circumstance perhaps reflected the Senate's traditional inclination to grant the President wide latitude in selecting officials to serve under him in executive branch positions. More generally, however, the relative emphasis on nominations to positions in the two branches has shifted sharply from one Congress to another. In both of the periods identified in Table 3 that cover several consecutive Congresses, as well as in the 108 th Congress (2003-2004) and the 112 th Congress (2011-2012), nominations to judicial positions were the main focus of cloture action. In the 103 rd (1993-1994), 109 th (2005-2006), 111 th (2009-2010), and 113 th (through November 21, 2013) Congresses, cloture motions on executive branch nominations were more prevalent. It is perhaps pertinent that the 103 rd and 111 th Congresses both included the period immediately following the inauguration of a new President, when presumably there were a large number of nominations to positions in the new Administration. As already observed, the only period during which cloture attempts on either class of nominations were rejected far more often than they were either invoked or abandoned occurred in connection with the broad struggle over President George W. Bush's judicial nominations in the 108 th Congress (2003-2004). On executive branch nominations in the 109 th (2005-2006) and 111 th (2009-2010) Congresses, on the other hand, either cloture was invoked, or no vote occurred, in especially high proportions. On an especially high proportion of judicial nominations on which cloture was attempted in the 112 th Congress (2011-2012), no cloture votes ultimately occurred, suggesting that cloture might have been moved on many of these nominations in response to perceived threats of filibuster that did not materialize or, perhaps, that proved susceptible of negotiated resolution. Few of the nominations on which cloture was attempted prior to the reinterpretation of the cloture rule were to positions of the first rank in the federal government. Only 4 have been to the Supreme Court, as shown in Table 4 , and only 11 to head Cabinet departments or to other positions sometimes accorded Cabinet rank by the President, as shown in Table 5 . In relation to offices at lower levels of the executive branch, it can be discerned from Table 6 that cloture attempts have occurred particularly often on nominations to positions in the Department of State and the Department of Justice. | The motion for cloture is available in the Senate to limit debate on nominations, as on other matters. Table 6 lists all nominations against which cloture was moved from 1949, when the Senate changed the cloture rule to allow it to be moved on nominations, until November 21, 2013, when the Senate reinterpreted the rule to lower the threshold for invoking cloture on most nominations from three-fifths of the Senate to a majority of Senators voting. The reinterpretation of the rule significantly altered the use of cloture in the Senate, such that conclusions drawn from the data in this report are not applicable to similar data collected since that time. The initial version of this report was written prior to the 2013 reinterpretation of the rule; the report will not be further updated to reflect cloture action on nominations after that time. Because cloture can be used to end consideration of a nomination, it can be used to overcome a filibuster against a nomination. Table 6 shows the outcome of each cloture attempt on a nomination through November 20, 2013, and the final disposition of the nomination. It would be erroneous, however, to treat this table as a list of filibusters on nominations. Filibusters can occur without cloture being attempted, and cloture can be attempted when no filibuster is evident. Moreover, it appears that Senate leaders generally avoided bringing to the floor nominations on which a filibuster seemed likely. There are no means to identify the merely threatened filibuster. From 1949 through November 20, 2013, cloture was sought on 143 nominations that were disposed of prior to the rule reinterpretation. On 59 of these nominations cloture was invoked, and on 55 others no cloture motion received a vote. All but 3 of these 114 nominations were confirmed. Only on the remaining 32 nominations did the Senate ultimately reject cloture; of these, 26 were not confirmed. Until 1968, cloture was moved on no nominations, and from then through 1978, it was moved on only two. Even thereafter, in no single Congress from the 96th through the 102nd (1979 through 1992) was cloture sought on more than three nominations, and in no Congress from the 104th through the 107th (1995 through 2002) was it sought on more than five. Between these last two periods, however, the 103rd Congress (1993-1994) foreshadowed a more recent pattern, with cloture action on 12 nominations. In every Congress between 2003 and 2013, except the 110th (2007-2008), cloture was attempted on at least 14 nominations. The same five Congresses that saw cloture action on 12 or more nominations were those in which the Senate minority was of the party opposite that of the President. In all the Congresses or periods identified, no more than a quarter of nominations with cloture attempts failed of confirmation, except in the 108th Congress (2003-2004), when almost 80% of nominations subjected to cloture attempts (mostly judicial) were not confirmed. Prominent in this Congress were discussions of making cloture easier to get on nominations by changing Senate rules through procedures not potentially subject to a supermajority vote. In the 112th Congress, by contrast, cloture was moved on a record 33 nominations (again mostly to judicial positions), but on 23 of these nominations, the nomination was confirmed without a cloture vote. Overall, cloture was sought on nominations to 74 executive and 69 judicial positions. Judicial nominations, however, predominated in the two Congress just noted and before 2003, except in the 103rd Congress (1993-1994). Executive branch nominations predominated in that Congress and the 111th (2009-2010), both at the beginning of a new presidential Administration, as well as in the 109th Congress (2005-2006) and the start of the 113th Congress (2013). Few of the nominations on which cloture was sought prior to the rule reinterpretation were to positions at the highest levels of the government. These included 4 nominations to the Supreme Court and 11 to positions at the Cabinet level. |
Although much progress has been made in achieving the ambitious goals that Congress established more than 35 years ago to restore and maintain the chemical, physical, and biological integrity of the nation's waters, long-standing problems persist, and new problems have emerged. Water quality problems are diverse, ranging from pollution runoff from farms and ranches, city streets, and other diffuse or "nonpoint" sources, to "point" source discharges of metals and organic and inorganic toxic substances from factories and sewage treatment plants. The principal law that deals with polluting activity in the nation's streams, lakes, estuaries, and coastal waters is the Federal Water Pollution Control Act (P.L. 92-500, enacted in 1972), commonly known as the Clean Water Act, or CWA. It consists of two major parts: regulatory provisions that impose progressively more stringent requirements on industries and cities to abate pollution and meet the statutory goal of zero discharge of pollutants; and provisions that authorize federal financial assistance for municipal wastewater treatment plant construction. Both parts are supported by research activities, plus permit and enforcement provisions. Programs at the federal level are administered by the Environmental Protection Agency (EPA); state and local governments have major day-to-day responsibilities to implement CWA programs through standard-setting, permitting, enforcement, and administering financial assistance programs. The water quality restoration objective declared in the 1972 act was accompanied by statutory goals to eliminate the discharge of pollutants into navigable waters by 1985 and to attain, wherever possible, waters deemed "fishable and swimmable" by 1983. Although those goals have not been fully achieved, considerable progress has been made, especially in controlling conventional pollutants (suspended solids, bacteria, and oxygen-consuming materials) discharged by industries and sewage treatment plants. Progress has been mixed in controlling discharges of toxic pollutants (heavy metals, inorganic and organic chemicals), which are more numerous and can harm human health and the environment even when present in very small amounts—at the parts-per-billion level. Moreover, efforts to control pollution from diffuse sources, termed nonpoint source pollution (rainfall runoff from urban, suburban, and agricultural areas, for example), are more recent, given the earlier emphasis on "point source" pollution (discharges from industrial and municipal wastewater treatment plants). Overall, data reported by EPA and states indicate that 45% of river and stream miles assessed by states and 47% of assessed lake acres do not meet applicable water quality standards and are impaired for one or more desired uses. In 2006 EPA issued an assessment of streams and small rivers and reported that 67% of U.S. stream miles are in poor or fair condition and that nutrients and streambed sediments have the largest adverse impact on the biological condition of these waters. Approximately 95,000 lakes and 544,000 river miles in the United States are under fish-consumption advisories (including 100% of the Great Lakes and their connecting waters), due to chemical contaminants in lakes, rivers, and coastal waters, and one-third of shellfishing beds are closed or restricted, due to toxic pollutant contamination. Mercury is a contaminant of growing concern—as of 2003, 45 states had issued partial or statewide fish or shellfish consumption advisories because of elevated mercury levels. The last major amendments to the law were the Water Quality Act of 1987 ( P.L. 100-4 ). These amendments culminated six years of congressional efforts to extend and revise the act and were the most comprehensive amendments since 1972. Authorizations of appropriations for some programs provided in P.L. 100-4 , such as general grant assistance to states, research, and general EPA support authorized in that law, expired in FY1990 and FY1991. Authorizations for wastewater treatment funding expired in FY1994. None of these programs has lapsed, however, as Congress has continued to appropriate funds to implement them. EPA, states, industry, and other citizens continue to implement the 1987 legislation, including meeting the numerous requirements and deadlines in it. The Clean Water Act has been viewed as one of the most successful environmental laws in terms of achieving its statutory goals, which have been widely supported by the public, but lately some have questioned whether additional actions to achieve further benefits are worth the costs. Criticism has come from industry, which has been the long-standing focus of the act's regulatory programs and often opposes imposition of new stringent and costly requirements. Criticism also has come from developers and property rights groups who contend that federal regulations (particularly the act's wetlands permit program) are a costly intrusion on private land-use decisions. States and cities have traditionally supported water quality programs and federal funding to assist them in carrying out the law, but many have opposed CWA measures that they fear might impose new unfunded mandates. Many environmental groups believe that further fine-tuning is needed to maintain progress achieved to date and to address remaining water quality problems. Initially following enactment of amendments in 1987, no major CWA legislative activity occurred. In the 104 th Congress (1995), the House passed a comprehensive reauthorization bill that was opposed by the Clinton Administration and environmental groups; it was not enacted. Since then, no comprehensive reauthorization legislation has been introduced, but beginning in the 106 th Congress, a number of bills dealing with specific water quality issues in the law have been enacted—especially, legislation to reauthorize several existing CWA programs. Since the 107 th Congress, one of the dominant CWA issues has been water infrastructure financing—that is, extension and modification of provisions of the act authorizing financial assistance for municipal wastewater treatment projects. House and Senate committees have approved bills and the House passed bills in the 110 th and 111 th Congresses, but none has been enacted. The remainder of this report discusses CWA issues of particular interest in the 111 th Congress, beginning with discussion of two issues that were prominent—water infrastructure funding, and regulatory protection of wetlands. It then describes several other issues that also received attention. It concludes with a discussion of water quality appropriations and water infrastructure as part of economic stimulus legislation in 2009. The year 2007 marked the 35 th anniversary of passage of the Clean Water Act and 20 years since the last major amendments to the law. While, as noted, there has been measurable clean water progress as a result of the act, observers and analysts agree that significant water pollution problems remain. However, there is less agreement about what solutions are needed and whether new legislation is required. Several key water quality issues exist: evaluating actions to implement existing provisions of the law, assessing whether additional steps are necessary to achieve overall goals of the act that have not yet been attained, ensuring that progress made to date is not lost through diminished attention to water quality needs, and defining the appropriate federal role in guiding and paying for clean water infrastructure and other activities. For some time, efforts to comprehensively amend the act have stalled as interests have debated whether and exactly how to change the law. Many issues that might be addressed involve making difficult tradeoffs between impacts on different sectors of the economy, taking action when there is technical or scientific uncertainty, and allocating governmental responsibilities among federal, state, local, and tribal entities for implementing the law. These factors partly explain why Congress has recently favored focusing legislative attention on narrow bills to extend or modify selected CWA programs, rather than taking up comprehensive proposals. Other factors also have been at work. These include a general reluctance by most members of Congress to address controversial environmental issues in view of the slim majorities held by political parties in the House and the Senate; and a lack of presidential initiatives on clean water issues (neither the Clinton nor the Bush Administration proposed CWA legislation). In addition, for some time after the terrorist attacks of September 11, 2001, Congress was more focused on security, terrorism, and Iraq war issues than on many other topics, including environmental protection. As a result of the 2006 mid-term elections and changed congressional leadership beginning in 2007, many observers expected that the 110 th Congress would pursue oversight of clean water and other environmental programs. Greater interest in environmental issues was apparent, but no comprehensive legislation was enacted. A particular legislative focus was water infrastructure financing legislation, specifically reauthorization of the act's financial aid program (discussed next in this report). Also on the congressional agenda was consideration of the geographic reach of the Clean Water Act over the nation's waters and wetlands, in light of court rulings—including two Supreme Court decisions—that have narrowed the law's regulatory jurisdiction, but in ways that are somewhat unclear. The 2008 election encouraged many policymakers and stakeholders to anticipate much greater attention to environmental issues, including clean water, by the 111 th Congress and the Obama Administration. During the 2008 presidential campaign, candidate Obama supported several issues, including preservation of wetlands, Great Lakes restoration legislation, water conservation, regulation of large animal feeding operations, and full funding of clean water infrastructure assistance programs. Funding for water infrastructure projects, discussed next in this report, received early attention in the 111 th Congress in light of interest in utilizing increased investment in public works projects—including wastewater—in order to stimulate the faltering U.S. economy, but the Obama Administration did not present specific legislative proposals concerning water quality. As discussed below, the 111 th Congress considered a number of water quality issues through oversight and legislation. Two bills amending the CWA were enacted and are discussed. One dealt with extending a moratorium for CWA permitting of certain vessels ( P.L. 111-215 ), and the other dealt with ensuring that federal agencies and departments pay localities for reasonable costs associated with managing stormwater pollution from federal properties ( P.L. 111-378 ). Meeting the nation's needs to build, upgrade, rebuild, and repair wastewater infrastructure is a significant element in achieving the Clean Water Act's water quality objectives. The act's program of financial aid for municipal wastewater treatment plant construction is a key contributor to that effort. Since 1972 Congress has provided more than $85 billion to assist cities in constructing projects to achieve the act's requirements for secondary treatment of municipal sewage (equivalent to 85% reduction of wastes), or more stringent treatment where required by local water quality conditions. State and local governments have spent more than $25 billion of their own funds for construction, as well. Federal funds can be used only for construction purposes (e.g., new plants or upgrades), but not for operation and maintenance of facilities. Still, funding needs remain very high: an additional $298 billion, according to the most recent Needs Survey estimate by EPA and the states, released in June 2010, a 17% increase above the estimate reported four years earlier. This current estimate includes $187.9 billion for wastewater treatment and collection systems ($26.7 billion more than the previous report), which represent more than 60% of all needs; $63.6 billion for combined sewer overflow corrections ($1.4 billion less than the previous estimate); $42.3 billion for stormwater management ($17 billion more than the previous estimate); and $4.4 billion to build systems to distribute recycled water ($700 million less than the previous estimate). EPA reported several reasons for increased total needs for wastewater treatment, which were $23 billion higher than in the previous report: improvements needed to meet more protective water quality standards, rehabilitation of aging infrastructure, and expanding capacity to meet population growth. Needs for stormwater management increased by $17 billion and were mostly due to emerging needs to provide "green" infrastructure, according to EPA. The estimates do not explicitly include funding needed to address security issues, or funding possibly needed for treatment works to adapt to climate change impacts. In September 2002, EPA released a study called the Gap Analysis that assessed the difference between current spending for wastewater infrastructure and total funding needs (both capital and operation and maintenance). In that report, EPA estimated that, over the next two decades, the United States needs to spend nearly $390 billion to replace existing wastewater infrastructure systems and to build new ones. Funding needs for operation and maintenance (not eligible for Clean Water Act funding) are an additional $148 billion over the next two decades, the agency estimated. According to the Gap Analysis, if there is no increase in investment, there will be about a $6 billion gap between current annual capital expenditures for wastewater treatment ($13 billion annually) and projected spending needs of approximately $19 billion. The study also estimated that, if wastewater spending were to increase by 3% annually (essentially meaning a doubling of rates paid by ratepayers), the gap would shrink by nearly 90% (to about $1 billion annually). At issue has been what the federal role should be in assisting states and cities, especially in view of such high projected funding needs. In the 111 th Congress, recognition of significant remaining funding needs for water infrastructure merged with consideration of legislation that would use federal government spending to stimulate recovery of the U.S. economy (see discussion of "Economic Stimulus" below, page 25 ). Debate over the nature of the nation's efforts regarding wastewater infrastructure was a central and controversial part of the 1987 amendments to the act. The amendments extended through FY1990 the traditional Title II program of grants for sewage treatment project construction, under which the federal share was 55% of project costs. The 1987 law initiated a program of grants to capitalize State Water Pollution Control Revolving Funds (SRFs), which are loan programs, in a new Title VI. States are required to deposit an amount equal to at least 20% of the federal capitalization grant in the Fund established under Title VI. Under the revolving fund concept, monies used for wastewater treatment construction are repaid by loan recipients to the states (repayment was not required for grants under the Title II program), to be recycled for future construction in other communities, thus providing an ongoing source of financing. The expectation in 1987 was that the federal contributions to SRFs would assist in making a transition to full state and local financing by FY1995. Although most states believe that the SRF is working well, early funding and administrative problems and continuing large funding needs have delayed the anticipated shift to full state responsibility, even as loans are being repaid to states. Thus, SRF issues have been prominent on the Clean Water Act reauthorization agenda in recent Congresses. SRF monies may be used for specified activities, including making loans for as much as 100% of project costs (at or below market interest rates, including interest-free loans), to buy or refinance cities' debt obligation, or as a source of revenue or security for payment of principal and interest on a state-issued bond. SRF monies also may be used to provide loan guarantees or credit enhancement for localities. Loans made by a state from its SRF are to be used first to assure progress towards the goals of the act and, in particular, on projects to meet the standards and enforceable requirements of the act. After states achieve those requirements of the act, SRF monies also may be used to implement nonpoint pollution management and national estuary programs. Since the SRF program began, states have used $2.6 billion to assist more than 8,650 nonpoint management projects; none has gone to estuary management activities. All states have established the mechanisms to administer the new loan programs and have been receiving SRF capitalization funds under Title VI. Many have complained that the SRF program is unduly complicated by federal rules that are intended in part to provide accountability for federal dollars, even though Congress had intended that states were to have greater flexibility. Congressional oversight has examined the progress toward reducing the backlog of wastewater treatment facilities needed to achieve the act's water quality objectives, while newer estimates of future funding needs have drawn increased attention to the role of the SRF program in meeting such needs. Although there has been some criticism of the SRF program, and debate continues over specific concerns, the basic approach is well supported. Congress used the clean water SRF as the model when it established a drinking water SRF in 1996 ( P.L. 104-182 ). Although the initial intent was to phase out federal support for this program, Congress has continued to appropriate SRF capitalization grants to the states, providing an average of $1.35 billion annually in recent years. Table 1 summarizes wastewater treatment funding under Title II (traditional grants program) and Title VI (capitalization grants for revolving loan programs) since the 1987 amendments. This table does not include appropriations for congressionally earmarked special project grants in individual cities, which in recent years have represented about 15% of appropriated water infrastructure funds. One issue of continuing interest is impacts on small communities. These entities in particular have found it difficult to participate in the SRF loan program, since many are characterized by narrow or weak tax bases, limited or no access to capital markets, lower relative household incomes, and higher per capita needs. They often find it harder to borrow to meet their capital needs and pay relatively high premiums to do so. Meeting the special needs of small towns, through a reestablished grant program, other funding source, or loan program with special rules, has been an issue of interest to Congress. Because remaining clean water funding needs are still so large nationally, at issue is whether and how to extend SRF assistance to address those needs, how to allocate SRF funds among the states, and how to prioritize projects and funding. Additionally, there is concern about the adequacy of SRF or other funding specifically for high-cost projects dealing with problems of overflows from municipal combined and separate sewers which can release partially treated or untreated wastewaters that harm public health and the environment. EPA estimates that the cost of projects to control sewer overflows, from combined and separate sanitary sewer systems, and manage stormwater runoff, is nearly $64 billion nationwide—nearly twice the total of SRF capitalization grants appropriated since 1987. And more recently, wastewater utilities have sought assistance to assess operational vulnerabilities and upgrade physical protection of their facilities against possible terrorist attacks that could threaten the water infrastructure system. During the Bush Administration, EPA officials took the position that infrastructure funding needs go beyond what the federal government can do on its own, and the President's budget for several years advanced the concept that federal funding would cease after 2011 and that state and local self-financing would occur thereafter. Although saying that federal and state funding can help water utilities meet future needs, EPA's principal water infrastructure initiative during that time was to support other types of responses to help ensure that investment needs are met in an efficient, timely, and equitable manner. In particular, EPA worked with water utilities to promote strategies based on concepts of better management, full-cost pricing, efficient water use, and watershed approaches to protection. EPA also has encouraged consumers to use water-efficient products (e.g., residential bathroom products), with the intent of reducing national water and wastewater infrastructure needs through conservation measures by reducing projected water demand and wastewater flow, thus allowing deferral or downsizing of capital projects. The Obama Administration's EPA likewise supports sustainable practices to reduce the potential gap between funding needs and spending. Building on concepts similar to those supported by the Bush Administration and on a request in the President's FY2010 budget, in October 2010 EPA issued a "Clean Water and Drinking Water Infrastructure Sustainability Policy" addressing management and pricing of infrastructure funded through SRFs to encourage conservation and provide adequate long-term funding for future capital needs. EPA will work with water utilities to promote planning processes that reflect not only public health and water quality, but also conservation of natural resources and innovative treatment. Further, EPA will work with states to target SRF assistance to projects that focus on system upgrade and replacement in existing communities, reflect full life cycle costs of infrastructure assets, and conserve natural resources or use alternative approaches. Congress has considered water infrastructure funding issues several times since the 107 th Congress. In that Congress, House and Senate committees approved bills to extend the act's SRF program and increase federal assistance ( H.R. 3930 ; S. 1961 ). The Senate bill was reported, but a report on H.R. 3930 was not filed; neither bill received further action. In the 108 th Congress, bills to reauthorize the Clean Water Act SRF program were introduced, as were separate bills to reauthorize funding for sewer overflow grants (CWA Section 221). The Senate Environment and Public Works Committee reported legislation authorizing $41.25 billion over five years for wastewater and drinking water infrastructure programs, including $20 billion for the clean water SRF program ( S. 2550 ). In addition, the House Transportation and Infrastructure Subcommittee on Water Resources and Environment approved H.R. 1560 (legislation similar to H.R. 3930 , the bill approved by that committee in the 107 th Congress), but no further action occurred. In the 109 th Congress, the Senate Environment and Public Works Committee approved S. 1400 , the Water Infrastructure Financing Act, in July 2005. The bill was similar to S. 2550 in the 108 th Congress. No further action occurred on this bill, and there was no legislative activity in the House on similar legislation during the 109 th Congress. Throughout this period, several factors contributed to problems in moving any of these bills further in the legislative process, including Administration opposition to higher authorization levels, disputes over the formula for allocating clean water SRF grants among the states, and controversies over application of prevailing wage requirements of the Davis-Bacon Act. The issue of the applicability of the Davis-Bacon Act to SRF-funded projects has been especially controversial, because that act has both strong supporters and critics in Congress and elsewhere. Davis-Bacon requires, among other things, that not less than the locally prevailing wage be paid to workers employed, under contract, on federal construction work "to which the United States or the District of Columbia is a party." Critics of Davis-Bacon say that it unnecessarily increases public construction costs and hampers competition, while supporters say that it helps stabilize the local construction industry by preventing competition that would undercut local wages and working conditions. Under the original SRF program authorization enacted in 1987, the Davis-Bacon Act applied to so-called "first use" monies provided by a state from its SRF (that is, loans made from initial federal capitalization grants, but not to subsequent monies provided from repayments to the SRF). When that authorization expired at the end of FY1994, Davis-Bacon requirements also expired. Thus, the recent issue has been whether to restore the applicability of those requirements. In March 2007 the House approved three wastewater infrastructure financing bills; however, the Senate did not act on any of them during the remainder of the 110 th Congress. H.R. 720 , the Water Quality Financing Act of 2007, was substantially similar to legislation that the House Transportation and Infrastructure Committee's Water Resources and Environment Subcommittee approved in the 108 th Congress ( H.R. 1560 ). It would have authorized $14 billion for the clean water SRF program for FY2008-FY2011. It included several provisions intended to benefit economically disadvantaged and small communities, such as allowing extended loan repayments (30 years, rather than 20) and additional subsidies (e.g., principal forgiveness and negative interest loans) for communities that meet a state's affordability criteria. One key difference between this bill and the earlier legislation was the specification in H.R. 720 that the Davis-Bacon Act prevailing wage requirement shall apply to all projects financed in whole or in part through an SRF. The House also passed H.R. 569 , a bill to reauthorize CWA Section 221 and to provide funding for projects to correct municipal sewer overflows (see discussion of this issue on page 18 ); and H.R. 700 , a bill to reauthorize CWA Section 220 and to extend a pilot program to develop alternative water source projects (i.e., projects to meet critical water supply needs). The Senate Environment and Public Works Committee held an oversight hearing on wastewater infrastructure needs in September 2007 and later took up a specific legislative proposal dealing with financing issues. In September 2008, the committee approved the Water Infrastructure Financing Act ( S. 3617 ), a bill that was similar to a measure that the committee approved in the 109 th Congress ( S. 1400 ). S. 3617 would have authorized $19.6 billion for grants to capitalize the Clean Water Act SRF program and $14.7 billion for Safe Drinking Water Act SRF capitalization grants through FY2012. The bill would have expanded eligibility for clean water SRF assistance including, for example, projects that implement stormwater management, water conservation or efficiency projects, and water and wastewater reuse and recycling projects; and it included a number of provisions to make the clean water and drinking water SRF programs more parallel, such as allowing SRF assistance to be used by private as well as public wastewater treatment systems. The committee approved an amendment adding Davis-Bacon Act language similar to that in House-passed H.R. 720 , specifying that prevailing wage requirements shall apply to all projects financed in whole or in part through an SRF. Water infrastructure legislation again received attention in the 111 th Congress. The House passed a bill, and legislation was reported by a Senate committee. Several issues contributed to the fact that, once again, no legislation was enacted. In particular, there was continuing criticism about the applicability of Davis-Bacon prevailing wage requirements, and criticism also of a new formula for state-by-state allocation of SRF capitalization grants. On March 12, 2009, the House approved legislation to reauthorize the SRF program and several related programs in the CWA ( H.R. 1262 ). The bill included provisions of five bills that the House passed during the 110 th Congress, but none were enacted. Title I of H.R. 1262 would have authorized $13.8 billion in SRF capitalization grants over five years, FY2010-2014, and was essentially the same text as H.R. 720 as passed by the House in March 2007. It included several provisions intended to benefit economically disadvantaged and small communities, such as allowing extended loan repayments (30 years, rather than 20) and additional subsidies (e.g., principal forgiveness and negative interest loans) for communities that meet a state's affordability criteria. The bill included several provisions intended to encourage and make SRF-eligible projects involving green infrastructure, water reuse and conservation, and energy-efficient technologies. It included provisions to require communities to plan for capital replacement needs and to develop and implement an asset management plan for the repair and maintenance of infrastructure that is being financed. It also included specification that the Davis-Bacon Act prevailing wage requirement shall apply to all projects financed in whole or in part through an SRF. During debate on the bill, the House defeated an amendment that would have deleted the prevailing wage provision from the bill. Title II incorporated the text of H.R. 700 . It would have reauthorized CWA Section 220 to extend a pilot program to develop alternative water source projects at $50 million per year through FY2014. The House passed a similar bill (also H.R. 700 ) in March 2007. Title III incorporated the text of H.R. 895 . It would have reauthorized CWA Section 221 to authorize a total of $2.5 billion through FY2014 for projects to correct municipal sewer overflows. Twenty percent of these monies were to be used for green infrastructure projects. The House passed a similar bill ( H.R. 569 ) in March 2007. Title IV incorporated the text of H.R. 753 . It was intended to ensure that sewage treatment plants monitor for and report discharges of raw sewage due to overflows from sanitary sewers. The bill would have required EPA to issue criteria to guide plant operators in assessing whether a sewer overflow has the potential to affect human health or imminently and substantially endanger human health. The Senate Environment and Public Works Committee approved a bill similar to this title of H.R. 1262 on June 18 ( S. 937 ). The House also passed a similar bill in June 2008 ( H.R. 2452 ). Title V would have reauthorized the CWA's program for cleanup of contaminated sediments in the Great Lakes with $150 million per year in funding through FY2014. In the 110 th Congress, the House had passed H.R. 6460 , providing this level of funding and making certain programmatic changes, but as enacted ( P.L. 110-365 ), the bill retained the existing funding level of $50 million per year. Title V would have increased authorized funding to the level supported by the House in the 110 th Congress. The Senate Environment and Public Works Committee approved a bill similar to this title of H.R. 1262 on June 18 ( S. 933 ). During consideration of H.R. 1262 , the House adopted several amendments, including (1) a requirement that states use at least 15% of SRF capitalization grants to assist small communities; (2) establishment of a federal task force on proper disposal of unused pharmaceuticals (based on H.R. 276 ); (3) a requirement that the Office of Management and Budget establish a crosscut budget for Chesapeake Bay (based on H.R. 1053 ); and (4) requirements for studies of infrastructure along the Rio Grande River and along the U.S.-Mexico border, wastewater infrastructure in the United States and Canada that discharge into the Great Lakes, and the presence of pharmaceuticals and personal care product chemicals in U.S. waters. Companion legislation was approved by the Senate Environment and Public Works Committee in May 2009 ( S. 1005 , the Water Infrastructure Financing Act), but the Senate did not consider the bill. The legislation was modeled after a bill approved by the same committee in the 110 th Congress ( S. 3617 ). The 111 th Congress bill would have authorized $20 billion over five years for clean water SRF grants and $14.7 billion over five years for drinking water SRF grants. It also would have added a $1.85 billion nationwide grant program for addressing combined sewer overflows (reauthorizing existing CWA Section 221) and a $50 million grant program for agriculture-related water quality issues. Like the 110 th Congress bill, S. 1005 would have expanded eligibility for clean water SRF assistance including, for example, to projects that implement stormwater management, water conservation or efficiency projects, and water and wastewater reuse and recycling projects; and it included a number of provisions to make the clean water and drinking water SRF programs more parallel. Unlike House-passed H.R. 1262 , the Senate bill did not include a requirement for states to set aside or reserve a portion of their SRF capitalization grants for "green" infrastructure projects, such as projects that include water or energy efficiency measures. However, it included incentives for "green" infrastructure, such as allowing states to forgive a portion of an SRF loan used for "green" projects. During markup, the Committee adopted several amendments, including one to specify that the Davis-Bacon Act prevailing wage requirement shall apply to all projects financed in whole or in part through a clean water or drinking water SRF (Davis-Bacon language was not included in the bill as introduced), one to require a study by the National Academy of Sciences on the presence of pharmaceuticals and personal care products in U.S. waters, and another to direct EPA to gather information necessary to update an existing guidance document that addresses affordability of CSO remediation projects. An important issue to many stakeholders is the formula that determines how clean water SRF capitalization grants are distributed among the states. CWA Section 205(c)(3) contains a table that identifies each state's percentage share of appropriated funds. That statutory allotment has not been revised since 1987. Both H.R. 1262 and S. 1005 would have revised the current allotment, but in different ways. The House bill would have extended the current formula in full for two years. Beginning in the third year (FY2012 and thereafter), distribution would be determined under a hybrid approach: for appropriated funds up to $1.35 billion, the current formula would apply, and for appropriated funds in excess of that amount, allotment would be done in accordance with funding needs as reported in the most recent clean water needs survey conducted by EPA and states. The Senate bill included a table with a new state-by-state allotment for clean water SRF capitalization grants. The revised formula, which was to take effect in FY2010 and apply through FY2014, included certain adjustments—for example, guaranteeing small states a minimum 0.75% share (rather than 0.5% as under current law), and generally insuring that no state would "gain" more than 50% compared with its current percentage share or "lose" more than 25% compared with its current allotment. For details of the S. 1005 formula and comparison with the current statutory allocation, see Table A-1 in this report. The allocation formula was one of the factors that contributed to the fact that the Senate did not consider S. 1005 . The formula proposed in the legislation was based on needs identified in the 2004 clean water needs survey. However, after the Senate committee reported the bill, EPA released the 2008 needs survey, leading some members to favor developing a different formula based on the newer needs estimates. Ultimately, bill sponsors were unable to revise the allocation formula in the legislation to meet these concerns. For some time, interest has been growing in identifying and developing new mechanisms to help localities pay for water infrastructure projects, beyond direct federal grants or SRFs, which appear insufficient to fully meet funding needs. In June 2005, the House Transportation and Infrastructure Subcommittee on Water Resources and Environment held hearings on alternative means to fund water infrastructure projects in the future. At the first hearing, witnesses focused on one way to increase funding for water infrastructure that has been advocated by some groups, creating a national clean water trust fund that would conceptually be similar to trust funds that exist for highway and aviation projects. Witnesses and subcommittee members discussed difficulties in identifying potential revenue sources that would be deemed fair and equitable. The second hearing addressed other financing options, such as expanded use of tax-exempt private activity bonds, and more efficient management techniques, such as asset management programs and sustainable infrastructure initiatives. In the 109 th Congress, legislation was introduced to establish a $7.5 billion federal trust fund for wastewater infrastructure improvements. That bill, H.R. 4560 , proposed to use a concept for funding such projects that has been promoted by wastewater treatment industry officials, other stakeholders, and some environmentalists, who argue it could provide a new source of money for necessary system upgrades amid dwindling federal funds. The bill contemplated a system of user fees to create the fund, but the source of revenue was not specified in the bill. Although the 109 th Congress did not act on H.R. 4560 , the issue of a water infrastructure trust fund received some attention in the 111 th Congress. Legislation to create a Water Protection and Reinvestment Trust Fund was introduced ( H.R. 3202 ). Proponents estimated that at least $10 billion per year could be raised through a combination of excise taxes on water-based beverages, pharmaceutical products, and items disposed on in wastewater (such as cosmetics and toilet paper), plus a corporate profits tax. These revenues would be available to fund clean water and drinking water SRF programs, as well as security upgrades, wastewater and drinking water technology research, grants to water utilities for climate change adaptation, and other programs. The House Transportation and Infrastructure Subcommittee on Water Resources held a hearing on July 15, 2009, receiving testimony from a number of witnesses on the legislation and related issues. A GAO witness discussed findings in a GAO report which concluded that a combination of taxes on industry, corporation and water could provide a dedicated source of revenue, but that finding consensus on the issue could be challenging. No further legislative action occurred. How best to protect the nation's remaining wetlands and regulate activities taking place in wetlands has become one of the most contentious environmental policy issues, especially in the context of the CWA, which contains a key wetlands regulatory tool, the permit program in Section 404. It requires landowners or developers to obtain permits for disposal of dredged or fill material that is generated by construction or similar activity into navigable waters of the United States, including wetlands. Section 404 has evolved through judicial interpretation and regulatory change to become one of the principal federal tools used to protect wetlands, although that term appears only once in Section 404 itself and is not defined there. At the same time, its implementation has come to be seen as intrusive and burdensome to those whose activities it regulates. At issue today is how to address criticism of the Section 404 regulatory program while achieving desired goals of wetlands protection. Unlike the rest of the act, the permit aspects of Section 404 are administered by the U.S. Army Corps of Engineers, rather than EPA, although the Corps uses EPA environmental guidance. Other federal agencies including the U.S. Fish and Wildlife Service (FWS) and Natural Resource Conservation Service (NRCS) have more limited roles in the Corps' permitting decisions. Tension has existed for many years between the regulation of activities in wetlands under Section 404 and related laws, on the one hand, and the desire of landowners to develop property that may include wetlands, on the other hand. The conflicts over wetlands regulation have for the most part occurred in judicial and administrative proceedings, as Congress has not amended Section 404 since 1977, when it provided exemptions for categories of routine activities, such as normal farming and forestry. Controversy has grown over the extent of federal jurisdiction and impacts on private property, burdens and delay of permit procedures, and roles of federal agencies and states in issuing permits. One issue involving long-standing controversy and litigation is whether isolated waters are properly within the jurisdiction of Section 404. Isolated waters—wetlands which are not physically adjacent to navigable surface waters—often appear to provide only some of the values for which wetlands are protected, such as flood control or water purification, even if they meet the technical definition of a wetland. On January 9, 2001, the Supreme Court ruled on the question of whether the CWA provides the Corps and EPA with authority over isolated waters. The Court's 5-4 ruling in Solid Waste Agency of Northern Cook County (SWANCC) v. U.S. Army Corps of Engineers (531 U.S. 159 (2001)) held that the Corps' denial of a 404 permit for a disposal site on isolated wetlands solely on the basis that migratory birds use the site exceeds the authority provided in the act. The full extent of impacts on the regulatory program resulting from this decision remains unclear, even 10 years after the ruling, in part because of different interpretations of SWANCC reflected in subsequent federal court cases. While it continues to be difficult to fully assess how regulatory protection of wetlands will be affected as a result of the SWANCC decision and other possible changes, the remaining responsibility to protect affected wetlands falls on states and localities. Environmentalists believe that the Court misinterpreted congressional intent on the matter, while industry and landowner groups welcomed the ruling. Policy implications of how much the decision restricts federal regulation depend on how broadly or narrowly the opinion is applied. Some federal courts have interpreted SWANCC narrowly, thus limiting its effect on current permit rules, while a few read the decision more broadly. The government's view on this key question came in EPA-Corps guidance issued in January 2003. It provides a legal interpretation essentially based on a narrow reading of the Court's decision, thus allowing federal regulation of some isolated waters to continue, but it calls for more headquarters review in disputed cases. Interest groups on all sides have been critical of confusion in implementing the 2003 guidance, which constitutes the main tool for interpreting the reach of the SWANCC decision. Environmentalists remain concerned about diminished protection resulting from the guidance, while developers said that without new regulations, confusing and contradictory interpretations of wetland rules will continue. Federal courts continue to have a key role in interpreting and clarifying the SWANCC decision. On February 21, 2006, the Supreme Court heard arguments in two cases brought by landowners ( Rapanos v. United States ; Carabell v. U.S. Army Corps of Engineers ) seeking to narrow the scope of the CWA permit program as it applies to development involving wetlands. The issue in both cases had to do with the reach of the CWA to cover "waters" that were not navigable waters, in the traditional sense, but were connected somehow to navigable waters or "adjacent" to those waters. (The act requires a federal permit to discharge dredged or fill materials into "navigable waters.") Many legal and other observers hoped that the Court's ruling in these cases would bring greater clarity about the scope of federal jurisdiction. The Court's ruling was issued on June 19, 2006 ( Rapanos, v. United States , 547 U.S. 715 (2006)). In a 5-4 decision, a plurality of the Court, led by Justice Scalia, held that the lower court had applied an incorrect standard to determine whether the wetlands at issue are covered by the CWA. Justice Kennedy joined this plurality to vacate the lower court decisions and remand the cases for further consideration, but he took different positions on most of the substantive issues raised by the cases, as did four other dissenting justices. Because the several opinions written by the justices did not draw a clear line regarding which wetlands and other waters are subject to federal jurisdiction, one result has been more case-by-case determinations and continuing litigation. There also has been pressure on the Corps and EPA to clarify the issues through an administrative rulemaking. On June 5, 2007—nearly one year after the Rapanos ruling—EPA and the Corps issued guidance to enable their field staffs to make CWA jurisdictional determinations in light of the decision. According to the guidance, the agencies will assert regulatory jurisdiction over certain waters, such as traditional navigable waters and adjacent wetlands. Jurisdiction over others, such as non-navigable tributaries that do not typically flow year-round and wetlands adjacent to such tributaries, will be determined on a case-by-case basis, to determine if the waters in question have a significant nexus with a traditional navigable water. The guidance took effect immediately, but the agencies also solicited public comments, and left open the possibility of further changes in the future. Based on more than 66,000 public comments received and 18 months of implementation of the 2007 guidance, EPA and the Corps issued revised guidance December 2, 2008. The revisions made few changes to the earlier document, but did add clarification of some key terms that are important to determining CWA jurisdiction, such as the meaning of the regulatory term "adjacent wetlands." The agencies continue to take the position that, based on additional experience, they could provide supplementary guidance or initiate rulemaking. Some environmental groups criticized the revised guidance, saying that it continues to substantially limit the scope of waters that are protected by the CWA. Industry analysts said that the few changes in the guidance could make it simpler for regulators to make jurisdictional determinations , but overall, industry groups such as developers are frustrated by what they see as inconsistencies and delays in obtaining needed permits . Congressional committees have held a number of oversight hearings on both the SWANCC and Rapanos decisions, seeking clarification of interpretations and impacts of the rulings. But the uncertainties about federal jurisdiction over wetlands and other waters raised by the rulings remain highly controversial. In response, legislation to overturn the decisions by providing a broad definition of "waters of the United States" has been introduced regularly since the 107 th Congress. Other legislation to narrow the definition of "waters of the United States" also was introduced on one occasion, in the 109 th Congress. Environmental advocates and others contend that Congress must clarify the important issues left unsettled by the Supreme Court's 2001 and 2006 rulings and by the Corps/EPA guidance. They also argue that legislation is needed to "reaffirm" what Congress intended when the CWA was enacted in 1972 and what EPA and the Corps have subsequently been practicing until the two Supreme Court rulings, in terms of broad CWA jurisdiction. In the 110 th Congress, two such bills were H.R. 2421 and S. 1870 . The House Transportation and Infrastructure Committee held hearings on H.R. 2421 and related jurisdictional issues in July 2007 and April 2008. The Senate Environment and Public Works Committee held a hearing on issues related to the Rapanos ruling in December 2007 and held a legislative hearing on S. 1870 the following April. But critics continue to question the constitutionality of the legislation and assert that it would expand federal authority, thus likely increasing confusion, rather than settling it. Obama Administration officials have addressed concerns about the continuing uncertainties regarding the proper scope of CWA regulatory jurisdiction. In May 2009, the heads of EPA, the Corps, the Department of Agriculture, the Department of the Interior, and the Council on Environmental Quality jointly wrote to congressional leaders to support the need for legislative clarification of the issues—marking the first time that the Administration has done so—and to identify certain principles that might help guide legislative and other actions: Broadly protect the nation's waters; make the definition of covered waters predictable and manageable; promote consistency between CWA and agricultural wetlands programs; and recognize long-standing practices, such as exemptions now in effect only through regulations or guidance. In the 111 th Congress, legislation similar to bills introduced previously was advanced by a Senate committee, but the bill was not considered by the full Senate. On June 18, 2009, the Environment and Public Works Committee approved, 12-7, an amended version of S. 787 , the Clean Water Restoration Act. A written report on S. 787 ( S.Rept. 111-361 ) was filed more than 18 months later, days before the 111 th Congress adjourned sine die . The bill would have amended the CWA to define "waters of the United States" to mean: all waters subject to the ebb and flow of the tide, the territorial seas, and all interstate and intrastate waters, including lakes, rivers, streams (including intermittent streams), mudflats, sandflats, wetlands, sloughs, prairie potholes, wet meadows, playa lakes, and natural ponds, all tributaries of any of the above waters, and all impoundments of the foregoing. The bill would have excluded prior converted cropland and certain waste treatment systems from the term "waters of the United States," and it would have protected, or saved, existing regulatory exclusions such as for dredge or fill discharges from normal farming activities. The bill also would have instructed that "waters of the United States" be construed consistently with (1) how EPA and the Corps interpreted and applied "waters of the United States prior to January 9, 2001, the day before SWANCC was decided, and (2) Congress's constitutional authority. During markup, the committee rejected several amendments that would have struck some of the terms in the new definition (such as mudflats and prairie potholes), but it approved language stating that the CWA's jurisdiction shall be construed consistent with EPA and Corps interpretation prior to Jan. 9, 2001. However, critics asserted that that intent was what the Court found invalid in its rulings in the SWANCC and Rapanos cases. Companion legislation was introduced in the House on April 23, 2010 ( H.R. 5088 , America's Commitment to Clean Water Act). Like S. 787 , the House bill was intended to clarify regulatory scope of the CWA and restore jurisdiction as it had been interpreted prior to the SWANCC and Rapanos rulings. Like the Senate committee bill, H.R. 5088 would have deleted the word "navigable" from the law, which has become a source of interpretive controversy, and would have amended the CWA to define "waters of the United States," which would become the operational term for jurisdiction. Unlike the Senate committee bill described above, the new definition of that term was to be drawn from existing EPA-Corps regulatory definitions, with some modifications. The principal House sponsor, Representative Oberstar, stated that the bill differed from prior proposals (such as H.R. 2421 in the 110 th Congress), based on extensive public comments and suggestions. Despite changes from earlier versions, the bill was criticized based on concern that it would increase the scope of federal jurisdiction, not merely re-state what Congress enacted in 1972. Several other issues affecting efforts to achieve the goals and objectives of the Clean Water Act drew interest during the 111 th Congress through oversight and legislation. Two bills were enacted—a bill concerning pollutant discharges from vessels, and another dealing with federal agencies' responsibility to pay for stormwater charges. In 2000 Congress enacted the Beaches Environmental Assessment and Coastal Health Act (the BEACH Act) in order to augment federal and state efforts to prevent human exposure to polluted coastal recreation waters, including the Great Lakes. This act directed coastal states to adopt updated water quality standards and EPA to develop new protective criteria and standards. It also authorized grants to coastal states to support monitoring and notification programs. In May 2007 the GAO issued a report on federal and state implementation, finding that EPA has implemented most provisions of the act, but has not yet published new or revised water quality criteria, which the law required by 2005. In the 110 th Congress, Senate and House committees held hearings on the status of implementation of the BEACH Act, and bills to extend authorization for appropriations for the act's grants were introduced. The House approved one such bill ( H.R. 2537 ). It would have would allowed states to use BEACH Act funds to track sources of pollution and would require states to use rapid testing methods of beach water, in order to improve public notification. It proposed to increase grant funds to the states from $30 million annually to $40 million. It also would have directed EPA to publish revised water quality criteria for pathogens, a key pollutant of concern at beaches, as well as a list of all pathogens and pathogen indicators it has studied and observed in the course of developing those criteria. The Senate Environment and Public Works Committee approved companion legislation ( S. 2844 ), but no further action occurred. The 111 th Congress considered similar bills. House and Senate committees approved legislation ( H.R. 2093 and a similar bill, S. 878 ) that would have required more rapid testing of beach waters for contamination and faster notification to the public to warn of contamination. Both bills also would have increased grants funds to the states for beach monitoring and testing. The House passed H.R. 2093 on July 29, 2010. About 750 U.S. communities have combined sewers where domestic sanitary sewage, industrial wastes, infiltration from groundwater, and stormwater runoff are collected. These systems serve approximately 40 million persons, mainly in older urban and coastal cities. Normally (under dry-weather conditions), the combined wastes are conveyed to a municipal sewage treatment plant. Properly designed, sized, and maintained combined sewers can be an acceptable part of a city's water pollution control infrastructure. However, combined sewer overflow (CSO) occurs when the capacity of the collection and treatment system is exceeded due to high volumes of rainwater or snowmelt, and the excess volume is diverted and discharged directly into receiving waters, bypassing the sewage treatment plants. Often the excess flow that contains raw sewage, industrial wastes, and stormwater is discharged untreated. Many combined sewer systems are found in coastal areas where recreational areas, fish habitat and shellfish beds may be contaminated by the discharges. To manage CSOs, cities are subject to a policy issued by EPA in 1994 that requires implementation of nine minimum controls that generally are based on combinations of management techniques (such as temporary retention of excess flow during storm events) and structural measures (such as construction of separate storm sewer systems). One issue that concerns some cities is the problem of overflows from municipal separate sanitary sewers (SSOs) that are not CSOs because they transport only sanitary wastes. Discharges of untreated sewage from these sewers can occur from manholes, broken pipes and deteriorated infrastructure, and undersized pipes, and can occur in wet or dry weather. EPA estimates that there are about 18,000 municipalities with separate sanitary sewers, all of which can, under certain circumstances, experience overflows. No explicit EPA or statutory control policy for addressing SSOs currently exists. Funding for CSO and SSO projects is a major concern of states and cities. The most recent clean water needs survey found that the largest needs category, totaling $55 billion and representing 27% of total water infrastructure needs, is to address CSOs. In 2000, Congress passed legislation, the Wet Weather Water Quality Act, authorizing a two-year $1.5 billion grants program to reduce wet weather flows from municipal sewer systems, both CSOs and SSOs (Section 112 of Division B, P.L. 106-154 ). However, Congress provided no appropriations for these wet weather grants during the two years of authorization (FY2002-FY2003). As described above, in March 2007, the House passed legislation to reauthorize this grant program ( H.R. 569 ), and in the 111 th Congress, similar language was included in Title III of H.R. 1262 , as passed by the House in March 2009, and also in S. 1005 , as reported to the Senate in June 2009. On a related issue, Title IV of H.R. 1262 also included the text of H.R. 753 in the 111 th Congress (and was identical to House-passed H.R. 2452 from the 110 th Congress), which would have required EPA to issue criteria to guide wastewater treatment plant operators in assessing whether a sewer overflow has the potential to affect human health or imminently and substantially endanger human health. Similar legislation was approved by the Senate Environment and Public Works Committee ( S. 937 ). Despite several decades' of activity by government, the private sector, and the general public, efforts to restore and protect the Chesapeake Bay watershed have been insufficient to meet restoration goals. The Bay and its tributaries remain in poor health, with polluted water, reduced populations of fish and shellfish, and degraded habitat and resources. The primary pollutants causing impairments are nutrients (nitrogen and phosphorus) and sediment, which are discharged from multiple urban, suburban, and rural sources around the Bay. In May 2009, President Obama issued an executive order that declared the Bay a "national treasure" and charged the federal government with assuming a strong leadership role in restoring the Bay. The executive order established a Federal Leadership Committee for the Chesapeake Bay to develop and implement a new strategy for protecting and restoring the Chesapeake region. The resulting strategy, which was released on May 12, 2010, launches major specific environmental initiatives to establish new clean water regulations on stormwater discharges and pollution discharges from animal feedlots in the Bay watershed, put new agricultural conservation practices on farms in the region, and restore land and water habitat. A central feature of the overall strategy is EPA's pledge to establish a Total Maximum Daily Load (TMDL) for Chesapeake Bay. Section 303 of the CWA requires states to identify waters that are impaired by pollution, even after application of pollution controls. For those waters, states must establish a TMDL to ensure that water quality standards can be attained. A TMDL is essentially a pollution budget, a quantitative estimate of what it takes to achieve standards, setting the maximum amount of pollution that a waterbody can receive without violating standards. If a state fails to do this, EPA is required to make its own TMDL determination for the state. Throughout the United States—including the Chesapeake Bay watershed—more than 20,000 waterways are known to be violating applicable water quality standards and to require a TMDL. Lawsuits have been brought with the intention of pressuring EPA and states to develop TMDLs; under a consent decree in one such lawsuit, EPA must establish a Chesapeake Bay TMDL no later than May 1, 2011. The Chesapeake Bay TMDL will be the largest single TMDL developed to date. It will address all segments of the Bay and its tidal tributaries that are impaired from discharges of nitrogen, phosphorus, and sediment, and the TMDL will allocate needed reductions of these pollutants to all jurisdictions in the 64,000 square mile watershed. Detailed plans identifying specific reductions will be developed by the Bay states in Watershed Implementation Plans. EPA's TMDL plans and the overall federal Bay restoration strategy under the executive order are controversial with a number of groups that are concerned about the likely mandatory nature of many of EPA's and states' upcoming actions. On the other hand, environmental activists are pleased that the federal government is now asserting a leadership role to restore the Bay and are supporting legislation that would codify requirements for the Bay TMDL in the Clean Water Act, while authorizing grants and other assistance for implementing required measures. Bills to do so were introduced in the 111 th Congress ( S. 1816 and H.R. 3852 ), and House and Senate committee hearings were held. In June 2010, the Senate Environment and Public Works Committee approved an amended version of S. 1816 . As reported, the bill generally sought to codify 2025 as a date-certain for implementing restoration actions throughout the Chesapeake Basin and would have made explicit backup authority for EPA to develop measures to restore the watershed, if states fail to do so. The legislation would have authorized significant financial resources, totaling $2.26 billion over five years, to assist in implementing programs, projects, and measures for restoration of the Chesapeake Basin watershed. The 1987 CWA amendments established the National Estuary Program (NEP), a program to promote comprehensive planning efforts to protect nationally significant estuaries that are threatened by pollution, development, and overuse. Governors may nominate an estuary for inclusion in the program. Once approved by EPA, the estuary can receive financial and technical assistance from EPA to develop and implement a comprehensive management plan that addresses factors that contribute to the estuary's degradation. The planning process is intended to be stakeholder-driven and collaborative, and non-federal matching funds are required. To date, EPA has approved 28 estuaries as part of the program. Since 1987, Congress has amended the NEP provision to reauthorize funding and in several cases to identify estuaries to be given priority consideration under the program. Current authorization of appropriations expired in FY2010. In April 2010, the House passed legislation ( H.R. 4715 , the Clean Estuaries Act) to reauthorize assistance through FY2016 and to increase the authorization in order to encourage EPA to expand the number of estuaries included in the program. Further, H.R. 4715 would have added several requirements in the development of a comprehensive management plan, such as addressing the impacts of climate change, and would have required periodic update of the plan and evaluation and approval by EPA. Under the bill, if the EPA review were to find the plan deficient, EPA could reduce grant funding until the plan was revised. On June 30, 2010, the Senate Environment and Public Works Committee approved an amended version of H.R. 4715 . Mountaintop removal coal mining involves removing the top of a mountain in order to recover the coal seams contained there. This practice occurs in six Appalachian states (Kentucky, West Virginia, Virginia, Tennessee, Pennsylvania, and Ohio). It creates an immense quantity of excess spoil, which is typically placed in valley fills on the sides of the former mountains, burying streams that flow through the valleys. Critics say that, as a result of valley fills, stream water quality and the aquatic and wildlife habitat that streams support are destroyed. The mining industry argues that mountaintop mining is essential to conducting surface coal mining in the Appalachian region and that surface coal mining would not be economically feasible there if producers were restricted from using valleys for the disposal of mining overburden. Mountaintop mining is regulated under several laws, including the CWA Section 404 permit program (discussed above) and the Surface Mining Control and Reclamation Act. In June 2009, officials of EPA, the Corps of Engineers, and the Department of the Interior signed a Memorandum of Understanding outlining a series of administrative actions under these laws to reduce the harmful environmental impacts of mountaintop mining and surface coal mining in Appalachia. The plan includes a series of near-term and longer-term actions that emphasize specific steps, improved coordination, and greater transparency of decisions. The actions are being implemented through regulatory proposals, guidance documents, and review of pending applications for permits to authorize mountaintop mining-valley fill operations. In the 111 th Congress (as in several prior Congresses), legislation intended to sharply restrict the practice of mountaintop mining was introduced ( H.R. 1310 , the Clean Water Protection Act, and a different measure, S. 696 , the Appalachia Restoration Act). Both bills would have narrowed the CWA definition of "fill material," and thus narrowed the types of materials that can be discharged into U.S. waters under a Section 404 permit. The significance of both bills is that discharges of materials that are not eligible for a Section 404 permit are regulated under CWA Section 402. Because Section 402 discharge requirements are more restrictive than those for Section 404, some discharges that could be permitted under Section 404 cannot be authorized under Section 402. Supporters of the bills favored making it more difficult to use Section 404 to authorize activities that they consider to be environmentally harmful. On the other hand, critics said that, as a practical matter, economically important activities such as coal mining could not meet the more stringent limitations of a Section 402 permit and, thus, would be infeasible. Additionally, legislation intended as criticism of the Administration's recent regulatory actions also was introduced in the 111 th Congress ( H.R. 6113 and S. 3993 , the Electricity Reliability Protection Act of 2010). This bill would have prohibited EPA, the Army Corps, and OSM from administering or enforcing any policy or procedure that was announced in the June 2009 MOU or the April 2010 EPA permitting guidance unless they are contained in promulgated regulations. Critics of the Administration's actions have argued that the policies constitute rules, and thus should be subject to complete administrative requirements of rulemaking, including public notice and comment and subsequent judicial review. The impacts of court rulings in several cases concerning implementation of existing provisions of the law and involving questions of whether certain activities require a Clean Water Act discharge permit have been of interest for some time. A fundamental element of the act is the requirement that the "discharge of a pollutant" from a point source shall be carried out pursuant to a permit authorized by the National Pollutant Discharge Elimination System (NPDES) program under Section 402 of the law. Discharges incidental to the normal operation of vessels were not subject to regulation under the Clean Water Act until a 2006 federal court decision reversed EPA policy on the issue. In response, EPA began the process of developing general permits for vessel discharges. However, legislation enacted in July 2008, the Clean Boating Act ( P.L. 110-299 ), provided a two-year moratorium on imposing permit requirements on commercial fishing boats of all size and other commercial vessels less than 79 feet long. The legislation did not relieve larger vessels from permitting requirements, and in December 2008 EPA issued a general permit that applies to approximately 69,000 vessels. Obama Administration officials said that they are considering changes to the vessel general permit, which environmental groups and some states criticized as being weak. During the moratorium provided by P.L. 110-299 , EPA and the Coast Guard were directed to evaluate the impacts of discharges from the vessels that were exempted by the legislation. A draft report was released in March 2010, but because the report would not be final by the time that the moratorium expires, in July Congress approved legislation to extend the current moratorium until December 18, 2013. President Obama signed the extension on July 30, 2010 ( P.L. 111-215 ). CWA Section 313 provides that federal agencies and departments shall comply with all federal, state, local requirements to control water pollution from their facilities or property, in the same manner as nongovernmental entities. In December, Congress passed a bill to clarify that Section 313's requirements specifically include federal responsibility to pay reasonable service charges or fees associated with managing stormwater pollution that comes from federal properties ( P.L. 111-378 ). Supporters of the legislation, which included several state, county, and local government organizations, said that the bill addressed an issue of equity, that is, that the federal government bears a proportional responsibility for addressing pollution originating from its facilities and should participate actively in improving the nation's water quality. In recent years, federal courts have held that aerial application of a pesticide over and into U.S. waters requires a CWA permit, even when the pesticide use meets other requirements of federal law, including the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). These decisions drew the attention of many pesticide applicators, including public health entities such as mosquito control districts, concerned with how the rulings might affect their need to control pests associated with diseases such as the West Nile virus. In November 2006, EPA finalized a rule seeking to resolve the conflict over the regulatory scope of the CWA and FIFRA related to pesticide use, in light of the recent litigation, by promulgating clarifying circumstances under which a CWA permit is or is not required for activities carried out pursuant to FIFRA. But in January 2009, a federal court rejected EPA's argument that residual and excess pesticides from aerial applications that impact U.S. waters do not require an NPDES permit because they are adequately regulated by FIFRA, and the court vacated the rule. In the 109 th Congress, prior to issuance of the now-vacated rule, legislation intended to affirm that a CWA permit is not required for use of FIFRA-approved pesticides was introduced, but it was not enacted. In June 2009, the federal court granted an EPA request for a two-year delay in the effective date of the court's ruling. During this time, EPA plans to work with states and other affected parties to develop general CWA permits for pesticide applications covered by the ruling. EPA proposed the general permit in June and still expects to finalize the permit by April 9, 2011, as required by the court. Industry groups requested a Supreme Court review of the case, but in February 2010, the Court declined the request. Legislation intended to nullify the 2009 federal court ruling was introduced in the 111 th Congress ( H.R. 6087 / S. 3735 and S. 6273 ), but there was no further action on any of the bills. Clean Water Act permitting issues also were raised in other litigation. In 2004, the Supreme Court held that the transfer of polluted water from one waterbody to another may require a permit, notwithstanding that no new pollutant is added in the process of transfer. The decision raised concerns in agricultural areas where such transfers often occur in supplying irrigation water, presently without a permit. Congress has not held oversight hearings on impacts of the Court's decision, and legislation that might address the ruling has not been introduced. In response to the Court's ruling, in June 2008, EPA promulgated a rule defining categories or types of water transfers that the agency believes do not require NPDES permits. The rule, which supports EPA's long-standing legal interpretation of the CWA, was quickly challenged in federal courts by the Miccosukee Indian Tribe of Florida and environmental advocates. A ruling in that litigation has not been issued. However, in a related case, a federal appeals court ruled that pumping polluted water from canals in the Everglades into Lake Okeechobee without a permit does not violate the CWA. In its ruling, the U.S. Court of Appeals for the 11 th Circuit (the same court that is hearing the direct challenge to EPA's water transfer rule) cited the rule and said that EPA's regulation is a reasonable, and thus permissible, construction of the language of the statute. Environmental group plaintiffs in the case who oppose the EPA rule petitioned the 11 th Circuit court for an en banc rehearing, and in October 2009 EPA officials told the court that the agency plans to reconsider the water transfer rule because of concerns about the water quality impacts of some water transfers. On April 20, 2010, an explosion and fire occurred on the Deepwater Horizon drilling rig in the Gulf of Mexico. This resulted in 11 worker fatalities, a massive oil release, and a national response effort in the Gulf region by the federal and state governments as well as the oil company BP. Since the explosion of the rig, public and private efforts have focused on multiple response efforts to cap the undersea well and capture and contain the oil in order to prevent as much as possible of it from reaching shorelines. Congress has examined the response activities, events that preceded the explosion and spill, and policies that comprise the federal framework for responding to oil spills generally. The federal government's oil spill response framework is found in the National Contingency Plan, which contains the government's procedures for responding to oil spills and hazardous substance releases. The National Oil and Hazardous Substances Pollution Contingency Plan (NCP) was established administratively in 1968, after U.S. policymakers observed the response to a 37-million-gallon oil tanker spill (Torrey Canyon) off the coast of England and saw the need for a coordinated approach to cope with potential spills in U.S. waters. Subsequent laws have broadened the NCP, including the Clean Water Act in 1972; the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund, 42 U.S.C. 9601 et seq.) in 1980; and the Oil Pollution Act (OPA, 33 U.S.C. 2701 note) in 1990. Thus, the statutory framework for responding to an oil spill derives principally from two laws: section 311 of the CWA established requirements for oil spill reporting, response, and liability, and established the NCP to coordinate the national response strategy; and OPA establishes liability limits (or caps) for oil spill removal costs and a range of other costs, such as injuries to natural resources. OPA consolidated the existing federal oil spill laws under one program, expanded the existing liability provisions within the CWA, and created new free-standing requirements regarding oil spill prevention and response. A number of other federal laws also are relevant, such as the Outer Continental Shelf Lands Act (OCSLA), which provides a system for regulating offshore oil and gas exploration, leasing, and ultimate development (43 U.S.C. § 1331 et seq.). Multiple committees in Congress considered a large number of bills that were introduced after the Deepwater Horizon oil spill. A wide range of issues were addressed, such as increasing existing liability limits for an oil spill (e.g., H.R. 5355 and S. 3305 ), streamlining claims assistance authority (e.g., S. 3375 ), expanding oil spill research programs to help develop cleanup technologies or prevent spills (e.g., H.R. 2693 ). The only bill enacted during the 111 th Congress was a measure to advance monies from the existing Oil Spill Liability Trust Fund to pay costs related to oil spill removal ( P.L. 111-191 ). Many of the bills would have amended OPA, which is the primary domestic authority in this area, but several addressed CWA provisions, as well. For example, H.R. 5629 , which was approved by the House Transportation and Infrastructure Committee on July 1, 2010, was a comprehensive bill that would among other provisions have raised OPA's liability limits, revised NCP procedures under the CWA to regulate chemical dispersants that may be used to mitigate a spill, and clarified federal agency responsibility under the CWA for oil spill response. (Provisions of H.R. 5629 were included in a broader measure, the Consolidated Land, Energy, and Aquatic Resources Act ( H.R. 3454 ) that the House passed on July 30.) Another bill, H.R. 5608 , would have required the President to revise the NCP to ensure that it incorporates consideration of worst case discharges; Area Contingency Plans, which are specific response plans for individual geographic areas, would similarly have been required to plan for worse case discharges. A third proposal, H.R. 5677 , would have, among its provisions, required EPA to begin water quality monitoring within 48 hours of a spill in order to provide information about impacts on aquatic and other resources. It also would have required the President to update the NCP at least every five years. Another bill, S. 3466 , dealt with penalties and enforcement, but it would not have modified the CWA. It would have amended the Mandatory Victims Restitution Act of 1996 to add criminal offenses under the CWA to the statutory list of violations for which mandatory restitution of victims is required. It also would have directed the U.S. Sentencing Commission, which develops sentencing guidelines for federal prosecutors, to provide for compensation of victims for criminal violations of the CWA. Clean water issues also were addressed by Congress in the context of appropriations. President Bush's FY2009 budget was presented on February 5, 2008. Overall, the budget sought $7.1 billion for EPA programs and activities, 5% less than Congress appropriated for FY2008. The request included a number of reductions for water quality programs. It sought $555 million for the clean water SRF program (20% below the FY2008 level) and, as in previous budgets, requested no funding for congressionally earmarked water infrastructure grants. In addition, the budget asked for 8% less for nonpoint pollution management grants ($184.5 million, compared with $200.8 million in FY2008) and sought no funding for the targeted watershed grants program, a competitive grant program that provides funding for community-driven watershed restoration projects; it received $10 million in FY2008 appropriations. In June 2008, a House Appropriations subcommittee approved a bill with FY2009 funds for EPA. The bill included $850 million for clean water SRF capitalization grants ($295 million above the Administration's request and $161 million above the FY2008 level) and $180 million for congressionally earmarked water infrastructure grants. No further action occurred before the start of the new fiscal year, on October 1, 2008. However, at the end of September, Congress and the President agreed to legislation providing partial-year funding for EPA and most other agencies and departments. This bill, the Consolidated Security, Disaster Assistance, and Continuing Resolution Act, 2009 ( P.L. 110-329 ), provided funding through March 6, 2009, at FY2008-enacted levels (i.e., $689 million for clean water SRF grants). A second short-term CR was enacted on March 6 ( P.L. 111-6 ), while Congress was finishing consideration of a full-year omnibus FY2009 appropriations bill that President Obama signed on March 11, 2009 ( P.L. 111-8 ). It provided $689 million in regular appropriations for the full year, but Congress also provided $4.0 billion more in economic stimulus funds, which are discussed next. The 2009 omnibus appropriations act also included $183.5 million for earmarked water infrastructure grants. As the economy slid into recession in 2008, and fiscal problems began to affect all levels of government, states and cities have increasingly looked to the federal government for assistance in addressing the nation's faltering economic conditions. As a result, interest in using federal government spending to stimulate U.S. economic recovery intensified, and soon after taking office in January 2009, President Obama urged Congress to enact a multi-billion dollar fiscal stimulus bill. Among the options that were under discussion, many favored making accelerated investments in the nation's public infrastructure in order to create jobs while also meeting infrastructure needs. Legislative focus centered on providing supplemental appropriations for a wide range of government programs, including the clean water SRF program. Because of the urgency of responding to the economic downturn, emphasis was on providing funds for projects that could move to construction quickly, which are often referred to as "shovel ready" or "ready to go" projects. To support arguments for generous spending levels in a stimulus bill, interest groups came forward with lists and estimates of "ready to go" projects. For example, state and local water agencies reportedly identified from $9 to $20 billion in wastewater treatment projects that are "ready to go." Legislators moved quickly on these issues, because President Obama urged passage of economic stimulus legislation by mid-February 2009. On January 28, 2009, the House passed H.R. 1 , the American Recovery and Reinvestment Act, providing supplemental appropriations for a number of existing federal infrastructure and other programs, including $6 billion for clean water SRF capitalization grants. On February 10, the Senate passed an amended version of the legislation, providing $4 billion for clean water SRF grants, and on February 13, the House and Senate agreed to a reconciled version of the legislation providing $4 billion for clean water SRF grants that will be available through September 30, 2010. President Obama signed the bill into law on February 17 ( P.L. 111-5 ). Clean Water SRF funds provided in the bill were distributed to states according to the existing CWA state-by-state formulation that applies to regular SRF appropriations, but the bill waived the CWA requirement that states provide a 20% match to the federal capitalization grant. Also, the legislation allowed states to provide assistance to communities in the form of negative interest loans, principal forgiveness, grants, or a combination. States were to give preference to activities that can start and finish quickly, with a goal that at least 50% of the funds go to activities that could be initiated within 120 days of enactment. Further, states were to give priority to wastewater projects that could proceed to construction within 12 months of enactment, and EPA was directed to redistribute any SRF capitalization grant funds that were not under contract or construction within that time. The legislation also directed states to use at least 20% of their capitalization grants to fund projects that address green infrastructure, water or energy efficiency improvements, or other environmentally innovative activities. The supplemental clean water SRF funds provided by P.L. 111-5 were nearly six times larger than funds appropriated to states in the regular FY2009 appropriations act. Most state and local government officials welcomed the help provided by the stimulus funds in addressing long-standing infrastructure needs, but they noted that significant funding needs will remain even after the stimulus money has been spent. Despite the tight deadlines specified in the law, all states were able to meet the requirement that funds be under contract or construction by the one-year anniversary in February 2010; thus, EPA did not re-distribute any funds to other states. President Obama delivered details of the Administration's FY2010 budget request on May 7, 2009. He requested $10.5 billion in total funding for EPA. The most significant investments in the FY2010 budget included funds for water infrastructure. Specifically, the budget sought $2.4 billion for clean water SRF capitalization grants, nearly 2.5 times more than FY2009 appropriations. EPA estimated this funding level would finance 1,000 clean water projects. The budget also sought new funding for Great Lakes restoration efforts—requesting $475 million for multiple programs and projects, including remediation of contaminated sediments (the Great Lakes Legacy Act would not be separately funded). About one-half of the total would be provided by EPA to other agencies for their Great Lakes programs and projects, such as the Department of Agriculture and Department of the Interior. Congress reached final agreement on legislation providing EPA's FY2010 appropriation at the end of October 2009, several weeks after the start of the new fiscal year. Congress agreed to provide $2.1 billion for clean water SRF capitalization grants and $187 million for congressionally directed water infrastructure special project grants. While providing substantial funding for wastewater projects, the bill also imposed conditions on how the money could be used. Building on requirements in the 2009 economic stimulus legislation, the bill directed that not less than 30% of the clean water SRF capitalization grants in excess of $1 billion be used to provide additional subsidization in the form of negative interest loans, forgiveness of principal, or grants. Also, to the extent there were sufficient applications, not less than 20% of funds provided under a state's SRF program were to be used for green infrastructure, water efficiency, or energy efficiency improvements. As passed, the bill included language requiring application of the Davis-Bacon Act's prevailing wage provisions for clean water projects. In November 2009, EPA issued policy guidance stating the agency's interpretation that, under the language as passed, prevailing wage rules would apply not only to assistance agreements funded with FY2010 appropriations, but also to all assistance agreements executed on or after October 30, 2009, and prior to October 1, 2010. Industry groups and some states responded that, by applying the Davis-Bacon requirements retroactively, as well as forward, the policy memo was unnecessarily broad and would needlessly delay some projects. Criticism of EPA's guidance on Davis-Bacon applicability contributed to the Senate's failure to take action on CWA water infrastructure reauthorization legislation, S. 1005 , discussed above. The bill supported the President's $475 million request for Great Lakes restoration. In connection with these funds, the House and Senate Appropriations Committees directed EPA to develop plans for spending the money and also directed EPA to report annually to Congress on program accomplishments and specific funding levels for participating federal agencies. President Obama signed the bill on October 30, 2009 ( P.L. 111-88 ). President Obama presented his FY2011 budget request to Congress on February 1, 2010. Overall, the President's budget called for a freeze on non-security discretionary expenditures at EPA and other federal agencies. Consequently, the total request for EPA was $10.02 billion, compared with $10.3 billion enacted for FY2010. The FY2011 request sought $2.0 billion for clean water SRF capitalization grants, which was $100 million less than FY2010, but still an increase above recent years' funding levels. As in the 2009 economic recovery legislation and the FY2010 regular appropriations, the President's budget requested that states use 20% of their capitalization grants for "green infrastructure" projects and also use 30% of assistance in the form of additional subsidization (such as loan forgiveness) to communities that face difficulties in paying for infrastructure projects. One item that drew some congressional attention was the President's request for Great Lakes restoration. This funding would continue the initiative created in the FY2010 budget to target the most significant environmental problems of the Great Lakes ecosystem and to coordinate the work of multiple federal agencies in restoring the lakes. The budget requested $300 million for these activities in FY2011, because most of the $475 million appropriated in FY2010 was still uncommitted and unspent as of February 2010, when the FY2011 budget request was submitted. Only 8% of the 2010 funds had been obligated by that time, and some of that year's funds won't be spent until 2011, according to EPA. Congress took only limited action on FY2011 funding for EPA before the start of the new fiscal year on October 1, 2010: a House Appropriations subcommittee approved a bill in July, but no further action followed. At the end of September 2010, the House and Senate passed a continuing resolution to extend FY2010 funding levels for EPA and other federal agencies and departments until December 3, 2010, because no FY2011 appropriations bills had been enacted by October 1. President Obama signed the continuing resolution on September 30 ( P.L. 111-242 ). Two other short-term continuing resolutions were passed after December 3 ( P.L. 111-290 and P.L. 111-317 ), while the House and Senate attempted to resolve appropriations issues for some portion or all of the remainder of FY2011. At the end of December, Congress passed a fourth continuing resolution that extends FY2010 funding levels for EPA and other agencies and departments through March 4, 2011 ( P.L. 111-322 ). Thus, final resolution of FY2011 appropriations will occur early in the 112 th Congress. | Although much progress has been made in achieving the ambitious goals that Congress established more than 35 years ago in the Clean Water Act (CWA) to restore and maintain the chemical, physical, and biological integrity of the nation's waters, long-standing problems persist, and new problems have emerged. Water quality problems are diverse, ranging from pollution runoff from farms and ranches, city streets, and other diffuse or "nonpoint" sources, to toxic substances discharged from factories and sewage treatment plants. There is little agreement among stakeholders about what solutions are needed and whether new legislation is required to address the nation's remaining water pollution problems. For some time, efforts to comprehensively amend the CWA have stalled as interests have debated whether and exactly how to change the law. Congress has instead focused legislative attention on enacting narrow bills to extend or modify selected CWA programs, but not any comprehensive proposals. For several years, the most prominent legislative water quality issue has concerned financial assistance for municipal wastewater treatment projects. House and Senate committees have approved bills on several occasions, but, for various reasons, no legislation has been enacted. At issue has been how the federal government will assist states and cities in meeting needs to rebuild, repair, and upgrade wastewater treatment plants, especially in light of capital costs that are projected to be as much as $390 billion. In the 111th Congress, interest in increased investment in public works infrastructure—including wastewater—in order to stimulate the faltering U.S. economy brought greater attention to water infrastructure issues. Acting quickly, in February 2009, Congress passed and the President signed the American Recovery and Reinvestment Act (P.L. 111-5). Among its provisions, the legislation appropriated $4.0 billion in additional CWA assistance for wastewater projects. In addition, in March 2009, the House passed legislation to reauthorize the CWA's State Revolving Fund (SRF) program to finance wastewater infrastructure and several related provisions of the act (H.R. 1262). A companion bill was approved by the Senate Environment and Public Works Committee (S. 1005). No legislation was enacted. Programs that regulate activities in wetlands also have been of interest, especially CWA Section 404, which has been criticized by landowners for intruding on private land-use decisions and imposing excessive economic burdens. Environmentalists view this regulatory program as essential for maintaining the health of wetland ecosystems, and they are concerned about court rulings that narrowed regulatory protection of wetlands and about related administrative actions. Many stakeholders desire clarification of the act's regulatory jurisdiction, but they differ on what solutions are appropriate. In the 111th Congress, the Senate Environment and Public Works Committee approved a bill that sought to clarify but not expand the CWA's geographic scope (the Clean Water Restoration Act, S. 787). A companion bill was introduced in the House (H.R. 5088). Because some stakeholders believe that the bills would expand federal jurisdiction—not simply clarify it—the bills were controversial, and no legislation was enacted. The 111th Congress considered a number of water quality issues through oversight and legislation. Two bills amending the CWA were enacted and are discussed. One dealt with extending a moratorium for CWA permitting of certain vessels (P.L. 111-215), and the other dealt with ensuring that federal agencies and departments pay localities for reasonable costs associated with managing stormwater pollution from federal properties (P.L. 111-378). |
President Trump proposes to resume development of the long-planned nuclear waste repository at Yucca Mountain, Nevada, which had been suspended under the Obama Administration. The Trump Administration's congressional budget request for FY2019, submitted February 12, 2018, continued the Administration's FY2018 funding request for the Yucca Mountain nuclear waste repository project. As in the FY2018 request, which Congress did not approve, the FY2019 request would provide the Department of Energy (DOE) with $120 million for Yucca Mountain and interim nuclear waste storage. An additional $47.7 million was requested for the Nuclear Regulatory Commission (NRC) in FY201 9 (up from $30 million in FY2018) to resume its licensing process for Yucca Mountain. The House passed an FY2019 appropriations bill for Energy and Water Development, Legislative Branch, and Military Construction and Veterans Affairs ( H.R. 5895 ) on June 8, 2018, that includes $100 million more than the Administration requested for Yucca Mountain. But the Senate version of the bill, which passed June 25, 2018, includes no Yucca Mountain funding. Under the Nuclear Waste Policy Act of 1982 (NWPA, P.L. 97-425 ), the Yucca Mountain site has been the only location under consideration by DOE for construction of a national high-level radioactive waste repository. DOE had submitted a license application for the Yucca Mountain repository to the NRC on June 3, 2008, as required by NWPA. However, the Obama Administration announced it would request no further funding for the project and moved to withdraw the application on March 3, 2010. Although Congress approved the Obama Administration's halt in Yucca Mountain funding after FY2010, it has not amended NWPA, which still names Yucca Mountain as the sole repository candidate site. After deciding to terminate the Yucca Mountain repository project, the Obama Administration established the Blue Ribbon Commission on America's Nuclear Future (BRC) to develop a new nuclear waste policy. The commission issued its final report on January 26, 2012, recommending that a new, "single-purpose organization" be given the authority and resources to promptly begin developing one or more nuclear waste repositories and consolidated storage facilities. The recommendations called for a "consent based" process in which the roles of various levels of government in siting and regulating nuclear waste facilities would be established through negotiations. The commission also recommended that long-term research, development, and demonstration be conducted on technologies that could provide waste disposal benefits. In response to the BRC report, and to provide an outline for a new nuclear waste program, DOE issued a Strategy for the Management and Disposal of Used Nuclear Fuel and High-Level Waste in January 2013. The DOE strategy called for a new nuclear waste management entity to develop consent-based storage and disposal sites, similar to the BRC recommendation. Under the DOE strategy, a pilot interim spent fuel storage facility was to open by 2021 and a larger-scale storage facility, which could be an expansion of the pilot facility, by 2025. A geologic disposal facility would open by 2048—50 years after the initially planned opening date for the Yucca Mountain repository. After holding public meetings around the country during 2016, DOE issued a draft consent-based siting process on January 12, 2017, shortly before the start of the Trump Administration. The House approved a bill on May 10, 2018 ( H.R. 3053 , H.Rept. 115-355 ) that would withdraw the Yucca Mountain site from other uses under the public lands laws. The land withdrawal would satisfy one of the remaining licensing conditions identified by the NRC staff in its Yucca Mountain repository Safety Evaluation Report (SER), the final two volumes of which were issued on January 29, 2015. NRC completed the SER in response to a court order that the Yucca Mountain repository licensing process continue as long as previously appropriated funding was available. The SER contains the NRC staff's determination of whether the repository would meet all applicable standards. Volume 3 of the SER, issued in October 2014, concluded that DOE's Yucca Mountain repository design would comply with safety and environmental standards after being permanently sealed. However, the staff said upon completing the SER that NRC should not authorize construction of the repository until all land and water rights requirements were met and a supplement to DOE's environmental impact statement (EIS) was completed. NRC completed the supplemental EIS in May 2016 and made its database of Yucca Mountain licensing documents publicly available, using all the remaining previously appropriated licensing funds. Then-NRC Chairman Stephen Burns testified March 4, 2015, that his agency would need $330 million in additional appropriations to complete the licensing process, including adjudicatory hearings on as many as 300 issues that have been raised by the State of Nevada and others. As noted above, the Trump Administration is requesting $47.7 million in FY2019 for NRC licensing activities for Yucca Mountain, plus $120 million for DOE to defend its license application for the repository and develop interim storage facilities. The Obama Administration issued a draft plan on December 16, 2016, for a separate underground repository for high-level radioactive waste and spent fuel generated by nuclear defense activities. The effort to develop a defense waste repository would reverse a 1985 decision by the Reagan Administration to dispose of defense and civilian nuclear waste together. Then-Energy Secretary Ernest Moniz described the proposed defense-only repository as potentially easier to site, license, and construct than a combined defense-civilian repository, because defense waste constitutes a relatively small portion of total high-level waste volumes and radioactivity, and some defense waste is in forms that might be optimized for certain types of disposal, such as deep boreholes. In a report issued in October 2014, DOE concluded that a defense-only nuclear waste repository "could be sited and developed outside the framework of the Nuclear Waste Policy Act." Under this reasoning, NWPA would not have to be amended to allow a defense-only repository to proceed. However, according to the DOE report, "Any such repository would be subject to licensing by the U.S. Nuclear Regulatory Commission and would have to comply with other NWPA requirements related to state and local participation in the siting process." DOE's draft plan estimated that disposal of defense waste could begin about 22 years after a consent-based siting process were started. However, the Government Accountability Office (GAO) issued a report in January 2017 that assessed DOE's analysis of the defense-only repository as excluding major costs "that could add tens of billions of dollars" and including a schedule that "appears optimistic," in light of "past repository siting experiences." Republican leaders of the House Committee on Energy and Commerce issued a statement on March 24, 2015, criticizing DOE's plan for a defense-only nuclear waste repository as a way to deflect efforts to resume progress on Yucca Mountain. Legislation introduced January 11, 2017 ( H.R. 433 ) would block development of a defense-only repository before NRC has issued a licensing decision on the Yucca Mountain repository. A similar provision is included in nuclear waste legislation ( H.R. 3053 ) passed by the House May 10, 2018. Provisions to authorize DOE to develop consent-based pilot interim storage facilities for spent nuclear fuel were included in the FY2019 appropriations bill for Energy and Water Development, Legislative Branch, and Military Construction and Veterans Affairs ( H.R. 5895 ) passed by the Senate on June 25, 2018. Under Section 304 of Division A, priority for storage at the pilot facilities would be given to spent fuel that is currently stored at closed nuclear plant sites. DOE could not select a site for a pilot storage facility without the consent of the governor of the host state, all localities with jurisdiction over the site, and any affected Indian tribes. DOE would be required to report to Congress on the potential need for compensation or incentives for host jurisdictions, as well as recommendations for a mechanism to ensure that waste stored at a pilot storage facility would be moved to a permanent underground repository using a consent-based siting process "within a reasonable time." Similar provisions on a consent-based pilot program for interim storage have also been included by the Senate Appropriations Committee in previous years' Energy and Water Development funding bills, but they were not included in the enacted legislation. The House has not included such provisions in its past or present Energy and Water bills. Consent-based siting provisions for a monitored retrievable storage (interim storage) facility are included in a nuclear waste bill ( H.R. 3053 ) passed by the House on May 10, 2018. The bill would authorize DOE to store spent nuclear fuel at interim storage facilities owned by non-federal entities, if consent were provided by the governor of the host state, units of local government with jurisdiction over the site, and affected Indian tribes. In the 114 th Congress, bipartisan legislation to implement several of the major BRC recommendations, the Nuclear Waste Administration Act of 2015 ( S. 854 ), was introduced but not enacted. Introduced March 24, 2015, by Senator Lamar Alexander, S. 854 would have established an independent Nuclear Waste Administration to find sites for nuclear waste storage and disposal facilities with the consent of state and local officials and affected Indian tribes. An NRC license application for a spent fuel storage facility in New Mexico was filed March 30, 2017, by Holtec International, a manufacturer of spent fuel storage systems. The facility would be located on a 1,000-acre site provided by a local government consortium near the Waste Isolation Pilot Plant in New Mexico, the Eddy-Lea Energy Alliance (ELEA). According to Holtec, the storage facility when fully developed is to hold 10,000 canisters of spent fuel in below-grade concrete silos. The facility is to be developed in 20 phases over 20 years, with each phase consisting of 500 canisters containing up to a combined 8,680 metric tons of spent fuel. Total storage capacity is to be about 120,000 metric tons. The waste management company Waste Control Specialists (WCS) filed an application on April 28, 2016, for an NRC license to develop an interim storage facility for spent nuclear fuel in Texas. WCS asked NRC to suspend consideration of the license application April 18, 2017, citing estimated licensing costs that were "significantly higher than we originally estimated." However, WCS subsequently formed a joint venture with Orano USA called Waste Control Partners, which submitted a renewed application for the Texas facility on June 11, 2018. The proposed WCS spent fuel storage facility would be built at a 14,000-acre site near Andrews, TX, where the company currently operates two low-level radioactive waste storage facilities with local support. Before requesting suspension of the license application, WCS had said it would complete construction "as early as 2022." Under the WCS proposal, DOE would take title to spent fuel at nuclear plant sites, ship it to the Texas site, and pay WCS for storage for as long as 40 years with possible extensions, according to the company. DOE's costs would be covered through appropriations from the Nuclear Waste Fund, as were most costs for the Yucca Mountain project. WCS contends that a privately developed spent fuel storage facility would not be bound by NWPA restrictions that prohibit DOE from building a storage facility without making progress on Yucca Mountain. Provisions to explicitly authorize DOE to enter into contracts with non-federal interim storage facilities for spent fuel were included in legislation ( H.R. 3053 ) passed by the House on May 10, 2018. A related bill ( H.R. 474 ) was introduced January 12, 2017, by Representative Issa. It is similar to bills ( H.R. 3643 , H.R. 4745 ) introduced in the 114 th Congress by Representatives Conaway and Mulvaney, respectively, but not enacted. Under those bills, DOE would take title to all spent nuclear fuel from commercial reactors delivered to the private storage facility. Annual interest earned by the Nuclear Waste Fund, estimated at $1.5 billion in FY2017, could be used by DOE without further congressional appropriation to pay for private interim storage. The Trump Administration's FY2018 budget request would have provided the first new Yucca Mountain funding since FY2010, although it was not approved by Congress. For FY2019, the Administration is again seeking funding for Yucca Mountain: DOE would receive $110 million to seek an NRC license for the repository, and NRC would receive $47.7 million to consider DOE's application. DOE would also receive $10 million to develop interim nuclear waste storage facilities. DOE's total of $120 million in nuclear waste funding for FY2019 would come from two appropriations accounts: $90 million from Nuclear Waste Disposal and $30 million from Defense Nuclear Waste Disposal (to pay for defense-related nuclear waste that would be disposed of in Yucca Mountain). DOE funding is included in the annual Energy and Water Development Appropriations bill, which for FY2019 has been combined with the Legislative Branch Appropriations bill and the Military Construction and Veterans Affairs Appropriations bills ( H.R. 5895 ). The bill passed the House June 8, 2018, with $100 million more than requested for Yucca Mountain ($190 million for Nuclear Waste Disposal and $30 million for Defense Nuclear Waste Disposal). The Senate version of the bill, passed June 25, 2018, included no Yucca Mountain funding. This situation continues a pattern seen in recent years, in which the funding ultimately has not been approved. DOE stopped collecting nuclear waste fees from nuclear power generators on May 16, 2014, pursuant to a court ruling. Citing uncertainty about the future of the nuclear waste program, the U.S. Court of Appeals for the District of Columbia Circuit had ordered DOE on November 19, 2013, to stop collecting fees on nuclear power that are supposed to pay for waste disposal. The fees, authorized by NWPA, had been paid by nuclear power generators at the rate of a tenth of a cent per kilowatt-hour and totaled about $750 million per year. NWPA requires the Secretary of Energy to adjust the fees as necessary to cover the waste program's anticipated costs, but the court ruled that DOE's current waste plans are too vague to allow a reasonable estimate to be calculated. The court noted that DOE's most recent cost estimate for the program had an uncertainty range of nearly $7 trillion, a range "so large as to be absolutely useless" for determining the waste fee. In planning to restart the Yucca Mountain program, the Trump Administration announced in its FY2019 budget request (and the FY2018 request) that DOE would conduct a new cost assessment for determining the level of the nuclear waste fee, based on previous cost estimates for Yucca Mountain. NRC approved a final rule August 26, 2014, on continued storage of spent nuclear fuel. The continued storage rule takes the place of NRC's earlier "waste confidence" rule, which was struck down by the U.S. Court of Appeals for the District of Columbia on June 8, 2012. The waste confidence rule had spelled out NRC's formal findings that waste generated by nuclear power plants would be disposed of safely—specifically, that spent nuclear fuel could be safely stored at nuclear plants for at least 60 years after they had shut down and that permanent disposal would be available "when necessary." The court ruled that NRC should have conducted an environmental review under the National Environmental Policy Act before issuing the most recent waste confidence findings in December 2010. Under previous court rulings, NRC must determine that waste from proposed nuclear plants can be safely managed before licensing them to operate. As a result, after the court struck down the waste confidence rule, NRC halted licensing of new facilities that would generate radioactive waste. In approving the continued storage rule in August 2014, NRC ended its suspension of final licensing decisions for new reactors, spent fuel storage facilities, and license renewals. A consolidated lawsuit by several states and environmental groups to overturn NRC's continued storage rule was rejected by the U.S. Court of Appeals for the D.C. Circuit on June 3, 2016. NRC proposed a significant modification of its low-level waste disposal regulations on March 26, 2015. In contrast to highly radioactive spent nuclear fuel, low-level waste primarily contains low concentrations of radioactive materials and decays to background radiation levels more quickly. The NRC staff submitted a final version of the regulations for commission approval on September 15, 2016, but the commission issued further revisions on September 8, 2017, that must be incorporated before it can be published as a supplemental proposed rule. As drafted by the NRC staff, the regulations would for the first time establish time periods for technical analyses of low-level waste sites to ensure protection of the general population. Nuclear waste has sometimes been called the Achilles' heel of the nuclear power industry. Much of the controversy over nuclear power centers on the lack of a disposal system for the highly radioactive spent fuel that must be regularly removed from operating reactors. Low-level radioactive waste generated by nuclear power plants, industry, hospitals, and other activities is also a long-standing issue. The Nuclear Waste Policy Act ( P.L. 97-425 ), as amended in 1987, requires DOE to focus on Yucca Mountain, NV, as the site of a deep underground repository for spent nuclear fuel and other highly radioactive waste. The State of Nevada has strongly opposed the planned Yucca Mountain repository on the grounds that the site is unsafe, pointing to potential volcanic activity, earthquakes, water infiltration, underground flooding, nuclear chain reactions, and fossil fuel and mineral deposits that might encourage future human intrusion. Under the George W. Bush Administration, DOE determined that Yucca Mountain was suitable for a repository and that licensing of the site should proceed, as specified by NWPA. DOE submitted a license application for the repository to NRC on June 3, 2008, and projected that the repository could begin receiving waste in 2020, about 22 years later than the 1998 goal established by NWPA. However, the Obama Administration made a policy decision that the Yucca Mountain repository should not be opened, largely because of Nevada's continuing opposition, although it requested FY2010 funding to continue the NRC licensing process. But the Obama Administration's FY2011 budget request reversed the previous year's plan to continue licensing the repository and called for a complete halt in funding and closure of the Office of Civilian Radioactive Waste Management (OCRWM), which had run the program. In line with the request, the FY2011 Continuing Appropriations Act ( P.L. 112-10 ) provided no DOE funding for the program. DOE shut down the Yucca Mountain project at the end of FY2010 and transferred OCRWM's remaining functions to the Office of Nuclear Energy. President Trump intends to restart the Yucca Mountain licensing process, requesting $120 million for Yucca Mountain and interim waste storage in his FY2019 budget submission to Congress on February 12, 2018. (The Administration sought the same amount for FY2018 but it was not approved.) Under the FY2019 request, DOE would receive $110 million to seek an NRC license for the repository, and NRC would receive $47.7 million to consider DOE's application. DOE would also receive $10 million to develop interim nuclear waste storage facilities. Under the Obama Administration, DOE had filed a motion to withdraw the Yucca Mountain license application on March 3, 2010, "with prejudice," meaning the application could not be resubmitted to NRC in the future. DOE's motion to withdraw the license application, filed with NRC's Atomic Safety and Licensing Board (ASLB), received strong support from the State of Nevada but drew opposition from states with defense-related and civilian radioactive waste that had been expected to go to Yucca Mountain. State utility regulators also filed a motion to intervene on March 15, 2010, contending that "dismissal of the Yucca Mountain application will significantly undermine the government's ability to fulfill its outstanding obligation to take possession and dispose of the nation's spent nuclear fuel and high level nuclear waste." The ASLB denied DOE's license withdrawal motion June 29, 2010, ruling that the NWPA prohibits DOE from withdrawing the license application until NRC determines whether the repository is acceptable. The NRC commissioners sustained the ASLB decision on a tie vote September 9, 2011. However, NRC halted further consideration of the license application because of "budgetary limitations." Lawsuits to overturn the Yucca Mountain license withdrawal on statutory grounds were filed with the U.S. Court of Appeals for the District of Columbia Circuit, which ruled on August 13, 2013, that NRC must continue work on the Yucca Mountain license application as long as funding is available. The court determined that NRC had at least $11.1 million in previously appropriated funds for that purpose. NRC responded November 18, 2013, by directing the agency's staff to complete the Yucca Mountain safety evaluation report (SER), a key document that would provide the staff's conclusions about whether the proposed repository could be licensed. NRC issued Volume 3 of the SER on October 16, 2014, concluding that DOE's Yucca Mountain repository design would comply with safety and environmental standards for 1 million years after being permanently sealed. NRC issued the final two volumes of the Yucca Mountain SER on January 29, 2015. Upon completing the SER, the staff said that NRC should not authorize construction of the repository until all land and water rights requirements were met and a supplement to DOE's environmental impact statement (EIS) was completed. NRC completed the supplemental EIS in May 2016 and made its database of Yucca Mountain licensing documents publicly available, using all the remaining previously appropriated licensing funds. NRC Chairman Stephen Burns testified March 4, 2015, that $330 million in additional appropriations would be needed to complete the licensing process, including adjudicatory hearings on as many as 300 issues that have been raised by the State of Nevada and others. After halting the Yucca Mountain project in 2010, the Obama Administration established the Blue Ribbon Commission on America's Nuclear Future (BRC) to develop alternative waste disposal strategies. The BRC issued its final report on January 26, 2012, recommending that a new, "single-purpose organization" be given the authority and resources to promptly begin developing one or more nuclear waste repositories and consolidated storage facilities. The new organization would use a "consent based" process to select waste facility sites. The BRC had commissioned a series of reports on various aspects of nuclear waste policy to assist in its deliberations. In response to the BRC report, and to provide an outline for a new nuclear waste program, DOE issued its Strategy for the Management and Disposal of Used Nuclear Fuel and High-Level Waste in January 2013. The DOE strategy called for a new nuclear waste management entity to develop consent-based storage and disposal sites, similar to the BRC recommendation. Under the DOE strategy, a pilot interim spent fuel storage facility was to be opened by 2021 and a larger-scale storage facility, which could be an expansion of the pilot facility, by 2025. A geologic disposal facility was to open by 2048—50 years after the initially planned opening date for the Yucca Mountain repository. To help develop a consent-based siting process, DOE in December 2015 invited public comment on the concept and announced a series of public meetings through mid-2016. Suggested issues to be addressed include fairness of the siting process, possible site-selection models, appropriate participants and their roles in the process, information requirements for adequate public participation, and any other relevant concerns. Following the public meetings, DOE issued a draft consent-based siting process on January 12, 2017, that included five phases (with estimated time for completion): Phase 1: siting process initiation and community outreach, 1-3 years. Legislation would authorize and fund a waste management agency to conduct a consent-based siting process agency and provide grants to interested communities to determine whether to request a preliminary site assessment. Phase 2: preliminary site assessment, 1-2 years for interim storage and 2-4 years for a permanent repository. After a preliminary site assessment, an interested community could request a detailed site assessment. Phase 3: detailed site assessment, 2-4 years for interim storage, 5-10 years for repository. After assessment, communities with sites found suitable would decide on their willingness to host storage or disposal facilities. Phase 4: agreement, 1-2 years for interim storage, 2-5 years for repository. The potential host community and the waste management agency would negotiate a siting agreement, which would be approved by "all required parties," presumably including the host state government. Phase 5: licensing, construction, operation, and closure. Licensing and construction are estimated to take up to 5 years for an interim storage facility and 15 years for a repository. An interim storage facility would operate for up to 100 years and a repository for up to 150 years before closure. The Trump Administration's proposal to restart the Yucca Mountain project in FY2019 would provide funding for a Yucca Mountain program office, legal and technical support for the Yucca Mountain license application to NRC, and the management of millions of documents supporting the application. The Administration's request for $10 million for interim storage would include planning for a solicitation for storage services, transportation planning, and other preparations for waste shipments. The nuclear power industry has supported completion of NRC's licensing review of Yucca Mountain along with the pursuit of alternative storage and disposal facilities. "The target date for opening of Yucca Mountain or an alternative repository site should be no more than 20 years after a consolidated storage site is opened," according to an industry policy statement. The safety of geologic disposal of spent nuclear fuel and high-level waste (HLW), as planned in the United States, depends largely on the characteristics of the rock formations from which a repository would be excavated. Because many geologic formations are believed to have remained undisturbed for millions of years, it appeared technically feasible to isolate radioactive materials from the environment until they decayed to safe levels. "There is strong worldwide consensus that the best, safest long-term option for dealing with HLW is geologic isolation," according to the National Research Council. However, as the Yucca Mountain controversy indicates, scientific confidence about the concept of deep geologic disposal has turned out to be difficult to apply to specific sites. Every high-level waste site that has been proposed by DOE and its predecessor agencies has faced allegations or discovery of unacceptable flaws, such as water intrusion or earthquake vulnerability, that could release unacceptable levels of radioactivity into the environment. Much of the problem results from the inherent uncertainty involved in predicting waste site performance for the 1 million years that nuclear waste is to be isolated under current regulations. Widespread public controversy has also arisen over potential waste transportation routes to the sites under consideration. President Obama's budgets for FY2017 and previous years included long-term research on a wide variety of technologies that could reduce the volume and toxicity of nuclear waste. The Bush Administration had proposed to demonstrate large-scale facilities to reprocess and recycle spent nuclear fuel by separating long-lived elements, such as plutonium, that could be made into new fuel and "transmuted" into shorter-lived radioactive isotopes. Spent fuel reprocessing, however, has long been controversial because of cost concerns and the potential weapons use of separated plutonium. The Obama Administration had refocused DOE's nuclear waste research toward fundamental science and away from the near-term design and development of reprocessing facilities. The Trump Administration's FY2019 budget request would sharply reduce DOE funding for nuclear spent fuel reprocessing, while continuing to focus on "a long-term, science-based approach." President Bush had recommended the Yucca Mountain site to Congress on February 15, 2002, and Nevada Governor Guinn submitted a notice of disapproval, or "state veto," April 8, 2002, as allowed by NWPA. The state veto would have blocked further repository development at Yucca Mountain if a resolution approving the site had not been passed by Congress and signed into law within 90 days of continuous session. An approval resolution was signed by President Bush July 23, 2002 ( P.L. 107-200 ). Other types of civilian radioactive waste have also generated public controversy, particularly low-level waste, which is produced by nuclear power plants, medical institutions, industrial operations, and research activities. Civilian low-level waste currently is disposed of in large trenches at sites in the states of South Carolina, Texas, and Washington. However, the Washington facility does not accept waste from outside its region, and the South Carolina site is available only to the three members of the Atlantic disposal compact (Connecticut, New Jersey, and South Carolina) as of June 30, 2008. The lowest-concentration class of low-level radioactive waste (class A) is accepted by a Utah commercial disposal facility from anywhere in the United States. Threats by states to close their disposal facilities led to congressional authorization of regional compacts for low-level waste disposal in 1985. The first, and so far only, new disposal site under the regional compact system opened on November 10, 2011, near Andrews, TX. The Texas Legislature approved legislation in May 2011 to allow up to 30% of the facility's capacity to be used by states outside the Texas Compact, which consists of Texas and Vermont. NWPA Section 302 authorized DOE to enter into contracts with U.S. generators of spent nuclear fuel and other highly radioactive waste; under the contracts, DOE was to dispose of the waste in return for a fee on nuclear power generation. The act prohibited nuclear reactors from being licensed to operate without a nuclear waste disposal contract with DOE, and all reactor operators subsequently signed them. As required by NWPA, the "standard contract" specified that DOE would begin disposing of nuclear waste no later than January 31, 1998. After DOE missed the contractual deadline, nuclear utilities began filing lawsuits to recover their additional storage costs—costs they would not have incurred had DOE begun accepting waste in 1998 as scheduled. DOE reached its first settlement with a nuclear utility, PECO Energy Company (now part of Exelon), on July 19, 2000. The agreement allowed PECO to keep up to $80 million in nuclear waste fee revenues during the subsequent 10 years. However, other utilities sued DOE to block the settlement, contending that nuclear waste fees may be used only for the DOE waste program and not as compensation for missing the disposal deadline. The U.S. Court of Appeals for the 11 th Circuit agreed, ruling September 24, 2002, that any compensation would have to come from general revenues or other sources than the waste fund. Subsequent nuclear waste compensation to utilities has come from the U.S. Treasury's Judgment Fund, a permanent account that is used to cover damage claims against the U.S. government. Payments from the Judgment Fund do not require appropriations. Through FY2017, nuclear waste payments from the Judgment Fund included $4.9 billion resulting from settlements and $2 billion from final court judgments, for a total of about $6.9 billion, according to DOE. By the end of FY2017, 39 lawsuits had been settled, representing utilities that generate 84% of U.S. nuclear electricity. Forty-six cases had received final court judgments. Under the settlements, utilities submit annual reimbursement claims to DOE for any delay-related nuclear waste storage costs they incurred during that year. Any disagreements over reimbursable claims between DOE and a utility would go to arbitration. Utilities that have not settled with the Department of Justice have continued seeking damage compensation through the U.S. Court of Federal Claims. Unlike the settlements, which cover all past and future damages resulting from DOE's nuclear waste delays, awards by the Court of Claims can cover only damages that have already been incurred; therefore, utilities must continue filing claims as they accrue additional delay-related costs. DOE estimates that its potential liabilities for waste program delays could total as much as $34.1 billion, including the $6.9 billion already paid in settlements and final judgments. Delays in the federal waste disposal program could also lead to future environmental enforcement action over DOE's own high-level waste and spent fuel, mostly resulting from defense and research activities. Some of the DOE-owned waste is currently being stored in noncompliance with state and federal environmental laws, making DOE potentially subject to fines and penalties if the waste is not removed according to previously negotiated compliance schedules. Under the nuclear waste disposal contracts required by NWPA, DOE must charge a fee on nuclear power generation to pay for the nuclear waste program. But after DOE halted the Yucca Mountain project, the nuclear industry and state utility regulators sued to stop further collection of the nuclear waste fees. A federal court ultimately agreed with the waste-fee opponents, and DOE suspended fee collections in May 2014. Petitions to end the nuclear waste fee were filed with the U.S. Court of Appeals by the National Association of Regulatory Utility Commissioners (NARUC), representing state utility regulators, and the Nuclear Energy Institute (NEI), representing the nuclear industry, on April 2 and April 5, 2010, respectively. The suits argued that the fees, totaling about $750 million per year, should not be collected while the federal government's nuclear waste disposal program has been halted. DOE responded that the federal government still intended to dispose of the nation's nuclear waste and that the fees must continue to be collected to cover future disposal costs. Energy Secretary Steven Chu issued a formal determination on November 1, 2010, that there was "no reasonable basis at this time" to conclude that excess funds were being collected for future nuclear waste disposal activities. The U.S. Court of Appeals for the District of Columbia Circuit ruled June 1, 2012, that Secretary Chu's determination that the nuclear waste fee should continue unchanged was not "a valid evaluation" and ordered him to conduct a more thorough study of the fee within six months. The court noted that the Secretary's finding relied primarily on costs that had been projected for the Yucca Mountain site, which the Obama Administration had terminated as "unworkable." The court concluded that the Secretary must evaluate the likely costs of reasonable alternatives and the timing of those costs, all of which would affect the level of nuclear waste fees required. DOE responded with a new fee adequacy assessment in January 2013 that evaluated the total costs of a variety of waste management scenarios. The costs of some scenarios exceeded projected revenues from the existing waste fee by as much as $2 trillion, but other scenarios resulted in a surplus of up to $5 trillion. Because of the widely varying results, DOE concluded that there was no clear evidence that the fee should be immediately raised or lowered. After NEI and NARUC asked for a review of DOE's latest fee adequacy assessment, the Circuit Court ordered DOE on November 19, 2013, to stop collecting the nuclear waste fees altogether. The court ruled that DOE's current waste plans were too vague to allow a reasonable estimate to be calculated. The court noted that DOE's $7 trillion uncertainty range for the program's cost was "so large as to be absolutely useless" for determining the waste fee. Pursuant to the court ruling, DOE stopped collecting nuclear waste fees from nuclear power generators on May 16, 2014. In planning to restart the Yucca Mountain program, the Trump Administration said in its FY2019 budget request that DOE would conduct a new fee adequacy assessment that will be based on previous cost estimates for Yucca Mountain "until new information is available." DOE's motion to withdraw the Yucca Mountain license application "with prejudice," meaning that it could not be resubmitted in the future, was filed with NRC's Atomic Safety and Licensing Board (ASLB) on March 3, 2010. DOE's motion argued that the licensing process should be terminated because "the Secretary of Energy has decided that a geologic repository at Yucca Mountain is not a workable option" for long-term nuclear waste disposal. Subsequent DOE statements reiterated that the license withdrawal motion was not based on scientific or technical findings. Instead, the Obama Administration's policy change was prompted by the perceived difficulty in overcoming continued opposition from the State of Nevada and a desire to find a waste solution with greater public acceptance, according to DOE. DOE contended that the license application should be withdrawn "with prejudice" because of the need to "provide finality in ending the Yucca Mountain project." The ASLB denied DOE's license withdrawal motion June 29, 2010, ruling that NWPA prohibits DOE from withdrawing the license application until NRC determines whether the repository is acceptable. According to the board, "Surely Congress did not contemplate that, by withdrawing the Application, DOE might unilaterally terminate the Yucca Mountain review process in favor of DOE's independent policy determination that 'alternatives will better serve the public interest.'" In appealing the ASLB decision to the NRC commissioners, DOE argued in a July 9, 2010, brief that the Secretary of Energy has broad authority under the Atomic Energy Act and Department of Energy Organization Act "to make policy decisions regarding disposal of nuclear waste and spent nuclear fuel." DOE contended that such authority includes "the authority to discontinue the Yucca Mountain project" and that NRC rules provide "that applicants in NRC licensing proceedings may withdraw their applications." After more than a year of deliberation, the NRC commissioners sustained the licensing board's denial of the license withdrawal on a tie vote September 9, 2011. However, NRC halted further consideration of the license application because of "budgetary limitations." After NRC rejected the license withdrawal motion, the plaintiffs in that case, including Nye County, NV, where Yucca Mountain is located, petitioned the court to order NRC to continue the licensing proceedings. The Court of Appeals ruled on August 13, 2013, that NRC must continue work on the Yucca Mountain license application as long as funding was available. The court determined that NRC had at least $11.1 million in previously appropriated funds for that purpose. As noted above, NRC completed its Safety Evaluation Report for Yucca Mountain in January 2015 and used the remaining funds to complete a supplemental EIS and make the licensing database available to the public. Beyond those actions, additional funding of about $330 million would be required for NRC to complete the Yucca Mountain licensing review, including adjudicatory proceedings before the ASLB, according to NRC. In addition, DOE has estimated that its costs as the license applicant would total about $1.9 billion. The Trump Administration proposes to resume consideration of the NRC license, which remains pending before the ASLB. DOE's FY2018 congressional budget request includes $110 million for a Yucca Mountain program office, legal and technical support for the license application, and the management of supporting documents. An additional $30 million is requested by NRC to restart the ASLB adjudicatory proceeding. Before issuing licenses to nuclear reactors and waste storage facilities, NRC is required by a 1979 court decision to determine that waste from those facilities can be safely disposed of. To meet that requirement, NRC issued a Waste Confidence Decision in 1984 that found that nuclear waste could be safely stored at reactor sites for at least 30 years after plant closure and that a permanent repository would be available by 2007-2009. At that time, DOE officially planned to meet the NWPA repository deadline of 1998. After DOE's schedule for opening a nuclear waste repository began to slip, NRC updated the Waste Confidence Decision in 1990 to find that a repository would be available by the first quarter of the 21 st century. When the Yucca Mountain repository was delayed further and then suspended by the Obama Administration, NRC issued another waste confidence rule in 2010 that found that a repository would be available "when necessary" and that waste could be safely stored at reactor sites for at least 60 years after shutdown. The State of New York, environmental groups, and others filed lawsuits to overturn the 2010 waste confidence rule on the grounds that NRC had not adequately considered the environmental risks of long-term waste storage at reactor sites. The U.S. Court of Appeals for the District of Columbia Circuit largely agreed, ruling on June 8, 2012, that NRC would have to conduct an environmental review of the Waste Confidence Decision under the National Environmental Policy Act (NEPA). The court found two major flaws in NRC's rulemaking process: First, in concluding that permanent storage will be available "when necessary," the Commission did not calculate the environmental effects of failing to secure permanent storage—a possibility that cannot be ignored. Second, in determining that spent fuel can safely be stored on site at nuclear plants for sixty years after the expiration of a plant's license, the Commission failed to properly examine future dangers and key consequences. Final licensing of new facilities that would produce nuclear waste was halted for more than two years while NRC worked on its response to the court ruling. NRC approved a final rule August 26, 2014, on continued storage of spent nuclear fuel to replace the waste confidence rule that had been struck down. Rather than make specific findings about the future availability of waste disposal facilities, the new continued storage rule describes environmental effects that may result from various periods of waste storage, based on the findings of a generic environmental impact statement (GEIS). The GEIS, issued along with the continued storage rule, responded to the court requirement for NEPA review. The GEIS analyzed the environmental effects of three potential time periods of storage before a permanent repository would become available: "short-term timeframe," continued storage for up to 60 years after a reactor ceases operation; "long-term timeframe," for up to 160 years after reactor shutdown; and an "indefinite timeframe," in which a repository may never become available. The GEIS assumed that active management and oversight of the stored spent fuel would never end, and that "spent fuel canisters and casks would be replaced approximately once every 100 years." The environmental impact of all three time frames was judged to be minimal in almost all categories. A consolidated lawsuit by several states and environmental groups to overturn NRC's continued storage rule was rejected by the U.S. Court of Appeals for the D.C. Circuit on June 3, 2016. The termination of work on the Yucca Mountain repository by the Obama Administration generated extensive congressional controversy. The House consistently voted to continue or restore Yucca Mountain funding, while the Senate repeatedly zeroed it out, with President Obama's support. President Trump's proposal to restart the Yucca Mountain licensing process has changed the dynamics of the congressional debate on nuclear waste, along with the retirement of Senator Reid of Nevada, who had strongly opposed Yucca Mountain as the Democratic leader. However, the 115 th Congress has so far not provided new funding for Yucca Mountain. For FY2018, as in recent years, the House approved funds for the project while the Senate did not, and none were included in the enacted appropriations bill ( P.L. 115-141 ). In FY2019 appropriations legislation ( H.R. 5895 ), the House included $100 million above the Administration's Yucca Mountain funding request, while no funds were provided by the Senate. Concerns about nuclear waste were raised multiple times during the confirmation hearing for former Texas Governor Rick Perry on January 19, 2017, before the Senate Committee on Energy and Natural Resources, to be the Secretary of Energy. After her vote in the committee to confirm Perry on January 31, 2017, Senator Catherine Cortez Masto of Nevada issued a statement that said, I pressed Governor Perry repeatedly in our private meeting and at his confirmation hearing on the issue of Yucca Mountain, reminding him that Nevada's residents and elected officials have been clear that we will not accept our state becoming a dumping ground for the rest of the nation's nuclear waste. While we do not see eye to eye on all issues, I believe Governor Perry understands the importance of this issue and is someone I can work with to ensure Yucca Mountain never sees the light of day. The Nuclear Waste Policy Amendments Act of 2017 ( H.R. 3053 ), which passed the House on May 10, 2018, would satisfy a major condition for licensing the Yucca Mountain repository by withdrawing the repository site from use under public lands laws and placing it solely under DOE's control. It would also authorize DOE to store spent fuel at an NRC-licensed interim storage facility owned by a nonfederal entity. Another major provision would increase the capacity limit on the Yucca Mountain repository from 70,000 to 110,000 metric tons of spent nuclear fuel, in comparison with the 80,000 metric tons stored at U.S. nuclear plants at the end of 2017. The House-passed bill included substantial changes from the version of H.R. 3053 reported by the Energy and Commerce Committee ( H.Rept. 115-355 ), such as the elimination of mandatory funding provisions. To address criticism that the Nuclear Waste Fund has been used in the past for deficit reduction rather than waste management, the committee version of the bill would have provided mandatory funding for specific stages of repository development and would have allowed future nuclear waste fee collections to offset appropriations for the nuclear waste program. Following is a description of the bill's provisions as passed by the House. Monitored Retrievable Storage (MRS) facilities would be used for interim storage of spent nuclear fuel before disposal in a permanent repository. H.R. 3053 specifies that DOE's acceptance of spent nuclear fuel at commercial reactor sites for storage at an MRS facility would constitute the transfer of ownership of the spent fuel to the Secretary of Energy. DOE would be authorized to site, construct, and operate one or more MRS facilities. Alternatively, rather than building a federal MRS facility, DOE could store spent fuel from commercial reactors at MRS facilities developed by nonfederal entities with which DOE had reached an MRS agreement. DOE could not enter into an MRS agreement with a nonfederal entity before a license for the proposed facility had been issued by NRC. In addition, DOE could not enter into an MRS agreement unless the nonfederal entity had received waste storage approval from the governor of the state in which the MRS facility was to be located, any unit of local government with jurisdiction over the site, and any affected Indian tribe. DOE could enter into one MRS agreement before NRC issued a final decision on the Yucca Mountain construction authorization. Priority would be given to a nonfederal MRS facility unless the Secretary of Energy determined that a federal MRS could be built more quickly and less expensively. Spent fuel currently stored at closed reactors would have priority for shipment to an MRS, to the extent allowable under DOE's standard waste disposal contract with nuclear plant operators. Appropriations for an MRS would be authorized from the general fund rather than the Nuclear Waste Fund. Waste could not be stored at the initial MRS facility until NRC had made a final decision to approve or disapprove a construction authorization for the Yucca Mountain repository, or until the Secretary of Energy determined that such an NRC decision was "imminent." MRS construction would have to cease if the repository license were revoked. Under current law, construction of an MRS facility could begin only after the Yucca Mountain construction authorization were issued and would have to stop if the repository construction ceased or the license were revoked. The proposed Yucca Mountain repository would be located on 147,000 acres of federal land encompassing parts of DOE's Nevada Test Site and the Nellis Air Force Range, along with public land managed by the Bureau of Land Management. H.R. 3053 would permanently withdraw the site from uses authorized under federal public land laws, such as mineral leasing, and transfer jurisdiction to the Secretary of Energy for activities related to development of a permanent underground repository for spent nuclear fuel and high level waste. Withdrawal of the site is a requirement for DOE to obtain a repository license from NRC. Nuclear waste at, or being transported to, the repository would not be subject to Section 6001(a) of the Solid Waste Disposal Act (42 U.S.C. 6961(a)), which requires federal waste facilities to comply with all state, local, and federal hazardous waste requirements. NRC's final decision on issuing a construction authorization for the Yucca Mountain repository would be required within 30 months after enactment. Before the decision on the construction authorization, DOE could conduct "infrastructure activities" at the Yucca Mountain site, such as site preparation and the construction of a rail line. The limit on the amount of spent nuclear fuel that could be disposed of at Yucca Mountain would be raised from 70,000 to 110,000 metric tons. DOE would be prohibited from planning or developing a separate repository for defense-related high level waste and spent fuel until NRC reaches a final decision on issuing a construction authorization for the Yucca Mountain repository. The Secretary of Energy could not resume collection of nuclear waste fees until NRC issued a final decision to approve or disapprove a construction authorization for the Yucca Mountain repository. After that date, total collections of the nuclear waste fees would be limited to 90% of each fiscal year's appropriations for the DOE nuclear waste management program. Any fees that were not collected because of those limitations could be required to be paid "when determined necessary by the Secretary." Nuclear waste fees collected after the date of enactment would offset appropriations to the nuclear waste program. Annual appropriations up to the amount of available fees would therefore net to zero during the appropriations process, so that such appropriations would not count against the annual discretionary funding allocations for the Energy and Water Development Appropriations bill. The existing balance of the Nuclear Waste Fund would remain available for appropriation as in current law, without offsets. The bill specifies that net direct spending for budget purposes would not be affected by these provisions, and that requirements for mandatory spending offsets under the Statutory Pay-As-You-Go Act of 2010 ( P.L. 111-139 ) would not be triggered. The Secretary of Energy would be authorized to enter into a benefits agreement with the State of Nevada, in consultation with affected units of local government, to provide annual payments of $15 million before spent fuel is received at Yucca Mountain (up from $10 million under current law). Nevada would receive $400 million upon the first spent fuel receipt (up from $20 million) and annual payments thereafter of $40 million (up from $20 million). In addition, DOE could reach benefits agreements with units of local government in Nevada or other affected local governments. The acceptance of a benefits agreement by Nevada or a local government would not be considered consent to host the repository. All benefits agreements would be subject to congressional appropriation from the Nuclear Waste Fund. The Director of the Office of Civilian Radioactive Waste Management (OCRWM) would be responsible for carrying out the functions of the Secretary of Energy established by NWPA and would report directly to the Secretary. The OCRWM Director would serve as many as two five-year terms and could be removed by the President only for "inefficiency, neglect of duty, or malfeasance in office," rather than serving at the pleasure of the President. Nuclear waste management functions that currently may be assigned to a DOE Assistant Secretary under the Department of Energy Organization Act ( P.L. 95-91 ) would be transferred to OCRWM. Senator Heller and Representative Titus introduced companion versions of the Nuclear Waste Informed Consent Act ( S. 95 , H.R. 456 ) on January 11, 2017, that would "require the Secretary of Energy to obtain the consent of affected State and local governments before making an expenditure from the Nuclear Waste Fund for a nuclear waste repository." In a statement released after the bill was introduced, Heller said the legislation would require "a consent-based approach" to siting nuclear waste repositories, as recommended by the Blue Ribbon Commission on America's Nuclear Future. Similar legislation was introduced but not enacted in the 114 th Congress. Representative Joe Wilson introduced the Sensible Nuclear Waste Disposition Act ( H.R. 433 ) on January 11, 2017. The measure would forbid DOE from developing a repository for only defense nuclear waste until NRC had issued a final decision on a construction permit for the Yucca Mountain repository. (See Table 1 for a summary of recent bills.) Proposals in Texas and New Mexico to construct private-sector interim storage facilities for commercial spent nuclear fuel have attracted congressional interest. A bill to explicitly authorize DOE to enter into contracts with privately owned spent fuel storage facilities ( H.R. 474 ) was introduced on January 12, 2017, by Representative Issa. The Interim Consolidated Storage Act of 2017 is similar to legislation ( H.R. 3643 , H.R. 4745 ) introduced in the 114 th Congress by Representatives Conaway and Mulvaney, respectively, but not enacted. Under the legislation, DOE would take title to all spent nuclear fuel from commercial reactors delivered to the private storage facility. Annual interest earned by the Nuclear Waste Fund could be used by DOE without further congressional appropriation to pay for private interim storage. Related provisions are included in the House-passed H.R. 3053 ). Representative Lowey introduced the Removing Nuclear Waste from our Communities Act of 2017 ( H.R. 4442 ) on November 17, 2017, to authorize DOE to store spent fuel from nuclear plants at privately owned consolidated storage facilities. Priority would be given to nuclear plant sites with no currently operating reactors and that have a population of at least 15 million within a 50-mile radius. Legislation to provide assistance to communities with stored spent fuel at closed reactor sites was introduced October 2, 2017, by Senator Duckworth and Representative Schneider ( S. 1903 and H.R. 3970 ). The bills would provide communities $15 for each kilogram of nuclear waste, revive an expired tax credit for first-time homebuyers in stranded nuclear waste communities, and make such communities eligible for the existing New Markets Tax Credit. In addition, the bills would establish a task force to identify the programs that currently exist for communities with stranded nuclear waste, simplifying the process and making it easier for communities applying for government assistance. The bill would also require DOE to examine other options for hosting decommissioned nuclear waste and to study potential economic uses for secure closed reactor sites along with spent nuclear fuel storage. Concerns have been raised in Congress for many years about the potential risks posed by spent fuel storage pools in nuclear power plants. A number of bills have been proposed to reduce the amount of spent fuel stored in pools by moving it to dry storage casks. In the 115 th Congress, the Dry Cask Storage Act of 2018 ( H.R. 4891 ) was introduced by Representative Engel on February 2, 2018. It would require nuclear power plants to develop NRC-approved plans for removing spent fuel from storage pools. Within seven years after such plans had been submitted, spent fuel would have to be transferred to dry storage facilities if it has been in a storage pool for at least seven years. Emergency planning zones would have to be expanded from 10 to 50 miles in radius around any reactor determined by NRC to be out of compliance with its spent fuel transfer plan. NRC would be authorized to use interest earned by the Nuclear Waste Fund to provide grants to nuclear power plants to transfer spent fuel to dry storage. H.R. 4891 is similar to legislation introduced Representative Engel in the 114 th Congress ( H.R. 3587 ) and by Senator Markey in the 114 th Congress ( S. 945 ) and the 113 th Congress ( S. 2325 ). In the 114 th Congress, Senator Alexander, along with Senators Murkowski, Feinstein, and Cantwell, introduced legislation March 24, 2015, to redirect the nuclear waste program along the lines recommended by the Blue Ribbon Commission and the 2013 DOE waste strategy ( S. 854 ). The bill, similar to S. 1240 in the 113 th Congress, would have established an independent Nuclear Waste Administration (NWA) to develop nuclear waste storage and disposal facilities. Siting of such facilities would have required the consent of the affected state, local, and tribal governments. Under S. 854 , which was not enacted, NWA would have been required to prepare a mission plan to open a pilot storage facility by the end of 2021 for nuclear waste from shutdown reactors and other emergency deliveries (called "priority waste"). A storage facility for waste from operating reactors or other "nonpriority waste" was to open by the end of 2025, and a permanent repository by the end of 2048. NWA would have been authorized to issue requests for proposals or select sites for storage facilities for nonpriority waste only if, during the first 10 years after enactment, the agency had obligated funds for developing a permanent waste repository. After 10 years, NWA could not request proposals for nonpriority waste or select sites unless a candidate site for a repository had been selected. NWA would have been authorized to offer financial compensation and other incentives for hosting nuclear waste storage and disposal facilities. Sites that would include storage facilities along with a repository were to receive preference. Highly radioactive defense waste, which had been planned for commingling with commercial nuclear waste since the 1980s, could be placed in defense-only storage and disposal facilities under S. 854 , subject to appropriations. President Obama had authorized DOE to pursue a defense-only repository on March 24, 2015. Nuclear waste fees collected after enactment of the bill were to be held in a newly established Working Capital Fund. The Nuclear Waste Administration could have immediately drawn from that fund any amounts needed to carry out S. 854 , unless limited by annual appropriations or authorizations. The current disposal limit of 70,000 metric tons for the first repository under NWPA would have been repealed. The Senate Committee on Energy and Natural Resources held a hearing on S. 1240 on July 30, 2013. Then-Energy Secretary Ernest J. Moniz, who had been a member of the Blue Ribbon Commission, said the bill provided "a promising framework for addressing key issues." NARUC Electricity Committee Chairman David C. Boyd called the bill "a step in the right direction," but urged that it require continued licensing action on the Yucca Mountain repository. Boyd noted that S. 1240 would not preclude enforcement of existing NWPA deadlines for action on Yucca Mountain. Natural Resources Defense Council Senior Attorney Geoffrey H. Fettus opposed the bill on the grounds that it would allow temporary waste storage facilities to be opened without progress on a permanent repository and that states would have inadequate authority to regulate repository safety, among other concerns. As noted above, S. 854 would require certain actions on a permanent repository before a storage facility for nonpriority waste could be sited. Authorization and initial funding for DOE to develop a pilot spent fuel interim storage facility were approved by the Senate Appropriations Committee in its version of the FY2017 Energy and Water bill on April 14, 2016 ( S. 2804 , S.Rept. 114-236 ). As subsequently passed by the Senate, the bill included an authorization (§306) and a $10.0 million appropriation for DOE to develop a consent-based waste storage pilot facility. The Senate Appropriations Committee had approved similar language in its version of the FY2016 Energy and Water bill on May 21, 2015 ( S.Rept. 114-54 , §306). Similar language was also included in the FY2014 Energy and Water Development appropriations bill passed by the Senate Appropriations Committee June 27, 2013 ( S. 1245 , §309), as well as in the committee's FY2013 measure ( S. 2465 , §312) and in the draft Senate FY2015 Energy and Water bill approved in subcommittee. Corresponding House appropriations bills have not included such an authorization, and it has not been enacted. The debate over nuclear waste policy was strongly affected by the March 11, 2011, Fukushima Daiichi nuclear accident in Japan. The loss of power at the Fukushima site, caused by a huge earthquake and tsunami, disabled cooling systems at the plant's spent fuel pools. Water in the pools was initially suspected to have boiled or leaked and dropped below the level of the stored spent fuel, potentially leading to fuel damage and radioactive releases into the atmosphere. However, later analysis found that the spent fuel did not overheat. A bill introduced by Senator Barbara Boxer also on April 15, 2015 ( S. 944 ), similar to S. 2324 in the 113 th Congress, would require NRC to maintain full safety and security requirements at permanently closed reactors until all their spent fuel was moved to dry storage. Neither was enacted. NRC released a study on November 12, 2013, concluding that "expedited transfer of spent fuel to dry cask storage would provide only a minor or limited safety benefit" and "its expected implementation costs would not be warranted." Radioactive waste is a term that encompasses a broad range of material with widely varying characteristics. Some waste has relatively slight radioactivity and is safe to handle in unshielded containers, while other types are intensely hot in both temperature and radioactivity. Some decays to safe levels of radioactivity in a matter of days or weeks, while other types will remain dangerous for thousands of years. Major types of radioactive waste are described below: Spent nuclear fuel . Fuel rods that have been withdrawn from a nuclear reactor after irradiation, usually because they can no longer efficiently sustain a nuclear chain reaction. (The term "spent nuclear fuel" is defined in NWPA. The nuclear industry typically refers to spent fuel as "used nuclear fuel," because it contains uranium and plutonium that could be extracted through reprocessing to make new fuel.) By far the most radioactive type of civilian nuclear waste, spent fuel contains extremely hot but relatively short-lived fission products (fragments of the nuclei of uranium and other fissile elements) as well as long-lived radionuclides (radioactive atoms) such as plutonium, which remains dangerously radioactive for tens of thousands of years or more. High-level waste . Highly radioactive residue created by spent fuel reprocessing (almost entirely for defense purposes in the United States). High-level waste contains most of the radioactive fission products of spent fuel, but most of the uranium and plutonium usually has been removed for reuse. Enough long-lived radioactive elements typically remain, however, to require isolation for 10,000 years or more. Transuranic (TRU) waste . Relatively low-activity waste that contains more than a certain level of long-lived elements heavier than uranium (primarily plutonium). Radiation shielding may be required for the handling of some types of TRU waste. In the United States, transuranic waste is generated almost entirely by nuclear weapons production processes. Because of the plutonium, long-term isolation is required. The nation's only permanent repository for TRU waste, the Waste Isolation Pilot Plant (WIPP), near Carlsbad, NM, resumed underground waste emplacement January 4, 2017, after being suspended for nearly three years after a radioactive release. Waste currently undergoing disposal had already been stored at the WIPP site; shipments of additional waste to the site resumed April 10, 2017. Low-level waste . Radioactive waste not classified as spent fuel, high-level waste, TRU waste, or byproduct material such as uranium mill tailings (below). Four classes of low-level waste have been established by NRC, ranging from least radioactive and shortest-lived to the longest-lived and most radioactive. Although some types of low-level waste can be more radioactive than some types of high-level waste, in general low-level waste contains relatively low concentrations of radioactivity that decays relatively quickly. Low-level waste disposal facilities cannot accept material that exceeds NRC concentration limits. Uranium mill tailings . Sand-like residues remaining from the processing of uranium ore. Such tailings have very low radioactivity but extremely large volumes that can pose a hazard, particularly from radon emissions or groundwater contamination. Mixed waste . Chemically hazardous waste that includes radioactive material. High-level, low-level, and TRU waste, and radioactive byproduct material, often falls under the designation of mixed waste. Such waste poses complicated institutional problems, because the radioactive portion is regulated by DOE or NRC under the Atomic Energy Act, while the Environmental Protection Agency (EPA) and states regulate the nonradioactive elements under the Resource Conservation and Recovery Act (RCRA). When spent nuclear fuel is removed from a reactor, usually after several years of power production, it is thermally hot and highly radioactive. The spent fuel is in the form of fuel assemblies, which consist of arrays of metal-clad fuel rods 12-15 feet long. A fresh fuel rod, which emits relatively little radioactivity, contains uranium that has been enriched in the isotope U-235 (usually to 3%-5% from its natural level of 0.7%). But after nuclear fission has taken place in the reactor, most of the U-235 nuclei in the fuel rods have been split into a variety of highly radioactive fission products. Some of the nuclei of the dominant isotope U-238 have absorbed neutrons and then decayed to become radioactive plutonium, some of which has also split into fission products (and some of which are gases). Newly withdrawn spent fuel assemblies are stored in deep pools of water adjacent to the reactors to keep them from overheating and to protect workers from radiation. To prevent the pools from filling up, older, cooler spent fuel often is sealed in dry canisters and transferred to radiation-shielded storage facilities elsewhere at reactor sites. NRC currently requires spent fuel to cool for at least 7-10 years before being transferred to dry storage. Spent fuel discharged from U.S. commercial nuclear reactors is currently stored at 59 operating nuclear plant sites, 15 shutdown plant sites, and the Idaho National Laboratory. A typical large commercial nuclear reactor discharges an average of 20-30 metric tons of spent fuel per year—an average of about 2,200 metric tons annually for the entire U.S. nuclear power industry during the past two decades. A recent report prepared for DOE estimates that about 80,000 metric tons of spent fuel was stored at U.S. nuclear plants at the end of 2017, including about 30,000 metric tons in dry casks. The total amount of existing waste would exceed NWPA's 70,000-metric-ton limit for Yucca Mountain, even without counting 7,000 metric tons of DOE spent fuel and high-level waste that had also been planned for disposal at the repository. As long as nuclear power continues to be generated, the amount of spent fuel stored at plant sites will continue to grow until an interim storage facility or a permanent repository can be opened—or until alternative treatment and disposal technology is developed. DOE's most recent estimates of the total amount of spent fuel from existing U.S. reactors that may eventually require disposal range from 105,000 metric tons to 130,000 metric tons. New storage capacity at operating nuclear plant sites or other locations will be required if DOE is unable to begin accepting waste into its disposal system for an indefinite period. Most utilities are expected to construct new dry storage capacity at reactor sites. Seventy-two licensed dry storage facilities were operating at U.S. nuclear plant and DOE sites as of August 2017. The terrorist attacks of September 11, 2001, heightened concerns about the vulnerability of stored spent fuel. Concerns have been raised that an aircraft crash into a reactor's pool area or acts of sabotage could drain the pool and cause the spent fuel inside to overheat. A report released by NRC January 17, 2001, found that overheating could cause the zirconium alloy cladding of spent fuel to catch fire and release hazardous amounts of radioactivity, although it characterized the probability of such a fire as low. In a report released April 6, 2005, the National Academy of Sciences (NAS) found that "successful terrorist attacks on spent fuel pools, though difficult, are possible." To reduce the likelihood of spent fuel cladding fires, the NAS study recommended that hotter and cooler spent fuel assemblies be interspersed throughout spent fuel pools, that spray systems be installed above the pools, and that more fuel be transferred from pools to dry cask storage. The nuclear industry contends that the several hours required for uncovered spent fuel to heat up enough to catch fire would allow ample time for alternative measures to cool the fuel. NRC's report on this issue in 2013 found only minor safety benefits in expedited transfers of spent fuel from pools to dry casks. The safety of spent fuel pools is one of the areas examined by an NRC task force that identified near-term lessons that the Fukushima accident may hold for U.S. nuclear power plant regulation. The task force recommended that assured sources of electrical power as well as water spray systems be available for spent fuel pools. NRC approved an order March 9, 2012, requiring U.S. reactors to install improved water-level monitoring equipment at their spent fuel pools. For more background, see CRS Report R42513, U.S. Spent Nuclear Fuel Storage , by [author name scrubbed]. About 5.1 million cubic feet of low-level waste with 57,179 curies of radioactivity was shipped to commercial disposal sites in 2017, according to DOE. Volumes and radioactivity can vary widely from year to year, based on the status of nuclear decommissioning projects and cleanup activities that can generate especially large quantities. For example, the total volume reported for 2016 was 1.7 million cubic feet. The radioactivity of low-level waste is only a tiny fraction of the amount in annual discharges of spent fuel. Low-level radioactive waste is divided into three major categories for handling and disposal: Class A, B, and C. Class A waste constitutes most of the annual volume of low-level waste, while classes B and C generally contain most of the radioactivity. As discussed below, most of the nation's Class B and C waste has been stored where it has been generated since June 2008 for lack of a permanent disposal site. Disposal of spent fuel and high-level waste is a federal responsibility, while states are authorized to develop disposal facilities for commercial low-level waste. The Obama Administration halted development of the Yucca Mountain repository after FY2010, although Yucca Mountain remains the sole candidate site for civilian highly radioactive waste disposal under current law. The Trump Administration is proposing to revive the program in FY2019, requesting $110 million for Yucca Mountain and $10 million for interim nuclear waste storage at DOE, and an additional $47.7 million for NRC. A similar request for FY2018 was not enacted. Under the Obama Administration, DOE issued an alternative waste management strategy in January 2013 that called for a pilot facility for spent fuel storage to open at a voluntary site by 2021 and a new repository at a volunteer location by 2048. New legislation would have been required to carry out the Obama strategy. The Nuclear Waste Policy Act of 1982 established a system for selecting a geologic repository for the permanent disposal of up to 70,000 metric tons (77,000 tons) of spent nuclear fuel and high-level waste. DOE's Office of Civilian Radioactive Waste Management (OCRWM) was created to carry out the program. The Nuclear Waste Fund, holding receipts from a fee on commercial nuclear power and federal contributions for emplacement of high-level defense waste, was established to pay for the program. The fee, set at a tenth of a cent per kilowatt-hour, can be adjusted by the Secretary of Energy based on projected total program costs after a congressional review period. DOE was required to select three candidate sites for the first national high-level waste repository. After much controversy over DOE's implementation of NWPA, the act was substantially modified by the Nuclear Waste Policy Amendments Act of 1987 (Title IV, Subtitle A of P.L. 100-203 , the Omnibus Budget Reconciliation Act of 1987). Under the amendments, the only candidate site DOE may consider for a permanent high-level waste repository is at Yucca Mountain, Nevada. If that site cannot be licensed, DOE must return to Congress for further instructions. The 1987 amendments also authorized construction of a monitored retrievable storage facility to store spent fuel and prepare it for delivery to the repository. But because of fears that the MRS would reduce the need to open the permanent repository and become a de facto repository itself, the law forbids DOE from selecting an MRS site until recommending to the President that a permanent repository be constructed, and construction of an MRS cannot begin until Yucca Mountain receives a construction permit. The repository recommendation was made in February 2002, but DOE has not announced any plans for siting an MRS. Along with halting all funding for the Yucca Mountain project, the Obama Administration terminated OCRWM at the end of FY2010 and transferred its remaining functions to DOE's Office of Nuclear Energy. The Administration established the Blue Ribbon Commission on America's Nuclear Future (BRC) to develop a new waste management strategy, and the BRC issued its final report on January 26, 2012. As required by its charter, the BRC did not evaluate specific sites for new nuclear waste facilities, including Yucca Mountain. However, the commission concluded that the existing nuclear waste policy, with Yucca Mountain identified by law as the sole candidate site, "has now all but completely broken down" and "seems destined to bring further controversy, litigation, and protracted delay." The BRC recommended instead that Congress establish "a new, consent-based approach to siting." Under that approach, potential sites would be the subject of extensive negotiations with affected states, tribes, and local governments. Such negotiations would result in legally binding agreements on the roles of the affected parties, including local oversight, and other project parameters. The BRC noted that previous U.S. efforts to find voluntary waste sites had failed, but it nevertheless expressed confidence that such a process could eventually succeed. In particular, the commission highlighted the U.S. experience with the Waste Isolation Pilot Plant (WIPP) in New Mexico, which, after many years of controversy, began receiving transuranic defense waste in 1999 with state and local government approval (although WIPP disposal was suspended for nearly three years after a release of radioactivity in February 2014, resuming in January 2017). To carry out the new waste management program, the BRC recommended that a congressionally chartered federal corporation be established. Such a corporation would be independent from Administration control and have "assured access to funds" but be subject to congressional oversight and to regulation by NRC. Pending establishment of the corporation, the BRC recommended that administrative and legislative changes be implemented in the Nuclear Waste Fund to allow funds to be used for the waste management program without having to compete with other appropriations priorities. The BRC called for "prompt efforts" to develop a permanent underground nuclear waste repository and to develop one or more interim central storage facilities. Interim storage facilities are especially needed so that waste can be removed from shutdown reactor sites, the commission said. Development of a permanent disposal site would have to be undertaken along with the interim storage effort to assure that interim sites would not become "de facto" permanent repositories, according to the commission. In response to the BRC report, and to provide an outline for a new nuclear waste program, DOE issued its Strategy for the Management and Disposal of Used Nuclear Fuel and High-Level Waste in January 2013. Under the DOE strategy, a pilot interim spent fuel storage facility would be opened by 2021, focusing primarily on spent fuel from decommissioned nuclear plants. A larger-scale interim storage facility, which could be an expansion of the pilot facility, would open by 2025 with a capacity of 20,000 metric tons or more. The DOE strategy called for the interim storage facility to be linked to development of a permanent repository so that the storage facility would not become a de facto repository. However, the strategy noted that the existing NWPA restrictions on the MRS are so rigid that the MRS cannot currently be built. Without describing specific provisions, the DOE strategy recommended that "this linkage should not be such that it overly restricts forward movement on a pilot or larger storage facility that could make progress against the waste management mission." Under the DOE strategy, a geologic disposal facility would open by 2048—50 years after the initially planned opening date for the Yucca Mountain repository. A site for the repository is to be selected by 2016, and site suitability studies, design, and licensing are to be completed by 2042. Sites for the proposed storage and disposal facilities would be selected through a "consent based" process, as recommended by the BRC. However, the DOE strategy included few details on how such a process would be implemented. Instead, the strategy said the Obama Administration would consult with Congress and interest groups on "defining consent, deciding how that consent is codified, and determining whether or how it is ratified by Congress." As discussed above, DOE issued its "Draft Consent-Based Siting Process" on January 12, 2017. The Obama Administration's proposed waste program was to be implemented by a new nuclear waste management entity, as recommended by the BRC, but the nature of the new organization was not specified by the DOE strategy. A bill introduced in the 114 th Congress by Senator Alexander ( S. 854 ), discussed under " Congressional Action ," would have modified the waste program along the lines of the Obama Administration's waste strategy. Other proposals have called for privatization of waste management services. DOE issued a report in October 2014 that recommended testing the consent-based approach by siting and developing a repository solely for defense and research waste. According to the report, a separate repository for such waste would not be subject to the Yucca Mountain siting requirement that applies to a civilian nuclear waste repository under NWPA. The idea would reverse long-standing federal policy, established by the Reagan Administration, that a single repository would hold both civilian and defense high-level waste and spent fuel. DOE's 2014 report concluded that a separate repository for the nation's relatively small volumes of defense and research waste (compared to civilian waste) could be developed more quickly, "within existing legislative authority," than a repository for all highly radioactive waste. The report also recommended that disposal in deep boreholes be considered for the most compact types of defense and research waste. President Obama authorized DOE on March 24, 2015, to begin planning a separate underground repository for high-level radioactive waste generated by nuclear defense activities. However, as noted above, GAO criticized DOE's analysis of the defense-only repository in January 2017, and bills have been introduced to delay the plan. President Obama blocked DOE's previously preferred rail route to Yucca Mountain on July 10, 2015, by establishing the Basin and Range National Monument in southeastern Nevada. However, an Obama Administration fact sheet said that other potential rail routes would still be available. The waste management company Waste Control Specialists (WCS) filed an application on April 28, 2016, for an NRC license to develop a consolidated interim storage facility for spent nuclear fuel in Texas. WCS asked NRC to suspend consideration of the license application until April 18, 2017, citing estimated licensing costs that were "significantly higher than we originally estimated." However, WCS subsequently formed a joint venture with Orano USA called Waste Control Partners, which submitted a renewed application for the Texas facility on June 11, 2018. The proposed WCS spent fuel storage facility would be built at a 14,000-acre WCS site near Andrews, TX, where the company currently operates two low-level radioactive waste storage facilities with local support. The facility was proposed to consist of dry casks on concrete pads. Construction would take place in eight phases, with each phase capable of holding 5,000 metric tons of spent fuel, for a total capacity of 40,000 metric tons. Under the WCS proposal, DOE would take title to spent fuel at nuclear plant sites, ship it to the Texas site, and pay WCS for storage for up to 40 years with possible extensions, according to the company. DOE's costs would be covered through appropriations from the Nuclear Waste Fund, as were most costs for the Yucca Mountain project. WCS contends that a privately developed spent fuel storage facility would not be bound by NWPA restrictions that prohibit DOE from building a storage facility without making progress on Yucca Mountain. An NRC license application for a spent fuel storage facility in New Mexico was filed March 30, 2017, by Holtec International, a manufacturer of spent fuel storage systems. The facility would be located on land provided by a local government consortium near the Waste Isolation Pilot Plant in New Mexico, the Eddy-Lea Energy Alliance (ELEA). Local officials near the WIPP facility have long supported the development of additional waste facilities at that site, which was originally planned to hold high-level waste before the state objected. A presentation by a top New Mexico official on March 1, 2012, described conditions under which the state might be willing to accept high-level waste and spent fuel at the WIPP site, such as assistance with cleaning up the state's contaminated uranium production sites. New Mexico Governor Susana Martinez expressed support for ELEA's efforts in an April 10, 2015, letter to Energy Secretary Ernest Moniz, but the state's U.S. senators, Tom Udall and Martin Heinrich, said in a joint statement that they would oppose an interim storage facility without a plan for permanent disposal. Moreover, a February 2014 radioactive release from WIPP, which led to the suspension of disposal operations, could also affect public support in the state for expanded waste activities. Interest in hosting nuclear waste sites has also been expressed by groups in Mississippi and Loving County, Texas, although whether they would be developed by the private sector or the government has not been specified. As noted above, a bill to explicitly authorize DOE to enter into contracts with privately owned spent fuel storage facilities ( H.R. 474 ) was introduced on January 12, 2017, by Representative Issa. The Interim Consolidated Storage Act of 2017 is similar to legislation introduced by Representative Conaway in the 114 th Congress ( H.R. 3643 ). Under the bill, DOE would take title to all spent nuclear fuel from commercial reactors delivered to the private storage facility. Annual interest earned by the Nuclear Waste Fund could be used by DOE without further congressional appropriation to pay for private interim storage. As of August 31, 2018, the bill's 33 cosponsors included 14 from Texas. Provisions for a private-sector MRS facility are included in a bill ( H.R. 3053 ), described above, approved by the House Energy and Commerce Committee June 28, 2017. An earlier effort to develop a private spent fuel storage facility was undertaken after it became apparent that DOE would miss the 1998 deadline for taking nuclear waste from reactor sites. A utility consortium signed an agreement with the Skull Valley Band of the Goshute Indians in Utah on December 27, 1996, to develop a storage facility on tribal land. The Private Fuel Storage (PFS) consortium submitted a license application to NRC on June 25, 1997, and a 20-year license for storing up to 44,000 tons of spent fuel in dry casks was issued on February 21, 2006. However, NRC noted that Interior Department approval would also be required. On September 7, 2006, the Department of the Interior issued two decisions against the PFS project. The Bureau of Indian Affairs disapproved a proposed lease of tribal trust lands to PFS, concluding there was too much risk that the waste could remain at the site indefinitely. The Bureau of Land Management rejected the necessary rights-of-way to transport waste to the facility, concluding that a proposed rail line would be incompatible with the Cedar Mountain Wilderness Area and that existing roads would be inadequate. The Skull Valley Band of Goshutes and PFS filed a federal lawsuit July 17, 2007, to overturn the Interior decisions on the grounds that they were politically motivated. A federal district court judge on July 26, 2010, ordered the Department of the Interior to reconsider its decisions on the PFS permits. However, PFS asked NRC to terminate its license on December 20, 2012. Although the Obama Administration tried to redirect the high-level nuclear waste program, current law still focuses on Yucca Mountain for civilian waste. NWPA requires that high-level waste repositories be licensed by NRC in accordance with general standards issued by EPA. Under the Energy Policy Act of 1992 ( P.L. 102-486 ), EPA was required to write new repository standards specifically for Yucca Mountain. NWPA also requires the repository to meet general siting guidelines prepared by DOE and approved by NRC. Transportation of waste to storage and disposal sites is regulated by NRC and the Department of Transportation (DOT). Under NWPA, DOE shipments to Yucca Mountain and an MRS facility would have to use NRC-certified casks and comply with NRC requirements for notifying state and local governments. Shipments would also have to follow DOT regulations on routing, placarding, and safety. NRC's licensing requirements for Yucca Mountain, at 10 C.F.R. 63, require compliance with EPA's standards (described below) and establish procedures that DOE must follow in seeking a repository license. For example, DOE must receive a construction authorization to build the Yucca Mountain repository before being issued a license to bring nuclear waste to the site and emplace it underground. Among NRC substantive regulatory requirements is a mandatory DOE repository performance confirmation program that would indicate whether natural and man-made systems were functioning as intended and assure that other assumptions about repository conditions were accurate. Specific standards for Yucca Mountain were required because of concerns that some of EPA's general standards might be impossible or impractical to meet at Yucca Mountain. The Yucca Mountain standards, which limit the radiation dose that the repository could impose on individual members of the public, were required to be consistent with the findings of a study by the National Academy of Sciences (NAS), which was issued August 1, 1995. The NAS study recommended that the Yucca Mountain environmental standards establish a limit on risk to individuals near the repository, rather than setting specific limits for the releases of radioactive material or on radioactive doses, as under previous EPA standards. The NAS study also examined the potential for human intrusion into the repository and found no scientific basis for predicting human behavior thousands of years into the future. Pursuant to the Energy Policy Act of 1992, EPA published its proposed Yucca Mountain radiation protection standards on August 27, 1999. The proposal would have limited annual radiation doses to 15 millirems for the "reasonably maximally exposed individual," and to 4 millirems from groundwater exposure, for the first 10,000 years of repository operation. EPA calculated that its standard would result in an annual risk of fatal cancer for the maximally exposed individual of seven chances in a million. The nuclear industry criticized the EPA proposal as being unnecessarily stringent, particularly the groundwater standard. On the other hand, environmental groups contended that the 10,000-year standard proposed by EPA was too short, because DOE had projected that radioactive releases from the repository would peak after about 400,000 years. EPA issued its final Yucca Mountain standards on June 6, 2001. The final standards included most of the major provisions of the proposed version, including the 15 millirem overall exposure limit and the 4 millirem groundwater limit. Despite the department's opposition to the EPA standards, DOE's site suitability evaluation determined that the Yucca Mountain site would be able to meet them. NRC revised its repository regulations September 7, 2001, to conform to the EPA standards. A three-judge U.S. Court of Appeals panel on July 9, 2004, struck down the 10,000-year regulatory compliance period in the EPA and NRC Yucca Mountain standards. The court ruled that the 10,000-year period was inconsistent with the NAS study on which the Energy Policy Act required the Yucca Mountain regulations to be based. In fact, the court found, the NAS study had specifically rejected a 10,000-year compliance period because of analysis that showed peak radioactive exposures from the repository would take place several hundred thousand years in the future. In response to the court decision, EPA proposed a new version of the Yucca Mountain standards on August 9, 2005. The proposal would have retained the dose limits of the previous standard for the first 10,000 years but allowed a higher annual dose of 350 millirems for the period of 10,000 years through 1 million years. EPA also proposed to base the post-10,000-year Yucca Mountain standard on the median dose, rather than the mean, potentially making it easier to meet. Nevada state officials called EPA's proposed standard far too lenient and charged that it was "unlawful and arbitrary." EPA issued its final rule to amend the Yucca Mountain standards on September 30, 2008. The final rule reduced the annual dose limit during the period of 10,000 through 1 million years from the proposed 350 millirems to 100 millirems, which the agency contended was consistent with international standards. Under the final rule, compliance with the post-10,000-year standard will be based on the arithmetic mean of projected doses, rather than the median as proposed. The 4 millirem groundwater standard will continue to apply only to the first 10,000 years. NRC revised its repository licensing regulations to conform to the new EPA standards on April 13, 2009. DOE estimated in its June 2008 Final Supplemental Environmental Impact Statement (FSEIS) for the Yucca Mountain repository that the maximum mean annual individual dose after 10,000 years would be 2 millirems. That is substantially below the level estimated by the 2002 Final Environmental Impact Statement, which calculated that the peak doses—occurring after 400,000 years—would be about 150 millirems (Volume 1, Chapter 5). The FSEIS attributed the reduction to changes in DOE's computer model and in the assumptions used, noting that "various elements of DOE's modeling approach may be challenged as part of the NRC licensing process." DOE's Fuel Cycle Research and Development Program conducts research on a wide variety of technologies for improving the management of spent nuclear fuel. This had included research related to the implementation of the Obama Administration's integrated waste strategy, according to the FY2017 DOE budget justification. The Trump Administration's FY2018 Fuel Cycle R&D budget proposal included $88.5 million for nuclear waste processing and related technologies but would have eliminated funding for the Obama Administration's integrated waste strategy. The Consolidated Appropriations Act for FY2018 included $63.9 million for generic nuclear waste R&D and $22.5 million for integrated waste management activities. The Trump Administration's FY2019 request includes $10 million for waste disposal R&D and zero for integrated waste management. A major focus of the Fuel Cycle R&D program is technology related to the reprocessing or "recycling" of spent fuel so that plutonium, uranium, and other long-lived radionuclides could be converted to faster-decaying fission products in special nuclear reactors or particle accelerators. Nuclear utilities had paid fees to the Nuclear Waste Fund to cover the disposal costs of civilian nuclear spent fuel until halted by a court order in May 2014, but DOE cannot spend the money in the fund until it is appropriated by Congress. At the end of FY2017, the Waste Fund balance stood at $37.2 billion, according to the FY2019 Administration budget request. Before the Obama Administration halted the Yucca Mountain project after FY2010, $7.41 billion had been disbursed from the Waste Fund, according to DOE's program summary report. DOE's most recent update of its Analysis of the Total System Life Cycle Cost of the Civilian Radioactive Waste Management Program was released on August 5, 2008. According to that estimate, the Yucca Mountain program as then planned would cost $96.2 billion in 2007 dollars from the beginning of the program in 1983 to repository closure in 2133. Selecting disposal sites for low-level radioactive waste, which generally consists of low concentrations of relatively short-lived radionuclides, is authorized to be conducted by states under the 1980 Low-Level Radioactive Waste Policy Act and 1985 amendments. Most states have joined congressionally approved interstate compacts to handle low-level waste disposal. Under the 1985 amendments, the nation's three (at that time) operating commercial low-level waste disposal facilities could start refusing to accept waste from outside their regional interstate compacts after the end of 1992. One of the three sites, near Beatty, NV, closed. The remaining two—at Barnwell, SC, and Hanford, WA—are using their congressionally granted authority to prohibit waste from outside their regional compacts. Another site, in Utah, has since become available nationwide for most Class A low-level waste, but class B and C waste generally must be stored at the sites where it is generated. The startup of a new disposal facility for Class A, B, and C low-level waste near Andrews, TX, in 2012 may alleviate the class B and C storage problem. Although the facility is intended to serve primarily Texas and Vermont, up to 30% of its 2.3 million cubic feet of disposal capacity may be allocated to waste from other states. The Texas site received its first shipment of waste, from a company in Vermont, on April 27, 2012. Legislation providing congressional consent to the Texas compact, which originally also included Maine as well as Vermont, was signed by President Clinton September 20, 1998 ( P.L. 105-236 ). However, on October 22, 1998, a proposed disposal site near Sierra Blanca, TX, was rejected by the Texas Natural Resource Conservation Commission, and Maine subsequently withdrew. Texas Governor Rick Perry signed legislation June 20, 2003, authorizing the Texas Commission on Environmental Quality (TCEQ) to license adjoining disposal facilities for commercial and federally generated low-level waste. Pursuant to that statute, an application to build the Andrews County disposal facility was filed August 2, 2004, by Waste Control Specialists LLC. TCEQ voted January 14, 2009, to issue the license after the necessary land and mineral rights had been acquired and approved construction of the facility January 7, 2011. The disposal facility at Barnwell, SC, is currently accepting all Class A, B, and C low-level waste from the Atlantic Compact (formerly the Northeast Compact), in which South Carolina joined original members Connecticut and New Jersey on July 1, 2000. Under the compact, South Carolina can limit the use of the Barnwell facility to the three compact members, and a state law enacted in June 2000 phased out acceptance of noncompact waste through June 30, 2008. The Barnwell facility previously had stopped accepting waste from outside the Southeast Compact at the end of June 1994. The Southeast Compact Commission in May 1995 twice rejected a South Carolina proposal to open the Barnwell site to waste generators outside the Southeast and to bar access to North Carolina until that state opened a new regional disposal facility, as required by the compact. The rejection of those proposals led the South Carolina General Assembly to vote in 1995 to withdraw from the Southeast Compact and begin accepting waste at Barnwell from all states but North Carolina. North Carolina withdrew from the Southeast Compact July 26, 1999. The U.S. Supreme Court ruled on June 1, 2010, that the withdrawal did not subject North Carolina to sanctions under the compact. The only other existing disposal facility for all three major classes of low-level waste is at Hanford, WA. Controlled by the Northwest Compact, the Hanford site will continue taking waste from the neighboring Rocky Mountain Compact under a contract. Licensing of commercial low-level waste facilities is carried out under the Atomic Energy Act by NRC or by "agreement states" with regulatory programs approved by NRC. NRC regulations governing low-level waste licenses must conform to general environmental protection standards and radiation protection guidelines issued by EPA. Transportation of low-level waste is jointly regulated by NRC and the Department of Transportation. NRC proposed a significant modification of its low-level waste disposal regulations on March 26, 2015. The NRC staff submitted a final version of the regulations for commission approval on September 15, 2016. The commission issued further revisions on September 8, 2017, which would have to be incorporated before it could be published as a supplemental proposed rule. As drafted by the NRC staff, the regulations would for the first time establish time periods for technical analyses of low-level waste sites to ensure protection of the general population. Technical analysis would have to be conducted for a 1,000-year compliance period if no significant quantities of long-lived radioactive material are present at a disposal site, and for a 10,000-year compliance period if significant quantities are present. A post-10,000-year analysis would be required in certain cases, and a new technical analysis would be required to protect inadvertent intruders at a low-level waste site. NRC's current low-level waste regulations were adopted in 1982. Disposal of radioactive waste will be a key issue in the continuing nuclear power debate. Without a national waste management system, spent fuel from nuclear power plants must be stored on-site indefinitely. This situation may raise public concern near proposed reactor sites, particularly at sites without existing reactors where spent nuclear fuel is already stored. Concern about spent fuel storage safety has been heightened by the March 2011 disaster at Japan's Fukushima Daiichi nuclear plant. Under current law, the federal government's nuclear waste disposal policy is focused on the Yucca Mountain site. However, President Obama's actions to terminate the Yucca Mountain project and develop a new waste strategy through the Blue Ribbon Commission on America's Nuclear Future brought most activities in the DOE waste program to a halt. Congress is continuing to debate the project's future, particularly through the appropriations process. The NRC staff's finding in October 2014 that the Yucca Mountain site would meet NRC standards after the repository was filled and sealed has been cited as evidence of the project's continued viability. The Trump Administration's proposal to restart Yucca Mountain licensing and the retirement of Senator Reid, who as Democratic Leader had strongly opposed the Yucca Mountain project, may affect legislative action on nuclear waste in the 115 th Congress. In requesting $120 million in FY2018 for Yucca Mountain licensing and spent fuel storage, the Trump Administration said, "These investments would accelerate progress on fulfilling the Federal Government's obligations to address nuclear waste, enhance national security, and reduce future taxpayer burden." The Yucca Mountain funding was not approved for FY2018, but the Trump Administration has repeated the request for FY2019. Because of their waste-disposal contracts with DOE, owners of existing reactors are likely to continue seeking damages from the federal government if disposal delays continue. For example, DOE's 2004 settlement with the nation's largest nuclear operator, Exelon, could require payments of up to $600 million from the federal judgment fund. DOE estimates that its potential liabilities for waste program delays could total as much as $34.1 billion, including the $6.9 billion already paid to Exelon and other utilities in settlements and final judgments. The nuclear industry has predicted that future damages could rise by tens of billions of dollars more if the federal disposal program fails altogether. Lack of a nuclear waste disposal system could also affect the licensing of proposed new nuclear plants, both because of NRC licensing guidelines and various state laws. In addition, further repository delays could force DOE to miss compliance deadlines for defense waste disposal. Problems being created by nuclear waste disposal delays were addressed by the Blue Ribbon Commission in its final report, issued in January 2012. Major options include centralized interim storage, continued storage at existing nuclear sites, reprocessing and waste treatment technology, development of alternative repository sites, or a combination. The commission recommended that a congressionally chartered corporation be established to undertake a negotiated process for siting new waste storage and disposal facilities. However, given the delays resulting from the ongoing shutdown of the nuclear waste program, longer on-site storage is almost a certainty under any option. The "consent based" nuclear waste siting process recommended by the Blue Ribbon Commission, and which would be authorized by the Senate Appropriations Committee's FY2018 Energy and Water Development Appropriations bill and other legislation, has attracted serious interest from localities in New Mexico and Texas. However, previous voluntary siting efforts, such as those by the U.S. Nuclear Waste Negotiator established by the 1987 NWPA amendments, also attracted serious local interest but were ultimately blocked by the governments of the potential host states. Therefore, the cooperation of states is likely to be crucial to the success of any renewed "consent based" siting effort. Blue Ribbon Commission on America's Nuclear Future. Report to the Secretary of Energy , January 2012, http://brc.gov/sites/default/files/documents/brc_finalreport_jan2012.pdf . Commissioned Papers . 2010-2011. Reports on current nuclear waste issues. http://cybercemetery.unt.edu/archive/brc/20120620214809/http://brc.gov/index.php?q=library/documents/commissioned-papers . Government Accountability Office, "Disposal of High-Level Nuclear Waste," https://www.gao.gov/key_issues/disposal_of_highlevel_nuclear_waste/issue_summary . Harvard University. John F. Kennedy School of Government. Belfer Center for Science and International Affairs. The Economics of Reprocessing vs. Direct Disposal of Spent Nuclear Fuel. DE-FG26-99FT4028. December 2003. Nuclear Waste Technical Review Board. Commercial Spent Nuclear Fuel . Revision 1. November 2017. http://www.nwtrb.gov/docs/default-source/facts-sheets/commercial_snf.pdf?sfvrsn=12 . Evaluation of Technical Issues Associated with the Development of a Separate Repository for U.S. Department of Energy-Managed High-Level Radioactive Waste and Spent Nuclear Fuel . June 2015. http://www.nwtrb.gov/reports/disposal_options.pdf . Experience Gained from Programs to Manage High-Level Radioactive Waste and Spent Nuclear Fuel in the United States and Other Countries . April 2011. http://www.nwtrb.gov/reports/reports.html . Survey of National Programs for Managing High-Level Radioactive Waste and Spent Nuclear Fuel . October 2009. http://www.nwtrb.gov/reports/reports.html . RAND Corporation. Managing Spent Nuclear Fuel: Strategy Alternatives and Policy Implications . 2010. 71 p p . http://www.rand.org/content/dam/rand/pubs/monographs/2010/RAND_MG970.pdf . University of Illinois. Program in Arms Control, Disarmament, and International Security. 'Plan D' for Spent Nuclear Fuel. 2009. http://acdis.illinois.edu/publications/207/publication-PlanDforSpentNuclearFuel.html . U.S. Department of Energy. Draft Consent-Based Siting Process for Consolidated Storage and Disposal Facilities for Spent Nuclear Fuel and High-Level Waste , January 12, 2017, https://www.energy.gov/sites/prod/files/2017/01/f34/Draft%20Consent-Based%20Siting%20Process%20and%20Siting%20Considerations.pdf . Assessment of Disposal Options for DOE-Managed High-Level Radioactive Waste and Spent Nuclear Fuel , October 2014, http://www.energy.gov/ne/downloads/assessment-disposal-options-doe-managed-high-level-radioactive-waste-and-spent-nuclear . Strategy for the Management and Disposal of Used Nuclear Fuel and High-Level Radioactive Waste , January 2013, http://energy.gov/sites/prod/files/Strategy%20for%20the%20Management%20and%20Disposal%20of%20Used%20Nuclear%20Fuel%20and%20High%20Level%20Radioactive%20Waste.pdf . Used Fuel Disposition Campaign: Disposal Research and Development Roadmap , March 2011, http://energy.gov/sites/prod/files/UFD_Disposal_R%26D_Roadmap_Rev_0.1.pdf . U.S. Nuclear Regulatory Commission. Safety Evaluation Report Related to Disposal of High-Level Radioactive Wastes in a Geologic Repository at Yucca Mountain, Nevada, Volume 3: Repository Safety After Permanent Closure , NUREG-1949, V3, ML14288A121, October 16, 2014, 781 pp. Voegele, Michael D. and Donald L. Vieth, Waste of a Mountain: How Yucca Mountain Was Selected, Stu died, and Dumped . Nye County Press, 2016. 920 pp. (2 vol.) Walker, J. Samuel. The Road to Yucca Mountain: The Development of Radioactive Waste Policy in the United States. University of California Press. 2009. 228 pp. | Management of civilian radioactive waste has posed difficult issues for Congress since the beginning of the nuclear power industry in the 1950s. Federal policy is based on the premise that nuclear waste can be disposed of safely, but proposed storage and disposal facilities have frequently been challenged on safety, health, and environmental grounds. Although civilian radioactive waste encompasses a wide range of materials, most of the current debate focuses on highly radioactive spent fuel from nuclear power plants. The United States currently has no permanent disposal facility for spent nuclear fuel or other highly radioactive waste. The Nuclear Waste Policy Act of 1982 (NWPA) calls for disposal of spent nuclear fuel in a deep geologic repository. NWPA established the Office of Civilian Radioactive Waste Management in the Department of Energy (DOE) to develop such a repository, which would be licensed by the Nuclear Regulatory Commission (NRC). Amendments to NWPA in 1987 restricted DOE's repository site studies to Yucca Mountain in Nevada. DOE submitted a license application for the proposed Yucca Mountain repository to NRC on June 3, 2008. The State of Nevada strongly opposes the Yucca Mountain project, citing excessive water infiltration, earthquakes, volcanoes, human intrusion, and other technical issues. Licensing and design work for the proposed Yucca Mountain repository was halted under the Obama Administration, which cited continued opposition from Nevada. To develop an alternative nuclear waste policy, the Obama Administration established the Blue Ribbon Commission on America's Nuclear Future, which in 2012 recommended a "consent based" process for siting nuclear waste storage and disposal facilities. The Trump Administration included funds to restart Yucca Mountain licensing in its FY2018 and FY2019 budget submissions to Congress. The FY2018 Yucca Mountain funding request was not enacted. For FY2019, the House voted to provide $100 million above the Administration's request for Yucca Mountain, while the Senate zeroed it out (H.R. 5895). Although no funding has been appropriated for Yucca Mountain activities since FY2010, a federal appeals court on August 13, 2013, ordered NRC to continue the licensing process with previously appropriated funds. The NRC staff completed its safety evaluation report on Yucca Mountain on January 29, 2015, concluding that the repository would meet NRC standards after specific additional actions were taken, such as acquisition of land and water rights. A bill to provide the necessary land controls for the planned Yucca Mountain repository (H.R. 3053, H.Rept. 115-355) passed the House on May 10, 2018. In addition, the House-passed bill would authorize DOE to store commercial waste from nuclear power plants at a nonfederal interim storage facility. It would also increase the capacity limit on the Yucca Mountain repository from 70,000 to 110,000 metric tons, in comparison with the approximately 80,000 metric tons currently stored at U.S. nuclear plants. Nonfederal interim storage facilities for spent nuclear fuel are being proposed in New Mexico and Texas. An NRC license application for the New Mexico facility was filed March 30, 2017. Developers of the proposed Texas storage site filed a license application in 2016, subsequently withdrew it because of rising costs, and then submitted a renewed application with an additional partner on June 11, 2018. Interim storage proponents contend that DOE could fulfill its disposal obligations under NWPA by taking title to spent fuel at nuclear plant sites and storing it at private facilities until a permanent underground repository could be opened. NWPA required DOE to begin removing spent fuel from reactor sites by January 31, 1998. Because that deadline was missed, nuclear utilities have sued DOE to recover the additional storage costs they have incurred, with damage payment so far totaling $6.9 billion. |
Control of information has always been part of military operations, and the U.S. Strategic Command views information operations as a core military competency, with new emphasis on (1) use of electromagnetic energy, (2) cyber operations, and (3) use of psychological operations to manipulate an adversary's perceptions. Department of Defense (DOD) officials now consider cyberspace to be a domain for warfare, similar to air, space, land, and sea. A recent memo issued by the Secretary of Defense defines cyberspace as: "a global domain within the information environment consisting of the interdependent network of information technology infrastructures, including the internet, telecommunications networks, computer systems, and embedded processors and controllers." This definition is consistent with the one presented in the 2008 National Military Strategy for Cyberspace Operations (NMS-CO), which is the overall guidance for all the services. A September 29, 2008, memo signed by the Deputy Secretary of Defense defines cyberspace operations as: "The employment of cyber capabilities where the primary purpose is to achieve military objectives or effects in or through cyberspace. Such operations include computer network operations and activities to operate and defend the Global Information Grid." Cyberspace operations are a component of Information Operations (IO), which also includes Electronic Warfare (EW). Each service has organizations with IO and EW responsibilities: (1) the Naval Network Warfare Command (NETWARCOM) is the Navy's central operational authority for space, information technology requirements, network and information operations in support of naval forces afloat and ashore; (2) the Army Reserve Information Operations Command has responsibility for conducting information operations, the U.S. Army IO Proponent is responsible for developing requirements for IO doctrine and training, and the Army Intelligence and Electronic Warfare Directorate provides testing services for Electronic Warfare; and finally, (3) the Air Force has created what was to have been a major Cyber Command, but will now be a Numbered Air Force (NAF), the 24 th Air Force to the Air Force Space Command, with responsibility for its portion of cyberwarfare, electronic warfare, and protection of U.S. critical infrastructure networks that support telecommunications systems, utilities, and transportation. The DOD views information itself as both a weapon and a target in warfare. In particular, Psychological Operations (PSYOP) provides DOD with the ability to rapidly disseminate persuasive information to directly influence the decision making of diverse audiences, and is seen as a means for deterring aggression, and important for undermining the leadership and popular support for terrorist organizations. However, a 2006 report by the RAND Corporation describes how IO can also affect audiences outside of the intended target, stating, ... in contingencies involving an opponent, information operations planning and execution should include noncombatant considerations that may have nothing to do with affecting the enemy's activities or defending friendly force capabilities. In today's conflict environment the impact of information operations is seldom limited to two opposing sides. Second and higher-order effects will most likely influence all parties in opposition, impact various and varied noncombatant groups, and be interpreted in different ways by members of the media and audiences worldwide. Thus, new technologies for military IO also create new national security policy issues, including (1) consideration of psychological operations used to affect friendly nations or domestic audiences; and (2) possible accusations against the U.S. of war crimes if offensive military computer operations or electronic warfare tools severely disrupt critical civilian computer systems, or the systems of non-combatant nations. Because of the new communications technologies and the growth of the Internet, EW and IO have taken on new importance. Insurgents use cell phones, garage door openers, and other remotely controlled electronic devices to detonate roadside bombs, and afterwards transmit video images of successful attacks against U.S. troops for broadcast on the local news or the Internet to influence public opinion about the future outcome of the war. In some cases, populations may have these video broadcasts or local TV news stories in their native language as their only source of information. DOD is seeking methods to counter these actions where violence may be seen as secondary to the use and manipulation of information. This report describes current adversary threats in the information environment and DOD capabilities for conducting military information operations, gives the current state of federal cybersecurity efforts, and provides an overview of related policy issues. The electromagnetic spectrum is the arena in which information operations take place. Aspects of the electromagnetic spectrum can be used by adversaries to conduct kinetic attacts, disrupt access, influence targets, and steal data. A review of the types of activity currently being conducted by adversaries illustrates the overlap between the various pillars of information operations. The following are examples of current threats to the United States. The US military's dominance of the electromagnetic spectrum is being challenged. Terrorist groups use wireless electronics to detonate roadside bombs (Improvised Explosive Devices). They also use the Internet to transmit financial transactions, and use free Global Positioning System (GPS) signals and commercial satellite video and images to direct their ground attacks against U.S. and coalition troops. In addition, peer competitors are focusing on electronic warfare as a crucial element of their military operations by attempting to deny US forces' access to the spectrum, which enables such equipment as radars, communication links, computer networks, and sensors to work. In what some have termed the "Battle of Ideas," electronic media plays an important role in influencing populations. Reportedly, only a small portion of the Iraqi populace watch and listen to the current government run television and radio news broadcasts, with the majority preferring instead to support the foreign satellite news stations such as Al-Jazeera and Al-Arabiya. Observers say that most Arabs believe that U.S. sponsored news broadcasts are managed too closely by the coalition powers and do not objectively present the news. When the Iraqi Governing Council (IGC) prohibited Al-Jazeera and Al-Arabiya from covering all IGC events during a short period in early 2004, this action reportedly gave many Iraqi people the impression that the Coalition Provisional Authority (CPA) was manipulating their information. Some observers have also stated that terrorist groups, through use of the Internet, are now challenging the monopoly over mass communications that both state-owned and commercial media have long exercised. A strategy of the terrorists is to propagate their messages quickly and repeat them until they have saturated cyberspace. Internet messages by terrorist groups have become increasingly sophisticated through use of a cadre of Internet specialists who operate computer servers worldwide. Other observers have also stated that al-Qaeda has relied on a Global Islamic Media Unit to assist with its public outreach efforts. As Vice Chairman of the Joint Chiefs of Staff James Cartwright told Congress in March 2007 "America is under widespread attack in cyberspace." The low cost of entry (for example, a laptop connected to the Internet), and the ability to operate anonymously, are factors that makes information operations in cyberspace attractive to adversaries who know they cannot challenge the United States in a symmetrical war. Cyber-based threats against U.S. information infrastructures are now a growing area of concern for national security. The US CERT recently revealed that attacks on US government systems increased by 40% in 2008. Assaults on these systems have been sustained for nearly a decade. In 1999, a series of attacks with the US codename "Moonlight Maze"were aimed at DOD's unclassified Non-Classified Internet Protocol Router Network (NIPRnet), the network which is used to exchange information internally. These attacks may have compromised massive amounts of sensitive military data, and appeared to originate from a mainframe in Russia. In 2003, a series of cyberattacks designed to copy sensitive data files was launched against DOD systems, and the computers belonging to DOD contractors. The cyberespionage attack apparently went undetected for many months. This series of cyberattacks was labeled "Titan Rain," and was suspected by DOD investigators to have originated in China. The attacks were directed against the U.S. Defense Information Systems Agency (DISA), the U.S. Redstone Arsenal, the Army Space and Strategic Defense Installation, and several computer systems critical to military logistics. Although no classified systems reportedly were breached, many files were copied containing information that is sensitive and subject to U.S. export-control laws. In 2006, an extended cyberattack against the U.S. Naval War College in Newport, Rhode Island, prompted officials to disconnect the entire campus from the Internet. A similar attack against the Pentagon in 2007 led officials to temporarily disconnect part of the unclassified network from the Internet. DOD officials acknowledge that the Global Information Grid, which is the main network for the U.S. military, experiences more than three million daily scans by unknown potential intruders. Lt. General Charles Croom (JTF-Global Net Operations) has stated that cyber attackers "are not denying, disrupting, or destroying [American military] operations – yet. But that doesn't mean they don't have the capability." Potential adversaries, such as China, Russia, Cuba, Iran, Iraq, Libya, North Korea, and several non-state terrorist groups are reportedly developing capabilities to attack or degrade U.S. civilian and military networks. "Titan Rain" is an example of successful attacks against non-classified military systems which DOD officials claim were directed by other governments. Maj. Gen. William Lord (Air Force) stated publicly in 2007 that "China has downloaded 10 to 20 terabytes of data from the NIPRNet already." According to the Defense Department's annual report to Congress on China's military prowess, the Chinese military is enhancing its information operations capabilities. The report finds that China is placing specific emphasis on the ability to perform information operations designed to weaken an enemy force's command and control systems. On April 27, 2007, officials in Estonia moved a Soviet-era war memorial commemorating an unknown Russian who died fighting the Nazis. The move stirred emotions, inciting rioting by ethnic Russians, and the blockading of the Estonian Embassy in Moscow. The event also marked the beginning of a series of large and sustained Distributed Denial-Of-Service (DDOS) attacks launched against several Estonian national websites, including government ministries and the prime minister's Reform Party. DDOS attacks occur when remote computers, often vast networks of "zombies" infected with malicious code, are instructed to target particular websites with requests, overwhelming the sites with traffic so that they become unavailable. Estonia's infrastructure relies heavily on information technology, and the country is described as being the most "wired" in Europe. Because availability of basic services to Estonian citizens was disrupted, the attacks were considered crippling. Initially, the Russian government was blamed by Estonian officials for the cyberattacks, but it is unclear whether the attacks are sanctioned or initiated by the Russian government. NATO sent computer security experts to Estonia to help protect government systems against continued attacks, and to help recover from the attacks. However, some analysts later concluded that the cyber attacks targeting Estonia were not a concerted attack, but instead were the product spontaneous anger from a loose federation of separate attackers. Technical data showed that sources of the attack were worldwide rather than concentrated in a few locations. The computer code that caused the DDOS attack was posted and shared in many Russian language chat rooms, where the moving of the statue was a very emotional topic for discussion. These analysts state that although various Estonian government agencies were taken offline, there was no apparent attempt to target national critical infrastructure other than internet resources, and no extortion demands were made. Their analysis concluded that there was no Russian government connection to the attacks against Estonia. Ocurring simultaneously with a kinetic attack by Russian forces on Georgia's separatist regions, the country's major internet service providers were targeted with coordinated, sustained cyber attacks, knocking the some of the government's websites offline while defacing others. Investigations later determined that the attacks began with online Russian hacking forums, who distributed lists of Georgian internet sites as targets. Unlike the DDOS attacks on Estonia, the Georgian sites were taken down by exploiting a vulnerability in widely used software to manage Web databases. Rather than involving botnets comprised of thousands, attacks of this nature can be conducted with a single computer. In its effort to mitigate the attacks, the Georgian government blocked all internet traffic originating from Russian users. However, blogs quickly appeared with detailed instructions on how to bypass the block by re-routing the traffic through internet addresses in other countries. Although there is no evidence linking the Russian government directly, there is much to suggest that the attacks were at least tolerated and perhaps even encouraged by Russian officials. In anothern example of the growing popularity of cyber attacks as an intimidation tactic, Kyrgystan's two main internet service providers—which take up approximately 80% of the country's bandwith—were systematically targeted with denial of service attacks, effectively taking the country offline. Again, there is no evidence of direct involvement with the Russian Government; these attacks instead appeared to have originated with a Russian "cyber militia." Possible motives for the network assault include Russia's displeasure with a U.S. air base located in Kyrgystan, and with the Kyrzyg government's opposition party, which relies on the internet as its media outlet. A persistent problem after a computer network attack is accurate and timely identification of the attacker. This uncertainty may affect decisions about how and against whom, or even whether, to retaliate. These incidents indicate a trend towards cyberattacks as a form of political manipulation. If cyberspace is a new battlefield on which war may be waged, then the international community will be challenged to come together to determine its conduct. The attack on Estonia, a member of NATO, raised questions of whether the actions taken could be defined as an "armed attack" under Article 5 of the Washington Treaty. Internationally, Article 51 of the Charter of the United Nations is the guidance for response. For now, NATO and other states consider network protection to be a national responsibility. However, questions of sovereignty, attribution, and response thresholds remain. It has been presumed that the rules of engagement for information operations will follow the law of Armed Conflict, meaning a response taken after receiving an electronic or cyber attack will be scaled in proportion to the attack received, and distinctions will be maintained between combatants and civilians. However, protection against attack through cyberspace is a new task for the military, and the offensive tools and other capabilities used by DOD to stage retaliatory strikes against enemy systems are highly classified. Experience has shown that a reactive defense is not very effective against increasingly powerful and rapid malicious cyber attacks, or against other malicious activity using the electromagnetic spectrum. A more effective defense against these attacks is to incorporate predictive, active, and pre-emptive measures that allow DOD defenders to prevent, deflect, or minimize the efforts of the attacker. Accurate attribution is important when considering whether to retaliate using military force or police action. Some DOD officials have indicated that the majority of cyber attacks against DOD and U.S. civilian agency systems are suspected to originate in China, and these attacks are consistently more numerous and sophisticated than cyberattacks from other malicious actors. The motives appear to be primarily cyberespionage against civilian agencies, DOD contractors, and DOD systems. The espionage involves unauthorized access to files containing sensitive industrial technology, and unauthorized research into DOD operations. Some attacks included attempts to implant malicious code into computer systems for future use by intruders. In order to determine the legality of a response to malicious cyber behavior, the categories of activity, actors, and jurisdictions must be clearly defined. Labeling a "cyberattack" as "cybercrime" or "cyberterrorism" is problematic because of the difficulty determining with certainty the identity, intent, or the political motivations of an attacker. "Cybercrime" can be very broad in scope, and may sometimes involve more factors than just a computer hack. "Cyberterrorism" is often equated with the use of malicious code. However, a "cyberterrorism" event may also sometimes depend on the presence of other factors beyond just a "cyberattack." Various definitions exist for the term "cyberterrorism," just as various definitions exist for the term "terrorism." Analysis of cyberspace misconduct is complicated by the presence of violence in the definitions of terrorism. Security expert Dorothy Denning defines cyberterrorism as "... politically motivated hacking operations intended to cause grave harm such as loss of life or severe economic damage." The Federal Emergency Management Agency (FEMA) defines cyberterrorism as "unlawful attacks and threats of attack against computers, networks, and the information stored therein when done to intimidate or coerce a government or its people in furtherance of political or social objectives." Others indicate that a physical attack that destroys computerized nodes for critical infrastructures, such as the Internet, telecommunications, or the electric power grid, without ever touching a keyboard, can also contribute to, or be labeled as cyberterrorism. Thus, it is possible that if a computer facility were deliberately attacked for political purposes, all three methods described above (physical attack, EA, and cyberattack) might contribute to, or be labeled as "cyberterrorism." CRS is unaware of any reported acts of cyberterrorism, to date. Cybercrime is crime that is enabled by, or that targets computers. Some argue there is no agreed-upon definition for "cybercrime" because "cyberspace" is just a new specific instrument used to help commit crimes that are not new at all. Cybercrime can involve theft of intellectual property, a violation of patent, trade secret, or copyright laws. However, cybercrime also includes attacks against computers to deliberately disrupt processing, or may include espionage to make unauthorized copies of classified data. If a terrorist group were to launch a cyberattack to cause harm, such an act also fits within the definition of a cybercrime. The primary difference between a cyberattack to commit a crime or to commit terror is found in the intent of the attacker, and it is possible for actions under both labels to overlap. One of the most prevalent forms of cybercrime is identity theft. Botnets and other examples of malicious code can operate to assist cybercriminals with identity theft, a crime generally motivated by financial gain. Current FBI estimates are that identity theft costs American businesses and consumers $50 billion a year. Individual users are often lured into clicking on tempting links that are found in email or when visiting websites. Clicking on titles such as "Buy Rolex watches cheap," or "Check out my new Photos," can take advantage of web browser vulnerabilities to place malicious software onto a users system which allows a cybercriminal to gather personal information from the user's computer. Malicious code can scan a victim's computer for sensitive information, such as name, address, place and date of birth, social security number, mother's maiden name, and telephone number. Full identities obtained this way are bought and sold in online markets. False identity documents can then be created from this information using home equipment such as a digital camera, color printer, and laminating device, to make official-looking driver's licences, birth certificates, reference letters, and bank statements. Identity theft involving thousands of victims is also enabled by inadequate computer security practices within organizations. MasterCard International reported that in 2005 more than 40 million credit card numbers belonging to U.S. consumers were accessed by computer hackers. Some of these account numbers were reportedly being sold on a Russian website, and some consumers have reported fraudulent charges on their statements. Officials at the UFJ bank in Japan reportedly stated that some of that bank's customers may also have become victims of fraud related to theft of the MasterCard information. In June 2006, officials from the U.S. Department of Energy acknowledged that names and personal information belonging to more than 1,500 employees of the National Nuclear Security Administration (NNSA) had been stolen in a network intrusion that apparently took place starting in 2004. The NNSA did not discover the security breach until one year after it had occurred. Some sources report that stolen credit card numbers and bank account information are traded online in a highly structured arrangement, involving buyers, sellers, intermediaries, and service industries. Services include offering to conveniently change the billing address of a theft victim, through manipulation of stolen PINs or passwords. Observers estimated that in 2005 such services for each stolen MasterCard number cost between $42 and $72. Other news articles report that, in 2007, a stolen credit card number sells online for only $1, and a complete identity, including a U.S. bank account number, credit-card number, date of birth, and a government-issued ID number now sells for just $14 to $18. As of January 2007, 35 states have enacted data security laws requiring businesses that have experienced an intrusion involving possible identity theft to notify persons affected, and to improve security for protection of restricted data. However, existing federal and state laws that impose obligations on information owners, may require harmonization to provide protections that are more uniform. Identity theft continues to plague government systems. The U.S. government's online recruiting website, monster.com, suffered an intrusion in August 2007 that affected the confidential information of nearly 1.3 million users. The company admitted to waiting several days before notifying the public of the breach. The website was attacked again in February 2009, resulting in the theft of personal data for millions of users worldwide. In February 2009, the Federal Aviation Administration issued a letter exposing a data breach that affected more that 45,000 employees. There have been many criticisms of the FAA's handling of the situation, particularly for its failure to publish pertinent information on its website. Some argue that FISMA's requirements have agencies focused on meeting deadlines rather than expending resources on added security measures. Also in February 2009, the Air Force shut down all internet access at Maxwell Air Force Base, Alabama. The measure was in response to an intrusion that may have affected the security of all Air Force systems, but also to stress the importance of information assurance to individual components. Air Force Chief of Staff General Shwartz stated that the disconnect was ordered because personnel " hadn't demonstrated — in our view at the headquarters — their capacity to manage their network in a way that didn't make everyone else vulnerable. This is the kind of effort that 's required up and down the line. " On March 10, 2009, the Army publicly announced a breach of a database containing personal information about nearly 1,600 soldiers. The intrusions may have compromised the data on those participating in the Army's Operation Tribute to Freedom program, which allows soldiers to share their stories with the public. (For details on cybercrime and federal computer fraud, see CRS Report 97-1025, Cybercrime: An Overview of the Federal Computer Fraud and Abuse Statute and Related Federal Criminal Laws , by [author name scrubbed]. Cyberespionage involves the unauthorized probing to test a target computer's configuration or evaluate its system defenses, or the unauthorized viewing, copying, and exfiltration of data files. Deliberate network intrusions, whether for industrial espionage or espionage involving military information, qualify as cyberespionage. If there is disagreement about this, it is likely because technology has outpaced policy for labeling actions in cyberspace. In fact, industrial cyberespionage may now be considered a necessary part of global economic competition, and secretly monitoring the computerized functions and capabilities of potential adversary countries may also be considered essential for national defense. U.S. counterintelligence officials reportedly have stated that about 140 different foreign intelligence organizations regularly attempt to hack into the computer systems of U.S. government agencies and U.S. companies. Cyberespionage, which enables the extraction of massive amounts of information electronically, has now transformed the nature of counterintelligence, by enabling a reduced reliance on conventional spying operations. The Internet, including satellite links and wireless local networks, now offers new, low cost and low risk opportunities for espionage. In 2001, a Special Committee of Inquiry established by the European Parliament accused the United States of using its Echelon electronic spy network to engage in industrial espionage against European businesses. Echelon was reportedly set up in 1971 as an electronic monitoring system during the Cold War. European Union member Britain operates the system, which includes listening posts in Canada, Australia, and New Zealand. Echelon is described as a global spy system reportedly capable of intercepting wireless phone calls, e-mail, and fax messages made from almost any location around the world. Former director of the U.S. Central Intelligence Agency, James Woolsey, has reportedly justified the possibility of industrial espionage by the United States on the basis of the use of bribery by European companies. Officials of the European parliament reportedly expressed outrage about the justification, while not denying that bribery is sometimes used to make sales. Some government officials warn that criminals now sell or rent malicious code tools for cyberespionage, and the risk for damage to U.S. national security due to cyberespionage conducted by other countries is great. One industry official, arguing for stronger government agency computer security practices, stated that, "If gangs of foreigners broke into the State or Commerce Departments and carried off dozens of file cabinets, there would be a crisis. When the same thing happens in cyberspace, we shrug it off as another of those annoying computer glitches we must live with." Security experts warn that all U.S. federal agencies should now be aware that in cyberspace some malicious actors consider that no boundaries exist between military and civilian targets. According to an August 2005 computer security report by IBM, more than 237 million overall security attacks were reported globally during the first half of that year. Government agencies were targeted the most, reporting more than 54 million attacks, while manufacturing ranked second with 36 million attacks, financial services ranked third with approximately 34 million, and healthcare received more than 17 million attacks. The most frequent targets for these attacks, all occurring in the first half of 2005, were government agencies and industries in the United States (12 million), followed by New Zealand (1.2 million), and China (1 million). These figures likely represent an underestimation, given that most security analysts agree that the number of incidents reported are only a small fraction of the total number of attacks that actually occur. The proportion of cybercrime that can be directly or indirectly attributed to terrorists is difficult to determine. However, linkages do exist between terrorist groups and criminals that allow terror networks to expand internationally through leveraging the computer resources, money laundering activities, or transit routes operated by criminals. For example, the 2005 U.K. subway and bus bombings, and the attempted car bombings in 2007, also in the U.K., provide evidence that groups of terrorists are already secretly active within countries with large communication networks and computerized infrastructures, plus a large, highly skilled IT workforce. London police officials reportedly believe that terrorists obtained high-quality explosives used for the 2005 U.K. bombings through criminal groups based in Eastern Europe. A recent trial in the U.K. revealed a significant link between Islamic terrorist groups and cybercrime. In June 2007, three British residents, Tariq al-Daour, Waseem Mughal, and Younes Tsouli, pled guilty, and were sentenced for using the Internet to incite murder. The men had used stolen credit card information at online web stores to purchase items to assist fellow jihadists in the field—items such as night vision goggles, tents, global positioning satellite devices, and hundreds of prepaid cell phones, and more than 250 airline tickets, through using 110 different stolen credit cards. Another 72 stolen credit cards were used to register over 180 Internet web domains at 95 different web hosting companies. The group also laundered money charged to more than 130 stolen credit cards through online gambling websites. In all, the trio made fraudulent charges totaling more than $3.5 million from a database containing 37,000 stolen credit card numbers, including account holders' names and addresses, dates of birth, credit balances, and credit limits. Cybercriminals have made alliances with drug traffickers in Afghanistan, the Middle East, and elsewhere where illegal drug funds or other profitable activities such as credit card theft, are used to support terrorist groups. Drug traffickers are reportedly among the most widespread users of encryption for Internet messaging, and are able to hire high-level computer specialists to help evade law enforcement, coordinate shipments of drugs, and launder money. Regions with major narcotics markets, such as Western Europe and North America, also possess optimal technology infrastructure and open commercial nodes that increasingly serve the transnational trafficking needs of both criminal and terrorist groups. Officials of the U.S. Drug Enforcement Agency (DEA), reported in 2003 that 14 of the 36 groups found on the U.S. State Department's list of foreign terrorist organizations were also involved in drug trafficking. A 2002 report by the Federal Research Division at the Library of Congress, revealed a "growing involvement of Islamic terrorist and extremists groups in drug trafficking," and limited evidence of cooperation between different terrorist groups involving both drug trafficking and trafficking in arms. Consequently, DEA officials reportedly argued that the war on drugs and the war against terrorism are and should be linked. State Department officials, at a Senate hearing in March 2002, also indicated that some terrorist groups may be using drug trafficking as a way to gain financing while simultaneously weakening their enemies in the West through exploiting their desire for addictive drugs. The poppy crop in Afghanistan reportedly supplies resin to produce over 90% of the world's heroin, supporting a drug trade estimated at $3.1 billion. Reports indicate that money from drug trafficking in Afghanistan is used to help fund terrorist and insurgent groups that operate in that country. Subsequently, U.S. intelligence reports in 2007 have stated that "al Qaeda in Afghanistan" has been revitalized and restored to its pre-September 11, 2001 operation levels, and may now be in a better position to strike Western countries. Drug traffickers have the financial clout to hire computer specialists with skills for using technologies which make Internet messages hard or impossible to decipher, and which allow terrorist organizations to transcend borders and operate internationally with less chance of detection. Many highly trained technical specialists that make themselves available for hire originally come from the countries of the former Soviet Union and the Indian subcontinent. Some of these technical specialists reportedly will not work for criminal or terrorist organizations willingly, but may be misled or unaware of their employers' political objectives. Still, others will agree to provide assistance because other well-paid legitimate employment is scarce in their region. Links between computer hackers and terrorists, or terrorist-sponsoring nations may be difficult to confirm. Membership in the most highly skilled computer hacker groups is sometimes very exclusive and limited to individuals who develop, demonstrate, and share only with each other, their most closely guarded set of sophisticated hacker tools. These exclusive hacker groups do not seek attention because maintaining secrecy allows them to operate more effectively. Some hacker groups may also have political interests that are supra-national, or based on religion, or other socio-political ideologies, while other hacker groups may be motivated by profit, or linked to organized crime, and may be willing to sell their computer services, regardless of the political interests involved. Information about computer vulnerabilities is now for sale online in a hackers' "black market." For example, a list of 5,000 addresses of computers that have already been infected with spyware and which are waiting to be remotely controlled as part of an automated "bot network" reportedly can be obtained for about $150 to $500. Prices for information about computer vulnerabilities for which no software patch yet exists reportedly range from $1,000 to $5,000. Purchasers of this information are often organized crime groups, various foreign governments, and companies that deal in spam. Some experts estimate that advanced or structured cyberattacks against multiple systems and networks, including target surveillance and testing of sophisticated new hacker tools, might require from two to four years of preparation, while a complex coordinated cyberattack, causing mass disruption against integrated, heterogeneous systems may require 6 to 10 years of preparation. This characteristic, where hackers devote much time to detailed and extensive planning before launching a cyberattack, has also been described as a "hallmark" of previous physical terrorist attacks and bombings launched by Al Qaeda. It is difficult to determine the level of interest, or the capabilities of international terrorist groups to launch an effective cyberattack. A 1999 report by The Center for the Study of Terrorism and Irregular Warfare at the Naval Postgraduate School concluded that it is likely that any severe cyberattacks experienced in the near future by industrialized nations will be used by terrorist groups simply to supplement the more traditional physical terrorist attacks. Some observers have stated that Al Qaeda does not see cyberattack as important for achieving its goals, preferring attacks which inflict human casualties. Other observers believe that the groups most likely to consider and employ cyberattack and cyberterrorism are the terrorist groups operating in post-industrial societies (such as Europe and the United States), rather than international terrorist groups that operate in developing regions where there is limited access to high technology. However, other sources report that Al Qaeda has taken steps to improve organizational secrecy through more active and sophisticated use of technology, and evidence suggests that Al Qaeda terrorists used the Internet extensively to plan their operations for September 11, 2001. In past years, Al Qaeda groups reportedly used new Internet-based telephone services to communicate with other terrorist cells overseas. Khalid Shaikh Mohammed, one of the masterminds of the attack against the World Trade Center, reportedly used special Internet chat software to communicate with at least two airline hijackers. Ramzi Yousef, who was sentenced to life imprisonment for the previous bombing of the World Trade Center, had trained as an electrical engineer, and had planned to use sophisticated electronics to detonate bombs on 12 U.S. airliners departing from Asia for the United States. He also used sophisticated encryption to protect his data and to prevent law enforcement from reading his plans should he be captured. Tighter physical security measures now widely in place throughout the United States may encourage terrorist groups in the future to explore cyberattack as way to lower the risk of detection for their operations. However, other security observers believe that terrorist organizations might be reluctant to launch a cyberattack because it would result in less immediate drama and have a lower psychological impact than a more conventional bombing attack. These observers believe that unless a cyberattack can be made to result in actual physical damage or bloodshed, it will never be considered as serious as a nuclear, biological, or chemical terrorist attack. Some experts fear that an attack on critical infrastructures such as the nation's electric grid or Supervisory Control and Data Acquisition (SCADA) utilities delivery systems, either through kinetic or cyber means, may be more likely. (For an explanation of vulnerabilities and security measures, see CRS Report RL30153, Critical Infrastructures: Background, Policy, and Implementation , by [author name scrubbed].) Cybercrime is also a major international challenge, even though attitudes about what comprises a criminal act of computer wrongdoing still vary from country to country. However, the Convention on Cybercrime was adopted in 2001 by the Council of Europe, a consultative assembly of 43 countries, based in Strasbourg. The Convention, effective July 2004, is the primary international treaty dealing with breaches of law "over the internet or other information networks." The Convention requires participating countries to update and harmonize their criminal laws against hacking, infringements on copyrights, computer facilitated fraud, child pornography, and other illicit cyber activities. Although the United States has signed and ratified the Convention, it did not sign a separate protocol that contained provisions to criminalize xenophobia and racism on the Internet, which would raise Constitutional issues in the United States. The separate protocol could be interpreted as requiring nations to imprison anyone guilty of "insulting publicly, through a computer system" certain groups of people based on characteristics such as race or ethnic origin, a requirement that could make it a crime to e-mail jokes about ethnic groups or question whether the Holocaust occurred. Reportedly, the Department of Justice has said that it would be unconstitutional for the United States to sign that additional protocol because of the First Amendment's guarantee of freedom of expression. The Electronic Privacy Information Center, in a June 2004 letter to the Foreign Relations Committee, objected to U.S. ratification of the Convention, because it would "create invasive investigative techniques while failing to provide meaningful privacy and civil liberties safeguards." On August 3, 2006, the U.S. Senate passed a resolution of ratification for the Convention. The United States will comply with the Convention based on existing U.S. federal law; and no new implementing legislation is expected to be required. Legal analysts say that U.S. negotiators succeeded in scrapping most objectionable provisions, thereby ensuring that the Convention tracks closely with existing U.S. laws. Department of Defense (DOD) officials have stated that, while the threat of cyber attack is "less likely" to appear than conventional physical attack, it could actually prove more damaging because it could involve disruptive technology that might generate unpredictable consequences that give an adversary unexpected advantages. The Homeland Security Presidential Directive 7 required that the Department of Homeland Security (DHS) coordinate efforts to protect the cybersecurity for the nation's critical infrastructure. This resulted in two reports in 2005, titled "Interim National Infrastructure Protection Plan," and "The National Plan for Research and Development in Support of Critical Infrastructure Protection," where DHS provided a framework for identifying and prioritizing, and protecting each infrastructure sector. However, some observers question why, in light of the many such reports describing an urgent need to reduce cybersecurity vulnerabilities, there is not an apparent perceived sense of national urgency to close the gap between cybersecurity and the threat of cyberattack. For example, despite Federal Information Security Management Act of 2002 (FISMA), some experts argue that security remains a low priority, or is treated almost as an afterthought at some domestic federal agencies. In 2007, the Government Accountability Office issued a report, titled "Critical Infrastructure Protection: Multiple Efforts to Secure Control Systems Are Under Way, but Challenges Remain," which states that cybersecurity risks have actually increased for infrastructure control systems because of the persistence of interconnections with the Internet, and continued open availability of detailed information on the technology and configuration of the control systems. The report states that no overall strategy yet exists to coordinate activities to improve computer security across federal agencies and the private sector, which owns the critical infrastructure. Some observers argue that, as businesses gradually strengthen their security policies for headquarters and administrative systems, the remote systems that control critical infrastructure and manufacturing may soon be seen as easier targets of opportunity for cybercrime. Cybercrime is obviously one of the risks of doing business in the age of the internet, but observers argue that many decision-makers may currently view it as a low-probability threat. Some researchers suggest that the numerous past reports describing the need to improve cybersecurity have not been compelling enough to make the case for dramatic and urgent action by decision-makers. Others suggest that even though relevant information is available, future possibilities are still discounted, which reduces the apparent need for present-day action. In addition, the costs of current inaction are not borne by the current decision-makers. These researchers argue that IT vendors must be willing to regard security as a product attribute that is coequal with performance and cost; IT researchers must be willing to value cybersecurity research as much as they value research for high performance or cost-effective computing; and, finally, IT purchasers must be willing to incur present-day costs in order to obtain future benefits. The Air Force is not laying claim to the cyber domain, but their new mission statement issued in August 2008 indicates they are building a force to operate in that domain. Former Secretary of the Air Force Michael W. Wynne recently stated that the new mission of the U.S. Air Force is to "fly and fight in air, space, and cyberspace." For the Air Force, this means that military action in cyberspace now includes defending against malicious activity on the Internet, and anywhere across the entire electromagnetic spectrum (including the energy spectrum bands for radio, microwaves, infrared, X-ray, and all other options for directed energy), where national security is threatened. Secretary Wynne stated that cyberwarfare flows naturally from the Air Force's traditional missions, such as downloading data from platforms in space, and that U.S. capabilities should be expanded to also enable the shut down of enemy electronic networks.. Air Force officials, led by the Air Force Chief of Staff Gen. Michael Mosley, met at the Pentagon in a "cyberwarfare-themed summit" during November 2006, to make plans for a new Air Force Cyber Command. General Elder stated that the planning session would include an assessment of cyberwarfare requirements to defend the nation. Homeland security reportedly would also be a large part of the Cyber Command's new responsibility, including protection of telecommunications systems, utilities, and transportation. Several issues to be considered may include (1) what kind of educational skills, technical skills, and training are needed for staff at the Cyber Command and (2), what kind of career path can be offered to those in the Air Force who want to participate in defending the new cyber domain. A provisional team led by AFCYBER Commander Maj. Gen. William T. Lord was starting to look at these issues. Then, Air Force Chief of Staff, Gen. Norton Schwartz, announced October 8, 2008, that there would no longer be a new major command developed for cyberspace operations. Instead the Air Force would continue with standing up a component-Numbered Air Force, which will focus on cyberspace warfighting operations. The 24 th Air Force will be led by a 2-star general, and will operate in support of NORTHCOM and STRATCOM missions, which could include anything from hurricane relief to homeland defense. All other administrative, policy and organize-train-equip oversight now falls under Air Force Space Command. The AFCYBER (P) team will stay formed so they can assist in developing a roadmap to outline the actions needed to transition the work done this past year over to the space command. The provisional team will also assist with other tasks as needed until the new organizational construct is formalized. The new organization will operate on an equal footing with other Numbered Air Force headquarters. Eventually, there may be a new major command for cyberspace that will stand alongside the Air Force Space Command and the Air Combat Command. Some speculate that there may be a stand-alone combatant command for cyberspace. Precise future command relationships are still being decided in the ongoing planning effort, and more details will be forthcoming. Currently, the U.S. Strategic Command (USSTRATCOM), which is a unified combatant command for U.S. strategic forces, controls military information operations, space command, strategic warning and intelligence assessments, global strategic operations planning under the Unified Command Plan, and also has overall responsibility for Computer Network Operations (CNO). USSTRATCOM gives most of the daily defense and operational activity to the National Security Agency. Beneath USSTRATCOM are several Joint Functional Component Commands (JFCCs): (1) space and global strike integration; (2) intelligence, surveillance and reconnaissance; (3) network warfare; (4) integrated missile defense; and (5) combating weapons of mass destruction. The JFCC-Network Warfare (JFCC-NW), and the JFCC-Space & Global Strike (JFCC-SGS) have responsibility for overall DOD cyber security, while the Joint Task Force-Global Network Operations (JTF-GNO) and the Joint information Operations Warfare Center (JIOWC) both have direct responsibility for defense against cyber attack. The JTF-GNO defends the DOD Global Information Grid, while the JIOWC assists combatant commands with an integrated approach to information operations. These include operations security, psychological operations, military deception, and electronic warfare. The JIOWC also coordinates network operations and network warfare with the JTF-GNO and with JFCC-NW. The President's Comprehensive National Cyber-security Initiative has identified cyber education and training as one of its critical areas of focus. As more U.S. military systems become computerized and linked to networks, some argue there is a growing need for qualified Electronic Warfare operators. In a recent speech, Deputy Secretary of Defense Gordan England said that "in the U.S., the number of scientists and engineers is declining at a time when numbers in many other countries are increasing. This decline in science and technology poses the greatest long-term threat to our country ... including our cyber networks." Each year, DOD conducts a Cyber Defense Exercise, where teams of students from the nation's military academies advance their cyber skills in practice competition where they deliberately hack into test networks, and also protect these test networks against intrusions by other teams. The Officer Professional Military Education Policy (OPMEP) offers guidance on information operations (IO) and areas related to both IO and command and control (C2), and efforts are underway towards integrating cyber warfare into Joint Professional Military Education curriculum. An impediment to the program is the heavily classified nature of cyberspace doctrine and the international students who comprise some of the student body at the schools. However, DOD has stated a need to attract, train, and retain skilled information technology professionals beyond those enrolled in the military academies. In an attempt to solve this problem, the Air Force Research Laboratory (AFRL) Cyber Operations Branch offers a 10-week summer program each year for university students, consisting of intensive studies in cyber security. The Advanced Course in Engineering (ACE) Cyber Security Boot Camp has been held at Rome, NY, for the past four years, and involves between 40 and 60 student applicants from Air Force and Army pre-commissioning programs, some National Science Foundation Cyber Corps Fellows, and some civilian college students. For 2006, the theme was "Cybercraft," described as a non-kinetic weapon platform that seeks dominance in cyberspace, corresponding to the new mission of the Air Force to "fly and fight in air, space, and cyberspace," according to program director Dr. Kamal Jabbour. Students study legal and policy issues, cryptography, computer network defense and attack, steganography, and analysis of malicious code. ACE students also spend an average of three days per week in internships at the Air Force Research Laboratory, or with local industry partners, and participate in officer development activities. The faculty for ACE is drawn from Syracuse University, West Point, and Norwich University. DHS and the National Science Foundation (NSF) have recognized the ACE program as an official internship program for Federal Cyber Service Scholarship for Service (SFS) program. The SFS program seeks to increase the number of skilled students entering the fields of information assurance and cyber security by funding universities to award two-year scholarships in cyber security. Graduates are then required to work for a federal agency for two years. Recent ACE graduates are now working at the Air Force Office of Special Investigations, the AFRL, and the NSA. Also, as a result of ACE summer program success with college students, in September 2006, Syracuse University developed a special cyber security course to be offered in 12 high schools in New Your State. Currently, Syracuse University offers 29 introductory cyber security courses in 148 high schools throughout New York, New Jersey, Maine, Massachusetts, and Michigan. High school students who successfully complete the cyber security courses can receive Syracuse college credits in computer science and engineering. DOD officials have noted that because 80% of U.S. commerce goes through the Internet, DOD systems must develop a capability to adequately protect it. Currently, to assist commercially owned telecommunications networks, communications satellite systems, and other civilian critical infrastructure systems, DOD contracts with Carnegie Mellon's Software Engineering Institute to operate the Computer Emergency Response Team (CERT-CC), while DHS, in partnership with private industry, operates a parallel organization called US-CERT. Both organizations monitor trends in malicious code and cyber crime, send out alerts about threats to computer systems, and provide guidance for recovery after an attack. The Defense Information Systems Agency oversees the military's Global Information Grid (GiG), and provides support for net-centric operations through the JTF-GNO. The GiG is an interconnected set of capabilities that includes any DoD system, equipment, software, or service that transmits, stores, or processes DoD information. The Joint Staff J-6 is working on an initiative called "GiG 2.0," which may take advantage of cloud computing applications and social networking tools. Few details are known about the program at this point, but briefings suggest that the goal is to reconcile the inconsistent security postures and interoperability problems among the multiple service infrastructures by creating a joint DOD enterprise. The federal government has taken steps to improve its own computer security and to encourage the private sector to also adopt stronger computer security policies and practices to reduce infrastructure vulnerabilities. In 2002, the Federal Information Security Management Act (FISMA) was enacted, giving the Office of Management and Budget (OMB) responsibility for coordinating information security standards and guidelines developed by federal agencies. In 2003, the National Strategy to Secure Cyberspace was published by the Bush Administration to encourage the private sector to improve computer security for the U.S. critical infrastructure through having federal agencies set an example for best security practices. The OMB has mandated that all U.S. Government enable their networks to handle traffic from IPv6, a next generation set of internet protocols. IPv6 was developed in response to the imminent exhaustion of IP addresses; the new system will allow more flexibility in address assignment, and simplifies the translating mechanism used to route traffic to particular sites. Network security is also a built-in feature of IPv6 architecture, and government systems running it are anticipated to be more secure. Federal agencies now support the IPv6 protocol and its interoperability, but are not necessarily using it on a day-to-day basis. Full operational transition to IPv6 remains a future goal. The National Cyber Security Division (NCSD), within the National Protection and Programs Directorate of the Department of Homeland Security (DHS) oversees a Cyber Security Tracking, Analysis and Response Center (CSTARC), tasked with conducting analysis of cyberspace threats and vulnerabilities, issuing alerts and warnings for cyberthreats, improving information sharing, responding to major cybersecurity incidents, and aiding in national-level recovery efforts. In addition, a new Cyber Warning and Information Network (CWIN) has begun operation in 50 locations, and serves as an early warning system for cyberattacks. The CWIN is engineered to be reliable and survivable, has no dependency on the Internet or the public switched network (PSN), and reportedly will not be affected if either the Internet or PSN suffer disruptions. In January 2004, the NCSD also created the National Cyber Alert System (NCAS), a coordinated national cybersecurity system that distributes information to subscribers to help identify, analyze, and prioritize emerging vulnerabilities and cyberthreats. NCAS is managed by the United States Computer Emergency Readiness Team (US-CERT), a partnership between NCSD and the private sector, and subscribers can sign up to receive notices from this new service by visiting the US-CERT website. To observers, the most pervasive question regarding cyberattack and response is, "Who's in charge?" In an attempt to clarify roles and responsibilities and to develop an all-encompassing strategy, then president George W. Bush launched a $30 billion dollar Comprehensive National Cybersecurity Initiative (CNCI) in 2008 to prioritize and coordinate cyber defense across government. The initiative was prompted by the Director of National Intelligence's urging, and was led by ODNI's Joint Interagency Cyber Task Force. The Obama administration is continuing this effort by conducting a 60-day cybersecurity review, led by Melissa Hathaway, who was the coordinator of the ODNI task force. (For more on the CNCI, see CRS Report R40427, Comprehensive National Cybersecurity Initiative: Legal Authorities and Policy Considerations , by John Rollins and [author name scrubbed].) DHS is lead agency for the Federal Government's cybersecurity; it coordinates government and private-sector efforts through its National Cyber Security Center (NCSC). However, there are high-ranking officials who assert that NSA should run the government's cybersecurity efforts as it does for the military. The resident technological talent within NSA and the benefits of having both defensive and offensive capabilities co-located make the idea attractive to some. Critics point towards allegations of NSA's civil liberties violations with internet monitoring programs, and say that having this one agency in charge of all things cyber will erode the public trust. Also, the private sector may be less inclined to work cooperatively with the NSA—which they maintain would present a big problem, as 80% of the United States infrastructure is privately owned. There have also been criticisms that DHS's cyber programs are inadequately funded, and that the leadership lacks the authority necessary to push forward its initiatives. To illustrate this point, Rob Beckstrom, the director of the NCSC resigned on March 6, 2009 over concerns that the NSA was "dominating" cybersecurity efforts. At a hearing on March 10, 2009, several experts testifying before the House Subcommittee on Emerging Threats, Cybersecurity and Science and Technology echoed this sentiment. (For a thorough discussion of reforming the national security structure to meet today's challenges, see CRS Report RL34455, Organizing the U.S. Government for National Security: Overview of the Interagency Reform Debates , by [author name scrubbed], [author name scrubbed], and [author name scrubbed].) Several areas for possible congressional consideration are: help to determine appropriate responses by DOD to a cyberattack; examine the incentives for achieving the goals of the National Strategy to Secure Cyberspace and the CNCI, or for developing a new national strategy; search for ways to improve the security of commercial software products; explore ways to increase security education and awareness for businesses and home PC users; and find ways for private industry and government to coordinate to protect against cyberattack. reconsider classification levels to allow for increased information sharing oversight for DOD execution of cyberdefense appropriations Congress may also wish to consider ways to harmonize existing federal and state laws that require notice to persons when their personal information has been affected by a computer security breach, and that impose obligations on businesses and owners of that restricted information. If a terrorist group were to use a cybercrime botnet to subvert computers in a third party country, such as China, to launch a cyberattack against the United States, the U.S. response to the cyberattack would presumably need to be carefully considered, in order to avoid retaliating against the wrong entity. Would the resulting effects of cyberweapons used by the United States be difficult to limit or control? Would a cyberattack response that could be attributed to the United States possibly encourage other extremists, or rogue nations, to start launching their own cyberattacks against the United States? Would an attempt by the U.S. to increase surveillance of another entity via use of cyberespionage computer code be labeled as an unprovoked attack, even if directed against the computers belonging to a terrorist group? If a terrorist group should subsequently copy, or reverse-engineer a destructive U.S. military cyberattack program, could it be used against other countries that are U.S. allies, or even turned back to attack civilian computer systems in the United States? If the effects become widespread and severe, could the U.S. use of cyberweapons exceed the customary rules of military conflict, or violate international laws? Commercial electronics and communications equipment are now used extensively to support complex U.S. weapons systems, and are possibly vulnerable to cyberattack. This situation is known to our potential adversaries. To what degree are military forces and national security threatened by computer security vulnerabilities that exist in commercial software systems, and how can the computer industry be encouraged to create new commercial off-the-shelf (COTS) products that are less vulnerable to cyberattack? Does the National Strategy to Secure Cyberspace present clear incentives for achieving security objectives? Suggestions to increase incentives may include requiring that all software procured for federal agencies be certified under the "Common Criteria" testing program, which is now the requirement for the procurement of military software. However, industry observers point out that the software certification process is lengthy and may interfere with innovation and competitiveness in the global software market. Should the National Strategy to Secure Cyberspace rely on voluntary action on the part of private firms, home users, universities, and government agencies to keep their networks secure, or is there a need for possible regulation to ensure best security practices? Has public response to improve computer security been slow partly because there are no regulations currently imposed? Would regulation to improve computer security interfere with innovation and possibly harm U.S. competitiveness in technology markets? Two of the former cybersecurity advisers to the president have differing views: Howard Schmidt has stated that market forces, rather than the government, should determine how product technology should evolve for better cybersecurity; however, Richard Clarke has stated that the IT industry has done little on its own to improve security of its own systems and products. Some security experts emphasize that if systems administrators received the necessary training for keeping their computer configurations secure, then computer security would greatly improve for the U.S. critical infrastructure. However, should software product vendors be required to create higher quality software products that are more secure and that need fewer patches? Could software vendors possibly increase the level of security for their products by rethinking the design, or by adding more test procedures during product development? Ultimately, many observers argue that reducing the threat to national security from cybercrime depends on a strong commitment by government and the private sector to follow best management practices that help improve computer security. Numerous government reports already exist that describe the threat of cybercrime and make recommendations for management practices to improve cybersecurity. A 2004 survey done by the National Cyber Security Alliance and AOL showed that most home PC users do not have adequate protection against hackers, do not have updated antivirus software protection, and are confused about the protections they are supposed to use and how to use them. How can computer security training be made available to all computer users that will keep them aware of constantly changing computer security threats, and that will encourage them to follow proper security procedures? What can be done to improve sharing of information between federal government, local governments, and the private sector to improve computer security? Effective cybersecurity requires sharing of relevant information about threats, vulnerabilities, and exploits. How can the private sector obtain information from the government on specific threats which the government now considers classified, but which may help the private sector protect against cyberattack? How can the government obtain specific information from private industry about the number of successful computer intrusions, when companies resist reporting because they want to avoid publicity and guard their trade secrets? Should cybercrime information voluntarily shared with the federal government about successful intrusions be shielded from disclosure through Freedom of Information Act requests? How can the United States better coordinate security policies and international law to gain the cooperation of other nations to better protect against a cyberattack? Pursuit of hackers may involve a trace back through networks requiring the cooperation of many Internet Service Providers located in several different nations. Pursuit is made increasingly complex if one or more of the nations involved has a legal policy or political ideology that conflicts with that of the United States. Thirty-eight countries, including the United States, participate in the Council of Europe's Convention on Cybercrime, which seeks to combat cybercrime by harmonizing national laws, improving investigative abilities, and boosting international cooperation. However, how effective will the Convention without participation of other countries where cybercriminals now operate freely? (For more on the Convention, see CRS Report RS21208, Cybercrime: The Council of Europe Convention , by [author name scrubbed] (pdf).) H.R. 1525 —The Internet Spyware (I-SPY) Prevention Act of 2007, proposed penalties for unauthorized access to computers, or the use of computers to commit crimes. The bill passed the House on May 22, 2007. On May 23, 2007, this bill was received in the Senate and referred to the Committee on the Judiciary. H.R. 1684 —The Department of Homeland Security Authorization Act for Fiscal Year 2008 established within the Department of Homeland Security an Office of Cybersecurity and Communications, headed by the Assistant Secretary for Cybersecurity and Communications, with responsibility for overseeing preparation, response, and reconstitution for cybersecurity and to protect communications from terrorist attacks, major disasters, and other emergencies, including large-scale disruptions. The bill directed the Assistant Secretary to do the following: Establish and maintain a capability within the Department for ongoing activities to identify threats to critical information infrastructure to aid in detection of vulnerabilities and warning of potential acts of terrorism and other attacks. Conduct risk assessments on critical information infrastructure with respect to acts of terrorism. Develop a plan for the continuation of critical information operations in the event of a cyber attack. Define what qualifies as a cyber incident of national significance for purposes of the National Response Plan. Develop a national cybersecurity awareness, training, and education program that promotes cybersecurity awareness within the Federal Government and throughout the Nation. Consult and coordinate with the Under Secretary for Science and Technology on cybersecurity research and development to strengthen critical information infrastructure against acts of terrorism. This bill passed the House on May 9, 2007. On May 11, 2007, this bill was referred to the Senate Committee on Homeland Security and Governmental Affairs. H.R. 3237 —The Smart Grid Facilitation Act of 2007 proposed to modernize the Nation's electricity transmission and distribution system to incorporate digital information and controls technology. "Smart grid" technology functions would include the ability to detect, prevent, respond to, or recover from cyber-security threats and terrorism. The new Grid Modernization Commission would be directed to undertake, and update on a biannual basis, an assessment of the progress toward modernizing the electric system including cybersecurity protection for extended grid systems. On August 24, 2007, the bill was referred to House subcommittee on Energy and Environment. H.R. 3221 —The New Direction for Energy Independence, National Security, and Consumer Protection Act proposed establishment of the Grid Modernization Commission to facilitate the adoption of Smart Grid standards, technologies, and practices across the Nation's electricity grid. This bill became P.L. 110-289 on July 30, 2008. H.R. 1585 , the National Defense Authorization Act for Fiscal Year 2008, required the Secretary of Defense to conduct a quadrennial roles and missions review for the Department of Defense, which will also include cyber operations. This bill became P.L. 110-181 on January 28, 2008. H.Rept. 110-146 , on H.R. 1585 , by the Committee on Armed Services. This report stated that within 180 days after enactment of the National Defense Authorization Act for 2008, the Secretary of Defense must submit a report to congressional defense committees, with the following requirements: 1. Review legal authorities to ensure effective cyberspace operations. 2. Review DOD's policies for information sharing and risk management for cyberspace operations. 3. Provide an overview of DOD's cyberspace organization, strategy, and programs. 4. Assess operational challenges, including the impact of the military's reliance on commercial communications infrastructure. 5. Recommend ways to improve DOD's ability to coordinate cyberspace operations with law enforcement, intelligence communities, the commercial sector, and with international allies. The recommendations shall include consideration of the establishment of a single joint organization for cyberspace operations. 6. Provide an overview of training and educational requirements. 7. Provide an overview of funding for cyberspace operations. The DOD Roles and Missions Review report, issued in January 2009, placed cyberspace high on the list of focus areas, and asserted that this domain will be one in which major combat operations may take place. Could provocative actions, for example, intelligence gathering by the U.S. military that involves using intrusive cyber or electronic warfare tools to monitor enemy system activity, or copy important data files, be challenged by other nations as a violation of the law of Armed Conflict? Exploratory intrusions by U.S. military computers to gather intelligence may provoke other strong or unexpected responses from some countries or extremist groups that are targeted for monitoring by DOD. Several questions also may arise when considering a retaliatory cyber or electronic warfare counterstrike: (1) if the attacker is a civilian, should the attack be considered a law enforcement problem rather than a military matter?; (2) if a U.S. military cyberattack against a foreign government also disables civilian infrastructure, can it be legally justified?; or (3) how can the military be certain that a targeted foreign computer system has not been innocently set up to appear as an attacker by another third party attacker? Some observers have stated that success in future conflicts will depend less on the will of governments, and more on the perceptions of populations, and that perception control will be achieved and opinions shaped by the warring group that best exploits the global media. As a result of the increasingly sophisticated use of networks by terrorist groups and the potentially strong influence of messages carried by the global media, does DOD now view the Internet and the mainstream media as a possible threat to the success of U.S. military missions? How strongly will U.S. military PSYOP be used to manipulate public opinion, or reduce opposition to unpopular decisions in the future? Another emerging issue may be whether DOD is legislatively authorized to engage in PSYOP that may also affect domestic audiences. DOD Joint Publication 3-13, released February 2006, provides current doctrine for U.S. military Information Operations, and explains the importance of achieving information superiority. However, the DOD Information Operations Roadmap, published October 2003, states that PSYOP messages intended for foreign audiences increasingly are consumed by the U.S. domestic audience, usually because they can be re-broadcast through the global media. The Roadmap document states that, " ... the distinction between foreign and domestic audiences becomes more a question of USG (U.S. Government) intent rather than information dissemination practices (by DOD)." This may be interpreted to mean that DOD has no control over who consumes PSYOP messages once they are re-transmitted by commercial media. Appendix A. Definitions Information Information is a resource created from two things: phenomena (data) that are observed, plus the instructions (systems) required to analyze and interpret the data to give it meaning. The value of information is enhanced by technology, such as networks and computer databases, which enables the military to (1) create a higher level of shared awareness, (2) better synchronize command, control, and intelligence, and (3) translate information superiority into combat power. DOD Information Operations The current DOD term for military information warfare is "Information Operations" (IO). DOD information operations are actions taken during time of crisis or conflict to affect adversary information, while defending one's own information systems, to achieve or promote specific objectives. The focus of IO is on disrupting or influencing an adversary's decision-making processes. An IO attack may take many forms, for example: (1) to slow adversary computers, the software may be disrupted by transmitting a virus or other malicious code; (2) to disable sophisticated adversary weapons, the computer circuitry may be overheated with directed high energy pulses; and (3) to misdirect enemy sensors, powerful signals may be broadcast to create false images. Other methods for IO attack may include psychological operations such as initiating TV and radio broadcasts to influence the opinions and actions of a target audience, or seizing control of network communications to disrupt an adversary's unity of command. Computer Network Defense (CND) is the term used to describe activities that are designed to protect U.S. forces against IO attack from adversaries. Part of CND is information assurance (IA), which requires close attention to procedures for what is traditionally called computer and information security. DOD places new emphasis on the importance of dominating the entire electromagnetic spectrum with methods for computer network attack and electronic warfare. DOD also emphasizes that because networks are increasingly the operational center of gravity for warfighting, the U.S. military must be prepared to "fight the net." Because the recently declassified source document containing this phrase has some lines blacked out, it is not clear if "... net" means the Internet. If so, then this phrase may be a recognition by DOD that Psychological Operations, including public affairs work and public diplomacy, must be employed in new ways to counter the skillful use of the Internet, social networking tools, and the global news media by U.S. adversaries. Appendix B. DOD Information Operations Core Capabilities In Joint Publication 3-13, DOD identifies five core capabilities, or "pillars," for conduct of information operations: (1) Psychological Operations, (2) Military Deception, (3) Operations Security, (4) Computer Network Operations, and (5) Electronic Warfare. These capabilities are interdependent, and increasingly are integrated to achieve desired effects. Psychological Operations (PSYOP) DOD defines PSYOP as planned operations to convey selected information to targeted foreign audiences to influence their emotions, motives, objective reasoning, and ultimately the behavior of foreign governments, organizations, groups, and individuals. For example, during the Operation Iraqi Freedom (OIF), broadcast messages were sent from Air Force EC-130E aircraft, and from Navy ships operating in the Persian Gulf, along with a barrage of e-mail, faxes, and cell phone calls to numerous Iraqi leaders encouraging them to abandon support for Saddam Hussein. The civilian Al Jazeera news network, based in Qatar, beams its messages to well over 35 million viewers in the Middle East, and is considered by many to be a "market competitor" for U.S. PSYOP. Terrorist groups can also use the Internet to quickly place their own messages before an international audience. Some observers have stated that the U.S. will continue to lose ground in the global media wars until it develops a coordinated strategic communications strategy to counter competitive civilian news media, such as Al Jazeera. Partly in response to this observation, DOD now emphasizes that PSYOP must be improved and focused against potential adversary decision making, sometimes well in advance of times of conflict. Products created for PSYOP must be based on in-depth knowledge of the audience's decision-making processes. Using this knowledge, the PSYOPS products then must be produced rapidly, and disseminated directly to targeted audiences throughout the area of operations. Following the Smith-Mundt Act, DOD policy prohibits the use of PSYOP for targeting American audiences. However, while military PSYOP products are intended for foreign targeted audiences, DOD also acknowledges that the global media may pick up some of these targeted messages, and replay them back to the U.S. domestic audience. Therefore, a sharp distinction between foreign and domestic audiences cannot be maintained. Military Deception (MILDEC) Deception guides an enemy into making mistakes by presenting false information, images, or statements. MILDEC is defined as actions executed to deliberately mislead adversary military decision makers with regard to friendly military capabilities, thereby causing the adversary to take (or fail to take) specific actions that will contribute to the success of the friendly military operation. As an example of deception during Operation Iraqi Freedom (OIF), the U.S. Navy deployed the Tactical Air Launched Decoy system to divert Iraqi air defenses away from real combat aircraft. Operational Security (OPSEC) OPSEC is defined as a process of identifying information that is critical to friendly operations and which could enable adversaries to attack operational vulnerabilities. For example, during OIF, U.S. forces were warned to remove certain information from DOD public websites, so that Iraqi forces could not exploit sensitive but unclassified information. Computer Network Operations (CNO) CNO includes the capability to: (1) attack and disrupt enemy computer networks; (2) defend our own military information systems; and (3) exploit enemy computer networks through intelligence collection, usually done through use of computer code and computer applications. The Joint Information Operations Warfare Command (JIOWC) and the Joint Functional Component Command for Network Warfare (JFCCNW) are responsible for the evolving mission of Computer Network Attack. The exact capabilities of the JIOWC and JFCCNW are highly classified, and DOD officials have reportedly never admitted to launching a cyber attack against an enemy, however many computer security officials believe the organization can destroy networks and penetrate enemy computers to steal or manipulate data, and take down enemy command-and-control systems. They also believe that the organization consists of personnel from the CIA, National Security Agency, FBI, the four military branches, and civilians and military representatives from allied nations. The Joint Task Force for Global Network Operations (JTF-GNO), currently residing within the Defense Information Security Agency (DISA), is an operational arm of the services. A recent decision to move the JTF-GNO under the auspices of the National Security Agency will put defensive and operational capabilities within the same organization. CND is defined as defensive measures to protect information, computers, and networks from disruption or destruction. CND includes actions taken to monitor, detect, and respond to unauthorized computer activity. Responses to IO attack against U.S. forces may include use of passive information assurance tools, such as firewalls or data encryption, or may include more intrusive actions, such as monitoring adversary computers to determine their capabilities before they can attempt an IO attack against U.S. forces. Some DOD officials believes that CND may lack sufficient policy and legal analysis for guiding appropriate responses to intrusions or attacks on DOD networks. Therefore, DOD has recommended that a legal review be conducted to determine what level of intrusion or data manipulation constitutes an attack. The distinction is necessary in order to clarify whether an action should be called an attack or an intelligence collection operation, and which aggressive actions can be appropriately taken in self-defense. This legal review should also determine if appropriate authorities permit U.S. forces to retaliate through manipulation of unwitting third party computer hosts. And finally, DOD has recommended structuring a legal regime that applies separately to domestic and to foreign sources of computer attack against DOD or the U.S. critical. infrastructure. CNE is an area of IO that is not yet clearly defined within DOD. Before a crisis develops, DOD seeks to prepare the IO battlespace through intelligence, surveillance, and reconnaissance, and through extensive planning activities. This involves intelligence collection, that in the case of IO, is usually performed through network tools that penetrate adversary systems to gain information about system vulnerabilities, or to make unauthorized copies of important files. Tools used for CNE are similar to those used for computer attack, but configured for intelligence collection rather than system disruption. Although CNE is an activity designed for data exfiltration, it is unknown whether the methods used to penetrate networks could also be used for an attack by an adversary. CNA is defined as effects intended to disrupt or destroy information resident in computers and computer networks. As a distinguishing feature, CNA normally relies on a data stream used as a weapon to execute an attack. For example, sending a digital signal stream through a network to instruct a controller to shut off the power flow is CNA, while sending a high voltage surge through the electrical power cable to short out the power supply is considered Electronic Warfare (However, a digital stream of computer code or a pulse of electromagnetic power can both be used to also create false images in adversary computers). During Operation Iraqi Freedom, U.S. and coalition forces reportedly did not execute any computer network attacks against Iraqi systems. Even though comprehensive IO plans were prepared in advance, DOD officials stated that top-level approval for several CNA missions was not granted until it was too late to carry them out to achieve war objectives. U.S. officials may have rejected launching a planned cyber attack against Iraqi financial computers because Iraq's banking network is connected to a financial communications network also located in Europe. Consequently, according to Pentagon sources, an information operations attack directed at Iraq might also have brought down banks and ATM machines located in parts of Europe as well. Such global network interconnections, plus close network links between Iraqi military computer systems and the civilian infrastructure, reportedly frustrated attempts by U.S. forces to design a cyber attack that would be limited to military targets only in Iraq. In a meeting held in January 2003, at the Massachusetts Institute of Technology, White House officials sought input from experts outside government on guidelines for use of cyber-warfare. Officials have stated they are proceeding cautiously, since a cyberattack could have serious cascading effects, perhaps causing major disruption to networked civilian systems. In February 2003, the Bush Administration announced national-level guidance for determining when and how the United States would launch computer network attacks against foreign adversary computer systems. The classified guidance, known as National Security Presidential Directive 16, is intended to clarify circumstances under which a disabling computer attack would be justified, and who has authority to launch such an attack. Electronic Warfare (EW) EW is defined by DOD as any military action involving the direction or control of electromagnetic spectrum energy to deceive or attack the enemy. High power electromagnetic energy can be used as a tool to overload or disrupt the electrical circuitry of almost any equipment that uses transistors, micro-circuits, or metal wiring. Directed energy weapons amplify, or disrupt, the power of an electromagnetic field by projecting enough energy to overheat and permanently damage circuitry, or jam, overpower, and misdirect the processing in computerized systems. The Electronic Warfare Division of the Army Asymmetric Warfare Office has responsibility for creating electronic warfare policy, and for supporting development of new electromagnetic spectrum concepts that can be translated into equipment and weapons. DOD now emphasizes maximum control of the entire electromagnetic spectrum, including the capability to disrupt all current and future communication systems, sensors, and weapons systems. This may include (1) navigation warfare, including methods for offensive space operations where global positioning satellites may be disrupted; or, (2) methods to control adversary radio systems; and, (3) methods to place false images onto radar systems, block directed energy weapons, and misdirect unmanned aerial vehicles (UAVs) or robots operated by adversaries. For example, military IO testing examined the capability to secretly enter an enemy computer network and monitor what their radar systems could detect. Further experiments tested the capability to take over enemy computers and manipulate their radar to show false images. Non-kinetic weapons emit directed electromagnetic energy that, in short pulses, may permanently disable enemy computer circuitry. For example, an electromagnetic non-kinetic weapon mounted in an aircraft, or on the ground, might disable an approaching enemy missile by directing a High Power Microwave (HPM) beam that burns out the circuitry, or that sends a false telemetry signal to misdirect the targeting computer. Also, at reduced power, electromagnetic non-kinetic weapons can also be used as a non-lethal method for crowd control. The Active Denial System (ADS), developed by the Air Force, is a vehicle-mounted nonlethal, counter-personnel directed energy weapon. Currently, most non-lethal weapons for crowd control, such as bean-bag rounds, utilize kinetic energy. However, the ADS projects a focused beam of millimeter energy waves to induce an intolerable burning sensation on an adversary's skin, repelling the individual without causing injury. Proponents say the ADS is safe and effective at ranges between 50 and 1,600 feet. The nonlethal capabilities of the ADS are designed to protect the innocent, minimize fatalities, and limit collateral damage. Approximately $40 million has been spent on this technology over the past ten years. Military officials requested that ADS devices be deployed to Iraq to assist Marines in guarding posts, countering insurgent snipers and protecting convoys. In July 2005, it was reported that the Active Denial System would be deployed to Iraq before the end of the year. Under an initiative called Project Sheriff, troops would receive a total of 15 vehicles. Concerns of political fallout have delayed these plans; as of early 2007, initial deployment was slated no sooner than 2010. The ADS system would be the first operationally deployed directed-energy weapon for counter-personnel missions. | This report describes the emerging areas of information operations, cybersecurity, and cyberwar in the context of U.S. national security. It also notes related policy issues of potential interest to Congress. For military planners, the control of information is critical to military success, and communications networks and computers are of vital operational importance. The use of technology to both control and disrupt the flow of information has been generally referred to by several names: information warfare, electronic warfare, cyberwar, netwar, and Information Operations (IO). Currently, IO activities are grouped by the Department of Defense (DOD) into five core capabilities: (1) Psychological Operations, (2) Military Deception, (3) Operational Security, (4) Computer Network Operations, and (5) Electronic Warfare. Current U.S. military doctrine for IO now places increased emphasis on Psychological Operations, Computer Network Operations, and Electronic Warfare, which includes use of non-kinetic electromagnetic pulse (EMP) weapons, and non-lethal weapons for crowd control. However, as high technology is increasingly incorporated into military functions, the boundaries between all five IO core capabilities are becoming blurred. DOD also acknowledges the existence of a cyber domain, which is similar to air, land, and sea. This new domain is the realm where military functions occur that involve manipulation of the electromagnetic spectrum. Control of the spectrum is essential to military success across all other domains. Definitions and examples of the overlapping categories of IO activity are contained in the appendixes. This report will be updated to accommodate significant changes. |
A full list of the damaging biological and economic effects of invasive plants and animals risks sounding like hyperbole. It includes loss of western rangelands to invasive plants, blockage of power plant intakes to invasive mussels, and major declines of birds and mammals to invasive snakes in the Everglades. So vast is this "bioinvasion" (as some have termed it) that only rough estimates can be made of the numbers of non-native species now in North America or in the rest of the world. Moreover, despite a few rare successes, eradication of these species, once they become established, is extremely improbable. But because of the number and variety of non-native species, it is unclear how best to manage or prevent these effects or what legislation would be needed to address these problems. Laws concerning wild plants and animals do not form a comprehensive body at the federal level. Under the U.S. system, inherited from English legal tradition, the government regulates the taking of native wild animals generally while landowners control the native (and other) plants growing on their lands. Thus, colonial governments regulated native wild animals (to the extent there was regulation of the take of wild animals at all) and, after the U.S. Constitution was ratified, states retained the rights they had as colonies to control the wildlife within their boundaries. With states retaining the regulation of wildlife, the majority of wild plant and animal species are not federal responsibilities under current law. Moreover, because the problem of invasive species presents itself as a series of seemingly disconnected crises, legislation has become a patchwork, enacted as each crisis was addressed. The absence of a general federal responsibility for wildlife affects the federal role in addressing invasive species. A local or state government, faced with the recent arrival of a new invasive speciesâwhether terrestrial, freshwater, or marine; plant or animal; agricultural pest or recreational nuisanceâhas no single source to query to begin its response or guide it through a maze of options. Moreover, federal help, especially any timely help in the weeks or months after initial discovery, is rare to nonexistent and, if forthcoming, focuses more on information and less on practical assistance. The National Invasive Species Council (NISC) was created by Executive Order 13112 in 1999, and has addressed some aspects of the invasive species problem. It has taken steps toward sharing more information across governments and with the public. NISC asks specific agencies to take the lead in developing policies within their existing legislative mandates. In its 2008-2012 report, NISC outlined a set of actions to address the bulk of existing problems. These actions include developing legislative proposals to fill gaps in current law. However, legislative efforts to date have tended to focus on well-established problems: the invasion of a single species, a specific pathway of introduction, or damage or risks to agriculture. Invasive species occur throughout the United States, but some ecosystems are more susceptible to invasion than others. Hawaii and Florida are perhaps the major examples of this phenomenon in the United States. Both states have many threatened and endangered species and, not coincidentally, many invasives, and both were long isolated biologically and have a number of native species found nowhere else. The mild climates of Hawaii and Florida make it easier for the rich flora and fauna from other tropical and semitropical regions to survive, and they also make the states attractive to businesses that import, maintain, or breed non-native animals and plants, such as tropical fishes and ornamental plants. Another factor putting some environments at risk is the plethora of opportunities for new introductions. Easy transportation access increases the likelihood of invasion in aquatic habitats such as the Great Lakes. Seaports, where many ships exchange ballast water, are at particular risk. Even if only a tiny fraction of newly arriving non-native species survive in San Francisco Bay or Chesapeake Bay, the actual number of successful invasive species may be very large. The areas around airports, with increased levels of international traffic and tourism, also are at risk. Between or within countries, some pathways for species invasions already are well-known. They include transportation corridors, intentionally imported non-native pets, landscaping plants, aquaculture, and non-native organisms deliberately released for propagation in the wild. To some extent, the pathways of invasion between countries can be predicted. For example, brown tree snakes have a propensity to hide in dark places, and the damage they have caused on Pacific islands such as Guam has done much to focus attention on air stowaways. The arrival of a number of beetle species has played a similar role in focusing attention on pallet wood, packing crates, live plants, and airport warehouses as pathways and centers of biotic invasion. Legally shipped live animals or plants may harbor microorganisms, parasites, or seeds that pose a danger to other species, even if the animal or plant itself does not survive in the wild. In general, any arrival of living or untreated material offers a possible pathway for biotic invasion. A comprehensive review of possible pathways, their risks, options for control, and research needs is, to the authors' knowledge, currently lacking. Federal laws have tended to focus on black lists (anything not on the list is allowed) in contrast to white lists (anything not on the list is excluded). Each requires some, or even considerable, knowledge of the species to be listed to predict the likelihood of invasion. A black list can be prepared in various ways, but usually it is made up of species already shown to cause serious damage to fisheries, endangered species, or (especially) agriculture. This evidence may be based on experience with the species domestically or in other countries. Preventing the spread of the species after it enters the United States may rely on public education, penalties for shippers, monitoring, and other means. In general, black lists require time to gather information on the damage created by the species and then proceed through a regulatory response. This approach allows more flexibility for industries that depend on the importation of new species of plants or animals. Black lists do not readily address introductions by persons who are unaware that they are bringing in non-native organisms. With the white list approach, there is an attempt to predict potential harm before a species' arrival. The prediction would be based on known characteristics of a species, such as how it reproduces, the number of seeds or offspring, etc. Any species not on the list would be excluded. The mongoose, for example, has a history of becoming a pest on islands where it has been introduced. It seems unlikely that the mongoose would ever be placed on a (white) list of allowable species. In contrast, new varieties of orchids, sheep, tulips, or any other species with a long track record in this country likely would gain admission. The existence of a list, whether white or black, implies that importers actually know they are importing living organisms. An effort to prevent unintentional introductions would be compatible with any shade of list or no list at all. Potential pathways for unintentional introductions continue to be discovered, and there are likely other pathways yet to be determined. Federal laws concerning invasive species form a patchwork, stronger in some areas, such as agriculture and ballast water, and weaker or absent in other areas. Current laws do not clearly address prevention of biological invasion across foreseeable pathways (with the exception of ship ballast water); or early detection and rapid response (EDRR) before the establishment of the new species, when the focus of effort shifts from less expensive prevention to more expensive and less efficient control. Coordination of current efforts alone means that gaps will remain if they are due to lack of coverage by existing laws or agency jurisdiction. Congress could choose to address these gaps either by explicitly delegating such authority to the President or by crafting legislation. NISC has become the focus for federal efforts to control and prevent invasive species affecting a broad range of industries or ecosystems. However, gaps in authorities or shortages of personnel that have hampered efforts to limit the entrance of and damage from invasive species continue. Four agencies have had major roles in addressing invasive species for many years: Animal and Plant Health Inspection Service (APHIS), U.S. Army Corps of Engineers, Fish and Wildlife Service (FWS), and National Marine Fisheries Service. Yet even for these four agencies, important gaps in their authorities remain. Legislation to address invasive species could take a species-by-species approach, a pathway approach, or a combination of the two. The species approach implicitly assumes knowledge about a species' risk (black list) or safety (white list). A central dilemma, however, is the difficulty in making this prediction. Moreover, it assumes knowledge that a particular species actually is being imported. A pathway approach does not assume knowledge about any particular species, only that a particular set of circumstances favors the arrival of unwanted organisms. Some agencies, including APHIS and FWS, analyze the risk presented by particular species that may become invasive. However, addressing the multitude of agricultural pests relies on scarce agency resources at APHIS. In addition, FWS has been criticized for its slow response to the blacklisting of species under the Lacey Act. Both agencies would benefit from faster assessments of either species or pathways so they could direct resources to the most critical areas. Regulation by pathway is an approach suited to unintentional or unknowing introductions, as no list needs to be created. Among the most comprehensive pathway approaches to date has been the Non-indigenous Aquatic Nuisance Prevention and Control Act. Its goals put prevention on an equal or higher footing compared with control of species that are already established. It requires the participation of several federal agencies, promotes research, and implements regulations on the mid-ocean exchange of ballast water and other measures to exclude invasives from U.S. ports. A review of writings by various specialists in this field suggests a number of areas that might be explored by policymakers. The list below is compiled from many sources. Not all would require new legislation; some might benefit from congressional oversight. Research to identify pathways . Research goals in this area might overlap with research designed to prevent certain kinds of security threats and might benefit from cooperation with agencies involved in antiterrorism programs. Expert review of planned releases . Panels of experts might be created to analyze risks and make recommendations on planned releases by governmental or nongovernmental sources into any environment in which species are not native. According to NISC, steps along these lines are planned. For instance, experts could provide a public warning on planned releases of exotic grasses by federal agencies or of non-native game fish. In addition, various exotic plants are proposed as feedstocks for biofuels, and such a release might benefit from expert review. Education al campaign . An educational campaign to prevent inadvertent acts by the public might help prevent some invasive species introductions. This type of approach might be particularly effective at preventing releases of exotic pets and aquarium species after the point of sale. Warning list . An informational warning list (or gray list ) of species might be created by the collaboration of federal and state agencies. The warning list might include species currently restricted under state laws, species thought to be newly arrived from other countries, and other species felt to merit special attention by regulators. Although a gray list would lack regulatory force at the federal level, it could be designed to provide information on species whose eradication or control is in its early phases. Review of industries dependent on importing and transferring non-native species . Such a review could include a focus on cooperative methods to reduce releases after the point of sale. The focus of past efforts has tended to be on the entry of these species into the United States. To protect their businesses, import-dependent industries naturally have tried to reduce current obstacles and to prevent imposition of new ones. Yet there are other avenues to reduce risk besides prohibition. These avenues might include incentives for the sale of sterile animals or plants only or efforts to create point-of-sale educational programs about the risk of, or penalties for, releasing pets or plants into the wild. Measures to reduce the risk of exporting invasive species . The United States might take further internal steps to avoid exporting potentially invasive species to other countries. These measures could be as simple as preventing their accidental export in bilateral aid programs or certifying that identified U.S. products (e.g., used tires) are free of pests. Such certification is done for agricultural shipments. A review might examine disaster aid and emergency relief, for example; in the rush to provide humanitarian relief, shipments of supplies, equipment, and personnel may inadvertently introduce diseases or pests unknown in the receiving country. Because such supplies sometimes are prepared for shipment in advance, they could be examined to reduce the risk of such transfers. Multi-agency federal or cooperative center for first - strike prevention and control . Since the creation of NISC, agencies have begun to respond across a broad front in the days, weeks, or months after an invasion is discovered. NISC is beginning to model its efforts on interagency fire management, a federal program that has long faced similar issues. It seems possible that a similar center devoted to first-strike prevention and control of invasive species, regardless of affected industry, ecosystem, or lead agency, could provide critical support at a time when eradication of a new animal or plant invader still might be possible. These options are not mutually exclusive. They likely would be under the jurisdiction of multiple committees in both the House and Senate. They may offer opportunities for savings both to the economy and to ecosystems. | For the first few centuries after the arrival of Europeans in North America, plants and animals of many species were sent between the two continents. The transfer of non-natives consisted not only of intentional westbound species ranging from pigs to dandelions but also of intentional eastbound species, such as gray squirrels and tomatoes. And for those centuries, the remaining non-native species crossing the Atlantic, uninvited and often unwelcome, were ignored if they were noticed at all. They were joined by various species arriving deliberately or accidentally from Asia and Africa. The national focus on invasive species arose in the 19 th century, primarily owing to losses in agriculture (due to weeds or plant diseases), the leading industry of the time. A few recently arrived invasive species, and estimates of adverse economic impacts exceeding $100 billion annually, have sharpened that focus. Very broadly, the unanswered question regarding invasive species concerns whose responsibility it is to ensure economic integrity and ecological stability in response to the actual or potential impacts of invasive species. As this report shows, the current answer is not simple. It may depend on answers to many other questions: Is the introduction deliberate or accidental? Does it affect agriculture? By what pathway does the new species arrive? Is the potential harm from the species already known? Is the species already established in one area of the country? Finally, if the answers to any of these questions are unsatisfactory, what changes should be made? The specific issue before Congress is whether new legislative authorities and funding are needed to address issues related to invasive species and their increasing economic and ecological impacts on such disparate matters as power plant operations, grazing lands, and coral reef fishes. Such legislation could affect domestic and international trade, tourism, industries dependent on importing non-native species and those dependent on keeping them out, and, finally, the variety of natural resources that have little direct economic value and yet affect the lives of a broad segment of the public. In the century or so of congressional responses to invasive species, the usual approach has been an ad hoc attack on the particular problem, from impure seed stocks to Asian carp in the Chicago Sanitary and Ship Canal. A few notable attempts have begun to address specific pathways by which invasives arrive (e.g., ship ballast water), but no current law addresses the broad general concern over non-native species and the variety of paths by which they enter this country. A 1999 executive order took a step in bringing together some of the current authorities and resources to address a problem that has expanded with both increasing world trade and travel and decreasing transit time for humans and cargo. Multiple bills have been introduced on this subject in recent Congresses as well as in the 114 th Congress. There are two basic approaches to addressing invasive species: a species-by-species assessment of the risks or benefits of admitting or excluding species, and a policy based on controlling pathways of entry in which vigilance is maintained on incoming ballast tanks, cargo holds, packing materials, and similar vehicles for unwanted organisms. These two approaches may complement each other. Policymakers also have the choice of an emphasis on preventing the arrival or establishment of more invasive species versus post hoc control of species that have already arrived and become established. |
The promotion of alternatives to petroleum, including fuel ethanol, has been an ongoing goal of U.S. energy policy. This promotion has led to the establishment of significant federal policies beneficial to the ethanol industry, including tax incentives, import tariffs, and mandates for ethanol use. The costs and benefits of ethanol—and the policies that support it—have been questioned. Areas of concern include whether ethanol yields more or less energy than the fossil fuel inputs needed to produce it; whether ethanol decreases reliance on petroleum in the transportation sector; whether its use increases or decreases greenhouse gas emissions; and whether various federal policies should be maintained. This report provides background and discussion of policy issues relating to U.S. ethanol production, especially ethanol made from corn. It discusses U.S. fuel ethanol consumption both as a gasoline blending component and as an alternative to gasoline. The report discusses various costs and benefits of ethanol, including fuel costs, pollutant emissions, and energy consumption. It also outlines key areas of congressional debate on policies beneficial to the ethanol industry. Fuel ethanol (ethyl alcohol) is made by fermenting and distilling simple sugars. It is the same compound found in alcoholic beverages. The biggest use of fuel ethanol in the United States is as an additive in gasoline. It serves as an oxygenate, to prevent air pollution from carbon monoxide and ozone; as an octane booster, to prevent early ignition, or "engine knock"; and as an extender of gasoline stocks. In purer forms, it can also be used as an alternative to gasoline in automobiles specially designed for its use. It is produced and consumed mostly in the Midwest, where corn—the main feedstock for domestic ethanol production—is grown. The initial stimulus for ethanol production in the mid-1970s was the drive to develop alternative and renewable supplies of energy in response to the oil embargoes of 1973 and 1979. Since the 1970s, production of fuel ethanol has been encouraged through federal tax incentives for ethanol-blended gasoline. The use of fuel ethanol was further stimulated by the Clean Air Act Amendments of 1990, which required the use of oxygenated or reformulated gasoline (RFG). The Energy Policy Act of 2005 ( P.L. 109-58 ) established a renewable fuels standard (RFS), which mandates the use of ethanol and other transportation renewable fuels. Approximately 99% of fuel ethanol consumed in the United States is "gasohol" or "E10" (blends of gasoline with up to 10% ethanol). About 1% is consumed as "E85" (85% ethanol and 15% gasoline), and alternative to gasoline. Fuel ethanol is usually produced in the United States from the distillation of fermented simple sugars (e.g., glucose) derived primarily from corn, but also from wheat, potatoes, or other vegetables. However, ethanol can also be produced from cellulosic material such as switchgrass, rice straw, and sugar cane waste (known as bagasse). The alcohol in fuel ethanol is identical chemically to ethanol used for other purposes such as distilled spirit beverages and industrial products. Corn constitutes about 95% of the feedstock for ethanol production in the United States. The other 5% is largely grain sorghum, along with some barley, wheat, cheese whey and potatoes. Corn is used because it is a relatively low cost source of starch that can be relatively easily converted to simple sugars, and then fermented and distilled. The U.S. Department of Agriculture (USDA) estimates that about 3.2 billion bushels of corn will be used to produce about 6 billion gallons of fuel ethanol during the 2007/2008 corn marketing year (September 2007 through August 2008). This is roughly 25% of the projected 13 billion bushels of total corn utilization for all purposes. However, it should be noted that ethanol production capacity is expanding rapidly, and corn demand for ethanol production may exceed USDA's projection. In the absence of the ethanol market, lower corn prices probably would stimulate increased corn utilization in other markets, but sales revenue would not be as high. The lower prices and sales revenue would likely result in higher federal spending on corn subsidy payments to farmers, as long as corn prices were to stay below the price triggering federal loan deficiency subsidies. According to the Renewable Fuels Association, about 80% of the corn used for ethanol is processed by "dry" milling plants (which use a grinding process) and the other 20% is processed by "wet" milling plants (which use a chemical extraction process). The basic steps of both processes are similar. First, the corn is processed, with various enzymes added to separate fermentable sugars from other components such as protein and fiber; some of these other components are used to make coproducts, such as animal feed. Next, yeast is added to the mixture for fermentation to make alcohol. The alcohol is then distilled to fuel-grade ethanol that is 85%-95% pure. Then the ethanol is partially dehydrated to remove excess water. Finally, for fuel and industrial purposes the ethanol is denatured with a small amount of a displeasing or noxious chemical to make it unfit for human consumption. In the United States, the denaturant for fuel ethanol is gasoline. Ethanol is produced largely in the Midwest corn belt, with roughly 70% of the national output occurring in five states: Iowa, Nebraska, Illinois, Minnesota and South Dakota. Because it is generally less expensive to produce ethanol close to the feedstock supply, it is not surprising that the top corn-producing states in the U.S. are also the main ethanol producers. This geographic concentration is an obstacle to the use of ethanol on the East and West Coasts. Most ethanol use is in the metropolitan centers of the Midwest, where it is produced. When ethanol is used in other regions, shipping costs tend to be high, since ethanol-blended gasoline cannot travel through petroleum pipelines, but must be transported by truck, rail, or barge. However, due to Clean Air Act requirements, concerns over other fuel additives, and the establishment of a renewable fuels standard, ethanol use on the East and West Coasts is growing steadily. For example, in 1999 California and New York accounted for 5% of U.S. ethanol consumption, increasing to 22% in 2003, and 33% in 2004. The potential for expanding production geographically is one motivation behind research on cellulosic ethanol. If regions could locate production facilities closer to the point of consumption, the costs of using ethanol could be lessened. Furthermore, if regions could produce fuel ethanol from local crops, there could be an increase in regional agricultural income. Historically, ethanol production was concentrated among a few large producers. However, that concentration has declined over the past several years. Table 2 shows that currently, the top five companies account for approximately 42% of production capacity, and the top ten companies account for approximately 48% of production capacity. Critics of the ethanol industry in general—and specifically of the ethanol tax incentives—have argued that the tax incentives for ethanol production equate to "corporate welfare" for a few large producers. However, the share of production capacity controlled by the largest producers has been dropping as more producers have entered the market. Section 1501(a)(2) of the Energy Policy Act of 2005 required the Federal Trade Commission (FTC) to study whether there is sufficient competition in the U.S. ethanol industry. The FTC concluded that "the level of concentration in ethanol production would not justify a presumption that a single firm, or a small group of firms, could wield sufficient market power to set prices or coordinate on prices or output." Further, they concluded that the level of concentration has been decreasing in recent years. Overall, at the beginning of 2008, domestic ethanol production capacity was approximately 8 billion gallons per year, and is expected to grow to 13 billion gallons per year, counting existing plants and plants under construction. Under various federal and state laws and incentives, consumption has increased from 1.8 billion gallons per year in 2001 to 6.8 billion gallons per year in 2007. Domestic production capacity will continue increasing to meet the growing demand, including increased demand resulting from implementation of the renewable fuels standard established by the Energy Policy Act of 2005. Fuel is not the only output of an ethanol facility, however. Coproducts play an important role in the profitability of a plant. In addition to the primary ethanol output, the corn wet milling process generates corn gluten feed, corn gluten meal, and corn oil, and dry milling process creates distillers grains. Corn oil is used as a vegetable oil and is priced higher than soybean oil; the other coproducts are used as livestock feed. In 2004, U.S. ethanol mills produced 7.3 million metric tons of distillers grains, 2.4 million metric tons of corn gluten feed, 0.4 million metric tons of corn gluten meal, and 560 million pounds of corn oil. Revenue from the ethanol byproducts help offset the cost of corn used in ethanol production. The net cost of corn relative to the price of ethanol and the difference between ethanol and wholesale gasoline prices are the major economic determinants of the level of ethanol production. Higher the corn prices lead to lower profits for ethanol producers; higher gasoline prices lead to higher profits. Recently, high corn prices have cut into corn ethanol producers' profits. Approximately 7 billion gallons of ethanol fuel were consumed in the United States in 2007, mainly blended into E10 gasohol (a blend of 10% ethanol and 90% gasoline). This figure represents only 5% of the approximately 140 billion gallons of gasoline consumption in the same year. Under the renewable fuels standard, motor fuel will be required to contain 36 billion gallons of renewable fuel annually by 2022. It is expected that much of this requirement will be met with ethanol. Ethanol consumption in 2007 accounted for approximately 4% of combined gasoline and diesel fuel consumption. Because of its physical properties, ethanol can be more easily substituted for—or blended into—gasoline, which powers most passenger cars and light trucks. However, heavy-duty vehicles are generally diesel-fueled. For this reason, research is ongoing into ethanol-diesel blends. A key barrier to wider use of fuel ethanol is its cost relative to gasoline. Even with tax incentives for ethanol use (see the section on " Economic Effects "), the fuel is often more expensive than gasoline per gallon. Further, since fuel ethanol has a somewhat lower energy content per gallon, more fuel is required to travel the same distance. This energy loss leads to a 2%-3% decrease in miles-per-gallon vehicle fuel economy with 10% gasohol. This is due to the fact that there is simply less energy in one gallon of ethanol than in one gallon of gasoline, as opposed to any detrimental effect on the efficiency of the engine. However, ethanol's chemical properties make it very useful for some applications, especially as an additive in gasoline. The oxygenate requirement of the Clean Air Act Reformulated Gasoline (RFG) program provided a major boost to the use of ethanol. Oxygenates are used to promote more complete combustion of gasoline, which reduces carbon monoxide (CO) emissions and may reduce volatile organic compound (VOC) emissions. In addition, oxygenates can replace other chemicals in gasoline, such as benzene, a toxic air pollutant. Conversely, the higher volatility of ethanol-blended gasoline can in some cases lead to higher VOC emissions (see " Air Quality " below). The two most common oxygenates are ethanol and methyl tertiary butyl ether (MTBE). Until recently, MTBE, made primarily from natural gas or petroleum products, was preferred to ethanol in most regions because it was generally much less expensive, easier to transport and distribute, and available in greater supply. Because of different distribution systems and gasoline blending processes, substituting one oxygenate for another can lead to significant transitional costs, in addition to the cost differential between the two additives. Despite the cost differential, there are several possible advantages of using ethanol over MTBE. Since ethanol is produced from agricultural products, it has the potential to be a sustainable fuel, while MTBE is produced from fossil fuels, either natural gas or petroleum. In addition, ethanol is readily biodegradable, eliminating some of the potential concerns about groundwater contamination that have surrounded MTBE (see the section on MTBE). However, there is concern that ethanol use can increase the risk of groundwater contamination by benzene and other toxic compounds. Both ethanol and MTBE also can be blended into otherwise non-oxygenated gasoline to raise the octane rating of the fuel. High-performance engines and older engines often require higher octane fuel to prevent early ignition, or "engine knock." Other chemical additives may be used for the same purpose, but some of these alternatives are highly toxic, and some are regulated as pollutants under the Clean Air Act. Furthermore, since these other additives do not contain oxygen, their use may not lead to the same emissions reductions as oxygenated gasoline. In purer forms, such as E85, ethanol can also be used as an alternative to gasoline in vehicles specifically designed to use it. Currently, this use represents only approximately 1% of ethanol consumption in the United States. To promote the development of E85 and other alternative fuels, Congress has enacted various legislative requirements and incentives. The Energy Policy Act of 1992 requires the federal government and state governments, along with businesses in the alternative fuel industry, to purchase alternative-fueled vehicles. In addition, under the Clean Air Act Amendments of 1990, municipal fleets can use alternative fuel vehicles as one way to mitigate air quality problems. Both E85 and E95 (95% ethanol with 5% gasoline) are currently considered alternative fuels by the Department of Energy. The small amount of gasoline added to the alcohol helps prevent corrosion of engine parts and aids ignition in cold weather. Approximately 22 million gasoline-equivalent gallons (GEG) of E85 were consumed in 2004, mostly in Midwestern states. (See Table 3 .) A key reason for the relatively low consumption of E85 is that there are relatively few vehicles that operate on E85. In 2006 the National Ethanol Vehicle Coalition estimated that there were approximately six million E85-capable vehicles on U.S. roads, as compared to approximately 230 million gasoline- and diesel-fueled vehicles. Most E85-capable vehicles are "flexible fuel vehicles" or FFVs. An FFV can operate on any mixture of gasoline and 0% to 85% ethanol. A large majority of FFVs on U.S. roads are fueled exclusively on gasoline. In 2004, approximately 146,000 flexible fuel vehicles (FFVs) were actually fueled by E85. Proponents of E85 and FFVs argue that even though few FFVs are operated on E85, the large number of these vehicles already on the road means that incentives to expand E85 infrastructure are more likely to be successful. One obstacle to the use of alternative fuel vehicles is that they generally have a higher purchase price than conventional vehicles, although this margin has decreased in recent years with newer technology. Another obstacle is that, as stated above, fuel ethanol is often more expensive than gasoline or diesel fuel. In addition, there are very few fueling sites for E85, especially outside of the Midwest. As of February 2006, there were 556 fuel stations with E85, as compared to roughly 120,000 gasoline stations across the country. Further, 362 (65%) of these stations were located in the five highest ethanol-producing states: Minnesota, Illinois, Iowa, South Dakota, and Nebraska. In February 2006, there were only 60 stations in 10 states along the east and west coasts, where population—and thus fuel demand—is higher. However, E85 capacity is expanding rapidly, and the number of E85 stations nearly tripled (to 1,365) between February 2006 and March 2008, and the number along the coasts had increased to 146 stations in 13 states (although roughly half of all stations are still in the top five ethanol-producing states). A key barrier to ethanol's expanded role in U.S. fuel consumption is its price differential with gasoline. Since a major part of the total production cost is the cost of feedstock, reducing feedstock costs could lead to lower wholesale ethanol costs. For this reason, there is a great deal of interest in producing ethanol from cellulosic feedstocks. Cellulosic materials include low-value waste products such as recycled paper and rice hulls, or dedicated fuel crops, such as switchgrass and fast-growing trees. A dedicated fuel crop would be grown and harvested solely for the purpose of fuel production. However, as the name indicates, cellulosic feedstocks are high in cellulose. Cellulose forms a majority of plant matter, but it is generally fibrous and cannot be directly fermented. It must first be broken down into simpler molecules, which is currently expensive. A 2000 study by USDA and the National Renewable Energy Laboratory (NREL) estimated a 70% increase in production costs with large-scale ethanol production from cellulosic biomass compared with ethanol produced from corn. Therefore, federal research has focused on both reducing the process costs for cellulosic ethanol and improving the availability of cellulosic feedstocks. The Natural Resources Defense Council estimates that with mature technology, advanced ethanol production facilities could produce significant amounts of fuel at $0.59 to $0.91 per gallon (before taxes) by 2012, a price that is competitive with Energy Information Administration (EIA) projections for gasoline prices in 2012. Other potential benefits from the development of cellulosic ethanol include lower greenhouse gas and air pollutant emissions and a higher energy balance than corn-based ethanol. Further, expanding the feedstocks for ethanol production could allow areas outside of the Midwest to produce ethanol with local feedstocks. In his 2006 State of the Union Address, President Bush announced an expansion of biofuels research at the Department of Energy. A stated goal in the speech is to make cellulosic ethanol "practical and competitive within six years," with a potential goal of reducing Middle East oil imports by 75% by 2025. This goal would require an increase in ethanol consumption to as much as 60 billion gallons, from 4.9 billion gallons in 2004. As part of the FY2007 DOE budget request, the Administration sought an increase of 65% above FY2006 funding for "Biomass and Biorefinery Systems R&D," which includes research into cellulosic ethanol. In his 2007 State of the Union Address, President Bush further defined a goal of increasing the use of renewable and alternative fuels to 35 billion gallons by 2017. This would mean a roughly seven-fold increase from 2006 levels. Such an increase would most likely be infeasible using corn and other grains as feedstocks. Therefore, the President's goal will likely require significant breakthroughs in technology to convert cellulose into motor fuels. As stated above, the Energy Independence and Security Act of 2007 ( P.L. 110-140 ) expanded the renewable fuel standard (RFS). Further, starting in 2016, and increasing share of the RFS must come from "advanced biofuels," such as cellulosic ethanol, ethanol from sugar cane, and biodiesel. Further, of the advanced biofuel mandate (which reaches 21 billion gallons in 2022), there is a specific carve-out for cellulosic biofuels (reaching 16 billion gallons in 2022). Ethanol's relatively high price is a major constraint on its use as an alternative fuel and as a gasoline additive. As a result, ethanol has not been competitive with gasoline except with incentives. Wholesale ethanol prices, excluding incentives from the federal government and state governments, are significantly higher than wholesale gasoline prices. With federal and state incentives, however, the effective price of ethanol is reduced. Furthermore, gasoline prices have risen recently, making ethanol more attractive as both a blending component and as an alternative fuel. Before 2004, the primary federal incentive supporting the ethanol industry was a 5.2 cents per gallon exemption that blenders of gasohol (E10) received from the 18.4¢ federal excise tax on motor fuels. Because the exemption applied to blended fuel, of which ethanol comprises only 10%, the exemption provided for an effective subsidy of 52 cents per gallon of pure ethanol. The 108 th Congress replaced this exemption with an income tax credit of 51 cents per gallon of pure ethanol used in blending ( P.L. 108-357 ). Table 4 shows that ethanol and gasoline prices are competitive on a per gallon basis when the ethanol tax credit is factored in. However, the energy content of a gallon of ethanol is about one third lower than a gallon of gasoline. As Table 4 shows, on an equivalent energy basis, ethanol can be significantly more expensive than gasoline, even with the tax credit. The comparative cost figures in Table 4 are for ethanol as a blending component in gasoline. However, the use of E85 in flexible fuel vehicles has been associated with improved combustion efficiency. The National Ethanol Vehicle Coalition estimates that FFVs run on E85 experience a 5% to15% decrease in miles-per-gallon fuel economy, as opposed to the 29% drop in Btu content per gallon. Therefore, on a per-mile basis, E85's cost premium is likely in the middle of these above estimates. Many proponents and opponents agree that the ethanol industry might not survive without tax incentives. An economic analysis conducted in 1998 by the Food and Agriculture Policy Research Institute, concurrent with the congressional debate over extension of the excise tax exemption, concluded that elimination of the exemption would cause annual ethanol production from corn to decline roughly 80% from 1998 levels. The tax incentives for ethanol are criticized by some as "corporate welfare," encouraging the inefficient use of agricultural and other resources and depriving the government of needed revenues. In 1997, the General Accounting Office estimated that the excise tax exemption reduced Highway Trust Fund by $7.5 to $11 billion over the 22 years from FY1979 to FY2000. Proponents of the tax incentive argue that ethanol leads to better air quality and reduced greenhouse gas emissions, and that substantial benefits flow to the agriculture sector due to the increased demand for corn to produce ethanol. Furthermore, they argue that the increased market for ethanol reduces oil imports and strengthens the U.S. trade balance. One often-cited benefit of ethanol use is improvement in air quality. The Clean Air Act Amendments of 1990 ( P.L. 101-549 ) created the Reformulated Gasoline (RFG) program, which was a major impetus to the development of the U.S. ethanol industry. The Energy Policy Act of 2005 ( P.L. 109-58 ) made significant changes to that program that directly affect U.S. markets for gasoline and ethanol. Through 2005, ethanol was primarily used in gasoline to meet a minimum oxygenate requirement for RFG. RFG is used to reduce vehicle emissions in areas that are in severe or extreme nonattainment of National Ambient Air Quality Standards (NAAQS) for ground-level ozone. Ten metropolitan areas, including New York, Los Angeles, Chicago, Philadelphia, and Houston, are covered by this requirement, and many other areas with less severe ozone problems have opted into the program, as well. In these areas, RFG is used year-round. EPA states that RFG has led to significant improvements in air quality, including a 17% reduction in volatile organic compound (VOC) emissions from vehicles, and a 30% reduction in emissions of toxic air pollutants. Furthermore, according to EPA, "ambient monitoring data from the first year (1995) of the RFG program also showed strong signs that RFG is working. For example, detection of benzene (one of the air toxics controlled by RFG, and a known human carcinogen) declined dramatically, with a median reduction of 38% from the previous year." However, the benefits of oxygenates in RFG have been questioned. Although oxygenates lead to lower emissions of carbon monoxide (CO), in some cases they may lead to higher emissions of nitrogen oxides (NO X ) and VOCs. Since all three contribute to the formation of ozone, the National Research Council concluded that while RFG certainly leads to improved air quality, the oxygenate requirement in RFG may have little overall impact on ozone formation. In fact, in some areas, the use of low-level blends of ethanol (10% or less) may actually lead to increased ozone formation due to atmospheric conditions in that specific area. Some argue that the main benefit of oxygenates is that they displace other, more dangerous compounds found in gasoline such as benzene. Furthermore, high gasoline prices have also raised questions about the cost-effectiveness of the RFG program. Evidence that the most widely used oxygenate, methyl tertiary butyl ether (MTBE), contaminates groundwater led to a push by some to eliminate the oxygen requirement in RFG. MTBE has been identified as an animal carcinogen, and there is concern that it is a possible human carcinogen. In California, New York, and Connecticut, MTBE was banned as of January 2004, and several states have followed suit. Some refiners claimed that the environmental goals of the RFG program could be achieved through cleaner, although potentially more costly, gasoline that does not contain any oxygenates. These claims added to the push to remove the oxygenate requirement and allow refiners to produce RFG in the most cost-effective manner, whether or not that includes the use of oxygenates. However, since oxygenates also displace other harmful chemicals in gasoline, some environmental groups were concerned that eliminating the oxygenate requirements would compromise air quality gains resulting from the current standards. This potential for "backsliding" is a result of the fact that the current performance of RFG is substantially better than the Clean Air Act requires. If the oxygenate standard were eliminated, environmental groups feared that refiners would only meet the requirements of the law, as opposed to maintaining the current overcompliance. The amendments to the RFG program in P.L. 109-58 require refiners to blend gasoline in a way that maintains the toxic emissions reductions achieved in 2001 and 2002. P.L. 109-58 made substantial changes to the RFG program. Section 1504(a) eliminated the RFG oxygenate standard as of May 2006, and required EPA to revise its regulations on the RFG program to allow the sale of non-oxygenated RFG. This revision is effective May 6, 2006 in most areas of the country. The air quality benefits from purer forms of ethanol can be substantial. Compared to gasoline, use of E85 can result in a significant reduction in ozone-forming vehicle emissions in urban areas. And while the use of ethanol also leads to increased emissions of acetaldehyde, a toxic air pollutant, as defined by the Clean Air Act, these emissions can be controlled through the use of advanced catalytic converters. However, as stated above, purer forms of ethanol have not been widely used. A frequent argument for the use of ethanol as a motor fuel is that it reduces U.S. reliance on oil imports, making the U.S. less vulnerable to a fuel embargo of the sort that occurred in the 1970s. To analyze the net energy consumption of ethanol, the entire fuel cycle must be considered. The fuel cycle consists of all inputs and processes involved in the development, delivery and final use of the fuel. For corn-based ethanol, these inputs include the energy needed to produce fertilizers, operate farm equipment, transport corn, convert corn to ethanol, and distribute the final product. According to a fuel-cycle study by Argonne National Laboratory, with current technology the use of corn-based E10 leads to a 3% reduction in fossil energy use per vehicle mile relative to gasoline, while use of E85 leads to roughly a 40% reduction in fossil energy use. However, other studies question the Argonne study, suggesting that the amount of energy needed to produce ethanol is roughly equal to the amount of energy obtained from its combustion. Since large amounts of fossil fuels are used to make fertilizer for corn production and to run ethanol plants, ethanol use could lead to little or no net reduction in fossil energy use. Nevertheless, a recent meta-study of research on ethanol's energy balance and greenhouse gas emissions found that most studies give corn-based ethanol a slight positive energy balance. However, because most of the energy used to produce ethanol comes from natural gas or electricity, most studies conclude that overall petroleum dependence (as opposed to energy dependence) can be significantly diminished through expanded use of ethanol. Despite the fact that ethanol displaces gasoline, the benefits to energy security from corn-based ethanol are not certain. As stated above, fuel ethanol only accounts for approximately 2.5% of gasoline consumption in the United States by volume. In terms of energy content, ethanol accounts for approximately 1.5%. This small market share led the Government Accountability Office (formerly the General Accounting Office) to conclude that the ethanol tax incentive has done little to promote energy security. Further, as long as ethanol remains dependent on the U.S. corn supply, any threats to this supply (e.g., drought), or increases in corn prices, would negatively affect the supply and/or cost of ethanol. In fact, that happened when high corn prices caused by strong export demand in 1995 contributed to an 18% decline in ethanol production between 1995 and 1996. Because cellulosic feedstocks require far less fertilizer for their production, the energy balance and other benefits of cellulosic ethanol could be significant. The Argonne study concluded that with advances in technology, the use of cellulose-based E10 could reduce fossil energy consumption per mile by 8%, while cellulose-based E85 could reduce fossil energy consumption by roughly 70%. Directly related to fossil energy consumption is the question of greenhouse gas emissions. Proponents of ethanol argue that over the entire fuel cycle it has the potential to reduce greenhouse gas emissions from automobiles relative to gasoline, therefore reducing the risk of possible global warming. Because ethanol contains carbon, combustion of the fuel necessarily results in emissions of carbon dioxide (CO 2 ), the primary greenhouse gas. Further, greenhouse gases are emitted through the production and use of nitrogen-based fertilizers, as well as the operation of farm equipment and vehicles to transport feedstocks and finished products. However, since photosynthesis (the process by which plants convert light into chemical energy) requires absorption of CO 2 , the growth cycle of the feedstock crop can serve—to some extent—as a "sink" to absorb some fuel-cycle greenhouse emissions. According to the Argonne study, overall fuel-cycle greenhouse gas emissions from corn-based E10 (measured in grams per mile) are approximately 1% lower than from gasoline, while emissions are approximately 20% lower with E85. Other studies that conclude higher fuel-cycle energy consumption for ethanol production also conclude higher greenhouse gas emissions for the fuel. The meta-study on energy consumption and greenhouse gas emissions concluded that pure ethanol results in 13% lower greenhouse gas emissions, with approximately a 10% reduction using E85. Because of the limited use of fertilizers, fossil energy consumption—and thus greenhouse gas emissions—is significantly reduced with ethanol production from cellulosic feedstocks. The Argonne study concludes that with advances in technology, cellulosic E10 could reduce greenhouse gas emissions by 7% to 10% relative to gasoline, while cellulosic E85 could reduce greenhouse gas emissions by 67% to 89%. The meta-study of energy consumption and greenhouse gas emissions found a similar potential for greenhouse gas reductions. A key criticism of fuel-cycle analyses is that they generally do not take changes in land use into account. For example, if a previously uncultivated piece of land is tilled to plant biofuel crops, some of the carbon stored in the field could be released. In that case, the overall GHG benefit of biofuels could be compromised. One study estimates that taking land use into account (a lifecycle analysis as opposed to a fuel-cycle analysis), the GHG reduction from corn ethanol is less than 3% per mile relative to gasoline, while cellulosic biofuels have a life-cycle reduction of 50%. Other recent studies indicate even smaller GHG reductions. This is of key interest because under the RFS, as amended by P.L. 110-140 , to qualify under the mandate, all fuels from new biofuel refineries must achieve at least a 20% reduction in lifecycle greenhouse gas emissions. Further, to qualify as advanced biofuels, they must achieve a 50% reduction in lifecycle emissions. EPA is tasked with developing regulations to rate fuels on their lifecycle emissions, and determining which fuels qualify under the new standard. Recent congressional interest in ethanol fuels has mainly focused on six policies and issues: (1) the renewable fuel standard; (2) "boutique" fuels; (3) the alcohol fuel tax incentives; (4) ethanol imports through Caribbean Basin Initiative (CBI) countries; (5) fuel economy credits for dual fuel vehicles; and (6) the role of biofuels in the upcoming Farm Bill. In the 109 th and 110 th Congresses, several of these issues were debated during consideration of the Energy Policy Act of 2005 ( P.L. 109-58 ) and the Energy Independence and Security Act of 2007 ( P.L. 110-140 ). The renewable fuels standard requires motor fuel to contain a minimum amount of fuel produced from renewable sources such as biomass, solar, or wind energy. Proposals to establish an RFS gained traction as part of the discussion over comprehensive energy policy. Supporters argued that demand for ethanol creates jobs, and that there are major environmental and energy security benefits to using renewable fuels. However, opponents argued that any renewable fuel standard would only exacerbate a situation of artificial demand for ethanol created by tax incentives and fuel quality standards. Any requirement above the existing level for ethanol would require the construction and/or expansion of ethanol plants, and likely would lead to increased fuel prices and further instability in an already tight fuel supply chain. Further, they argued that a renewable fuel standard would lead to increased corn prices caused by higher demand. On August 8, 2005, President Bush signed the Energy Policy Act of 2005 ( P.L. 109-58 ). Section 1501 required the use of at least 4.0 billion gallons of renewable fuel in 2006, increasing to 7.5 billion gallons in 2012 (see Table 5 ). Through 2007 the requirement was largely met using ethanol, although other fuels such as biodiesel played a limited role. The law directed EPA to establish a credit trading system to provide flexibility to fuel producers. Further, under the RFS, ethanol produced from cellulosic feedstocks was granted extra credit: a gallon of cellulosic ethanol counted as 2.5 gallons of renewable fuel under the RFS. Also, P.L. 109-58 required that 250 million gallons of cellulosic ethanol be blended in gasoline annually starting in 2013. The Energy Independence and Security Act of 2007 ( P.L. 110-140 ), signed by President Bush on December 19, 2007, significantly expanded the RFS, requiring the use of 9.0 billion gallons of renewable fuel in 2008, increasing to 36 billion gallons in 2022. Further, P.L. 110-140 requires an increasing amount of the mandate be met with "advanced biofuels"—biofuels produced from feedstocks other than corn starch (and with 50% lower lifecycle greenhouse gas emissions than petroleum fuels). Within the advanced biofuel mandate, there are specific carve-outs for cellulosic biofuels and bio-based diesel substitutes (e.g., biodiesel). Ethanol producers are rapidly expanding capacity in order to meet the increased demand created by the RFS. Between January 2005 and January 2008, U.S. ethanol production capacity expanded from 3.6 billion gallons per year to 7.2 billion gallons per year. EPA is required to establish a system for suppliers to generate and trade credits earned for exceeding the standard in a given year. Credits can then be purchased by other suppliers to meet their quotas. On May 1, 2007, EPA released a final rulemaking for 2007 and beyond. Included in the rule were provisions for credit trading, as well as provisions for generating credits from the sale of biodiesel and other fuels. Because of the changes in the RFS from P.L. 110-140 , EPA will need to publish new rules to reflect those changes. Perhaps most importantly, EPA will need to develop rules for determining the lifecycle greenhouse gas emissions (see " Greenhouse Gas Emissions " above). Fuels from new biorefineries must achieve at least a 20% lifecycle greenhouse gas reduction relative to petroleum fuels, and advanced biofuels must achieve at least a 50% reduction. The effects of such an increase in ethanol production could be significant, especially if that ethanol comes from corn. These effects include increased corn demand and higher corn prices, leading to higher costs for food (especially in places where corn is a significant part of the local diet) and higher animal feed prices (and higher meat prices). Expanded ethanol use could also strain an already tight ethanol distribution system that is dependent on rail cars for transport, since ethanol may not be transported by pipeline in the United States. Other concerns include the potential for increased water use for corn cultivation and the increased use of chemical fertilizers and pesticides. As a result of the federal reformulated gasoline requirements, as well as related state and local environmental requirements, gasoline suppliers may face several different standards for gasoline quality in different parts of one state or in adjacent states. These different standards sometimes require a supplier to provide several different fuel formulations in a region. These different formulations are sometimes referred to as "boutique" fuels. Because of varying requirements, if there is a disruption to the supply of fuel in one area, refiners producing fuel for other nearby areas may not be able to supply fuel quickly enough to meet the increased demand. EPA conducted a study on the effects of harmonizing standards and released a staff white paper in October 2001. EPA modeled several scenarios, some with limited changes to the existing system, others with drastic changes. In its preliminary analysis, EPA concluded that some minor changes could be made that might mitigate supply disruptions without significantly increasing costs or adversely affecting vehicle emissions. However, all of the changes modeled in EPA's study would require amendments to various provisions in the Clean Air Act. Congressional interest has centered on the question of whether the various standards could be harmonized to reduce the number of gasoline formulations. Section 1504(c) of P.L. 109-58 consolidates two summertime RFG formulations into one fuel, eliminating one class of fuel. Further, P.L. 109-58 prohibits the number of state fuel blends from exceeding the number as of September 1, 2004. However, many of the larger systemic issues were not addressed. As stated above, the ethanol tax incentives are controversial. The incentives allow fuel ethanol to compete with other additives, since the wholesale price of ethanol is so high. Proponents of ethanol argue that the incentives lower dependence on foreign imports, promote air quality, and benefit farmers. Opponents argue that the tax incentives support an industry that could not exist on its own. Despite objections from opponents, Congress in 1998 extended the motor fuels excise tax exemption through 2007, but at slightly lower rates. To eliminate concerns over Highway Trust Fund revenue losses, the 108 th Congress replaced the excise tax exemption with an income tax credit, effectively transferring the effects of the incentive from the Highway Trust Fund to the general treasury, and extending the incentive through 2010. There is growing concern over ethanol imports among some stakeholders. Because of lower production costs and/or government incentives, ethanol prices in Brazil and other countries can be significantly lower than in the United States. To offset the U.S. tax incentives that all ethanol (imported or domestic) receives, most imports are subject to a relatively small 2.5% ad valorem tariff, but more significantly an added duty of $0.54 per gallon. This duty effectively negates the tax incentives for covered imports, and has been a significant barrier to ethanol imports. However, under certain conditions imports of ethanol from Caribbean Basin Initiative (CBI) countries are granted duty-free status. This is true even if the ethanol was actually produced in a non-CBI country. In this scenario the ethanol is dehydrated in a CBI country, then shipped to the United States. This avenue for avoiding the duty by imported ethanol has been criticized by some stakeholders, including some Members of Congress. On December 20, 2006, President Bush signed the Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ). Among other provisions, the act extended the duty on imported ethanol through December 31, 2008. The Energy Policy and Conservation Act (EPCA) of 1975 requires Corporate Average Fuel Economy (CAFE) standards for motor vehicles. Under EPCA, the average fuel economy of all vehicles of a given class that a manufacturer sells in a model year must be equal to or greater than the standard for that class. These standards were first enacted in response to the desire to reduce petroleum consumption and promote energy security after the Arab oil embargo. The model year 2007 standard for passenger cars is 27.5 miles per gallon (mpg), while the standard for light trucks is 22.2 mpg. EPCA (and subsequent amendments to it) provides manufacturing incentives for alternative fuel vehicles, including ethanol vehicles. For each alternative fuel vehicle a manufacturer produces, the manufacturer generates credits toward meeting the CAFE standards. These credits can be used to increase the manufacturer's average fuel economy. Credits apply to both dedicated and dual fuel vehicles. Dual fuel vehicles can be operated on both a conventional fuel (gasoline or diesel) and an alternative fuel, usually ethanol. Opponents have raised concerns that while manufacturers are receiving credits for production of these dual fuel vehicles, they are generally operated solely on gasoline, because of the cost and unavailability of alternative fuels. This claim is supported by the fact that EIA estimates that only about 2% of flexible fuel vehicles are currently operated on E85. Supporters of the credits counter that the incentives are necessary for the production of alternative fuel vehicles, and that as the number of vehicles increases, the infrastructure for alternative fuels will grow. However, the success of this strategy has been limited to date. The credits were set to expire at the end of the 2004 model year. However, in 2004 the Department of Transportation (DOT) issued a final rule extending the credits through model year 2008. Section 772 of P.L. 109-58 extended the credits through model year 2010, and extended DOT's authority (to continue the credits) through 2014. It is expected that the 110 th Congress will reauthorize existing farm programs and promote new programs as part of a new Farm Bill. Most of the provisions of the most recent Farm Bill—The Farm Security and Rural Investment Act of 2002 ( P.L. 107-171 )—expired in 2007. On July 27, 2007, the House approved a new farm bill, H.R. 2419 . Title IX would expand and extend several provisions from the 2002 farm bill's energy title, with substantial increases in funding and a heightened focus on developing cellulosic energy production, and a move away from corn-starch-based ethanol. The Senate passed its version on December 14, 2007. The Senate version would expand 2002 Farm Bill programs, create new tax incentives for cellulosic ethanol, and require studies on expanded biofuel infrastructure. As of March 2008, a conference on the House and Senate bills was pending. Although the use of fuel ethanol has been limited to date (only about 3% to 5% of gasoline consumption), it has the potential to significantly displace petroleum demand. However, the overall benefits in terms of energy consumption and greenhouse gases are limited, especially in the case of corn-based ethanol. With only a slight net energy benefit from the use of corn-based ethanol, transportation energy demand is essentially transferred from one fossil fuel (petroleum) to another (natural gas and/or coal). There may be strategic benefits from this transfer, especially if the replacement fuel comes from domestic sources or from foreign sources in more stable areas. However, the benefits in terms of greenhouse gas emissions reductions is limited. Cellulosic feedstocks have the potential to dramatically improve the benefits of fuel ethanol. Their use could significantly decrease the energy (from all sources) required to produce the fuel, as well as decreasing associated greenhouse gases. However, technologies to convert cellulose to ethanol at competitive costs seem distant. For this reason, there is wide support for increased federal R&D. Federal incentives for ethanol use—including tax incentives, the RFG oxygenate standard, and the renewable fuels standard—have promoted significant growth in the ethanol market. Annual U.S. ethanol production increased from 175 million gallons in 1980 to 6.8 billion gallons in 2007, largely as a result of these incentives. Federal incentives drive demand for the fuel, as well as making its price competitive with gasoline. Enacted as part of the Energy Policy Act of 2005 and expanded by the Energy Independence and Security Act of 2007, the renewable fuels standard will continue to drive growth in the ethanol market, as it mandates a minimum annual amount (increasing yearly) of renewable fuel in gasoline. While other fuels will be used to some extent to meet the standard, the a large share of the mandate will be met with ethanol. The increasing demand for ethanol may lead to price pressures on motor fuel. These price pressures—and ethanol supply concerns in general—could increase interest in eliminating the tariff on imported ethanol. Congress will likely continue to show interest in ethanol's energy and environmental costs and benefits, as well as its effects on U.S. fuel markets. Any discussion of U.S. energy policy includes promotion of alternatives to petroleum. With limited petroleum supplies, high prices, and instability in some oil-producing regions, these discussions are unlikely to end any time soon. | Ethanol plays a key role in policy discussions about energy, agriculture, taxes, and the environment. In the United States it is mostly made from corn; in other countries it is often made from cane sugar. Fuel ethanol is generally blended in gasoline to reduce emissions, increase octane, and extend gasoline stocks. Recent high oil and gasoline prices have led to increased interest in alternatives to petroleum fuels for transportation. Further, concerns over climate change have raised interest in developing fuels with lower fuel-cycle greenhouse-gas emissions. Supporters of ethanol argue that its use can lead to lower emissions of toxic and ozone-forming pollutants, and greenhouse gases, especially if higher-level blends are used. They further argue that ethanol use displaces petroleum imports, thus promoting energy security. Ethanol's detractors argue that various federal and state policies supporting ethanol distort the market and amount to corporate welfare for corn growers and ethanol producers. Further, they argue that the energy and chemical inputs needed to turn corn into ethanol actually increase emissions and energy consumption, although most recent studies have found modest energy and emissions benefits from ethanol use relative to gasoline, depending on how the ethanol is produced. The market for fuel ethanol is heavily dependent on federal incentives and regulations. Ethanol production is encouraged by a federal tax credit of 51 cents per gallon. This incentive allows ethanol—which has historically been more expensive than conventional gasoline—to compete with gasoline and other blending components. In addition to the above tax credit, small ethanol producers qualify for an additional production credit. It has been argued that the fuel ethanol industry could scarcely survive without these incentives. In addition to the above tax incentives, the Energy Policy Act of 2005 (P.L. 109-58) established a renewable fuel standard (RFS). This RFS was expanded by the Energy Independence and Security Act of 2007 (P.L. 110-140), and requires the use of 9.0 billion gallons of renewable fuels in 2008, increasing each year to 36 billion gallons in 2022. Much of this requirement will likely be met with ethanol. In addition, the bill requires that an increasing share of the mandate be met with "advanced biofuels"—biofuels produced from feedstocks other than corn starch. Potential "advanced biofuels" include domestic ethanol from cellulosic material (such as perennial grasses and municipal solid waste), ethanol from sugar cane, and diesel fuel substitutes produced from a variety of feedstocks. The United States consumed approximately 6.8 billion gallons of ethanol in 2007, mostly from corn. A significant supply of cellulosic ethanol is likely several years off. Some analysts believe the RFS could have serious effects on motor fuel suppliers, leading to higher fuel prices. Other issues of congressional interest include support for purer blends of ethanol as an alternative to gasoline (as opposed to a gasoline blending component), promotion of ethanol vehicles and infrastructure, and imports of ethanol from foreign countries. This report supersedes CRS Report RL30369, Fuel Ethanol: Background and Public Policy Issues, by [author name scrubbed] and [author name scrubbed] (out of print but available from the authors). |
Regulation, like taxing and spending, is a basic function of government. Each year, federal agencies issue between 3,000 and 4,000 final rules on topics ranging from the timing of bridge openings to the permissible levels of arsenic and other contaminants in drinking water. Unlike taxing and spending, however, the costs that nonfederal entities pay to comply with federal regulations are not accounted for in the federal budget process. Some policy makers have expressed an interest in measuring total regulatory costs and benefits. For example, the Congressional Office of Regulatory Analysis Creation and Sunset and Review Act of 2011 ( H.R. 214 , 112 th Congress) would require the newly created office to issue "an annual report including estimates of the total costs and benefits of all existing Federal regulations." As discussed later in this report, for nearly 14 years, Congress has required the Office of Management and Budget (OMB) to prepare a report each year on the aggregate costs and benefits of federal rules. However, measuring total regulatory costs and benefits is inherently difficult. For example, researchers must determine the baseline for measurement (i.e., what effects would have occurred in the absence of the regulation) and aggregating the results of studies conducted years earlier with different methodologies and quality can be highly problematic. Some observers, including OMB, currently doubt whether an accurate measure of total regulatory costs and benefits is possible. In September 2010, the Office of Advocacy within the Small Business Administration (SBA) released a report prepared for the office by Nicole V. Crain and W. Mark Crain entitled "The Impact of Regulatory Costs on Small Firms." Among other things, the report stated that the annual cost of federal regulations in 2008 was about $1.75 trillion. The September 2010 report was the fourth such report prepared for the SBA Office of Advocacy in the previous 15 years: In 1995, Thomas D. Hopkins estimated annual federal regulatory costs that year to be between $416 billion and $668 billion. In 2001, W. Mark Crain and Hopkins estimated the annual cost of regulations in the year 2000 at $843 billion. In 2005, W. Mark Crain estimated annual regulatory costs in 2004 at about $1.1 trillion. The $1.75 trillion estimate of regulatory costs has been widely quoted in the press, by witnesses at congressional hearings, and by Members of Congress, and it has been cited as evidence of the need for regulatory reform legislation and congressional oversight actions. Other observers, however, have criticized the estimate, saying that it overstates the total cost of federal regulations. This report examines how Crain and Crain developed the $1.75 trillion estimate of federal regulatory costs in 2008. It also compares the $1.75 trillion estimate for 2008 with the $1.1 trillion estimate for 2004, and with OMB's estimates of regulatory costs in 2008. Crain and Crain developed their $1.75 trillion estimate of total regulatory costs by adding together cost estimates for each of four categories or types of regulation: economic regulations ($1.236 trillion); environmental regulations ($281 billion); tax compliance ($160 billion); and regulations involving occupational safety and health, and homeland security ($75 billion). As Figure 1 below illustrates, the estimated cost of economic regulations was more than 70% of the authors' estimate of total regulatory costs. According to the Crain and Crain report, "[e]conomic regulations include a wide range of restrictions and incentives that affect the way businesses operate—what products and services they produce, how and when they produce them, and how products and services are priced and marketed to consumers." They said such regulations affect both domestic and international business operations, and include quotas and tariffs on foreign imports that "limit competition from outside the United States, restrict production and employment, raise prices, and generally curtail U.S. economic activities." To develop an estimate of the cost of economic regulations, Crain and Crain used a Worldwide Governance Index (WGI) of "regulatory quality" that was developed by Aart Kraay and Massimo Mastruzzi of the World Bank, and Daniel Kaufmann of the Brookings Institution. According to Crain and Crain, the WGI regulatory quality index "measures perceptions of the ability of governments to formulate and implement sound policies and regulations that permit and promote private sector development." Crain and Crain said the index was calibrated to range between -2.5 and +2.5, and that +2.5 represented "the minimal amount of regulation." In 2008, the WGI regulatory quality index score for the United States was +1.579. Crain and Crain used regression analysis in an effort to determine the impact of changes in the regulatory quality index on real Gross Domestic Product (GDP) per capita, holding constant four other variables that they said the literature suggests explain differences in economic development across countries and over time: country population, primary education as a share of the eligible population, foreign trade as a share of GDP, and fixed broadband subscribers per 100 people. Using this approach, Crain and Crain concluded that a one-unit change in the WGI regulatory quality index (e.g., a change from +1.5 to +2.5 on the scale) represented a 9.4% change in real GDP per capita. Because the regulatory quality index for the United States in 2008 was +1.579, Crain and Crain said that the 0.921 difference between that value and the +2.5 maximum represented an 8.7% reduction in GDP (0.094 times 0.921) because of economic regulations. Because GDP in the United States was about $14.2 trillion in 2008, Crain and Crain concluded that the types of economic regulations included in the regulatory quality index reduced real GDP per capita in the United States by about $1.236 trillion ($14.2 trillion times 0.087). According to Kaufmann, Kraay, and Mastruzzi, the WGI index of regulatory quality for the United States in 2008 was determined by aggregating six expert-based measures and two surveys, each of which was scored on a 0 to 1 scale. The six expert-based measures, their scores, and the particular factors considered in each measure were as follows: Economist Intelligence Unit (scored at 0.70), a commercial business information provider headquartered in London, England. The score is based on its experts' judgment of 16 factors, including "protectionism in the country negatively affects the conduct of business," "access to capital markets (foreign and domestic) is easily available," "real corporate taxes are non distortionary," "labor regulations hinder business activities," and "easy to start a business." Global Insight Business Conditions and Risk Indicators (scored at 0.94). Global Insight is a commercial business information provider headquartered in Boston, Massachusetts. The score is based on its experts' assessment of two factors: (1) "tax effectiveness," defined as "how efficient the country's tax collection system is"; and (2) "legislation," defined as "whether the necessary business laws are in place, and whether there any outstanding gaps." Global Insight Global Risk Service (scored at 0.95). Global Risk Service is a commercial business information provider headquartered in Boston, Massachusetts. The score is based on its experts' judgment of five factors: (1) "export regulation," (2) "import regulation," (3) "other business regulation," (4) "nonresident business ownership restrictions," and (5) "nonresident equity ownership restrictions." Heritage Foundation Index of Economic Freedom (scored at 0.73). The Heritage Foundation is described by the WGI index as a "nongovernmental research and educational institute headquartered in Washington, United States, advocating conservative public policies." The index score is based on its experts' judgment of two factors: (1) "foreign investment" and "banking/finance." Institutional Profiles Database (scored at 0.89), which is provided by the French government's Ministry of the Economy. The score is based on its experts' judgment of four factors: (1) "ease of starting a business," (2) "administered prices and market prices," (3) "competition: productive sector: ease of market entry for new firms," and (4) "competition between businesses: competition regulation arrangements." Political Risk Services International Country Risk Guide (scored at 1.00). Political Risk Services is a commercial business information provider headquartered in Syracuse, New York. The score is based on their experts' judgment of one factor entitled "investment profile," summarizing the investment environment. The two surveys used to develop the regulatory quality index, their values, and the particular factors considered in each survey were as follows: Institute for Management and Development World Competitiveness Yearbook (scored at 0.50). The Institute for Management Development is an educational and research organization headquartered in Lausanne, Switzerland. The score is based on a survey of business people working in the United States, who are asked to comment on the same 16 factors used by the Economist Intelligence Unit mentioned above (e.g., "protectionism in the country negatively affects the conduct of business," "access to capital markets (foreign and domestic) is easily available," "real corporate taxes are non distortionary," "labor regulations hinder business activities," and "easy to start a business"). World Economic Forum Global Competitiveness Report (scored at 0.62). The World Economic Forum is an international organization based in Switzerland. Its survey asked domestic and foreign-owned firms their views regarding seven statements: (1) "administrative regulations are burdensome," (2) "tax system is distortionary," (3) "import barriers/cost of tariffs as obstacle to growth," (4) "competition in local market is limited," (5) "it is easy to start company," (6) "anti-monopoly policy is lax and ineffective," and (7) "environmental regulations hurt competitiveness." Some observers have questioned whether WGI indices, such as the regulatory quality index, "measure what they purport to measure," and the authors of the WGI have responded to those concerns. Crain and Crain noted in their report that the World Bank Development Research Group published a detailed description of how the WGI indices were developed, and noted that the WGI indices were correlated with an index of economic regulations developed by the Organization for Economic Cooperation and Development (OECD) that Crain had used in his 2005 study of federal regulatory costs. Crain and Crain said they used the WGI regulatory quality index in their 2010 study because it covered more countries for a longer period of time than the OECD index, and because it used a variety of sources and dimensions. In a "Frequently Asked Questions" page on the World Bank's website, the WGI authors indicated that indices such as the regulatory quality index are "useful as a first tool for broad cross-country comparisons and for evaluating broad trends over time," but cautioned that they are "often too blunt a tool to be useful in formulating specific governance reforms in particular country contexts." They went on to say that such reforms "need to be informed by much more detailed and country-specific diagnostic data that can identify the relevant constraints on governance in particular country circumstances." The validity and accuracy of Crain and Crain's estimate of the cost of economic regulations depends on at least two factors: (1) whether the WGI index of "regulatory quality" can be used as part of a formula to measure the cost of economic regulations, and (2) whether the authors interpreted the regulatory quality index in the way it was intended. Several commenters on the Crain and Crain study have addressed one or both of these issues. On January 27, 2011, Aart Kraay, a lead economist in the Development and Research Group at the World Bank, and one of the authors of the WGI regulatory quality index, contacted Crain and Crain by e-mail and provided his views on their use of the index in their September 2010 report on regulatory costs. Kraay said that although "in principle an exercise like this could make sense," he said that he believed there were two "basic problems with how you use our data." First, he said that although Crain and Crain interpreted higher values of regulatory quality as "less stringent regulations," "[t]his isn't a good characterization of what the [regulatory quality, or RQ] index measures—rather RQ seeks to measure perceptions of the overall quality of the regulatory environment, which is very different from simply measuring whether it is 'stringent' or not." Kraay noted that the United States came in at about the 90 th percentile of all countries in the world, and that countries like Finland and Sweden rank ahead of the United States on regulatory quality. "So by this standard," he said, "it is hard to say that the RQ measure 'rewards' deregulation." He also said that he and the other WGI authors had "indicated throughout that the WGI indicators are not literally true and have non-trivial margins of error, indicating that there is of course imprecision in how countries are ranked." The second major issue that Kraay noted was that Crain and Crain "may be misinterpreting the units of the WGI" by comparing the United States' score of +1.579 to +2.5—what the authors referred to in the report as "the minimal amount of regulation," and what Nicole V. Crain had referred to in a Wall Street Journal article as a "conceptual regulatory environment." In his e-mail to the authors, Kraay said the following: You claim that 2.5 is the "best possible" score on the WGI. But this isn't really correct as the WGI are measured in units which don't have a fixed upper or lower boundary (technically the units are those of a standard normal random variable). It would make a lot more sense for you to compare the US score on RQ with that of a country whose regulatory environment you prefer, and then use that difference in score to calibrate the costs of regulations. So for example the highest numbers we see on WGI-RQ in 2009 are around 1.8 for countries like Singapore, followed closely by Denmark (!). The US comes in at around 1.4. So a more relevant comparison would be between the US and Denmark, rather than between the US and 2.5. This of course would mean that your estimated costs of regulation would be a lot smaller, since the distance between the US and Denmark is much smaller than the distance between the US and 2.5. (Kraay told CRS that the WGI authors periodically make minor revisions to WGI data for previous years, thus explaining the difference between the +1.579 regulatory quality index that Crain and Crain cited, and the "around 1.4" value that he noted in his e-mail to Crain and Crain.) Using the same 2008 data that Crain and Crain used in their study, the nation with the highest regulatory quality index was Ireland, with a value of +1.915. Subtracting the United States' regulatory index value from that of Ireland yields a difference of 0.336 (1.915 minus 1.579). As noted earlier, Crain and Crain used regression analysis to conclude that a one-unit change in the regulatory quality index represented a 9.4% change in real GDP per capita. If this measure is correct, the 0.336 difference between the Ireland and United States regulatory quality indices suggests a 3.16% reduction in GDP (0.094 times 0.336 equals 0.0316) in the United States compared with Ireland, the country with the least "stringent" regulatory climate. Therefore, the monetary "cost" of this GDP reduction would be about $448 billion (0.0316 times $14.2 trillion GDP in 2008), or about $788 billion less than the $1.236 trillion that Crain and Crain calculated. However, all of the above calculations assume that higher values on the regulatory quality index reflect "less stringent regulations," which Kraay indicated it does not. Kraay also told CRS that he had concerns about the quality of Crain and Crain's regression analysis. He said "The problem is simply that high scores on regulatory quality are correlated with a lot of other good policies and institutions which also matter for GDP per capita. And so it is hard to sort out how much of the correlation between RQ and GDP per capita is due to the regulatory environment per se, and how much is due to other stuff." He also said that "unless one can perfectly control for all these other factors (which is nearly impossible), the econometric estimates [that Crain and Crain] provide will reflect not just the effects of regulation on output, but also of all those other policies that are correlated with regulation." When contacted by CRS for comment, Crain and Crain said that they understood Kraay's conceptual argument that the regulatory quality index might not reflect changes in the "stringency" of regulation, but they said that "the empirical evidence indicates that it does in practice." They said the index captures the extent of regulation from a variety of stakeholders' perceptions, and noted the nature of the questions used to construct the index (e.g., "How problematic are labor regulations for the growth of your business?" and "How problematic are customs and trade regulations for the growth of your business?"). Crain and Crain also said they did not compare the United States to another country (e.g., Denmark) because to estimate the cost of regulations to small and large businesses (what they contracted with SBA to do), they needed to estimate the total cost of all regulations. They also said they do not believe that they misinterpreted the WGI measure because the documentation provided by the WGI authors indicates that the index values range from about -2.5 to +2.5, and they selected +2.5 as the "best approximation of the regulatory environment that we were trying to capture in our estimate." Before publishing the Crain and Crain report, the SBA Office of Advocacy had the study peer reviewed by two economists—Bob Litan of the Kauffman Foundation, and Richard Williams of the Mercatus Center at George Mason University. Litan's complete comments were "I looked it over and it's terrific. Nothing to add." Williams's comments were more extensive. Overall, he said that the study was a "great project," and he hoped his comments would make it stronger. In relation to the estimate of the costs of economic regulations, he said the use of the index of regulatory quality was an "innovative idea," but said he was "concerned that the index may not measure what the authors say it measures, and even if it does, it may overstate the costs of regulation when used in conjunction with the other measures." Among other things, he said that the study "might over-estimate the total costs of regulation because the effect of the Regulatory Quality Index on GDP may also capture some or all of the effects of environmental, workplace, security, and tax regulations." On the other hand, Williams also said that "there are reasons to believe that [the index] may underestimate costs." He said some of the problems "could perhaps be solved simply with a better and more careful explanation of what the Regulatory Quality Index really measures. To guard against over-estimating costs, however, the authors would either need to control for the effects of other types of regulation on GDP, or refrain from adding some or all of the costs that are estimated via other methods." In February 2011, the Center for Progressive Reform (CPR) issued a report criticizing the Crain and Crain study, and has requested that SBA's Office of Advocacy withdraw its sponsorship of the report. In relation to the estimate of economic regulatory costs, CPR said (among other things) that (1) the WGI authors did not intend the regulatory quality index to be a proxy measure for regulatory burden, or as a tool for critiquing a particular country's regulatory stringency; (2) the lack of a clear definition of "economic regulations" raises the possibility that it includes other types of regulatory costs, which could lead to double counting; (3) the regression analysis used in the report assumes a simplistic relationship between regulatory "stringency" and GDP; and (4) the report gives the false impression that the index of regulatory quality in the United States is low, even though the United States ranked 11 th out of more than 200 countries. The Crain and Crain report analyzed data for 25 OECD countries in order to assess the effect of economic regulation on GDP per capita, a common measure of the standard of living. Economists generally believe that a country's standard of living is affected by a variety of factors, including the availability of (1) land and natural resources, (2) labor and human capital, (3) capital and infrastructure, (4) the level of technology and sophistication of business practices, and (5) opportunities to trade with other countries. Most economists also believe that government interventions in the economy (e.g., through taxes, spending, and regulation) can affect a country's standard of living. As noted previously in this report, Crain and Crain used linear regression analysis to examine the relationship between GDP per capita and the regulatory quality index, controlling for the effects of four other independent variables: country population; foreign trade as a share of GDP; primary education as a share of the eligible population; and fixed broadband subscribers per 100 people. These four control variables may not capture all of the factors that affect GDP per capita, and other measures of those factors may be more appropriate. For example, "fixed broadband subscribers per 100 people" may or may not capture all aspects of capital investment, and may also partially reflect other factors (e.g., the state of information technology investment, population density, and per capita income levels). The Crain and Crain report did not discuss how the authors selected the control variables used in their analysis. Crain and Crain also used an estimation strategy that appears non-standard. Like many researchers, Crain and Crain analyze data for several countries over multiple years, known as a cross-country panel data set. Linear regressions on panel data often include country-specific control variables (fixed effects) to take into account national idiosyncrasies that do not vary over time and year-specific control variables to account for shocks that affected all countries in the sample in a given year. Crain and Crain, however, reported that year-specific control variables that were estimated to be statistically insignificant in an unreported first-stage regression were then omitted from the reported second-stage regression results. The statistical properties of this two-stage estimation strategy, which appears to be novel, has apparently not been explored in peer-reviewed journals. CRS asked Crain and Crain to provide us with a copy of the data that they used in their study, but the authors did not do so. In an effort to assess the sensitivity of their results, CRS ran a linear regression using similar, but somewhat different, data and methods. The results indicated that the regulatory quality index had no discernable independent effect on GDP per capita, suggesting that the analysis is highly sensitive to the choice of control variables and measures. Appendix of this report discusses this sensitivity analysis and the results in greater detail. While most economists believe that economic regulation, like other forms of government intervention, can affect a country's standard of living, those effects may be too subtle for a seven-year cross-country panel to pick up. A country's regulatory environment may evolve slowly, and may interact with social and political conditions, other instruments of public policy such as taxation. Understanding the relationship between a measure of regulatory quality and GDP per capita (or other measures of economic well being) may require more focused empirical tools. Crain and Crain said they developed their cost estimates for environmental regulations by following the same basic approach as used by OMB in its annual reports to Congress. For environmental regulations issued through the first quarter of the year 2000, the authors used OMB's estimate of environmental costs from its 2001 report to Congress (which was drawn in part from a study by Robert W. Hahn and John A. Hird), which the authors converted into 2001 dollars. For environmental regulations issued from April 1999 through September 2001, Crain and Crain used the estimate of the cost of major environmental rules from OMB's 2002 report. For each subsequent fiscal year (October through September), the authors used estimates of the cost of major environmental rules from the subsequent OMB report. By adding together all of these cost estimates and converting the estimates from 2001 dollars to 2009 dollars, the authors concluded that environmental regulations cost between $175 billion and $280 billion in 2009. However, to develop the cumulative cost of all regulations, Crain and Crain used only the $280 billion estimate. The authors said their use of only the upper-end estimate "reflects a judgment that cost estimates are absent for important environmental regulations and that government agencies tend to be conservative in estimating regulatory costs." The data that Crain and Crain used to estimate the costs of environmental rules represent a mix of academic estimates of the cost of all rules prior to 1988, agency estimates of the costs of all rules issued between 1987 and the first quarter of 2000, and agency estimates of the costs of major rules (e.g., those with a $100 million or more annual impact on the economy) issued from April 1999 through September 2008. Therefore, the unit of analysis is not the same for all of the years (i.e., all rules prior to the year 2000 versus major rules starting in April 1999), and the methodologies differ (i.e., academic studies prior to 1988, and agencies' ex ante estimates of regulatory costs after 1988). In its 2000 report to Congress, OMB said that summarizing the total costs and benefits of regulations by adding together diverse sets of individual studies was an "inherently flawed approach" because the studies vary in quality and methodology, use differing assumptions, and seldom analyze the interaction effects among tens of thousands of regulations. Also, the time periods covered by the cost estimates that Crain and Crain used overlap in some years, raising the possibility of double counting. For example, both the Hahn and Hird estimate and the agency estimates cover rules that were issued in calendar year 1987. In addition, the baseline estimates of rules issued through the first quarter of 2000 overlap with the estimates for the period April 1, 1999, to September 30, 2001 (i.e., both cover the period April 1, 1999, through March 31, 2000). In two of the one-year periods covered by the Crain and Crain analysis, the authors appear to have incorrectly recorded the information on environmental regulatory costs from the OMB reports: For the period October 2002 through September 2003, the authors said that OMB's estimate was $335 million (in 2001 dollars). Actually, OMB reported those costs as $360 million (in 2001 dollars). For the period October 2003 through September 2004, the authors said that OMB's estimate was $3,840 million to $4,073 million (in 2001 dollars). Actually, OMB reported those costs as $3,060 million to $3,211 million (in 2001 dollars). Also, Crain and Crain did not report any of OMB's estimates of the benefits of environmental regulations. As discussed later in this report, the authors indicated that regulatory benefits were not included because they researched the topic as required by the Office of Advocacy. Table 1 below shows both the estimated costs and estimated benefits of environmental rules from OMB's reports. Overall and in eight of the nine time periods covered by the table, the average estimated benefits were higher than the average estimated costs. In six of the nine time periods covered by the table, the lowest estimated benefits were higher than the highest estimated costs. The highest estimated benefits were lower than the lowest estimated costs in only one of the time periods (October 1, 2002, to September 30, 2003). Crain and Crain said their report "assumes that OMB's coverage of environmental regulations has been relatively complete." Peer reviewer Richard Williams's only comment about the estimate of environmental regulatory cost was that this statement should be noted as an assumption. As noted earlier, Crain and Crain said they used only OMB's upper estimate of environmental costs because they believed cost estimates were absent for some important environmental regulations, and "government agencies tend to be conservative in estimating regulatory costs." The authors stated in a footnote that several regulatory experts have drawn a similar conclusion about OMB environmental cost estimates, but also noted that "considerable debate continues." Crain and Crain cited studies indicating that government agencies systematically overestimate benefits and underestimate costs, but also cited one study by Winston Harrington and others that reportedly concluded that overestimation of unit costs occurs about as often as underestimation. In its analysis of the Crain and Crain report, the Center for Progressive Reform said that agencies' estimates of environmental costs tend to be too high, reflecting estimates provided to them by industry, whom CPR said have an incentive to overstate costs. CPR also said that industry cost estimates (and therefore the agency estimates) do not take into account technological innovations that reduce the cost of compliance. To support its position on this issue, CPR cited four studies indicating that agencies' initial cost estimates tended to be too high. CPR also questioned Crain and Crain's use of the Hahn and Hird study to estimate the cost of environmental regulations prior to 1988, noting that the study was more than 20 years old, synthesized other estimates developed by a small group of economists, and some of those studies used data that are now more than 30 years old. In responding to comments on one of its reports to Congress on the costs and benefits of regulations, OMB noted the "theory that agency estimates, upon which many but not all of our estimates are based, systematically understate costs and overstate benefits because agency self-interest lies in regulation." OMB went on to say the following: Although this view of agency behavior enjoys widespread support among academics as a theoretical matter, there is little documentation available to support it—perhaps because there are several potentially offsetting factors. For example, much of the data that agencies use to make their estimates of costs comes from the regulated entities who generally have the opposite incentives—namely, they will likely overstate costs to help convince decision makers not to issue the regulation. Also, as noted in our report, competitive firms over time frequently find more cost-effective ways, including new technologies, to comply with regulations than had been envisioned ex ante. Some commenters pointed to a set of case studies that is about to be published to support this contention. On the other hand, there is a large body of literature that shows that agencies tend to overestimate the benefits of their programs because, over time, technological progress—in communications to energy exploration to infectious disease—has reduced the long run expected benefits of earlier regulations. To estimate the costs associated with complying with federal tax paperwork, Crain and Crain said they compiled data from the Internal Revenue Service (IRS), and in some cases the Tax Foundation, on the amount of time required to complete each type of tax form, and the number of filings per form. The authors concluded that businesses, individuals, and nonprofits devoted about 4.3 billion burden hours to completing tax paperwork in 2008 (about 2.28 billion burden hours for business and about 2.02 billion burden hours for individuals and nonprofits). To monetize that burden, Crain and Crain estimated the cost of completing business paperwork at $49.77 per hour for businesses (which they said was the average hourly rate for "human resources professionals" in 2009 from the Bureau of Labor Statistics website) and $31.53 per hour for individuals and nonprofits (which they said was the average hourly rate for "accountants and auditors" in 2009), for a total cost of about $159.6 billion. Crain and Crain did not indicate in their report how they "compiled" data from the IRS website and the Tax Foundation to arrive at the estimated 4.3 billion hours of tax paperwork in 2008. According to the Information Collection Budget that OMB develops annually, the government-wide paperwork burden in FY2008 was about 9.71 billion burden hours, of which the Department of the Treasury accounted for about 7.78 billion burden hours. Although the Information Collection Budget did not separately identify the number of burden hours for the IRS, in May 2009, the IRS represented about 77.8% of the government-wide estimate, and about 99.5% of the Treasury estimate. If those same ratios applied in 2008, IRS paperwork would have been about 7.5 billion burden hours—about 3.2 billion hours higher than in the Crain and Crain report. Certain aspects of how Crain and Crain monetized IRS burden hours are also unclear. For example, it is unclear why the authors assumed that "human resources professionals" would be completing all business tax paperwork, that all individuals and nonprofits would have their returns prepared by "accountants and auditors," or where on the "Bureau of Labor Statistics website" the hourly rates for human resources professionals ($49.77 per hour) and accountants and auditors ($31.53) were derived. According to the Bureau of Labor Statistics' Occupational Employment Statistics, in May 2009, tax preparers received an average salary of $17.34 per hour (median salary was $14.45 per hour). Even if one assumed that total compensation (including benefits and overhead) was one-third higher, the average compensation for tax preparers would still be just over $23 per hour ($17.34 times 1.33). Using this figure for all tax compliance may balance out those businesses and individuals who prepare their returns themselves and those who use more expensive preparers. Therefore, multiplying 7.5 billion burden hours times $23 per hour yields a total cost of about $172.5 billion—about $12.9 billion higher than the Crain and Crain estimate. A threshold issue, however, is whether tax paperwork should be included in estimates of regulatory costs at all. OMB does not include tax paperwork in its annual reports to Congress on the costs and benefits of federal regulations. In one of the first of those reports, OMB said that "filling out tax forms is not the result of 'regulations' but rather of the tax code itself, with most regulations merely providing interpretations and clarifications of tax law." Also, in testimony before the House Committee on Government Reform in July 2003, John D. Graham, administrator of the Office of Information and Regulatory Affairs (OIRA) within OMB, said the following: To a greater extent than for other agencies and programs, IRS paperwork burden is driven by a statute (the Tax Code), and in particular the complexities of the Code. To ensure taxpayer compliance with our tax laws, IRS must collect a tremendous amount of information. This task is complicated by a massive, complex Tax Code that is subject to continuous revision. In the 15 years following the 1986 overhaul of the Code, Congress passed 84 tax laws. These laws required IRS to create and/or revise reporting and recordkeeping requirements, which in turn increased taxpayer burden. The Internal Revenue Service also had to make several changes to the 1040 schedules to implement the Economic Growth and Tax Relief Reconciliation Act of 2001. These statutorily driven revisions increased the burden on taxpayers by 47 million hours. Moreover, there are other factors totally outside the control of IRS—most notably increases in the number of tax filings due to economic and population growth over the years—that increase the aggregate IRS burden hours but not—and this is important—the average burden on individual taxpayers. Because the "economic regulations" category included many types of workplace regulations, Crain and Crain said that their final category of regulatory costs included only workplace regulations that deal with safety and health, primarily those issued by the Occupational Safety and Health Administration (OSHA) within the Department of Labor, as well as regulations related to homeland security. To estimate the cost of occupational safety and health regulations prior to 2001 (estimated at more than $64.3 billion in 2009 dollars), the authors used information from a 2005 study by Joseph M. Johnson that reportedly synthesized and evaluated other studies of workplace regulations. Crain and Crain said they then added data from OMB's 2009 report to Congress on regulatory costs and benefits on (1) 2001 to 2008 occupational safety and health regulatory costs (estimated at $471 million in 2009 dollars), and (2) all homeland security costs through 2008 (estimated at about $10.4 billion in 2009 dollars). Adding these elements together, the authors concluded that the total cost for occupational safety and health and homeland security regulations in 2008 was about $75.2 billion. Crain and Crain said they obtained the estimate for occupational safety and health regulatory costs between 2001 and 2008 from Table 1-2 in OMB's 2009 report to Congress. That table reports the estimated costs and benefits of major federal rules within selected programs from October 1, 1998, through September 30, 2008. One of the programs was labeled "Occupational Safety and Health Administration," with the costs associated with four rules estimated at between $362 million and $389 million (in 2001 dollars). Several of those years (October 1998 through December 2000) appear to overlap with estimates provided in Johnson's study of costs prior to 2001, raising the issue of possible double counting. Also, converting the OMB estimate to 2009 dollars yields a range of $440 million to $471 million. Therefore, although the authors did not explicitly say so, it appears that Crain and Crain only used the upper-end of OMB's estimated cost range for these regulations (as they did for environmental regulations). Crain and Crain said they obtained their estimate for homeland security costs from page 18 of OMB's 2009 report. There, OMB reported that since the Department of Homeland Security was created, "agencies have finalized 17 major homeland security regulations that impose a total annual cost on the economy of between $4.2 billion to $8.6 billion. Converting these estimated costs in 2001 dollars to 2009 dollars yields a range of $5.1 billion to $10.4 billion. Therefore, although they did not say so in their report, it appears that Crain and Crain again only used OMB's upper-end of the estimated cost range. As noted earlier in this report, the authors said that their use of the upper-end of OMB's estimates for environmental rules reflected a judgment that cost estimates were absent for important regulations and that government agencies tend to be conservative in estimating regulatory costs. On the other hand, OMB has said that there is little evidence that agencies' cost estimates are too conservative. The Center for Progressive Reform's analysis of the Crain and Crain report stated that the cost estimates that the authors used for occupational safety and health costs (both the Joseph M. Johnson study and the agency estimates of costs before the rules are published) likely overstate true compliance costs because they are based on information provided by regulated industries. CPR also said that the Johnson study inflates OSHA's original cost estimates by multiplying them by 5.5, which was reportedly done to take into account non-major rules for which costs were not estimated, and for fines imposed for violations of OSHA standards. CPR said it saw no justification for counting such fines as "regulatory costs." "Under this logic," CPR said, "mass lawbreaking raises regulatory costs, enabling regulatory opponents to argue that we need to reduce regulations because of these regulatory costs." As noted previously and as shown below in Table 2 , in 2005, W. Mark Crain estimated total federal regulatory costs in 2004 at about $1.11 trillion. In 2010, Crain and Crain estimated those costs in 2008 at about $1.75 trillion—an increase of about $639 billion (57.4%) in four years. Some of this increase is due to inflation, but the authors said that the main reason for the increase was a change in the methodology used in developing their estimate of the cost of economic regulations. As Table 2 below indicates, were it not for the increase in the cost estimate for economic regulations, the total estimated cost of the three other types of regulations would have decreased by about $6 billion between 2004 and 2008. For nearly 15 years, Congress has required OMB to submit annual reports on the costs and benefits of federal regulations. The first such requirement was in Section 645 of the Treasury, Postal Service and General Government Appropriations Act, 1997 ( P.L. 104-208 ), which required the director of OMB to submit a report by September 30, 1997, that provided (among other things) "estimates of the total annual costs and benefits of federal regulatory programs, including quantitative and nonquantitative measures of regulatory costs and benefits." Similar requirements were contained in other appropriations bills in subsequent years. In 2001, Section 624 of the Treasury and General Government Appropriations Act, 2001, (31 U.S.C. § 1105 note), sometimes known as the "Regulatory Right-to-Know Act," put in place a permanent requirement for an OMB report on regulatory costs and benefits. Specifically, it requires OMB to prepare and submit with the President's budget an "accounting statement and associated report" containing an estimate of the total costs and benefits (including quantifiable and nonquantifiable effects) of federal rules and paperwork, to the extent feasible, (1) in the aggregate, (2) by agency and agency program, and (3) by major rule. The accounting statement is also required to contain an analysis of the impacts of federal regulation on state, local, and tribal governments, small businesses, wages, and economic growth. For the first several years, OMB provided estimates of total regulatory costs and benefits, and those estimates (particularly the benefits estimates) varied substantially from year to year. In its 1997 report, OMB estimated total federal regulatory costs in 1997 at $279 billion, and estimated the benefits of federal regulations at $298 billion. In its 1998 report, OMB estimated federal regulatory costs at between $170 billion and $230 billion (in 1996 dollars as of 1998), and estimated regulatory benefits at between $260 billion and $3.5 trillion. The dramatic increase in the benefits estimate (by a factor of 12) was almost entirely due to the inclusion of an Environmental Protection Agency (EPA) estimate of the benefits associated with the Clean Air Act. Many observers had serious questions regarding the use of this EPA estimate, and EPA itself said it had only a small probability of being correct. In its 2000 and 2001 reports, OMB estimated the cost of all social regulations at between $146 billion and $229 billion (in 1996 dollars as of 1999), and estimated benefits at between $254 billion and nearly $1.8 trillion. The nearly 50% drop in the upper-bound benefits estimate (from $3.5 trillion to $1.8 trillion) was primarily caused by a significant drop in the previously mentioned EPA estimate of the benefits of the Clean Air Act (from $3.2 trillion to $1.45 trillion). Each year, OMB presented its aggregate cost and benefit estimates with strong caveats. For example, in its first report in 1997, OMB said "it is extremely difficult, if not impossible, to estimate the actual total costs and benefits of all existing Federal regulations with any degree of precision." The next year OMB said "there is not yet a professional consensus on methods that would permit a complete, consistent accounting of total costs and benefits of Federal regulation." Some of the methodological problems that OMB pointed out in these and other reports included the following: The baseline for measurement is often not clear (i.e., what costs and benefits would have occurred in the absence of the regulation). Regulatory requirements sometimes become standard business practice (e.g., requirements to remove lead from gasoline or to put air bags in automobiles), so cost or benefit reductions would be unlikely to occur if the rules were eliminated entirely. It is difficult to attribute costs or benefits to federal regulations as opposed to state or local rules, voluntary standards organizations, insurance requirements, or the tort system. Technological change can make previous estimates of benefits and costs extremely inaccurate. Aggregating the results of different studies is highly problematic, as the studies vary in the quality, methodology, and types of regulatory impacts they include. It is unclear which rules should be included in any tabulation of regulatory costs and benefits (e.g., "transfer" regulations such as crop subsidy payments). In developing its estimates of total regulatory costs, OMB did not include "transfer" rules (which OMB said were about $140 billion in costs and benefits in 1997) because it considered them to be payments that reflect a redistribution of wealth rather than social costs to society as a whole. OMB also excluded the costs associated with filling out tax paperwork (which OMB estimated were about $140 billion in 1997) because it did not consider filling out income tax forms "regulations" in the traditional sense. Neither did it include estimates for rules published after 1987 for which agencies did not conduct cost-benefit analyses (e.g., rules with less than a $100 million impact on the economy). OMB's "Regulatory Right-to-Know Act" reports since 2001 have differed from the office's previous reports in that they have not presented cost or benefit estimates for all rules in existence. Instead, OMB has presented information for all regulations that it reviewed within a particular time-frame that (1) had costs or benefits of at least $100 million annually and (2) the costs and benefits had been monetized by either the rulemaking agency or OMB. Specifically: OMB's report for 2002 presented information on the costs and benefits of all regulations meeting those criteria that it reviewed for a six-and-one-half year period from April 1, 1995, to September 30, 2001. OMB said the total cost of those rules was about $50 billion to $53 billion (in 2001 dollars), and the benefits ranged from $48 billion to $101 billion. In its 2003 report, OMB provided estimates of the costs and benefits of 107 regulations meeting the above criteria that it reviewed during the 10-year period from October 1992 through September 2002. OMB estimated that the total costs of these rules ranged from nearly $37 billion to nearly $43 billion (in 2001 dollars), with benefits ranging from $146 billion to $230 billion. OMB noted that four rules issued by EPA accounted for a substantial fraction of the aggregate benefits for all 107 rules. Each report since 2003 has provided information for rules meeting the above criteria during the previous 10 years. In its 2002 report, OMB said its decision to present data for only certain rules during a limited time-frame was driven by the inconsistent and increasingly aged nature of many of the studies used to develop aggregate estimates. OMB went on to say that "we do not believe that the estimates of the costs and benefits of regulations issued over ten years ago are reliable or very useful for informing current policy decisions." Therefore, OMB said that "in keeping with the spirit of OMB's new information-quality guidelines, we have decided not to reproduce the aggregate estimates that were contained in Appendix C of the draft report." The report went on to say that the total costs and benefits of all federal rules then in effect "could easily be a factor of ten or more larger." In its 2003 report, OMB said that estimates prepared for rules adopted prior to the 10-year period "are of questionable relevance now." This point was elaborated by John D. Graham, former administrator of OIRA, in testimony before the House Committee on Government Reform in July 2003: The fact that attempts to estimate the aggregate costs of regulations have been made in the past, such as the Crain and Hopkins estimate of $843 billion…, is not an indication that such estimates are appropriate or accurate enough for regulatory accounting. Although the Crain and Hopkins estimate is the best available for its purpose, it is a rough indicator of regulatory activity, best viewed as an overall measure of the magnitude of the overall impact of regulatory activity on the macro economy. The estimate, which was produced in 2001 under contract for the Office of Advocacy of the Small Business Administration, is based on a previous estimate by Hopkins done in 1995, which itself was based on summary estimates done in 1991 and earlier, as far back as the 1970s. The underlying studies were mainly done by academics using a variety of techniques, some peer reviewed and some not. Most importantly, they were based on data collected ten, twenty, and even thirty years ago. Much has changed in those years and those estimates may no longer be sufficiently accurate or appropriate for an official accounting statement. Moreover, the cost estimates used in these aggregate estimates combine diverse types of regulations, including financial, communications, and environmental, some of which impose real costs and others that cause mainly transfers of income from one group to another. Information by agency and by program is spotty and benefit information is nonexistent. These estimates might not pass OMB's information quality guidelines. In particular, many of the studies they relied upon for these aggregate estimates are not sufficiently transparent about the data and methods to facilitate the reproducibility of the information by qualified third parties. That is why we have opted in the most recent Reports to Congress to report just the costs and benefits of major regulations prepared by agencies and reviewed by OMB over the last ten years. Later that year, testifying on the Paperwork and Regulatory Improvements Act of 2004 ( H.R. 2432 , 108 th Congress), Graham said that requiring agencies to submit annual estimates of the cost and benefits of all their rules, and mandating preparation of a complete inventory of the costs and benefits of all federal rules and paperwork requirements, was "not workable." OMB's 2009 report to Congress provided estimates of the total annual benefits and costs of 98 regulations reviewed by OMB during the 10-year period from October 1, 1998, to September 30, 2008. The 98 rules were those that (1) were estimated to generate benefits or costs of approximately $100 million in any one year; and (2) a substantial portion of the benefits and costs were quantified and monetized by the agency or, in some cases, monetized by OMB. As Table 3 below shows, OMB said that the estimated costs of these rules ranged from nearly $51 billion to nearly $60 billion, and the benefits were estimated to be between about $126 billion and about $663 billion (in 2001 dollars). Because the estimates were provided for only 98 rules meeting the above criteria, and because not all benefits and costs for even those rules could be assessed, OMB noted that the estimates were "not a complete accounting of all of the benefits and costs of all regulations issued during this period." As in its previous reports, OMB said it presented information only for a 10-year period because "pre-regulation estimates prepared for rules adopted more than ten years ago are of questionable relevance today." OMB also said the following: Aggregating benefit and cost estimates of individual regulations—to the extent they can be combined—provides significant insight about the effects of regulations. But the resulting estimates are neither precise nor complete. Individual regulatory impact analyses vary in rigor and rely on different assumptions, including baseline scenarios, methods, and data. Summing across estimates involves the aggregation of analytical results that are not strictly comparable. It is difficult to compare OMB's estimates of regulatory costs and Crain and Crain's estimates because they were constructed in very different ways, and because the presentation categories were different (e.g., by agency in OMB's study, and by type of regulation in the Crain and Crain study). For several reasons, Crain and Crain's estimates of annual regulatory costs in 2008 were much larger than the estimates provided by OMB. Crain and Crain included estimates of costs associated with all rules for certain periods, and major rules for other periods. Their estimates attempt to measure the cumulative costs of all rules. OMB's estimates included only major rules that met certain criteria that had been issued during a 10-year period. Crain and Crain included estimates of the cost of "economic regulations," whereas OMB's estimate did not include economic regulations. Crain and Crain included costs associated with tax paperwork, whereas OMB's estimate did not include tax paperwork. Although accurate measures of the costs and benefits of all federal rules would be useful, decision makers using studies of aggregate regulatory costs and benefits to guide public policy need to be aware of those studies' conceptual and methodological underpinnings. The validity and reliability of Crain and Crain's $1.75 trillion estimate of total federal regulatory costs in 2008 depends on the validity and reliability of its individual elements. More than 70% of the overall estimate ($1.236 trillion) is based on the WGI index of regulatory quality for the United States, with the authors determining the extent to which economic regulations reflected in that index reduces per capita real GDP in the United States. However, one of the authors of the regulatory quality index has said that Crain and Crain misinterpreted the index, and that higher values on the index cannot be interpreted as "less stringent regulations." Even if it could, he said that the index for the United States should be compared to a country with a preferable index, not to an idealized "best possible" score on the index. Comparing the United States' regulatory quality index in 2008 to the country with the highest index that year (Ireland) would have reduced Crain and Crain's estimate of the cost of economic regulations by nearly two-thirds. Other commenters (including one of the peer reviewers of the Crain and Crain study) raised similar concerns about whether the regulatory quality index could be used to measure the cost of economic regulations, and about the regression analysis used to produce the cost estimate. Responding to these criticisms, Crain and Crain said that they continue to believe that the regulatory quality index indicates the stringency of a country's economic regulations, and believe that it was appropriate for them to compare the index for the United States to a "conceptual regulatory environment" represented by a 2.5 score rather than to another country with a somewhat higher index score. The World Bank indicates on its website that measures like the regulatory quality index are "often too blunt a tool to be useful in formulating specific governance reforms in particular country contexts." Crain and Crain's estimates for environmental, occupational safety and health, and homeland security regulations were developed by mixing together academic studies (some of which were more than 30 years old) with agencies' estimates of regulatory costs that were developed before the rules were issued (some of which are now 20 years old). OMB has said that adding together diverse sets of individual studies to develop a summary measure of regulatory costs is an "inherently flawed" approach. The agency estimates that Crain and Crain used were drawn from OMB reports to Congress on the estimated costs and benefits of regulations, which were typically presented as low-to-high ranges. However, Crain and Crain used only the highest cost estimates from these reports, stating that they did so because the OMB estimates did not cover all regulations, and because they believe "government agencies tend to be conservative in estimating regulatory costs." OMB has said that there is little documentation to support this view, and empirical studies of agencies' regulatory cost estimates have not resolved the issue. Also, OMB has concluded that estimates of the costs and benefits of regulations issued more than 10 years earlier are of "questionable relevance." Since 2003, OMB's annual "Regulatory Right-to-Know Act" reports to Congress have only included information on the costs and benefits of major rules issued during the previous 10 years. Although OMB has recognized that this approach understates total regulatory costs and benefits, OMB has said it does not believe older estimates are reliable or useful in informing policy decisions. In one of its first reports to Congress on this issue, OMB also said that the incremental costs of regulations (i.e., over and above what businesses and individuals would have done in the absence of regulations) tend to decrease over time, as companies' business practices and consumers' expectations change. Thus, although the National Highway Traffic Safety Administration has significantly increased the safety of automobiles, it is not likely that if the agency's regulations were eliminated the automobile companies would discontinue the safety features that had been mandated. Consumers demand safer cars than they used to and automobile companies are concerned about product liability. This same phenomenon exists with the environment, although probably to a lesser extent. Environmentally responsible behavior has become good for the bottom line…. Over time, this "rising baseline" phenomenon reduces the true costs and benefits of health, safety, and environmental regulations. Estimates of the aggregate costs and benefits of regulation that include unadjusted estimates from aging studies are thus likely to be over estimates of the current costs and benefits of those regulations. OMB went on to say that "it does not seem implausible that, for environmental and other social regulations over ten years old, no more than half of compliance costs would likely be saved if these Federal regulations magically disappeared over night." Crain and Crain's estimate for the cost of tax paperwork was reportedly based on data from the IRS and the Tax Foundation, but data in OMB's annual Information Collection Budget suggests that the number of hours of tax paperwork may be much higher than the authors used in their report. On the other hand, Crain and Crain's assumptions regarding the per hour cost of completing the paperwork may be too high (e.g., the assumption that "human resources professionals" paid at nearly $50 per hour would be completing all business paperwork). However, a threshold question is whether tax paperwork should be considered in the same category as regulatory costs. OMB does not include tax paperwork in its annual reports to Congress on regulatory costs and benefits. Although Crain and Crain attempted to determine all of the costs associated with federal regulations, their report did not discuss the benefits of those regulations—even when information on regulatory benefits was readily available in the OMB reports that they used to determine regulatory costs. In their report, the authors said that it "does not address the benefits of regulation, an important challenge that would be a logical next step toward achieving a rational regulatory system." Crain and Crain told CRS that they did not include regulatory benefits in their study "because we researched the topic as required by the Office of Advocacy." The SBA Office of Advocacy confirmed that Crain and Crain "were not asked to look at benefits, as the task for this last iteration was to update the previous study, which also looked at costs and the disproportionality between small and large businesses." Executive Order 12866 requires covered agencies to "assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs." It also says that agencies should generally select regulatory approaches that "maximize net benefits." OMB's reports to Congress on the aggregate costs and benefits of federal regulations have generally indicated that the estimated benefits exceed the estimated costs. For example, see the following: In the report for 2010 covering major rules reviewed by OMB from October 1999 through September 2009 for which benefits and costs were monetized, the aggregate costs were estimated to be between $43 billion and $55 billion, and the aggregate benefits were estimated to be between $128 billion and $616 billion. Of the 16 major rules issued during FY2009 for which benefits and costs were monetized, the costs were estimated at between $3.7 billion and $9.5 billion, and the benefits were estimated at between $8.6 billion and $28.9 billion. In the draft report for 2011 covering major rules reviewed by OMB from October 2000 through September 2010 for which benefits and costs were monetized, the aggregate costs were estimated to be between $44 billion and $62 billion, and the aggregate benefits were estimated to be between $136 billion and $651 billion. Of the 18 major rules issued during FY2010 for which benefits and costs were monetized, the costs were estimated at between $6.5 billion and $12.5 billion, and the benefits were estimated at between $23.3 billion and $82.3 billion. Each year, however, there were a number of rules in which the agencies only quantified or monetized benefits or costs, but not both. Most commonly, the agencies quantified or monetized only costs. As noted at the beginning of this report, Crain and Crain's estimate that federal regulations cost $1.75 trillion in 2008 has been cited as evidence of the need for regulatory reform legislation. However, Crain and Crain told CRS that their report was "not meant to be a decision-making tool for lawmakers or federal regulatory agencies to use in choosing the 'right' level of regulation. In no place in any of the reports do we imply that our reports should be used for this purpose. (How could we recommend this use when we make no attempt to estimate the benefits?)" As Crain and Crain suggest, information on regulatory costs alone, whether for individual rules or for all rules in the aggregate, provides only one piece of information that Congress and other policymakers can use in determining how to proceed. For example, even if all federal regulations did cost $1.75 trillion in 2008 (which at least some commenters believe may not be correct), if the monetized benefits of those regulations were determined to be greater than those costs, then policymakers may conclude that those costs were (in the words of Executive Order 12866) "justified." On the other hand, if the monetized benefits of federal regulations were estimated to be less than the estimated costs, policymakers may reach another conclusion, or may decide to examine any non-monetized costs and benefits of those rules. But a valid, reasoned policy decision can only be made after considering information on both costs and benefits. In an effort to assess the sensitivity of Crain and Crain's results, CRS ran a linear regression using similar, but somewhat different, data and methods. Specifically, CRS compiled a dataset for 30 OECD countries over the period 2002-2008 using the same dependent variable (GDP per capita in constant 2000 dollars) and four of the five independent variables that were used by Crain and Crain. The four identical independent variables were (1) the World Governance Indicators regulatory quality index, (2) broadband penetration rates, (3) country population, and (4) foreign trade as a percentage of GDP. Data for these four variables were obtained from the OECD website ( http://www.oecd.org ). Crain and Crain also included one other variable in their analysis: primary school enrollment as a share of the eligible population. In their analysis, the associated coefficient had an unexpected negative sign (indicating that as primary school enrollment went up, GDP per capita went down). Crain and Crain told CRS that the negative coefficient could be due to "aging pyramid" demographic effects. In the CRS analysis, two variables were added to account for such demographic effects: the proportion of the population under 14 and the proportion of the population over 65. These variables were calculated from data obtained from the U.S. Census Bureau international population statistics. These demographic measures may capture "aging pyramid" effects more directly than the primary education variable. CRS ran a cross-country fixed effects panel estimator with year indicator variables. Natural logarithms of all variables except the regulatory quality index were used in the regression. Estimation results using Stata 11 xtreg procedure, using robust (White) standard errors that are used by most empirical researchers. Estimation results run with conventional standard errors, which are very similar, are available upon request. The estimation output is shown in Table A-1 below. The estimated coefficient on the World Governance Indicators regulatory quality index is very small and is not significantly different from zero. The coefficient on population is also statistically insignificant, although other estimated coefficients have expected signs and are statistically significant at conventional levels of confidence. The point estimate of the coefficient regulatory quality index (.0001609) can be used to estimate the economic effect of shifting the United States from the 2008 regulatory quality index value (1.508) to the 2008 level of Ireland (1.856). According to that calculation which presumes that the regression specification reflects the true structure of the economy, that shift would result in an increase of $2.14 in per capita GDP (measured in year 2000 dollars). Because the point estimate of the effect of the regulatory quality index is so imprecise, however, the calculated effect of a hypothetical shift of U.S. regulatory quality to the Irish level is also imprecise. One test statistic (rho, a measure of intercountry correlation) indicates that 99.9% of the variance in the model results from differences among countries, rather than time-series variation within countries. This could suggest that estimating the effects of variables that generally change slowly over time, such as the regulatory environment in economically advanced countries, may be challenging using panel estimation methods the employ highly aggregated country-level data. Other econometric approaches that focus on more specific changes in regulatory environment may provide a better path for understanding the effects of regulation on economic activity. | Some policy makers have expressed an interest in measuring total regulatory costs and benefits (e.g., the Congressional Office of Regulatory Analysis Creation and Sunset and Review Act of 2011, H.R. 214, 112th Congress), and estimates of total regulatory costs have been cited in support of regulatory reform legislation (e.g., H.R. 10, the Regulations from the Executive In Need of Scrutiny (REINS) Act, H.R. 10, 112th Congress). However, measuring total costs and benefits is inherently difficult. This report examines one such study to illustrate the complexities of this type of analysis. A September 2010 report prepared by Nicole V. Crain and W. Mark Crain for the Office of Advocacy within the Small Business Administration (SBA) stated that the annual cost of federal regulations was about $1.75 trillion in 2008. This cost estimate was developed by adding together the estimated costs of four categories or types of regulation: economic regulations (estimated at $1.236 trillion); environmental regulations ($281 billion); tax compliance ($160 billion); and regulations involving occupational safety and health, and homeland security ($75 billion). Some commenters have raised questions about the validity and reliability of this estimate. For example, Crain and Crain's estimate for economic regulations (which comprises more than 70% of the $1.75 trillion estimate) was developed by using an index of "regulatory quality." One of the authors of the regulatory quality index said that Crain and Crain misinterpreted and misused the index, resulting in an erroneous and overstated cost estimate. Other commenters have also raised concerns about using the index to estimate regulatory costs, and about the regression analysis that the authors used to produce the cost estimate. Crain and Crain said that they believe they interpreted and used the regulatory quality index correctly. Crain and Crain's estimates for environmental, occupational safety and health, and homeland security regulations were developed by blending together academic studies (some of which are now more than 30 years old) with agencies' estimates of regulatory costs that were developed before the rules were issued (some of which are now 20 years old). Although the agency estimates were typically presented as low-to-high ranges, Crain and Crain used only the highest cost estimates in their report. The Office of Management and Budget has said that estimates of the costs and benefits of regulations issued more than 10 years earlier are of "questionable relevance." Crain and Crain's estimate for the cost of tax paperwork was based on data from the Internal Revenue Service and the Tax Foundation, but OMB data indicate that the number of hours of tax paperwork may be much higher than Crain and Crain's estimate. On the other hand, the authors' assumptions regarding the cost of completing the paperwork may be too high. A threshold question, however, is whether tax paperwork should be considered in the same category as regulatory costs. OMB does not include tax paperwork in its annual reports to Congress. Crain and Crain said they did not provide estimates of the benefits of regulations, even when the information was readily available, because the SBA Office of Advocacy did not ask them to do so. OMB's reports to Congress have generally indicated that regulatory benefits exceed costs. Crain and Crain said their report was not meant to be a decision-making tool for lawmakers or federal regulatory agencies to use in choosing the "right" level of regulation. This report will not be updated. |
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 prescription drug benefit. Medicare's financial operations are accounted for through two trust funds, the HI trust fund and the SMI trust fund, which are maintained by the Department of the Treasury. 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 trust fund is an accounting mechanism; there is no actual transfer of money into and out of the fund. Income to the trust fund is credited to the fund in the form of interest-bearing government securities. (The securities represent obligations that the government has issued to itself.) Expenditures for services and administrative costs are recorded against the fund. As long as the trust fund has a balance, the Treasury Department is authorized to make payments for it from the U.S. Treasury. The Part B and D programs are financed primarily through a combination of monthly premiums paid by current enrollees and general revenues. Income from these sources is credited to the SMI trust fund. For beneficiaries enrolled in MA, Part C payments are made on their behalf in appropriate portions from the HI and SMI trust funds. 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. Additional income consists of (1) premiums paid by voluntary enrollees who are not automatically entitled to Medicare Part A through their (or their spouse's) work in covered employment; (2) government credits; and (3) interest on federal securities held by the trust fund. Since 1994, the HI fund has had an additional funding source: the Omnibus Budget Reconciliation Act of 1993 (OBRA 93) increased the maximum amount of Social Security benefits subject to income tax from 50% to 85% and provided that the additional revenues would be credited to the HI trust fund. Payments are made from the trust fund for covered Part A benefits, namely, hospital services, skilled nursing facility services, some home health services, and hospice care. Payments are also made for administrative costs associated with operating the program. 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. The Administrator of the Centers for Medicare and Medicaid Services (CMS) is designated Secretary of the Board. The Board makes an annual report on the operations of the trust fund. Financial projections included in the report are made by CMS actuaries using major economic and other assumptions selected by the trustees. 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; they are the projections most frequently cited. The 2009 report was issued May 12, 2009. In calendar year (CY) 2008, total income to the HI trust fund was $230.8 billion. Payroll taxes of workers and their employers accounted for $198.7 billion (86.1%), interest and government credits for $17.5 billion (7.6%), premiums (from those buying into the program) for $2.9 billion (1.3%), and taxation of Social Security benefits for $11.7 billion (5.1%). The program paid out $235.6 billion—$232.3 billion (98.6%) in benefits and $3.3 billion (1.4%) for administrative expenses. The balance at the end of 2008 was $321.3 billion. In FY2008, total income was $229.7 billion, and total disbursements were $230.2 billion; the distribution of income sources and expenditures was similar to those recorded for CY2008. (See Table 1 .) The 2009 report projects that, under intermediate assumptions, the HI trust fund will become insolvent in 2017, two years earlier than projected in the 2008 report. This change primarily reflects lower payroll tax income due to the current economic recession. The 2009 report projects insolvency nine years earlier than did the 2003 report, issued prior to the enactment of Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173 ). That law added to HI costs, mainly through higher payments to rural hospitals and to private plans under the MA program. Beginning in 2004, tax income (from payroll taxes and from the taxation of Social Security benefits) began to be less than expenditures. Expenditures began to exceed total income in 2008. When income falls short of expenditures, costs are met by drawing on HI fund assets through transfers from the general fund of the Treasury until the fund is depleted. The 2009 report states that the fund fails to meet the short-range (i.e., 10-year, 2009-2018) test of financial adequacy since total HI assets at the start of the year are estimated to decline to below 100% of expenditures during 2012. Further, a substantial actuarial deficit exists over the full long-range projection period (2009-2083). For projections beyond 2018, the trustees do not use actual dollar figures due to the difficulty of comparing dollar values for different time periods. Instead, they measure long-range financial soundness by comparing the fund's income rate (the ratio of tax income to taxable payroll) with its cost rate (the ratio of expenditures for insured persons to taxable payroll). Under the 2009 intermediate assumptions, the trustees state that cost rates are projected to exceed income rates by a steadily and rapidly growing margin. In 2009, the income rate is projected at 3.13, while the cost rate is projected at 3.57, a negative gap of 0.44 percentage points (compared to a negative 0.23 in 2008 and a negative 0.03 percentage points in 2007). This gap is projected to widen to 0.62 percentage points in 2015, 1.10 in 2020, and 8.30 in 2080. By 2080, tax income will cover less than one-third of projected expenditures. Summarized over the 75-year period, the actuarial deficit is 3.88%. (The 2008 75-year estimate was 3.54%.) Looked at another way, the trustees estimate the present value of unfunded HI obligations through 2083 at $13.8 trillion. The trustees state that substantial changes would be required to maintain financial soundness over the 75-year projection period. For example, income could be increased by immediately increasing the payroll tax rate for employees and employers combined from 2.90% to 6.78%. Alternatively, expenditures could be reduced, but this would require an immediate decrease in benefits of 53%. These changes could be implemented more gradually through the period, but they would ultimately have to be more stringent. The trustees' projections of income and outgo reflect several demographic and economic variables. These include the consumer price index, fertility rate, workforce size and wage increases, and life expectancy. They also include estimates specific to the HI program, including the expected use and cost of inpatient hospital, skilled nursing facility, and home health services. Beginning in 2011, the program will also begin to experience the impact of major demographic changes. First, baby boomers (persons born between 1946 and 1964) begin to turn age 65 and become eligible for Medicare. The baby boom population is likely to live longer than previous generations. This will mean an increase in the number of "old" beneficiaries (i.e., those 85 and over). The combination of these factors is estimated to contribute to the increase in the size of the HI population from 44.9 million in 2008 to 47.5 million in 2011, and 78.9 million in 2030. Accompanying this significant increase is a shift in the number of covered workers supporting each HI enrollee. In 2008, there were about 3.7. This number is predicted to decrease to 2.4 in 2030 and 2.1 by 2080. The combination of expenditure and demographic factors results in an increase in the size of the HI program relative to other sectors of the economy. According to the 2009 report, if no changes are made in current Medicare law, the HI program's cost is expected to rise from 1.58% of GDP in 2008 to 2.75% in 2030, and 4.96% in 2080. 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. Historically, therefore, the major focus of concern was the HI fund. More recently attention has also turned to the rapid increase in SMI costs, which have been growing significantly faster than GDP. For a number of years, the trustees have been emphasizing the importance of considering the program as a whole and the fact that the projected increases are unsustainable over time. To further emphasize this point, in 2002 they began issuing a single report covering the entire program. The enactment of MMA made the consideration of the future of the total program more critical. The legislation increased spending under Parts A, B, and C. In addition, it added a new prescription drug benefit under Part D; spending for this benefit is recorded as a separate account in the SMI trust fund. The trustees note that these changes have important implications. In 2005, total Medicare expenditures represented 2.73% of GDP. In 2006 (the first year of the new drug benefit), total expenditures were 3.11% of GDP. The percentage is expected to increase to 7.23% by 2035 and to 11.18% by 2080. The trustees note that over the past 50 years, total federal tax receipts have averaged 11% of GDP. They further note that projected Medicare costs will exceed those for Social Security by 2028, and be more than double the cost of Social Security by 2083. 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, MMA (Section 801) 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). General revenues financing is defined as total Medicare outlays minus dedicated financing sources (i.e., HI payroll taxes; income from taxation of Social Security benefits; state transfers for prescription drug benefits; premiums paid under Parts A, B, and D; and any gifts received by the trust funds). The 2006 report projected that the 45% level would first be exceeded in FY2012; the 2007 report projected that it would first be exceeded in 2013, while both the 2008 and 2009 reports project the first year at 2014. The four findings were within the required seven-year test period. The reports, therefore, made a determination of "excess general revenue Medicare funding." MMA (Sections 802-804) requires that if an excess general revenue funding determination is made for two successive years, the President must 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. On January 6, 2009, the House approved a rules package ( H.Res. 5 ) that nullifies the trigger provision for the 111 th Congress. Because the Medicare trustees issued such a warning in 2008, the MMA required that the President submit legislation to Congress responding to the warning within the 15-day period, beginning on the date of the budget submission to Congress this year. However, the President considers this requirement to be advisory and not binding, in accordance with the Recommendations Clause of the Constitution. The President's 2010 budget includes proposals that if enacted would bring the share of Medicare funded by general revenues below 45% (estimated Medicare savings are $92.3 billion over the five-year budget period, $287.5 billion over the 10-year budget period, and about $49.9 billion in 2014). The budget requests that these savings be set aside in a reserve fund for health care reform. Finally, the President's budget asserts that there are more significant ways to measure the health of the Medicare program than the warning, such as the overall financial burden of the program on the U.S. economy, the number of workers for each Medicare beneficiary, and/or Medicare spending as a percentage of GDP. The financial outlook for the HI trust fund, and for Medicare as a whole, continues to raise serious concerns. There are no simple solutions to address the problems raised by the aging of the population, the downturn in the economy, and the rapid growth in health care costs. Trustees and many other observers continue to warn that the magnitude of the impending deficit and the expanding drain on the federal budget need to be addressed. Even in the short run, correcting the financial imbalance in the HI trust fund will require substantial changes to program income and/or expenses. At the same time, observers express concern about the impact of any solution on quality of care and on beneficiaries' out-of-pocket costs. It seems likely that in the short term, Congress will focus its attention on specific Medicare issues—for example, payment updates for certain types of providers. It may also consider Medicare spending reductions as part of broader health reform legislation or as part of legislation (such as budget reconciliation) designed to reduce overall federal spending. | 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 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 on their behalf 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 and beneficiary premiums. The HI and SMI trust funds are overseen by a board of trustees that makes annual reports to Congress. The 2009 report projects that under intermediate assumptions, the HI trust fund will become insolvent in 2017, two years earlier than projected in 2008. The HI fund fails to meet both the short- and long-range tests for financial adequacy. Because of the way it is financed, the SMI fund does not face insolvency; however, the trustees project that SMI expenditures will continue to grow rapidly. The trustees stress the importance of considering the Medicare program as a whole. There is concern that over time the economy will be unable to support the increasing reliance on general revenues, which in large measure come from taxes paid by the under-65 population. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) requires that if the Medicare trustees project that 45% or more of Medicare's funding will come from general tax revenues within the current fiscal year or next six years, for two years in a row, the President must submit legislation to slow spending. For the fourth consecutive year, the 2009 Trustees Report estimated that general revenue funding will exceed 45% of total Medicare expenditures within seven years (in 2014). As a result of this new warning, in 2010, the President will be required to submit a legislative proposal to Congress that would lower the ratio below the 45% level. This CRS report will be updated upon receipt of the 2010 trustees' report or as circumstances warrant. |
R eforms to the Medicaid program, which provides medical assistance for low-income and medically needy individuals, have been proposed during the 115 th Congress. One component of these reforms would allow states to impose some form of "work requirements" on certain categories of individuals as a stipulation for receiving coverage under the program. Both the House-passed American Health Care Act of 2017, H.R. 1628 , and the Better Care Reconciliation Act of 2017, a draft amendment in the nature of a substitute to H.R. 1628 published by the Senate Budget Committee, would generally permit states to condition medical assistance under the Medicare program based on an individual's participation in certain work activities. In addition to these proposals, which would take the form of legislative amendments to the Medicaid statute, work requirements have also been discussed in the context of waivers granted to states under the existing demonstration authority provided in Section 1115 of the Social Security Act (SSA). Pursuant to this authority, the Secretary of Health and Human Services (HHS) may waive a number of Medicaid requirements to the extent necessary to allow a state to undertake an "experimental, pilot, or demonstration project" that is likely to assist in promoting the objectives of Medicaid. Several states have recently sought waivers to impose some type of Medicaid mandatory work incentives under Section 1115, but to date, such a waiver has not been approved by the Secretary. This report examines the scope of authority to grant such waivers under that provision, including the degree to which such waivers may be judicially reviewable and the level of scrutiny courts would apply in such cases. The Medicaid program, established under Title XIX of the SSA, is a cooperative effort by the federal government and the states to provide medical assistance for low-income and medically needy individuals. To participate in the Medicaid program, a state must have a plan for medical assistance approved by the HHS Secretary and must comply with all applicable conditions. In general, the Medicaid statute identifies specific categories of individuals, known as "mandatory eligibility groups," that must be covered under a state plan. The statute also requires that an individual in a mandatory eligibility group be offered medical assistance that is the same in amount, duration, or scope as assistance made available to any other persons considered to be "categorically needy" under the state plan. The costs of medical services provided pursuant to a state plan are shared by the state and federal governments. The share of costs paid by the federal government varies for each state and is referred to as the federal medical assistance percentage (FMAP). Failure to cover a "mandatory eligibility group" under a state plan places all federal Medicaid funds received by the state in jeopardy of being withheld. Some of the proposals to impose work requirements in Medicaid have focused on a newer category of individuals for whom coverage under Medicaid was added in the Patient Protection and Affordable Care Act (ACA). Specifically, Section 2001 of the ACA amended the Medicaid statute to add a new mandatory eligibility group, effective beginning in 2014. This "ACA Medicaid expansion group" was defined to cover those individuals who were under 65 years of age, not pregnant, not Medicare-eligible, and not otherwise eligible for Medicaid, who also fell below a certain income threshold. This ACA Medicaid expansion group is notable for at least two reasons. First, the federal government's share of the costs of medical services provided to this group is more than the normally applicable FMAP, which ranged between 50% and 74.63% in FY2017. In contrast, the "enhanced FMAP" for the ACA Medicaid expansion group started at 100% through 2016 and will gradually decline until it reaches 90% for 2020 and years thereafter. Second, although the ACA Medicaid expansion group was designated as a mandatory coverage group by the ACA, the Supreme Court in National Federation of Independent Businesses (NFIB) v. Sebelius held that Congress could not constitutionally "withdraw existing Medicaid funds for failure to comply with [the requirement to provide coverage for the ACA Medicaid expansion group]." The "existing Medicaid funds" referred to by the Court are that portion of federal financial assistance provided to states that is attributable to the mandatory eligibility groups that were in existence prior to the ACA and governed by the traditional FMAP. For purposes of this report, this portion of federal assistance is referred to as "pre-ACA dollars." The holding in NFIB v. Sebelius effectively allows states to decline to cover the new ACA Medicaid expansion group without jeopardizing pre-ACA dollars. However, it would appear that NFIB v. Sebelius does not preclude the disapproval by CMS of that portion of the hypothetical state plan which provides only partial coverage of the ACA Medicaid expansion group. Assuming that partial coverage of the ACA Medicaid expansion group is not permitted, the Secretary could potentially deny a state any federal assistance under the enhanced FMAP with respect to the costs of medical services provided to those beneficiaries in the partially covered ACA Medicaid expansion group. The Medicaid statute does not appear to expressly address whether a state plan may permissibly impose work requirements as a condition of receiving benefits for most beneficiaries. However, Section 1931 of the SSA authorizes states to terminate Temporary Assistance for Needy Families (TANF) recipients' eligibility for medical assistance under Medicaid if the individuals' TANF benefits are denied for failing to comply with work requirements imposed under the TANF program. Outside of this specific authority, imposing a work requirement on Medicaid beneficiaries could arguably violate the Medicaid program requirement to cover all individuals in an eligibility group. For example, if a state elects to cover the ACA Medicaid expansion, SSA Section 1902(a)(10)(A)(i)(VIII) requires a state plan to provide medical assistance to "all individuals" in the ACA Medicaid expansion (i.e., non-elderly, not pregnant, and non-Medicare eligible). Excluding individuals in this group based on employment status would arguably not cover "all individuals" in the group, assuming some individuals who sought coverage could not satisfy the work requirements. The House-passed version of H.R. 1628 , the American Health Care Act of 2017 (AHCA), would include significant changes to the Medicaid program. The bill would, among other things, phase out the enhanced matching for the ACA Medicaid expansion and convert Medicaid financing for most groups to a per capita cap model, which would subject federal payments to states to aggregate limits measured by the number of enrollees in the states' plans. Additionally, the bill would allow states to impose work requirements on non-disabled, non-elderly, non-pregnant individuals. Under this proposal, states could elect to require those beneficiaries to engage in work activities as a condition of continued eligibility under Medicaid. Work activities would be defined to be the same as those employment-related requirements imposed on TANF recipients. The House of Representatives passed the AHCA, including this provision on work requirements, on May 4, 2017. Additionally, the Better Care Reconciliation Act (BCRA), a Senate draft amendment in the nature of a substitute to H.R. 1628 , was recently published by the Senate Committee on the Budget for possible consideration. Similar to the AHCA, the most current version of the BCRA, as posted on the Senate Budget Committee website on June 26, 2017, would make fundamental changes to the Medicaid program. The Senate draft amendment would, among other things, terminate the enhanced funding for the ACA Medicaid expansion population and establish a per enrollee limit on federal payments to states for most groups, but in a manner that differs from the House-passed bill in certain respects. The BCRA also includes a work requirement that is almost identical to the provision in the AHCA. Should either of these proposals be enacted into law, states would have the option of imposing work requirements that conform to the federal standards without obtaining authority pursuant to a demonstration project under SSA Section 1115. In general, SSA Section 1115 permits states to examine potential innovations in certain state-administered public programs, including Medicaid. On March 14, 2017, HHS Secretary Tom Price and Centers for Medicare & Medicaid Services (CMS) Administrator Seema Verma cosigned a letter to state governors affirming the federal and state "partnership in improving Medicaid." Among other things, the letter announced the Trump Administration's intent to use Section 1115 demonstration authority to "approve meritorious innovations that build on the human dignity that comes with training, employment and independence." Several states, such as Kentucky, Pennsylvania, and Indiana, have also sought waivers to impose some type of Medicaid work incentives under Section 1115. Section 1115 authorizes the HHS Secretary to waive a number of requirements imposed by the SSA, including Medicaid requirements contained in Section 1902, to the extent necessary to allow a state to undertake an "experimental, pilot, or demonstration project which, in the judgment of the Secretary, is likely to assist in promoting the objectives of [Medicaid and other programs authorized by the SSA]." Thus, the central limitation provided in the text of this provision is whether, "in the judgment of the Secretary," the project is "likely to assist in promoting the objectives of [Medicaid and other covered programs]"; namely the provision of medical assistance to those whose income and resources are inadequate to meet the costs of such care. In the words of one federal court, SSA Section 1115 "vests in the Secretary broad power to authorize projects which do not fit within the permissible statutory guidelines of the standard public assistance programs." In the event that the Secretary approves a waiver, it is possible that injured parties may sue to enjoin the waiver's operation. Numerous federal courts have held that the Secretary's decision to grant a waiver is reviewable under the Administrative Procedure Act (APA). When reviewing the Secretary's issuance of a waiver, courts are likely to review the Secretary's action under the deferential standard set forth in APA Section 706(2)(A). Under this standard, a reviewing court "shall ... hold unlawful and set aside agency action, findings, and conclusions found to be ... arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." Case law interpreting this language has developed what is known as the "arbitrary and capricious" standard, which allows reversal of agency action if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. As such, the ultimate conclusion reached by a reviewing court assessing whether the HHS Secretary's grant of a waiver under Section 1115 was arbitrary and capricious will likely depend upon the actual administrative record upon which the Secretary made his decision. Further, in examining whether there has been an abuse of agency discretion, courts have held that "[t]he APA does not give the court power 'to substitute its judgment for that of the agency,' but only to 'consider whether the decision was based on consideration of the relevant factors and whether there has been a clear error of judgment.'" Courts have applied the arbitrary and capricious standard of review in APA-related challenges to cases involving the Secretary's waiver authority under Section 1115 to permit state plans imposing work requirements on categories of individuals as a condition to their receipt of certain benefits, though not in the context of the Medicaid program. In the case of Aguayo v. Richardson , New York had sought a waiver to allow the imposition of work requirements in its Aid to Families with Dependent Children (AFDC) program. AFDC recipients contended, among other things, that Section 1115 did not permit the Secretary to waive a requirement that would curtail or deny program assistance. The U.S. Court of Appeals for the Second Circuit (Second Circuit) examined the administrative record, which, in the court's view, showed that the Secretary of Health, Education, and Welfare had considered objections to the waiver and attempted to answer those objections. In its decision, the appeals court examined, among other things, a federal agency memorandum outlining the goals of the waiver program, including "[i]ncreased self-support or self-care of recipients" and "[i]ncreased community participation." Based on these parts of the administrative record, the Second Circuit concluded that it was "impossible to deny that attainment of these goals, or even of some of them, would meet the test of [Section 1115]." On these facts, the court held that the Section 1115 waiver decision by the Secretary was valid, and that the decision to grant a waiver to that state was supported by the administrative record before him. The imposition of "work incentives" in the AFDC program pursuant to a Section 1115 waiver was also discussed by the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit) in Beno v. Shalala . In that case, beneficiary groups had raised objections alleging deficiencies in the design of the project during the HHS Secretary's consideration of a waiver sought by California. Among other things, the plaintiffs had argued that the waiver would have cut benefits to almost all AFDC recipients, even though data from the project were only being collected on a fraction of beneficiaries. The plaintiffs also objected that the proposal included the imposition of a "work-incentive" cut on individuals whose disabilities preclude work. In its decision, the Ninth Circuit addressed what determinations the Secretary must make before approving a waiver under Section 1115. The court noted that pursuant to the language of this section, the Secretary is compelled to determine, among other things, that a state's project was "an experimental, demonstration, or pilot" project, and thus, such a project must have research or demonstration value. The court stated that "[a] simple benefits cut, which might save money, but has no research or experimental goal, would not satisfy this requirement." The court in Beno further noted that Section 1115 directs the Secretary to ascertain whether a proposed project is "likely to further the objectives" of the program. As part of this inquiry, the court stated that the Secretary must examine the impact that the project would have on program beneficiaries and the scope of the project. This inquiry should also include the potential harm incurred by individuals and the plaintiff's objections to the project. Taking these and other considerations into account, the court reviewed the administrative record before the Secretary and found that it "contain[ed] a rather stunning lack of evidence that the Secretary gave plaintiffs' objections any such consideration." The court further observed that the record contained no indication that the Secretary considered factors such as the risk that the benefits cut would have on program recipients; the need for cutting benefits for work-incentive purposes; or the merits of imposing such a cut on vulnerable individuals. Consequently, the court held that the Secretary's decision in this case could not be sustained, even under the deferential review of the APA. While these cases demonstrate the extent that judicial review may rely upon an examination of the administrative record when assessing the legality of a waiver under Section 1115, both Beno and Aguayo dealt with work incentives in the context of AFDC, which is a distinct program from Medicaid, and one that was created to achieve different ends. While Medicaid was created for the provision of medical assistance to individuals whose income and resources are inadequate to meet the costs of such care, the stated purposes of AFDC are Encouraging the care of dependent children in their own homes or in the homes of relatives by enabling each State to furnish financial assistance and rehabilitation and other services ... to needy dependent children and the parents or relatives with whom they are living to help maintain and strengthen family life and [helping] such parents or relatives to attain or retain capability for the maximum self-support and personal independence consistent with the maintenance of continuing parental care and protection. While Medicaid and AFDC both focus on recipients' financial need, the AFDC language also references the attainment of self-support and personal independence for beneficiaries as important goals of the program. To the extent that similar language describing Medicaid's purpose is lacking, the AFDC cases supporting work incentives above may not necessarily be dispositive of whether work incentives are consistent with the objectives of Medicaid. Similarly, as the Supreme Court has noted the difference in character between the objectives of the pre-ACA Medicaid program and the ACA Medicaid expansion, it is possible that a court may find this disparity to be relevant in evaluating a Section 1115 waiver imposing work requirements in either category. Other courts have used similar principles to review Section 1115 waivers specifically for the Medicaid program, but not in the context of work requirements. For example, in Newton-Nations v. Betlach , the Ninth Circuit reviewed a waiver authorizing Arizona to impose increased co-payments on Medicaid beneficiaries. Similarly to the situation in Beno , the court examined the administrative record and found that it lacked the requisite findings regarding the waiver's research value and potential harm to beneficiaries to support the Secretary's decision approving the waiver. In particular, the court suggested that justifying the waiver's "research or demonstration value" would require more than a cursory discussion, as the plaintiffs' public health expert had testified that co-payments had already been heavily studied over the past 35 years. Citing Beno , the court concluded that the waiver could not be justified on the basis of cost-savings without an identifiable research or demonstration value. Assuming, for purposes of this discussion, that implementation of a work requirement on Medicaid recipients would otherwise violate the provisions of SSA Section 1902, the Secretary's authority to waive those provisions as part of an "experimental, pilot, or demonstration project" under Section 1115 may be examined. As discussed above, SSA Section 1115 explicitly authorizes the Secretary to "waive compliance with any of the requirements of § 1902," upon a determination that it "is likely to assist in promoting the objectives of [Medicaid]." While most states implementing the ACA Medicaid expansion have done so through an expansion of their existing Medicaid programs, six states operate their expansions through Section 1115 waivers, in some cases using plans purchased through the private health insurance market rather than providing coverage under Medicaid for certain individuals. While the Secretary has rejected waiver proposals to link Medicaid benefits to certain work requirements for the ACA expansion group, Pennsylvania requested a waiver to conduct a demonstration project that involved voluntary work incentives, and a waiver for that plan was granted in August 2014. Whether a reviewing court would conclude that the HHS Secretary could permissibly issue a Section 1115 waiver to allow a state to impose a work requirement on beneficiaries in the ACA Medicaid expansion group may depend on the specifics regarding a particular proposal. For example, the precise parameters of the work requirement, and their relationship to the hypotheses to be tested by the project, would likely be relevant. Additionally, the particular administrative record, which could include objections raised by commenters in opposition to the project, may inform a reviewing court's evaluation of whether the Secretary had considered all relevant factors. Nevertheless, it is possible to describe a general framework under which a legal analysis would likely follow once all the facts had been established. A central aspect of this framework is the Secretary's determination concerning whether a proposed demonstration project promotes the objectives of Medicaid. As discussed above, courts evaluating whether the Secretary properly approved a Section 1115 waiver have focused on the Secretary's consideration of a waiver. In particular, courts have looked at whether the Secretary evaluated factors such as the waiver's research or experimental goals, the potential impact on program beneficiaries, and objections raised concerning the proposal. Thus, a reviewing court would likely evaluate a hypothetical Section 1115 waiver related to work requirements similarly, basing its analysis on the Secretary's determination that the waiver promotes the objectives of the Medicaid program (e.g., the provision of medical care for low-income individuals), and the sufficiency of the evidence in the administrative record supporting such a determination. If the Secretary's approval of a Section 1115 waiver is later subject to a legal challenge, a reviewing court would likely examine whether his determination was arbitrary or capricious in light of the administrative record, and the Secretary's decision will likely be afforded deference, to the extent it is not a clear error of judgment. | Proposals have been introduced in the 115th Congress to reform the Medicaid program, which provides medical assistance to low-income and needy individuals. One such approach, taken by House-passed H.R. 1628, the American Health Care Act of 2017, would allow states to impose work requirements on certain categories of individuals as a condition of coverage under the Medicaid program. A similar approach is also taken in the discussion draft of the Better Care Reconciliation Act, a proposed amendment in the nature of a substitute to H.R. 1628, which was published by the Senate Budget Committee on June 22, 2017, and updated on June 26, 2017. In addition to these proposals, which would take the form of legislative amendments to the Medicaid statute, work requirements have also been discussed in the context of waivers granted to states under the existing demonstration authority provided in Section 1115 of the Social Security Act (SSA). Section 1115 authorizes the Secretary of Health and Human Services (HHS) to waive a number of Medicaid requirements to the extent necessary to allow a state to undertake an "experimental, pilot, or demonstration project" that is likely to assist in promoting the objectives of Medicaid. Several states have recently sought waivers to impose some type of Medicaid mandatory work incentives under Section 1115, but to date, the Secretary has not approved such a waiver. This report examines the scope of authority to grant such waivers under Section 1115, including the degree to which such waivers may be judicially reviewable and the level of scrutiny courts would apply in such cases. Numerous federal courts have held that the Secretary's decision to grant a waiver under Section 1115 is reviewable under the Administrative Procedure Act (APA). Such review uses the deferential "arbitrary and capricious" standard to evaluate the permissibility of agency action. In cases where Section 1115 waivers have been challenged, courts have held that the APA does not empower judges to substitute their judgment for that of the agency, but only to consider whether the Secretary's decision was based on consideration of relevant factors and whether there has been a clear error of judgment. Therefore, a court's evaluation of a particular Section 1115 waiver will likely turn upon the sufficiency of the actual administrative record relied upon by the HHS Secretary when deciding to grant a waiver. |
In a criminal law context, bail is most often thought of as the posting of security to ensure the presence of an accused at subsequent judicial proceedings—that is, "[t]o obtain the release of (oneself or another) by providing security for future appearance." The term itself is less frequently used now, however, due in part to the practice of release on personal recognizance, which consists of permitting an individual to pledge his word, rather than his property, for his future appearance. Moreover, today, an individual's release pending subsequent criminal proceedings is often predicated on conditions other than, or in addition to, the posting of an appearance bond, secured or unsecured. As a consequence, rather than speaking of bail, existing federal law refers to release or detention pending trial, to release or detention pending sentencing or appeal, and to release or detention of a material witness. This report provides an overview of federal law in each of these areas, as well as in the area of extradition from the United States to another country. American bail law has its origins in England, where it was said that "the right to be bailed ... is as old as the law of England itself." Blackstone wrote that "by the ancient common law, before and since the conquest, all felonies were bailable, till murder was excepted by statute: so that persons might be admitted to bail before conviction almost in every case." In the beginning, however, officials enjoyed considerable discretion over the circumstances under which bail might be granted or denied. The First Statute of Westminister of 1275 limited that discretion when it listed the criminal offenses which were bailable and those which were not. Yet, if an individual was imprisoned without charge, the question of whether the crime charged was bailable never arose. If an individual was imprisoned without bail and his jailer failed to make a timely return on his writ of habeas corpus, the right to bail would become meaningless. (A writ of habeas corpus instructed the sheriff or other custodian to whom it was addressed to return to the court which issued the writ and to justify the prisoner's detention.) The same was true if an individual was imprisoned and his bail set at an exorbitant amount. At the dawn of the American colonial period, Parliament had occasion to visit each of these concerns. First in the Petition of Right, it precluded pretrial imprisonment without a criminal charge and confirmed the availability of habeas corpus relief for those who were held without charge. Then in the Habeas Corpus Act of 1679, it imposed a three-day deadline for return on a habeas writ, thus eliminating a custodian's use of delay to frustrate a pretrial prisoner's right to bail. Finally, in the Bill of Rights of 1689, it prohibited excessive bail. In this country, the right to bail appears to have been widely recognized during the colonial period and in the early years of the Republic. The 1641 Massachusetts Body of Liberties included a right to bail section: No mans person shall be restrained or imprisoned by any authority whatsoever, before the law hath sentenced him thereto, if he can put in sufficient securitie, bayle or mainprise, for his appearance, and good behaviour in the meane time, unless it be in Crimes Capitall, and Contempts in open Court, and in such cases where some expresse act of [the General] Court doth allow it. The U.S. Bill of Rights and many of the constitutions of the original states featured excessive bail clauses, and less often, right to bail clauses. The Continental Congress made a right to bail part of the Northwest Ordinance ("... All persons shall be bailable, unless for capital offences, where the proof shall be evident, or the presumption great ..."), and the First Congress added a similar clause to the first Judiciary Act ("And upon all arrests in criminal cases, bail shall be admitted, except where the punishment may be death, in which cases it shall not be admitted but by the supreme or a circuit court, or by justice of the supreme court, or a judge of a district court, who shall exercise this discretion thereto, regarding the nature and circumstances of the offence, and of the evidence, and usage of law ..."). The Revised Statutes of 1878 mirrored the provisions of the Judiciary Act. The Revised Statutes included additional provisions relating to bail for habeas petitioners, and the arrest and subsequent proceedings concerning individuals previously admitted to bail. These continued in place with little substantive revision until the Bail Reform Act of 1966. In the mid-1960s, the state of federal bail troubled Congress for two reasons. First, Congress believed that, in spite of the presumption of innocence, an accused's prospects of pretrial release turned primarily on his wealth. "Every witness before the subcommittees agreed that, at least in noncapital cases, the principal purpose of bail is to assure that the accused will appear in court for his trial. There is no doubt, however, that each year thousands of citizens accused of crimes are confined before their innocence or guilt has been determined by a court of law, not because there is any substantial doubt that they will appear for trial but merely because they cannot afford money bail. There is little disagreement that this system is indefensible." It further believed that a poor defendant suffered considerable disadvantages as a consequence. "There was widespread agreement among witnesses that the accused who is unable to post bond, and consequently is held in pretrial detention, is severely handicapped in preparing his defense. He cannot locate witnesses, cannot consult his lawyer in private, and enters the courtroom—not in the company of an attorney—but from a cell block in the company of a marshal. Furthermore, being in detention, he is often unable to retain his job and support his family, and is made to suffer the public stigma of incarceration even though he may later be found not guilty." Second, it feared that the existing bail system permit had no real means of holding those charged with a crime whose release would pose a danger to the community or someone in the community. Congress addressed the first concern in the Bail Reform Act of 1966, but was unable to reach consensus on the second, preventive detention, until several years later. "This legislation does not deal with the problem of the prevention detention of the accused because of the possibility that his liberty might endanger the public, either because of the possibility of the commission of further acts of violence by the accused during the pretrial period, or because of the fact that he is at large might result in the intimidation of witnesses or the destruction of evidence.... Obviously, the problem of preventive detention is closely related to the problem of bail reform. A solution goes beyond the scope of the present proposal and involves many difficult and complex problems which require deep study and analysis. The present problem of reform of existing bail procedures demands an immediate solution. It should not be delayed by consideration of the question of preventive detention." The 1966 Bail Reform Act amended federal law to require the pretrial release of an individual charged with a noncapital federal offense upon personal recognizance or an unsecured appearance bond, unless the court determined they were likely to be insufficient to assure the appearance of the accused at trial. The court was to assess the risk of flight by considering the nature and circumstances of the offense charged, the weight of the evidence against the accused, the accused's family ties, employment, financial resources, character and mental condition, the length of his residence in the community, his record of convictions, and his record of appearance at court proceedings or of flight to avoid prosecution or failure to appear at court proceedings. Should the court conclude that an accused would otherwise pose a risk of flight, it was to impose the least restrictive of a series of conditions that included first, third-party custody; then, travel and associational limitations; then, cash or secured bail; and, finally, nighttime incarceration. The accused was given an explicit right to appeal the imposition of any such conditions. Release was also required in capital cases and following conviction, unless the court concluded that no condition or series of conditions could overcome the risk of flight or danger to the community posed by the defendant. For several years thereafter, debate continued over the wisdom and constitutionality of pretrial preventive detention in noncapital cases. Some found preventive detention incompatible with the right to bail they considered implicit in either the Eighth Amendment's excessive bail clause or the Fifth Amendment's due process clause or in both. Others felt the right was subject to reasonable legislative regulation. History seemed to provide support for either view. On one hand, the excessive bail clause in the English Bill of Rights was clearly enacted to prevent judges from frustrating the right to bail by requiring excessive bail. ("Unfortunately, the [Habeas Corpus] Act closed one loophole and opened another. The acknowledgment of discretion in clause III allowed bail to be set at prohibitively high amounts.... The Bill of Rights corrected the practice of setting excessive bail in criminal cases ..."). Moreover, until the mid-20 th century, Congress and the vast majority of state constitutions had consistently recognized a right to bail in noncapital cases save only when the accused posed a risk of flight. On the other hand, both the English and the federal right to bail had always been a matter of statute—that is, a matter subject to reasonable legislative regulation. Dicta in various Supreme Court cases seemed equally conflicted. In Stack v. Boyle , the Court noted that "this traditional right to freedom before conviction permits the unhampered preparation of a defense, and serves to prevent the infliction of punishment prior to conviction.... Unless this right to bail before trial is preserved, the presumption of innocence, secured only after centuries of struggle, would lose its meaning." Yet shortly thereafter it observed in Carlson v. Landon that the [excessive] bail clause was lifted with slight changes from the English Bill of Rights Act. In England that clause has never been thought to accord a right to bail in all cases, but merely to provide that bail shall not be excessive in those cases where it is proper to grant bail. When this clause was carried over into our Bill of Rights, nothing was said that indicated any different concept. The Eighth Amendment has not prevented Congress from defining the classes of cases in which bail shall be allowed in this country. Thus in criminal cases bail is not compulsory where the punishment may be death. Indeed, the very language of the Amendment fails to say all arrests must be bailable. In 1984, Congress amended federal bail law to permit the use of preventive detention in certain limited instances when the accused posed a danger to the public or particular members of the public. Three years later, the Supreme Court in Salerno held that the legislation offended neither the Eighth Amendment's Excessive Bail Clause nor the Fifth Amendment's Due Process Clause: In our society liberty is the norm, and detention prior to trial or without trial is the carefully limited exception. We hold that the provisions for pretrial detention in the Bail Reform Act of 1984 fall within that carefully limited exception. The Act authorizes the detention prior to trial of arrestees charged with serious felonies who are found after an adversary hearing to pose a threat to the safety of individuals or to the community which no condition of release can dispel. The numerous procedural safeguards detailed above must attend this adversary hearing. We are unwilling to say that this congressional determination, based as it is upon that primary concern of every government—a concern for the safety and indeed the lives of its citizens—on its face violates either the Due Process Clause of the Fifth Amendment or the Excessive Bail Clause of the Eighth Amendment. The Court explained that the regulatory character of the regime immunized it from substantive due process assault: Unless Congress expressly intended to impose punitive restrictions, the punitive/regulatory distinction turns on whether an alternative purpose to which the restriction may rationally be connected is assignable for it and whether it appears excessive in relation to the alternative purpose assigned to it. We conclude that the detention imposed by the Act falls on the regulatory side of the dichotomy. The legislative history ... indicates that Congress did not formulate the pretrial detention provisions as punishment for dangerous individuals. Congress instead perceived pretrial detention as a potential solution to a pressing societal problem. There is no doubt that preventing danger to the community is a legitimate regulatory goal. Nor are the incidents of pretrial detention excessive in relation to the regulatory goal Congress sought to achieve. Its tailored procedural safeguards shielded it from procedural due process ("Finally, we may dispose briefly of respondents' facial challenge to the procedures of the Bail Reform Act.... We think [its] extensive safeguards sufficient to repel a facial challenge"), and excessive bail challenges ("Nothing in the text of the Bail Clause limits permissible Government considerations solely to questions of flight. The only arguable substantive limitation of the Bail Clause is that the Government's proposed conditions of release or detention not be excessive in light of the perceived evil.... We believe that when Congress has mandated detention on the basis of a compelling interest other than prevention of flight, as it has here, the Eighth Amendment does not require release on bail"). Three Justices—Marshall, Brennan, and Stevens—found the majority's arguments unpersuasive. The basic structure of federal bail law is as the 1984 Bail Reform Act left it, although Congress has made a number of adjustments in the years since, most notably relating to the rebuttable presumption of flight and dangerousness. An individual released prior to trial remains free under the same conditions throughout the trial until conviction or acquittal, subject to modification or revocation by the court. For that reason, the term pretrial release is understood to include all preconviction release, both before and during trial. Under existing federal law, an individual arrested under federal authority must be brought before a magistrate without unnecessary delay. Any federal or state judge or magistrate may qualify. The magistrate may order an individual accused of a federal crime either released or detained prior to trial and conviction. The law affords the judge or magistrate four options, which it places in descending order of preference. First, he may release the accused on personal recognizance or under an unsecured appearance bond, subject only to the condition that the accused commit no subsequent federal, state, or local crime and that he submit a sample for DNA analysis. Second, he may release the accused subject to certain additional conditions. Third, he may order the accused detained for bail revocation, parole revocation, probation revocation, or deportation proceedings. Fourth, he may order the accused detained prior to trial. If the magistrate does not initially release the accused on personal recognizance or conditions, a hearing on the release of the accused must be held "immediately" upon the individual's first appearance before the judge or magistrate. The accused or the government may request that the hearing be postponed for up to five days—up to only three days when the postponement is granted at the government's behest. The accused is entitled to assistance of counsel at the hearing and to the appointment of counsel if necessary. The accused may testify at the hearing and present and cross-examine witnesses. Evidence may be introduced at the hearing without deference to the rules that apply at a criminal trial. The decision to release an accused on personal recognizance or unsecured appearance bond rests upon a determination that the accused poses no risk of flight and no risk of danger to the community or any of its inhabitants. The decision requires consideration of four factors: "The nature and circumstances of the offense …"; "The weight of the evidence against the person"; "The history and characteristics of the person …"; and "The nature and seriousness of the danger to any person or the community that would be posed by the person's release…" If the judge or magistrate concludes that personal recognizance or an unsecured appearance bond is insufficient to overcome the risk of flight or to community or individual safety, he may condition the individuals' release on a refrain from criminal activity, collection of a DNA sample, and the least restrictive combination of 14 conditions. Under the appropriate circumstances, the "community" whose safety is the focus of the judge or magistrate's inquiry need not be limited geographically to either the district or even the United States. The 14 statutory conditions are third-party supervision; seeking or maintaining employment; meeting education requirements; observing residency, travel, or associational restrictions;* avoiding contact with victims or witnesses;* maintaining regular reporting requirements;* obeying a curfew;* adhering to firearms limitations;* avoiding alcohol or controlled-substance abuse; undergoing medical treatment; entering into a personally secured appearance agreement; executing a bail bond; submitting to afterhours incarceration; and complying with any other court-imposed condition. Section 3142 requires the judge or magistrate to impose electronic monitoring and several of these conditions (noted with an asterisk above) when the accused is ineligible for release on personal recognizance or an unsecured bond and is charged with one of several sex-related offenses against children. Several defendants have successfully challenged this mandatory requirement on Due Process Clause or Excessive Bail Clause grounds. Notwithstanding the explicit conditions that seem to contemplate requiring an accused to post security for his release or face detention, Section 3142 provides that "the judicial officer may not impose a financial condition that results in the pretrial detention of the person." The courts have resolved the apparent conflict by essentially construing the provision to apply when the financial condition is not calculated to result in pretrial detention but is a collateral consequence of the court's determination of the amount necessary for safety and to prevent flight. As the Ninth Circuit explained: Several other circuits have addressed the apparent violation of §3142(c)(2) that arises when, as in Fidler's case, a defendant is granted pretrial bail, but is unable to comply with a financial condition, resulting in his detention. It may appear that detention in such circumstances always contravenes the statute. We agree, however, with our sister circuits that have concluded that this is not so. These cases establish that the de facto detention of a defendant under these circumstances does not violate §3142(c)(2) if the record shows that the detention is not based solely on the defendant's inability to meet the financial condition, but rather on the district court's determination that the amount of the bond is necessary to reasonably assure the defendant's attendance at trial or the safety of the community. This is because, under those circumstances, the defendant's detention is not because he cannot raise the money, but because without the money, the risk of flight [or danger to others] is too great. The accused, however, may have to overcome the statutory rebuttable presumption of flight or dangerousness to secure his release on personal recognizance or an unsecured appearance bond. A rebuttable presumption attaches under either of two circumstances. The first occurs when, following a hearing, the judge finds probable cause to believe that the accused has committed one of the serious crimes classified as either a 10-year drug offense; an offense involving possession of a firearm in furtherance of a crime of violence or serious drug offense; a 10-year federal crime of terrorism; a 20-year human trafficking offense; or a designated sex offense committed against a child. The second set of circumstances giving rise to a rebuttable presumption occurs when, following a hearing, the judge finds probable cause to believe that the accused previously committed a qualifying offense, much like those just described, while on bail, and for which he was convicted or released from imprisonment within the last five years. "[T]he presumption reflects Congress' substantive judgment that particular classes of offenders should ordinarily be detained prior to trial." An accused must present some rebuttal evidence, no matter how slight, in order to the escape the presumption. Nevertheless, the prosecution bears the ultimate burden of establishing that no series of conditions is sufficient to negate the risk of the accused's flight or dangerousness—by a preponderance of the evidence in the case of flight and by clear and convincing evidence in the case of dangerousness. Unless he holds the accused for revocation or deportation proceedings, the judge or magistrate may decline to release the accused on conditions only if he finds that no condition or series of conditions will provide reasonable assurance against flight or dangerousness. The third option available to the judge or magistrate if the accused poses a flight or safety risk is to order him detained for up to 10 days to allow for a transfer of custody for purposes of bail, probation or parole, or deportation revocation proceedings. Otherwise applicable bail provisions come into play if the accused has not been transferred within the 10-day deadline. Finally, having exhausted the other options—release of personal recognizance, release under conditions, and release for other proceedings—the judge or magistrate may order the accused detained prior to trial. Although pretrial detention is the least statutorily favored alternative in the federal pretrial bail scheme, 72.7% of those accused of federal crimes and presented to a federal judge or magistrate are detained prior to trial. The judge or magistrate may order pretrial detention upon determining, after a hearing, that no combination of conditions will be sufficient to protect against the risk of flight or threat to safety. The government has the option of petitioning for pretrial detention under two different sets of circumstances. The first consists of instances in which the accused is charged with one or more designated serious federal offenses, that themselves create a rebuttable presumption that no set of conditions will guarantee public safety or prevent the flight of the accused. The second consists of instances in which the defendant poses a serious safety or flight risk, regardless of the crime with which he is charged. The government may seek pretrial detention when the accused is charged with any of nine categories of federal crime: crimes of violence; sex trafficking involving a child or the use of force, fraud, or coercion; federal crimes of terrorism with a maximum term of imprisonment of 10 years or more; offenses punishable by death or one punishable by life imprisonment; controlled substance offenses with a maximum term of imprisonment of 10 years or more; felonies, if the accused has previously been convicted of two or more of such crimes of violence, crimes of terrorism, capital offenses, controlled substance violations, or their equivalents under state law; nonviolent felonies committed against a child; felonies involving the use of firearms, explosives, or other dangerous weapons; failure to register as a sex offender. The categories obviously overlap and reinforce each other. For example, many of the federal crimes of terrorism are also crimes punishable by life imprisonment or death. (A list of the federal crimes of terrorism with a maximum penalty of imprisonment of 10 years or more is appended, as is a list of the federal crimes with a maximum penalty of death or of imprisonment for life.) In some instances the apparent duplication provides clarification. Absent a separate specific category, crimes of violence might not be understood to include felonies involving the use of firearms, explosives or other dangerous weapons, as was often the case prior to creation of the explicit firearm category. By the same token, listing offenses punishable by death or life imprisonment makes it clear that espionage is covered without the necessity of inquiring whether a particular offense in fact involved the risk of violence which would qualify it as a crime of violence. Section 3156 provides still further clarification. It defines "crimes of violence" for purposes of Section 3142 and several other provisions of the bail chapter to mean not only a crime with a violent element and a crime that involves the risk of violence, but also various federal sex offenses including interstate prostitution and possession or distribution of child pornography—that is, any felony under chapter 109A (sexual abuse), 110 (sexual exploitation of children), or 117 (interstate travel of illicit sexual purposes). The judge or magistrate may also order pretrial detention when the accused is charged with other offenses, but the judge or magistrate finds, after a hearing, that the accused poses a serious risk of flight or obstruction of justice. Section 3142 dictates what the judge or magistrate must include within his release or detention order. Release orders, whether issued following a detention hearing or upon conditional release without such a hearing, provide the accused with written notification of the conditions of his release, the consequences of violating a condition of release, and of the prohibitions on obstruction of justice. Detention orders contain written findings and justifications. They also direct custodial authorities to hold the accused apart from other detainees to the extent possible, to permit him to consult with his attorney, and to deliver him up for subsequent judicial proceedings. After the issuance of an order, the court is free (1) to amend a release or detention order; (2) to reopen the detention hearing to consider newly discovered information or changed circumstances; or (3) to permit an accused under a detention order to assist in the preparation of his defense or to be temporarily released for other compelling reasons. Release orders and detention orders are final orders for appellate purposes, and either the government or the accused may appeal them. Federal law treats bail following conviction but prior to sentencing in one of three ways depending upon the crime of conviction. First, a defendant may not be detained prior to sentencing for an offense for which the U.S. Sentencing Guidelines do not recommend a sentence of imprisonment. Second, when the defendant has been convicted of a capital offense, a 10-year federal crime of terrorism, a 10-year controlled substance offense, a crime of violence, or a violation of 18 U.S.C. §1591 (commercial sex trafficking), the defendant must be detained unless the court finds that the defendant is not likely to flee or pose a safety concern and either that a motion for acquittal or a new trial is likely to be granted, or that the prosecution has recommended no sentence of imprisonment be imposed, or that exceptional reasons exist for granting bail. Third, in any other case, the defendant must be detained, unless the court concludes that the defendant is unlikely to flee or pose a safety concern if released conditionally or on his own recognizance. When a defendant appeals following conviction, the judge or magistrate may release him on condition or recognizance, if the judicial official is convinced that the defendant poses neither a flight risk nor a safety concern and that his appeal raises substantial questions that offer the prospect of success. "A question is substantial if the defendant can demonstrate that it is 'fairly debatable' or is 'debatable among jurists of reason.'" An additional requirement applies when the defendant has been sentenced to prison upon conviction for a capital offense, a 10-year federal crime of terrorism, a 10-year controlled substance offense, or a crime of violence. In such cases, bail is available only under exceptional circumstances. The circumstances considered exceptional have variously been described as uncommon, unusual, unique, and rare. When the government alone appeals, the pretrial bail provisions of Section 3142 apply, unless the government is simply appealing the sentence imposed. When the government appeals the sentence imposed, the defendant must be detained if he has been sentenced to a term of imprisonment; otherwise, Section 3142 applies. A number of consequences flow from an individual's failure to appear or to honor the conditions imposed upon his release. He may be prosecuted for contempt of court; he may be prosecuted separately for failure to appear; his release order may be revoked or amended; security pledged for his compliance may be forfeited; he may be subject to arrest by his surety; and he may prosecuted for any crimes that constituted a violation of his bail conditions. It is a separate federal crime to fail to appear for required judicial proceedings or for service of sentence. "To establish a violation of 18 U.S.C. §3146, the government ordinarily must prove that the defendant (1) was released pursuant to Title 18, Chapter 207 of the U.S. Code, (2) was required to appear in court, (3) knew he was required to appear, (4) failed to appear as required, and (5) was willful in his failure to appear." An individual enjoys an affirmative defense if he fails to appear through no fault of his own. An individual who fails to appear for his supervised release revocation hearing is liable only if he was released on bail in anticipation of the hearing. The penalty for violation of Section 3146, which ranges from imprisonment for not more than one year to imprisonment for not more than 10 years, is calibrated to reflect the seriousness of the underlying offense. When an individual is convicted for failure to appear for a supervised release revocation hearing, the sentence for violation of Section 3146 is governed by the offense with respect to which supervised release was granted. An individual who violates a condition of his release on bail may also be prosecuted for contempt of court under 18 U.S.C. § 401. When an individual commits a crime while on bail, federal law provides an additional penalty: "A person convicted of an offense committed while released under this chapter shall be sentenced, in addition to the sentence prescribed for the offense, to (1) a term of imprisonment of not more than 10 years if the offense is a felony; or (2) a term of imprisonment of not more than one year if the offense is a misdemeanor." The lower federal appellate courts have held that the penalty enhancement under Section 3147 may be imposed based on a failure to appear in violation of Section 3146. It may also be imposed when the post-bail offense was a continuation of the offense that occasioned the individual's original release on bail. Faced with failure to comply with a condition of release, the judge or magistrate may amend an individual's release order amending existing conditions or adding new ones. The judge or magistrate may also order revocation of the release order and detention of the individual after a hearing, if he finds either probable cause to believe that the individual has committed a new offense or by clear and convincing evidence that the individual has breached some other condition of his release. The new detention order must be premised on a finding that the individual is unlikely to abide by the conditions imposed for his release or that there is no combination of conditions sufficient to guard against the individual's flight or danger to the public or any member of the public. A finding of probable cause that the individual has committed a new offense triggers a presumption that no combination of conditions will dispel concerns for public safety. The judge or magistrate may order any bail bond or other security forfeited, if the individual fails to appear at judicial proceedings as required or fails to appear to begin service of his sentence. The court must do so if he fails to abide by any condition imposed for his release. The prosecution begins the process with a motion to enforce. If the surety returns the individual to the custody of the court, or if not contrary to interests of justice, the court may set aside, mitigate, or remit the forfeiture or may exonerate the surety and release the bail. A surety on an appearance bond is entitled to notice and to be heard on any material amendment to the conditions of release. The U.S. Probation and Pretrial Service Office conducts preliminary investigations and otherwise assists the courts in their administration of federal bail law. Its officers enjoy statutory authority to provide judges and magistrates with information relevant to initial bail determinations; prepare reports relevant for the review of release and detention orders; supervise bailees released into its custody; operate halfway houses, treatment facilities, and the like for those released on bail; inform the court and prosecutors of release order violations; advise the court on the availability of third-party custodians; help bailees secure employment, medical, legal, and social services; prepare reports on supervision of pretrial detainees; prepare reports on the bail system; prepare pretrial diversion reports for prosecutors; contract for the performance of its responsibilities; supervise and report on prisoners conditionally released following hospitalization for mental disease or defect; carry firearms; provide services for juveniles; and perform other functions assigned to it by the bail laws. Federal law authorizes the arrest and detention or bail of individuals with evidence material to the prosecution of a federal offense. With limited variations, federal bail laws apply to material witnesses arrested under Section 3144. Thus, arrested material witnesses are entitled to the assistance of counsel during bail proceedings and to the appointment of an attorney when they are unable to retain private counsel. Release is generally favored; if not, release with conditions or limitations is preferred, and finally as a last option detention is permitted. An accused is released on his word (personal recognizance) or bond unless the court finds such assurances insufficient to guarantee his subsequent appearance or to ensure public or individual safety. A material witness, however, need only satisfy the appearance standard. A material witness who is unable to do so is released under such conditions or limitations as the court finds adequate to ensure his later appearance to testify. If neither word nor bond nor conditions will suffice, the witness may be detained. The factors a court may consider in determining whether a material witness is likely to remain available include his deposition, character, health, and community ties. Federal bail laws make no mention of bail in extradition cases. The federal courts instead adhere to the doctrine announced by the Supreme Court over a century ago that "bail should not ordinarily be granted in cases of foreign extradition" except under "special circumstances." The doctrine has withstood constitutional challenge. There is no precise definition of what constitutes "special circumstances"; the category is reserved for those extraordinary characteristics of a case which the court feels merit the designation. In the past, they have included, singularly or in some combination, factors such as unusual delays prior to extradition; the likelihood that extradition may not be granted; the likelihood that the individual will prevail following extradition; the ill health of the individual; the availability of bail under the laws of both countries for the offense for which extradition was sought; the adverse impact on third parties of a refusal to grant bail; the fact that the individual was a minor; religious prerogatives lost if bail was not granted; and lack of urgency to prosecute previously evidenced by the requesting nation. On the other hand, a partial list of what have not been found to be "special circumstances" includes a significant bond and an unblemished record; requesting country would grant release on bail; United States would grant bail for comparable offense; relatively short delay between the alleged offense and the request for extradition; length of delay measured against the seriousness of the alleged offense; anticipation of lengthy extradition proceedings; need for dependents' financial and emotional support; need to confer with counsel; prison conditions; defendant's health; defendant being likely to prevail in foreign trial; the defendant being a highly trained doctor available to administer to the public; character evidence; need to consult with counsel and assist in gathering evidence to support defense; release of defendant's brother; and advanced age or infirmity. In addition, the individual must establish that if released he will not flee or pose a danger and may be made subject to whatever relevant conditions the court deems to impose. Appendix A. Federal Crimes with a Maximum Penalty of Death or Life Imprisonment 7 U.S.C. § 2146 (murder of a federal animal transportation inspector) 8 U.S.C. § 1324 (death resulting from smuggling aliens into the United States) 15 U.S.C. § 1825(a)(2)(C) (killing those enforcing the Horse Protection Act) 18 U.S.C. § 32 (death resulting from destruction of aircraft or their facilities) 18 U.S.C. § 33 (death resulting from destruction of motor vehicles or their facilities used in U.S. foreign commerce) 18 U.S.C. § 36 (murder by drive-by shooting) 18 U.S.C. § 37 (death resulting from violence at international airports) 18 U.S.C. § 38 (fraud involving aircraft or space vehicle parts resulting in death) 18 U.S.C. § 43 (force or violence involving animal enterprises where death results) 18 U.S.C. § 81 (life-threatening arson in the U.S. special maritime or territorial jurisdiction) 18 U.S.C. § 115(a)(1)(A) (murder of a family member of a U.S. officer, employee or judge with intent to impede or retaliate for performance of federal duties) 18 U.S.C. §115(a)(1)(B) (murder of a former U.S. officer, employee, or judge, or any member of their families, in retaliation for performance of federal duties) 18 U.S.C. § 175 (biological weapons) 18 U.S.C. § 175c (variola virus (smallpox)) 18 U.S.C. § 225 (continuing financial enterprise) 18 U.S.C. § 229 (chemical weapons) 18 U.S.C. § 241 (death resulting from conspiracy against civil rights) 18 U.S.C. § 242 (death resulting from deprivation of civil rights under color of law) 18 U.S.C. § 245 (death resulting from deprivation of federally protected activities) 18 U.S.C. § 247 (death resulting from obstruction of religious beliefs) 18 U.S.C. § 248 (freedom of access to clinic entrances where death results) 18 U.S.C. § 249 (hate crime where death results) 18 U.S.C. § 351 (killing a Member of Congress, cabinet officer, or Supreme Court justice) 18 U.S.C. § 794 (espionage) 18 U.S.C. § 831 (nuclear materials) 18 U.S.C. § 832 (participant in foreign program involving nuclear or weapons of mass destruction) 18 U.S.C. § 844(d) (death resulting from the unlawful transportation of explosives in U.S. foreign commerce) 18 U.S.C. § 844(f) (death resulting from bombing federal property) 18 U.S.C. § 844(i) (death resulting from bombing property used in or used in an activity which affects U.S. foreign commerce) 18 U.S.C. § 924(c) (death resulting from carrying or using a firearm during and in relation to a crime of violence or a drug trafficking offense) 18 U.S.C. § 930(c) (use of a firearm or other dangerous weapon in a federal facility) 18 U.S.C. § 956 (conspiracy to commit overseas murder or kidnapping) 18 U.S.C. § 1030 (computer damage resulting in death) 18 U.S.C. § 1038 (false information or hoax resulting in death) 18 U.S.C. § 1091 (genocide when the offender is a U.S. national) 18 U.S.C. § 1111 (murder within the special maritime jurisdiction of the United States) 18 U.S.C. § 1114 (murder of a federal employee, including a member of the U.S. military, or anyone assisting a federal employee or member of the United States military during the performance of (or on account of) the performance of official duties) 18 U.S.C. § 1116 (murder of an internationally protected person) 18 U.S.C. § 1117 (conspiracy to commit murder proscribed under §§ 1111, 1114, 1116, or 1119) 18 U.S.C. § 1118 (murder by a federal prisoner) 18 U.S.C. § 1119 (murder of a U.S. national by another outside the United States) 18 U.S.C. § 1120 (murder by a person who has previously escaped from a federal prison) 18 U.S.C. § 1121(a) (murder of another who is assisting or because of the other's assistance in a federal criminal investigation or killing (because of official status) a state law enforcement officer assisting in a federal criminal investigation) 18 U.S.C. § 1201 (kidnapping where death results) 18 U.S.C. § 1203 (hostage taking where death results) 18 U.S.C. § 1347 (health care fraud where death results) 18 U.S.C. § 1365 (tampering with consumer products where death results) 18 U.S.C. § 1366 (destruction of energy facility property where death results) 18 U.S.C. § 1503 (murder to obstruct federal judicial proceedings) 18 U.S.C. § 1512 (tampering with a federal witness or informant where death results) 18 U.S.C. § 1513 (retaliatory murder of a federal witness or informant) 18 U.S.C. § 1581 (peonage involving killing, kidnapping, rape, or attempt to commit such offenses) 18 U.S.C. § 1583 (enticement into slavery involving killing, kidnapping, rape, or attempt to commit such offenses) 18 U.S.C. § 1584 (sale into involuntary servitude involving killing, kidnapping, rape, or attempt to commit such offenses) 18 U.S.C. § 1589 (forced labor involving killing, kidnapping, rape, or attempt to commit such offenses) 18 U.S.C. § 1590 (human trafficking involving killing, kidnapping, rape, or attempt to commit such offenses) 18 U.S.C. § 1591 (trafficking in children for sexual purposes) 18 U.S.C. § 1651 (piracy) 18 U.S.C. § 1652 (piracy) 18 U.S.C. § 1653 (piracy) 18 U.S.C. § 1655 (seaman laying violent hands upon a commander) 18 U.S.C. § 1658 (plunder of distressed vessel) 18 U.S.C. § 1661 (robbery ashore by pirates) 18 U.S.C. § 1716 (death resulting from mailing injurious items) 18 U.S.C. § 1751 (murder of the President, Vice President, or a senior White House official) 18 U.S.C. § 1864 (hazardous or injurious devices on federal law where death results) 18 U.S.C. § 1952 (interstate travel in aid of racketeering where death results) 18 U.S.C. § 1958 (murder for hire in violation of U.S. law) 18 U.S.C. § 1959 (murder in aid of racketeering) 18 U.S.C. § 1962 (RICO where the predicate offense is punishable by imprisonment for life) 18 U.S.C. § 1992 (attacks on railroad and mass transit systems engaged in interstate or foreign commerce resulting in death) 18 U.S.C. § 2113 (murder committed during the course of a bank robbery) 18 U.S.C. § 2118 (killing during the course of a controlled substance robbery or burglary) 18 U.S.C. § 2119 (death resulting from carjacking) 18 U.S.C. § 2155 (destruction of defense material where death results) 18 U.S.C. § 2199 (stowaways where death results) 18 U.S.C. § 2241 (aggravated sexual abuse within the special maritime and territorial jurisdiction of the United States) 18 U.S.C. § 2242 (sexual abuse within the special maritime and territorial jurisdiction of the United States) 18 U.S.C. §§ 2243, 2245 (sexual abuse of a minor or ward within the special maritime and territorial jurisdiction of the United States where death results) 18 U.S.C. §§ 2244, 2245 (abusive sexual contact within the special maritime and territorial jurisdiction of the United States where death results) 18 U.S.C. § 2251 (murder during the course of sexual exploitation of a child) 18 U.S.C. § 2252A(g) (child exploitation enterprises) 18 U.S.C. § 2261 (interstate domestic violence where death results) 18 U.S.C. § 2261A (interstate stalking where death results) 18 U.S.C. § 2262 (interstate violation of a protective order where death results) 18 U.S.C. § 2272 (destruction of a vessel by its owner) 18 U.S.C. § 2280 (killing resulting from violence against maritime navigation) 18 U.S.C. § 2280a (a killing resulting from violence against maritime navigation) 18 U.S.C. § 2281 (death resulting from violence against fixed maritime platforms) 18 U.S.C. § 2281a (additional offenses against fixed maritime platforms) 18 U.S.C. § 2282A (murder using devices or dangerous substances in U.S. waters) 18 U.S.C. § 2283 (transportation of explosives, biological, chemical, radioactive, or nuclear materials for terrorist purposes on the high seas or aboard a U.S. vessel or in U.S. waters) 18 U.S.C. § 2284 (transporting a terrorist) 18 U.S.C. § 2291 (murder in the destruction of vessels or maritime facilities) 18 U.S.C. § 2320 (trafficking in counterfeit goods where death results) 18 U.S.C. § 2332 (killing an American overseas) 18 U.S.C. § 2332a (death resulting from use of weapons of mass destruction) 18 U.S.C. § 2322b (multinational terrorism involving murder) 18 U.S.C. § 2332f (death resulting from bombing of public places, government facilities, public transportation systems, or infrastructure facilities) 18 U.S.C. § 2332g (anti-aircraft missiles) 18 U.S.C. § 2332h (radiological dispersal devices) 18 U.S.C. § 2332i (acts of nuclear terrorism) 18 U.S.C. § 2339A (providing material support to terrorists where death results) 18 U.S.C. § 2339B (providing material support to terrorist organizations where death results) 18 U.S.C. § 2340A (death resulting from torture committed outside the United States) 18 U.S.C. § 2381 (treason) 18 U.S.C. § 2422 (use of the mail or interstate commerce to coerce or entice a child to engage in sexual activity) 18 U.S.C. § 2423 (interstate transportation of a child for sexual purposes) 18 U.S.C. § 2441 (war crimes) 18 U.S.C. § 2442 (recruitment or use of children as soldiers where death results) 18 U.S.C. § 3261 (murder committed by members of the United States armed forces or accompanying or employed by the United States armed forces overseas) 21 U.S.C. § 461(c) (murder of federal poultry inspectors during or because of official duties) 21 U.S.C. § 675 (murder of federal meat inspectors during or because of official duties) 21 U.S.C. § 841 (trafficking in substantial amounts of a controlled substance) 21 U.S.C. § 848 (drug kingpin) 21 U.S.C. § 860(b) (trafficking in controlled substance near a school by a repeat offender) 21 U.S.C. § 960 (importing substantial amounts of a controlled substance) 21 U.S.C. § 960a (narco-terrorism) 21 U.S.C. § 1041(c) (murder of an egg inspector during or because of official duties) 42 U.S.C. § 2000e-13 (killing EEOC personnel during or because of official duties) 42 U.S.C. §§ 2077, 2272 (prohibitions governing atomic weapons) 42 U.S.C. §§ 2122, 2272 (prohibitions governing atomic weapons) 42 U.S.C. §§ 2131, 2272 (prohibitions governing atomic weapons) 42 U.S.C. § 2274 (communication of restricted data to injure the United States or aid a foreign nation) 42 U.S.C. § 2275 (receipt of restricted data to injure the United States or aid a foreign nation) 42 U.S.C. § 2276 (tampering with restricted data to injure the United States or aid a foreign nation) 42 U.S.C. § 2283 (killing federal nuclear inspectors during or because of official duties) 42 U.S.C. § 2284 (sabotage of nuclear facilities or fuel) 42 U.S.C. § 3631 (Fair Housing Act offenses involving killing, kidnapping, rape, or attempt to commit such offenses) 46 U.S.C. §§ 70503, 70506 (Maritime Drug Law Enforcement offenses track the penalties for violations of 21 U.S.C. § 960) 49 U.S.C. § 46502 (aircraft piracy if death results) 49 U.S.C. § 46503 (interference with a screening personnel using a dangerous weapon) 49 U.S.C. § 46504 (assault on a flight crew with a dangerous weapon) 49 U.S.C. § 46505 (carrying a weapon or explosive device aboard an aircraft if death results) 49 U.S.C. § 46506 (murder aboard an aircraft) 49 U.S.C. § 60123(b) (destruction of interstate gas or hazardous liquid pipeline facility if death results) Appendix B. Federal Crimes of Terrorism (18 U.S.C. § 2332b(g)(5)(B)) with a Maximum Penalty of 10 Years' Imprisonment or More 18 U.S.C. § 32 (destruction of aircraft or aircraft facilities) (other than 32(c) (threats) 18 U.S.C. § 37 (violence at international airports) 18 U.S.C. § 81 (arson within special maritime and territorial jurisdiction) 18 U.S.C. § 175 (biological weapons) 18 U.S.C. § 175b (transfer of biological weapons to restricted persons) 18 U.S.C. § 175c (variola virus) 18 U.S.C. § 229 (chemical weapons) 18 U.S.C. § 351(a) (b) (c) or (d) (congressional, cabinet, and Supreme Court assassination and kidnapping) 18 U.S.C. § 831 (nuclear materials) 18 U.S.C. § 832 (participation in nuclear and weapons of mass destruction threats to the United States) 18 U.S.C. §§ 842(m) or (n), 844(a) (plastic explosives) 18 U.S.C. § 844(d) (interstate transportation of explosives with intent to injure or destroy where death results) 18 U.S.C. § 844(f)(2) or (3) (arson and bombing of government property risking or causing death) 18 U.S.C. § 844(i) (arson and bombing of property used in interstate commerce) 18 U.S.C. § 930(c) (murder or conspiracy to murder during an attack on a Federal facility with a dangerous weapon) 18 U.S.C. § 956(a)(1) (conspiracy to murder, kidnap, or maim persons abroad) 18 U.S.C. § 1030(a)(1) (computers espionage to injure the United States or aid a foreign nation) 18 U.S.C. § 1030(a)(5)(A) (computer damage resulting in death or serious injury) 18 U.S.C. § 1114 (murder of officers and employees of the United States) 18 U.S.C. § 1116 (murder of foreign officials, official guests, or internationally protected persons) 18 U.S.C. § 1203 (hostage taking) 18 U.S.C. § 1347 (heath care fraud resulting in death) 18 U.S.C. § 1361 (destruction of government property valued at $1,000 or more) 18 U.S.C. § 1362 (destruction of a communications lines or facilities) 18 U.S.C. § 1363 (destruction of a dwelling in a federal enclave) 18 U.S.C. § 1366(a) (destruction of an energy facility) 18 U.S.C. § 1751(a) (b) (c) or (d) (presidential and presidential staff assassination and kidnapping) 18 U.S.C. § 1992 (terrorist attacks and other acts of violence against railroad carriers and against mass transportation systems on land, on water, or through the air) 18 U.S.C. § 2155 (destruction of national defense materials, premises, or utilities) 18 U.S.C. § 2156 (production of defective national defense material) 18 U.S.C. § 2280 (violence against maritime navigation) (other than § 2280(a)(2)(threats)) 18 U.S.C. § 2280a (violence against maritime navigation involving weapons of mass destruction) (other than § 2280a(a)(2)(threats)) 18 U.S.C. § 2281 (violence against maritime fixed platforms) (other than § 2281(a)(2)(threats)) 18 U.S.C. § 2281a (violence against maritime fixed platforms involving weapons of mass destruction) (other than § 2281a(a)(2)(threats)) 18 U.S.C. § 2332 (murder, attempted murder, or conspiracy to murder U.S. nationals overseas) 18 U.S.C. § 2332a (use of weapons of mass destruction) 18 U.S.C. § 2332b (acts of terrorism transcending national boundaries) 18 U.S.C. § 2332f (bombing of public places and facilities) 18 U.S.C. § 2332g (missile systems designed to destroy aircraft) 18 U.S.C. § 2332h (radiological dispersal devices) 18 U.S.C. § 2332i (nuclear terrorism) 18 U.S.C. § 2339 (harboring terrorists) 18 U.S.C. § 2339A (providing material support to terrorists) 18 U.S.C. § 2339B (providing material support to terrorist organizations) 18 U.S.C. § 2339C (financing of terrorism) 18 U.S.C. § 2339D (military-type training from a foreign terrorist organization) 18 U.S.C. § 2340A (torture) 21 U.S.C. § 960a (narco-terrorism) 42 U.S.C. § 2122 (prohibitions governing atomic weapons) 42 U.S.C. § 2284 (sabotage of nuclear facilities or fuel) 49 U.S.C. § 46502 (aircraft piracy) 49 U.S.C. § 46504 (second sentence) (assault on a flight crew with a dangerous weapon) 49 U.S.C. § 46505(b)(3) or (c) (explosive or incendiary devices, or endangerment of human life by means of weapons, on aircraft) 49 U.S.C. § 46506 if homicide or attempted homicide is involved (application of certain criminal laws to acts on aircraft) 49 U.S.C. § 60123(b) (destruction of interstate gas or hazardous liquid pipeline facility) Appendix C. Controlled Substance Offenses with a Maximum Penalty of 10 Years' Imprisonment or More 21 U.S.C. § 841(a), (b) (trafficking in schedule I or II controlled substances) 21 U.S.C. § 841(c) (trafficking in listed chemicals) 21 U.S.C. § 841(d) (boobytraps on federal property) 21 U.S.C. § 841(g) (Internet sale of date rape drugs) 21 U.S.C. § 843(a)(6),(7), (d)(2)(possession or manufacture of methamphetamine manufacturing paraphernalia) 21 U.S.C. § 844(a) (possession of crack cocaine) 21 U.S.C. § 846 (conspiracy to commit a 10-year controlled substances offense) 21 U.S.C. § 848 (drug kingpin) 21 U.S.C. § 849 (trafficking in schedule I, II, or III controlled substance at a truck stop) 21 U.S.C. § 854 (investment of illicit drug profits) 21 U.S.C. § 856 (maintaining drug-involved premises) 21 U.S.C. § 858 (dangerous production of illicit controlled substances) 21 U.S.C. § 859 (trafficking in schedule I, II, or III controlled substance to a child) 21 U.S.C. § 860 (trafficking in schedule I, II, or III controlled substance using a child or near a school) 21 U.S.C. § 861 (trafficking in schedule I, II, or III controlled substance using a child) 21 U.S.C. § 865 (smuggling methamphetamine or its precursors into the United States) 21 U.S.C. § 960 (& 46 U.S.C. § 70506) (illegal import or export of schedule I or II controlled substance) 21 U.S.C. § 960a (narco-terrorism) 46 U.S.C. § 70503 (Maritime Drug Law Enforcement Act violations) Appendix D. Child-Victim Offenses That Qualify as Predicate Offenses for Bail Purposes 18 U.S.C. § 1201 (kidnapping of a child) 18 U.S.C. § 1591 (trafficking children for sexual purposes) 18 U.S.C. § 2241 (aggravated sexual abuse of a child) 18 U.S.C. § 2242 (sexual abuse of a child) 18 U.S.C. § 2244(a)(1) (abusive sexual conduct by force or threat of a child) 18 U.S.C. § 2245 (certain sex offense resulting in the death of a child) 18 U.S.C. § 2251 (sexual exploitation of children) 18 U.S.C. § 2251A (selling or buying children) 18 U.S.C. § 2252(a)(1) (transporting child sexual exploitive material) 18 U.S.C. § 2252(a)(2) (receiving or distributing child sexual exploitive material) 18 U.S.C. § 2252(a)(3) (possessing child sexual exploitive material with intent to sell) 18 U.S.C. § 2252A(a)(1) (transporting child pornography) 18 U.S.C. § 2252A(a)(2) (receiving or distributing child pornography) 18 U.S.C. § 2252A(a)(3) (promoting child pornography) 18 U.S.C. § 2252A(a)(4) (possessing child pornography with intent to sell) 18 U.S.C. § 2260 (overseas production of sexual explicit depiction of children) 18 U.S.C. § 2421 (interstate transportation of illicit sexual purposes) 18 U.S.C. § 2422 (coercing or enticing interstate travel for illicit sexual purposes) 18 U.S.C. § 2423 (interstate travel to engage in illicit sexual activities with a child) 18 U.S.C. § 2425 (interstate transmission of information relating to a child with the intent to engage in illicit sexual activities | This is an overview of the federal law of bail. Bail is the release of an individual following his arrest upon his promise—secured or unsecured; conditioned or unconditioned—to appear at subsequent judicial criminal proceedings. An accused may be denied bail if he is unable to satisfy the conditions set for his release. He may also be denied bail if the committing judge or magistrate concludes that no amount of security or any set of conditions will suffice to ensure public safety or the individual's later appearance in court. The federal bail statute layers the committing judge's or magistrate's bail options after arrest and before trial. He may release the individual upon his promise to return—that is, on personal recognizance or under an unsecured appearance bond. Alternatively, the judge or magistrate may condition the individual's release on the least restrictive possible combination of individual or statutory conditions. The statute, however, creates a presumption against release when the individual has been charged with a serious drug, firearms, or terrorist offense. In the case of these and other serious offenses, the judge or magistrate may deny release on bail if he decides, after a hearing, that no set of conditions will guarantee public safety or the individual's return to court. The judge or magistrate may also deny the individual bail in order to transfer him for bail, parole, or supervised release revocation proceedings. Bail is available to a more limited extent after the individual has been convicted and is awaiting a pending appeal. Federal law also authorizes the arrest, bail, or detention of individuals with evidence material to the prosecution of a federal offense. With limited variations, federal bail laws apply to arrested material witnesses. Although not specifically mentioned in the federal bail statute, bail is available in extradition cases under a long-standing Supreme Court precedent which holds that "bail should not ordinarily be granted in cases of foreign extradition" except under "special circumstances." This report is available in an abridged version—without footnotes, appendixes, most of the citations to authority, and some of the discussion—as CRS Report R40222, Bail: An Abridged Overview of Federal Criminal Law, by [author name scrubbed]. |
The Army is composed of both an Active Component (AC) and a Reserve Component (RC). The AC consists of soldiers who are in the Army as their full-time occupation. The RC consists primarily of soldiers who serve part-time but who can be ordered to full-time duty. The Army's RC is made up of both the Army National Guard (ARNG) and the United States Army Reserve (USAR). AC/RC force mix refers to the distribution of units among the active and reserve components of the armed forces. Debates over AC/RC mix center on whether to shift force structure between the AC and the RC and, if so, what types of units to shift. Although specific force mix recommendations can be nuanced, policy advocates generally divide between those who favor a stronger AC emphasis and those who favor a stronger RC emphasis. In the contemporary debate, those who favor a stronger RC emphasis believe that RC units can replace a portion of AC force structure while saving money. Those who favor a stronger AC emphasis believe that replacing too many or certain types of AC units with RC units is not cost-effective and could reduce the Army's ability to respond rapidly to an overseas crisis and sustain operations over time. Typically, the details of AC/RC force mix are determined by the individual services within broad parameters set by Congress, but Congress has sweeping power to set policy in this area. The congressional role in AC/RC force mix is most obvious in its authorization of end strengths for the active and reserve components of each Service, but congressional authority concerning AC/RC mix is much broader than that. The Constitution provides Congress with broad powers over the armed forces, including the power to "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" and "to provide for organizing, arming, and disciplining the Militia, and for governing such Part of them as may be employed in the Service of the United States.... " On the basis of its constitutional authority, Congress authorizes and appropriates funds for the AC and RC on an annual basis and sets end strengths limiting the size of the respective forces. Congress is also responsible for ensuring the AC and RC are properly equipped and supplied, determining pay and benefits, establishing personnel policies, and exercising oversight of Executive Branch management of the Department of Defense (DOD). If it so chooses, it can also allocate roles and missions for the Services and their reserve components, adjust reserve activation authorities, determine training regimens, establish or disestablish units, specify unit composition, and designate the number and types of units within each component. In recent years, several factors have coincided to stimulate interest in the AC/RC mix, particularly for the Army. The wars in Iraq and Afghanistan included large-scale and continuing mobilizations of RC forces, and defense officials and other observers have generally expressed satisfaction with the operational performance of these units. Additionally, concerns about federal spending, coupled with the constraints of the Budget Control Act (BCA) of 2011 ( P.L. 112-25 ), have led many to look for ways to cut costs within the DOD. As a result, some policy makers have begun considering whether part-time RC forces might provide a more cost-effective alternative to some portion of the AC force structure, particularly for the Army, which has the largest reserve component of all the Services. In its FY2015 budget request, the Administration envisions shifting the AC/RC mix somewhat more toward the RC. It proposes that RC forces make up 54.1% of the Army by FY2017, in comparison to 53.6% just before the September 11 attacks and 49.1% when the Army was at its peak size during the Iraq and Afghanistan wars (2010). This proposal would also include a shift of the relative proportion of brigade combat teams (BCTs) towards the ARNG, although the Army's Aviation Restructuring Initiative proposes moving attack helicopters (AH-64 Apaches) from the USAR and ARNG to the AC to replace retiring armed reconnaissance helicopters (OH-58D). In return, the USAR and ARNG would receive utility helicopters (UH-60 Blackhawk). Others have advocated a greater shift towards the RC. For example, one proposal put forward by the National Guard Association of the United States recommends the Army be realigned so that RC forces make up 58% of the Army, with 420,000 AC, 385,000 ARNG and 195,000 USAR. This discussion is not purely academic, as various groups favoring the RC or the AC attempt to persuade the Administration and Congress of the importance and relevance of their respective components in relation to what they believe will be the future strategic environment facing the United States. The House Armed Services Committee Oversight Plan for the 113 th Congress summarized the importance of this issue to Congress, and the difficult choices it poses, noting: The debate that began during the 112 th Congress about the most appropriate force structure mix of active and reserve components, about the proper roles and missions of the reserve components—be they an operational or strategic reserve—and about the affordability of the required force to meet national security requirements will intensify in the 113 th Congress. Competition among the active and reserve components for diminishing resources will serve as a catalyst for that debate. As evidenced by the debate about the Air Force's active and reserve component force structure recommendations submitted with the Fiscal Year 2013 President's budget and subsequent Congressional action, reaching a consensus will be most challenging. The ratio of AC and RC forces has shifted dramatically over time, and Congress has played a central role in these shifts. From the founding of the nation to the Cold War era, the bulk of force structure was maintained in the reserve component (especially the militia/National Guard), except in times of major conflicts. When major conflicts arose—such as the Civil War, World War I, and World War II—the comparatively small active component was expanded through the activation of militia and federal reserves, recruitment of additional volunteers for the AC, and the use of conscription. At the end of the conflict, active force levels were dramatically reduced. For example, in 1939, there were fewer than 350,000 active duty personnel in all branches of the U.S. armed forces. During World War II, this number grew enormously, reaching over 12 million servicemembers on duty by 1945. With the end of World War II, the United States radically reduced the size of its active armed forces to about 1.5 million in 1947-1950. This approach changed with the onset of the Cold War. With the advent of the Korean War in 1950, the United States doubled the size of its active forces by 1951 to approximately 3.2 million. This increase included a major reserve mobilization, with over 850,000 members of the National Guard and Reserves called to active duty. However, with the end of the war in 1953, the size of the active component did not decrease nearly as much as it would have in earlier eras. For the next decade, it remained roughly between 2.5 million and 3 million for all services, while the size of the reserve component hovered around 1 million. In response to the Vietnam War, the size of the active component was increased again to about 3.5 million (1968), but there was no major reserve mobilization. Thus, since the Korean War and continuing to the present, the United States has maintained most of its force structure in the AC. (Although, it should be pointed out that starting in 1989 and continuing to the present, a slight majority of Army force structure has been RC.) In 2003, author Richard A. Lacquement Jr. noted: Nevertheless, active duty forces dominate the military. This is unlike the peacetime history of the U.S. armed forces before World War II when militia and other reserve forces far outnumbered the much smaller standing elements of the armed forces ... Although there has been a shift in relative emphasis to the ready reserves since the end of the Cold War, the current American military posture is still dominated by the standing forces of the four military services. This shift to an AC-centric force structure model in the aftermath of World War II began to ebb somewhat starting in the 1970s. The downsizing that followed the Vietnam War, the end of the comparatively inexpensive manpower provided by conscription, budgetary pressures, and dissatisfaction with the negative consequences of not using reserve forces more extensively during Vietnam led to a renewed focus on using RC forces to supplement the AC. The Total Force Policy, established in 1973 by Secretary of Defense James Schlesinger on the basis of the 1970 Total Force Concept developed by Secretary of Defense Melvin Laird, sought to integrate "the Active, Guard and Reserve forces into a homogenous whole" and emphasized that, instead of draftees, "Guard and Reserve forces will be used as the initial and primary augmentation of active forces." General Creighton Abrams, the Chief of Staff of the Army from 1972-74, implemented this policy for the Army by instituting changes which deeply integrated reserve forces into the active force structure. This deeper integration helped General Abrams rebuild the Army to 16 divisions while staying within budgetary limits; it also effectively ensured that the Army could not be sent to war again without the Guard and Reserve, as had occurred in Vietnam. The most notable manifestation of this increased active-reserve integration was the roundout brigade program, which involved restructuring of certain AC divisions to include an RC brigade. Normally, an AC division would have three AC brigades assigned to it. At Abrams' direction, some AC divisions were assigned two AC brigades, along with a "roundout" National Guard brigade; other AC divisions kept three AC brigades but had some of their AC battalions replaced with "roundout" RC battalions. Congress passed a new law to allow in 1976 to make it easier for the President to activate RC personnel and units. Other initiatives to improve active-reserve integration in the 1970s and 1980s included more modernized equipment for the RC, greater overseas training opportunities, and rotations at the newly established National Training Center. The first major test of this greater active-reserve integration came during the 1990-91 Persian Gulf War, which saw the activation of over 238,000 RC personnel, including about 60,000 members of the Army National Guard and some 88,000 members of the Army Reserve. In many respects, RC performance in this conflict strengthened support for the Total Force Policy among defense policy makers. However, there were areas of RC readiness identified as needing improvement. This was most apparent with respect to the roundout brigades. Three ARNG roundout brigades were mobilized, somewhat belatedly, and deployed to the National Training Center for post-mobilization training. Amid claims of serious readiness deficiencies, however, they were not certified as combat ready until the war was over. A contemporary report by the Congressional Research Service summarized this experience as follows: In late 1990, three Army National Guard combat maneuver brigades were mobilized for Operation Desert Shield (later Desert Storm), the U.S. military effort against Iraq. All three brigades were "roundout" units, designated to bring an active Army division to full strength upon mobilization. However, the brigades were not activated until four months after Desert Shield began; the two whose parent divisions fought in the war did not deploy with those divisions; none of the brigades left the U.S.; and the only one to be "validated" as combat ready was so judged on the day of the cease-fire. The brigades' experience generated much controversy about the viability of the roundout concept and the active Army's relationships with the National Guard ... The major criticism of the roundout brigades is that they were not ready to deploy with their parent divisions. However, roundout brigades were never intended to deploy without some postmobilization training, and it was never envisioned that they could deploy immediately in response to a no-notice crisis. Unfortunately, a combination of excessive optimism, overreliance on numerical readiness ratings, and high-level inattention to the actual readiness levels of the roundout brigades before Desert Shield/Storm led many to assume that they were as ready as similar active Army brigades. Although the brigades had major readiness problems when first called up, they were able to be validated for deployment to the theater of war three months after activation. This was an unprecedented achievement compared with past call ups of similar reserve component units. The Persian Gulf War experience led Congress to address identified readiness shortcomings through passage of the Army National Guard Combat Readiness Reform Act of 1992 (also known as "Title XI," in reference to its location within the 1993 National Defense Authorization Act ). The reforms focused primarily, though not exclusively, on ARNG combat units. Title XI contained 19 provisions which sought to improve the readiness of Army Guard units and their compatibility with AC units by: increasing experience and leadership levels in the ARNG by recruiting more prior-service personnel, Service Academy graduates, and ROTC graduates; revising the training focus for combat units; providing for a more robust medical and dental evaluation process; ensuring the compatibility of personnel, supply, maintenance and finance systems across the AC, ARNG, and USAR; reforming the Army's readiness system for USAR and ARNG units; directing the Secretary of the Army to conduct inspections to ensure that ARNG units meet deployability standards; and mandating that the Army provide greater funding to early deploying ARNG and USAR units. Although the Department of Defense effectively ended the roundout brigade program in 1993, the disintegration of the Soviet Union gave further impetus to the ongoing integration of the AC and RC. With the demise of the United States' main military competitor, the requirement for large numbers of ground forces at a high state of readiness was considered less critical for national security. Subsequently, AC force structure was substantially reduced in the 1990s. During this time, the Army also adjusted the roles of its reserve components. The Army's 1993 "Offsite Agreement" guided the realignment of force structure between the ARNG and USAR, and stipulated that The ARNG would retain a balanced mix of combat and support units; The USAR would be divested of nearly all its combat structure and would focus on providing support units; it would also provide the bulk of the RC's Echelon Above Division (EAD) and Echelon Above Corps (EAC) units; and The USAR and ARNG would swap approximately 12,000 spaces to facilitate this agreement. The post-Cold War drawdown was followed by the increased employment of RC forces in Iraq (low-intensity conflict with Iraq, 1998-2003), Bosnia (1995-2004), Kosovo (1999-present), and Haiti (1994-1996). As the use of RC units increased and they gained experience through repetitive deployments, the distinction between components faded somewhat, and RC units began to be more seriously considered as suitable substitutes for AC units—provided they received necessary personnel, equipment, training and preparation time prior to being deployed. This perspective was further reinforced by the large-scale and continuing mobilizations of RC forces for the wars in Iraq and Afghanistan, which led many public officials and policy analysts to conclude that the performance of the RC in these conflicts largely validated the Total Force Policy. Some Army officials have argued, however, that AC and RC units are not interchangeable, with one senior Army officer indicating that this was the reason RC BCTs were used for less complex missions in Iraq and Afghanistan than their AC counterparts. RC advocates counter that they had no control over the missions they were assigned in Iraq and Afghanistan, that they were effective in all the missions they were given, and that they could have successfully completed combined arms maneuver missions if they had been given the opportunity. In addition to the large scale mobilization of RC units during the wars in Iraq and Afghanistan, Congress authorized significant expansions of the active Army and Marine Corps. This led to an increase in the ratio of AC to RC forces in those Services. However, with the end of the war in Iraq and the ongoing reduction of forces in Afghanistan, a multi-year drawdown of AC forces is underway in these Services. This drawdown has rolled back the war-time increases in AC strength and will likely end at a level lower than existed prior to the war. As such, the proportion of AC to RC forces will also likely decline in those Services. The Army determines the distribution of units between the AC, ARNG, and USAR within the end strengths mandated annually by Congress by a process it calls Total Army Analysis (TAA). The TAA uses a deliberative campaign analysis process to determine the demand for forces from all three components based on multiple possible future scenarios and current operational demands, as well as lessons learned from past operations and conflicts and resource constraints. AC/RC force mix is dynamic and changes over time in response to changing national security strategies and the resources made available to the Army. Table 1 illustrates the changing nature of AC/RC force mix. Of all the Services, the Army has the largest reserve component, and the highest ratio of reserve component personnel to active component personnel. The Army has an Active Component and two Reserve Components: the Army National Guard and the Army Reserve. These three components are sometimes identified as Compo 1 (Active Army), Compo 2 (Army National Guard), and Compo 3 (Army Reserve). Each component is discussed in more detail below. The Army's active component consists of soldiers who are in the Army as their full-time occupation. Soldiers in the AC can be deployed world-wide with little to no advanced notification to participate in a wide variety of military operations. The AC has both direct combat and support-type units. Examples of the former include infantry, armor, artillery, combat aviation, and special forces units; while the latter include medical, transportation, communications, supply, ordnance, intelligence, military police, and engineer units. The term "Reserve Component" normally refers to all seven of the individual reserve components of the Armed Forces, but for the purpose of this report it refers only to the Army's reserve components: the Army National Guard of the United States and the United States Army Reserve. The purpose of the reserve components, as codified in law, is to "provide trained units and qualified persons available for active duty in the armed forces, in time of war or national emergency, and at such other times as the national security may require, to fill the needs of the armed forces whenever more units and persons are needed than are in the regular components." A DOD directive further states: "It is DOD policy that... The RCs provide operational capabilities and strategic depth to meet U.S. defense requirements across the full spectrum of conflict.... " The Army National Guard also has a state role, described below. Descended from colonial-era militias which existed prior to the adoption of the Constitution, the Army National Guard has a long historical pedigree. The Constitution contains provisions that recognize the existence of the militia and that granted the federal government a certain amount of control over it. Additionally, since 1933, the ARNG has been not only a part of the organized militia of the various states, but simultaneously a reserve component of the Army. In this latter status, it falls under Congress' broader constitutional authority "to raise and support Armies." This unique history means that the ARNG is both a federal and a state organization. It is made up of 54 separate National Guard organizations: one for each state, and one each for Puerto Rico, Guam, the U.S. Virgin Islands, and the District of Columbia. While the District of Columbia National Guard is an exclusively federal organization and operates under federal control at all times, the other 53 National Guards operate as state or territorial organizations most of the time. In this capacity, each of these 53 organizations is identified by its state or territorial name (e.g., the California National Guard or the Puerto Rico National Guard), and is controlled by its respective governor. Due to their dual federal and state role, National Guardsmen can be called to duty in several different ways. The ARNG is made up primarily of part-time personnel who are usually required to train at least one weekend a month and two weeks per year. Training time can be increased if needed; for example, if an individual needs to attend a military school, or if the unit is preparing for deployment. The ARNG also has a cadre of full-time support personnel, who are "assigned to organize; administer; instruct; recruit and train; maintain supplies, equipment and aircraft; and perform other functions required on a daily basis in the execution of operational missions and readiness preparations as authorized in Title 5 [Government Organizations and Employees], Title 10 [Armed Forces], and Title 32 [National Guard].... " The full-time cadre makes up about 17% of the total strength of the ARNG. During times of war and in support of other military missions, the ARNG can be federalized and deployed. It also participates in a wide variety of other activities such as assisting during natural disasters or supporting homeland security operations, although it typically does these missions while under the control of the state governor. Like the AC, the ARNG has both direct combat and support type units. In comparison to the ARNG, the USAR is of comparatively recent origin, having been established in 1908 under Congress's constitutional authority "to raise and support Armies." It is a purely federal entity and today is composed almost exclusively of support units rather than direct combat units. Like the ARNG, the USAR consists primarily of part-time soldiers who are usually required to train at least one weekend a month and two weeks per year, although training time can be increased if needed. The part-time personnel are augmented by a cadre of full-time support personnel, who constitute about 14% of total USAR strength. Unlike the ARNG, which normally operates under state control, the USAR is always under the control of the federal government. The Army—whether AC or RC component—is organized along the following basic lines: From an operational perspective, the Army focuses on the brigade level. Brigades have the capacity to be employed independently on operations as they possess organic headquarters, combat, combat support, and combat service support units. Brigades can be combined along with other units to form divisions. Divisions, along with a variety of higher echelon support units, can be combined into corps and armies, which are well suited for large scale, long-duration operations. The Army is not a stand-alone service but instead part of a joint team. This relationship is described in the following passage. Although individual Services may plan and conduct operations to accomplish tasks and missions in support of Department of Defense (DOD) objectives, the primary way DOD employs two or more Services (from two Military Departments) in a single operation, particularly in combat, is through joint operations. Joint operations is the general term to describe military actions conducted by joint forces and those Service forces in specified command relationships with each other. The Army's most significant role as part of the joint force is the provision of landpower, further defined as: The Army's contribution to joint operations is landpower. Landpower is the ability—by threat, force, or occupation—to promptly gain, sustain, and exploit control over land, resources, and people. Landpower includes the ability to— - Impose the Nation's will on adversaries—by force if necessary—in diverse and complex terrain. - Establish and maintain a stable environment that sets the conditions for a lasting peace. - Address the consequences of catastrophic events—both natural and manmade—to restore infrastructure and reestablish basic civil services. - Support and provide a base from which forces can influence and dominate the air and sea dimensions of the joint operational area. While the Army is an integral part of the joint force, the value of its contribution depends on its ability to exercise landpower. Ultimately, Army forces' ability to control land, resources, and people through a sustained presence makes permanent the advantages gained by joint forces. It should also be noted the Army provides critical enabling capabilities to joint operations including joint command and control (Joint Force Headquarters), communications, air and missile defense, and logistics. The starting point for determining AC/RC force mix is a series of national security strategic guidance documents including the following: The Administration's National Security Strategy (NSS); DOD's National Defense Strategy (NDS); The congressionally-mandated Quadrennial Defense Review (QDR); and The Chairman of the Joint Chiefs of Staff's (CJCS) National Military Strategy (NMS). These high-level strategic documents broadly articulate the Army's role in the national security architecture. They also delineate specific missions and responsibilities as well as parameters that the Army uses to help determine what kind of force the Army needs to "build." Based on these documents the Army could build a heavier (more armor) or lighter (more infantry) force, a force oriented on fighting a major regional adversary, or one that is more focused on counterinsurgency, etc. However, because there is risk associated with putting too much emphasis on one type of force (heavy vs. light, for example), the Army tends to build a mix of forces that can address a wide variety of operations—or what the Army refers to as a "full spectrum" force. In addition to strategic guidance, budgetary considerations play a major role in determining the size of the Army as well as, to an extent, the AC/RC force mix. Historically, during times of conflict or national emergency, resources are made available to expand the Army as well as provide necessary equipment and training. After conflicts or during periods of protracted peace, traditionally fewer resources have been provided to the Army, often resulting in a drawdown of forces as well as the rebalancing of the AC/RC mix based on the premise that RC forces are less costly to maintain during peacetime. These decreases in resources can also adversely affect the readiness of available forces as well as impact Army modernization efforts. As previously noted, the Army determines much of the AC/RC force mix by the Total Army Analysis (TAA) process. TAA generates the combat support (CS) and combat service support (CSS) forces needed to support divisional and non-divisional combat forces that are set forth in the Defense Planning Guidance (DPG). The TAA uses a deliberative campaign analysis process to determine the demand for forces from all three components based on multiple possible future scenarios, current operational demands, as well as lessons learned from past operations and conflicts, and resource constraints. This force is then presented to Army leadership who use the approved force to build the Army's annual budget request. Figure 1 graphically depicts the process used to determine the Army's AC/RC force mix. In addition to overall force size, the Army also expresses AC/RC force mix in terms of units, with the brigade combat team (BCT) being the most commonly used unit. Brigade combat teams (BCTs) are the Army's basic operational warfighting unit and it should be noted there are only AC and ARNG BCTs—the USAR has no BCTs. As the Army reduces overall force size, the force mix between AC and RC is altered to reflect these reductions. In FY2014, the Army has: 38 Active Component BCTs. 28 Army National Guard BCTs. 66 Total BCTs. In 2013, the Army decided to add an additional "maneuver battalion" to its Infantry BCTs and Armored BCTs which, prior to 2013, had only two maneuver battalions (unlike Stryker BCTs which have always had 3 maneuver battalions). This additional maneuver battalion will come from BCTs in the process of deactivating. Thus, even though BCTs are being eliminated from AC and RC force structure, Infantry and Armored BCTs are gaining additional combat capability which should be taken into consideration when discussing force reductions and force mix. The Army has stated a 450,000 AC, a 335,000 ARNG, and a 195,000 USAR—28 active BCTs and 24 ARNG BCTs (52 BCTs total)—is the "smallest acceptable force to implement the defense strategy." Any force smaller than this "lacks the capacity to conduct simultaneous major combat operations while defending the nation at home, sustaining minimal presence in critical regions, and retaining a Global Response Force (consisting of one BCT) at the direction of the Commander-in-Chief." The Army has stated that force structure reductions are required to meet sequestration-imposed funding levels. The Budget Control Act (BCA) of 2011 ( P.L. 112-25 ), as amended by the American Taxpayer Relief Act of 2012 ( P.L. 112-240 ), requires across-the-board spending reductions (sequestration) in most federal defense and nondefense discretionary programs. The American Taxpayer Relief Act of 2012 raised defense and nondefense budget spending limits under the Budget Control Act (BCA) for FY2014 and FY2015 but BCA spending limits will return in FY2016 if no further legislative action is taken. Because of budget uncertainty, the Army's "worst case" planning scenario is that sequestration-level funding levels return in FY2016. In addition, DOD has provided the Army with both strategic and fiscal guidance which influences the force level the Army can "afford" as well as the AC/RC force mix. Under this worst case scenario, the Army would reduce in size to a 420,000 AC; a 315,000 ARNG; and an 185,000 USAR which would translate to 24 AC BCTs and 22 ARNG BCTs. Army leadership has repeatedly stated that this force level would result in insufficient capacity and the Army would be unable to implement the U.S. defense strategy. As previously noted, BCTs are the mostly commonly portrayed unit type when examining AC/RC force mix but there are scores of other types of units ranging from combat aviation brigades, engineer units, logistics units, to military police brigades as well as smaller units that are part of the greater force mix equation. These non-BCT formations play a significant role in a wide range of military operations and depending on the operation, they could be the focus of the operation instead of BCTs. It is important to note that when determining AC/RC force mix, these non-BCT units are also included as part of the process even though they are frequently not included in related discussions. In this regard, when questioning Army AC/RC force mix proposals, it could prove beneficial to also examine the mix of non-BCT units as well. In March 2014, the Army proposed a plan (referred to as the Aviation Restructuring Initiative or ARI) to restructure aviation units. Under the ARI, the AC and National Guard would be allocated aircraft that supposedly better align with each component's respective missions which would also supposedly generate savings. This proposal, which has generated a great deal of discussion, is further discussed in Appendix A . Determining the appropriate mix of AC and RC forces is complex, with many factors affecting the process. Of these, utilization, readiness, effectiveness, cost, and risk are generally considered the major elements in developing the AC/RC force mix. These factors are all linked to the ability of the specified military forces to meet national security requirements in a budget constrained environment. However, there are other factors often considered with respect to AC/RC mix, particularly with respect to the National Guard. These factors are discussed briefly as well, under the heading "Other Considerations." A key driver of Army force structure, both AC and RC, is the anticipated future demand for Army units. What will they be used for? How quickly will they need to respond? For how long will they be needed? Answering these questions involves assumptions about likely threats to national interests, how frequently the United States will deploy Army units in response to those threats, and what type of mission they will need to conduct when responding to those threats. Given those broad parameters, several factors should be considered in determining how much of the "demand" can be met with AC forces and with RC forces. The missions anticipated for Army units play a key role in determining the number and types of units the Army maintains in its force structure. If AC and RC units of the same type are identical in capability and availability, they can be used in precisely the same manner and, consequently, this factor would have limited applicability to AC/RC mix considerations. However, some observers argue AC and RC units are not identical in terms of availability and, at least in some circumstances, are not identical in terms of capability; hence, they are not always interchangeable for mission planning purposes. For example, AC Army units are usually considered better positioned to respond to crises requiring immediate action because they are more readily available; that is, they typically require less notification, preparation and train up time prior to deployment than similar RC units. RC Army units tend to be preferred for missions that permit a substantial train up period; for example, as reinforcements for an initial response force or as part of a periodic rotation for a long term mission. Additionally, given policy constraints on the length of RC activations (discussed more below), AC units are often preferred for "forward presence" missions overseas, such as the main Army forces in Europe and South Korea. More controversial is the contention that AC and RC units of the same type are not identical in terms of their capability. (See footnote 23 ) Some argue that AC units are superior to their RC counterparts in certain respects, and are therefore better suited for certain missions—most notably high intensity combat or "combined arms maneuver." The reverse of this argument—that some RC units are better suited to certain missions (such as homeland defense, disaster response, and missions with a close civilian analogue)—is also advanced. Historically, one of the barriers to use of the RC was the limited circumstances under which they could legally be ordered to active duty. The principal activation authorities in effect after World War II—today known as Full Mobilization and Partial Mobilization Issues—limited reserve activations to times of war or situations where a national emergency had been declared by Congress or the President. In 1976, a new authority, now known as Presidential Reserve Callup Authority, allowed the President to activate reservists for missions without a declaration of emergency, though the duration of this type of activation was limited, as was the number of reservists who could be activated at any given time. Subsequent amendments expanded the scope of this authority significantly. The FY2012 National Defense Authorization Act added two new activation authorities: one to permit activation of reservists for up to 120 days to respond to disasters, and another to permit activation of reservists for up to one year for "preplanned mission in support of a combatant command." This latter authority opens the door for activations in support of more routine military missions, rather than the crisis or "contingency" focus of the other authorities. These activation authorities are summarized in Appendix E . The lowering of legal barriers to reserve activations has contributed to the increased use of reservists in recent decades and eased the concerns of senior defense officials that reservists will be available when needed. Still, when considering whether to use reserve forces in a given role or for a particular mission, the reserve activation authorities place constraints on defense officials that do not exist for active forces. In particular, there are statutory limits on the number of reservists that may be activated, and the length of time that they may be ordered to active duty. Since 2007, there have also been DOD policy limitations on the frequency and duration of reserve activations that are stricter in certain respects than the statutory limits (discussed in the next section). Finally, in considering the use of reserve units for specific roles and missions, defense planners must take into account the time it takes to invoke activation authorities for reservists, notify affected units, assemble their personnel, and conduct post-mobilization training. During World War II, Army units typically deployed for the duration of the conflicts; thus, units and their personnel could spend three to four years deployed in combat zones. A different approach was used starting with the Korean War, when individuals were rotated in and out of theater on a periodic basis. During the Vietnam conflict, soldiers were rotated in and out of the deployed unit for a one year "tour of duty" and then returned home. While this policy addressed the issue of spending an extended period in combat, it also created a great deal of turbulence which some cited as having had an adverse impact on unit cohesion and discipline. With the advent of the All-Volunteer Force and the growth of military families, separating soldiers from their families for extended periods raised concerns about impacts on retention. When it became apparent to military leadership that operations in Iraq and Afghanistan would span many years, DOD established a deployment policy for the Active and Reserve components. In 2007, the Secretary of Defense established a "deployment-to-dwell" policy for AC forces—which remains in effect today—indicating that the planning objective would be one year of deployment followed by two years at home station. He also limited RC activations to a maximum of one year (excluding individual skill training and post-mobilization leave), and set the "mobilization to dwell" planning objective for RC units at one year mobilized followed by five years demobilized. These dwell time policies are typically expressed by the ratios of 1:2 and 1:5. In addition to the differences in ratios, another key distinction between the two policies is that the deployment-to-dwell ratio for AC units is tied only to time deployed, while the mobilization to dwell ratio for RC units is tied to time mobilized, which can include both pre-deployment training and deployment time. For example, a one-year mobilization for an RC unit might include three months of train up followed by a nine-month deployment. These differences in policy for AC and RC units play a critical role in comparative cost estimates which use a deployed unit cost approach (discussed later in the report). What are the major threats to which Army units will be expected to respond? How fast will the Army be expected to respond and with what types of units? How long will operations last? How long will units be expected to remain in a deployed status. Will units need to conduct multiple deployments in order to meet sustained demands? Are there any roles or missions for which either AC or RC forces are clearly more capable than their counterpart, and therefore might be the preferred force of choice? How does this determination align with current AC and RC force structure? Should statutory limits in reserve activation authorities be modified? Should they allow more reservists to be activated, and for a longer period of time, than currently allowed? Should the DOD policy on "deployment-to-dwell" ratios be modified for active and/or reserve personnel? If so, what should those ratios look like? Are they sufficiently robust to meet projected national security obligations? Do they allow sufficient rest time between deployments so that recruiting and retention remain at acceptable levels? Readiness is a term policy makers, analysts, and military leaders often cite when describing the state of the U.S. military. The Department of Defense defines readiness as "the ability of military forces to fight and meet the demands of assigned missions." There are two processes currently in place for reporting the readiness of military units: the Department of Defense Readiness Reporting System (DRSS) and the Chairman's Readiness System (CRS). This report will focus on the way in which Army commanders determine the readiness of their units to perform their "core functions/designed capabilities" for submission to DRSS. The data for DRSS comes from a report known as the Commanders Unit Status Reports (CUSR) or Unit Status Reports (USR), which unit commanders submit to the Army component of DRSS (known as DRSS-Army or DRSS-A). Readiness can be evaluated in different ways, but Army readiness evaluations revolve around four main components: personnel , equipment availability, equipment readiness, and training, each of which is described below. This readiness evaluation process is led by unit commanders, who assess readiness levels within the parameters specified by Army regulations. Sometimes the regulations require the commander to apply professional military judgment to a significant degree (most notably in the case of training assessments); while in other areas the commander's discretion is much more limited. There are three principal measures of personnel readiness ("P-level metrics") for Army units: 1. The ratio of unit personnel available for deployment in comparison to the total number of personnel the unit is authorized to have. 2. The ratio of unit personnel who are both available for deployment and qualified in their assigned duty position in comparison to the total number of personnel the unit is authorized to have. 3. The ratio of available "senior personnel" in comparison to the total number of senior personnel the unit is authorized to have. Ratios in each of these metrics generate a rating between 1 (highest) and 4 (lowest) according to a published scale, and the lowest of these three ratings is used to determine the overall "P-rating" of the unit. In essence, units with a full or nearly full complement of soldiers by specialty and grade are assessed as P-1, while those with substantial shortages in one or more of the measured areas are assessed as P-2, P-3, or P-4, depending on how significant the shortfalls are. This aspect of readiness is relatively objective and therefore requires limited application of a commander's professional judgment. Another readiness factor for Army units is the availability or supply of key equipment. This is called the "S-level," and it is based on two metrics: 1. The ratio of designated critical equipment items (known as pacing items) currently in the unit's possession, under its control, or available within 72 hours in comparison to the number of such items the unit is authorized to have. For example, a pacing item for an armor unit would be M-1 Abrams tanks. 2. The ratio of other mission essential equipment items currently in the unit's possession, under its control, or available within 72 hours in comparison to the number of such items the unit is authorized to have. Examples of this type of equipment might include radios, machine guns, and night vision devices. Like the P-level, ratios in each of these metrics generate a rating of between 1 and 4 according to a published scale, and the lowest of these two ratings is used to determine the overall "S-rating" of the unit. Units with all or nearly all of their most important equipment are assessed as S-1, while those with substantial shortages in pacing items or other mission essential equipment are assessed as S-2, S-3, or S-4, depending on how significant the shortfalls are. This aspect of readiness is readily measurable. Equipment availability is heavily influenced by whether there is sufficient funding to procure the required equipment for a given unit, and by how senior policy makers chose to allocate equipment among units. In the Cold-War era, RC units had comparatively low S-level ratings, as senior defense officials considered equipping these units to be a lower priority than equipping AC units. This changed significantly with the wars in Iraq and Afghanistan and the large-scale and ongoing mobilization of RC units. In 2013, according to the Department of Defense, AC units had approximately 91% of their authorized equipment on hand, the ARNG had approximately 91%, and the Army Reserve had approximately 86%. The third measured area for Army units is equipment readiness or serviceability. That is, is the unit's equipment fully functional or not? A unit could have all of its authorized equipment by type and numbers, but still suffer from poor equipment readiness if a large portion of authorized equipment or weapon systems does not work. The "R-level" is determined by calculating the percentage of each pacing item that is fully mission capable, and the aggregate percentage of certain designated equipment ("maintenance reportable equipment") in the unit's possession that is fully mission capable. Each of these categories is rated between 1 and 4 according to a published scale, and the lowest of these ratings becomes the overall R-level. The R-level is heavily influenced by funding. If there is not enough money for spare parts or to send a vehicle into depot level maintenance, equipment readiness can suffer. Unit manning can affect equipment readiness too. If there are not enough trained mechanics and supply personnel, repairs can be delayed. RC units have full-time support personnel dedicated to equipment maintenance, and the number of these personnel have increased since the wars in Iraq and Afghanistan began. However, some argue that RC full-time manning levels are still less than optimal. The final measured area for Army readiness is the most subjective, and relates to training. Training readiness does not lend itself to quantifiable evaluation to the same extent as personnel and equipment readiness, and so relies more heavily on the commander's professional military judgment. In assessing training readiness, unit commanders evaluate how well trained the unit is on certain key tasks, known as "mission essential tasks" or METs. Commanders evaluate their unit's training proficiency in each MET as either trained (T), needs practice (P), or untrained (U). Based on these ratings, a specified calculation methodology, and a published scale, the unit receives a T-level rating of between 1 and 4. An important tenet of training readiness is that all units—AC and RC—train to the same standards. However, AC and RC units do not necessarily achieve proficiency at the same organizational level (i.e., platoon, company, battalion, or brigade). During the ARFORGEN cycle, RC units are typically funded to achieve platoon or company level proficiency prior to deployment, while AC units are often funded to achieve battalion or brigade level proficiency prior to deployment (see " Differences in ARFORGEN Training Levels " later in the report). Additionally, the data on which the commander's judgments are made can vary substantially. For example, there may be variations between units in the frequency of training, the ranges and resources available for the training, and the number and type of units represented in a training exercise. Operational deployments may also be used when evaluating a unit's training proficiency, so the commander of a recently deployed unit may be able to more accurately assess his or her unit's training status. The C-level rating, or overall readiness assessment, is derived from the four areas discussed above (P, S, R & T). The C-level is equivalent to the lowest of these four levels, although commanders have some ability to upgrade or downgrade the rating based on their professional military judgment. The C-rating is meant to reflect the unit's ability to accomplish its core functions, provide its designed capabilities, and carry out its mission essential tasks. The meaning of each C-level is described in Table 2 . Army commanders may not upgrade or downgrade the ratings of the four main resource categories (i.e., they cannot upgrade or downgrade the P, S, R, or T ratings). However, under certain circumstances, commanders may upgrade or downgrade the "C-level" rating of their unit. They do this by comparing the C-level rating initially determined with the descriptions outlined in Army Regulation 220-1, which are summarized in Table 2 . If the two are mismatched in the commander's professional judgment, he or she may upgrade or downgrade the unit's C-level rating so it more closely aligns with the appropriate C-level description. Commanders of brigades and smaller organizations may upgrade or downgrade the C-level by one rating level on their own authority; changes of two rating levels require approval of a higher ranking commander of a specified rank. Commanders of divisions and corps headquarters may upgrade or downgrade by up to two levels on their own authority. The commander must explain the rationale for any such subjective change. The metrics discussed above are considered the most important measures of readiness by the Army, but they do not encompass all the ways of measuring readiness. Certain other measures of readiness are also available to commanders to inform any decision to upgrade or downgrade their readiness ratings. For example, Army databases provide information on personnel turnover rates, additional skill qualifications, language qualifications, and professional military education completion. Other measures of readiness—for example, discipline, morale, and certain aspects of leadership and experience—while typically considered important aspects of unit readiness, are not formally integrated into the readiness assessment process. However, commanders may take these factors into account in their C-level upgrade/downgrade decisions. Because the Army has limited resources, its units cannot all be maintained at the highest state of readiness (C-1) at the same time. One way of doing this is called "tiered readiness," with designated units continually maintained in the highest state of readiness, with the remainder maintained at lower readiness levels. This technique was used during the Cold War era, with many AC units and nearly all RC units normally maintained in lower readiness states; this approach assumed that there would be sufficient time and resources to improve their readiness in the event of a major conflict. The reduction in AC force structure at the end of the Cold War, coupled with the pressures of the wars in Iraq and Afghanistan, generated a need to share the burden of deployment among more Army units. Additionally, the Army also began to use its reserve units with greater frequency and so invested more resources in improving and maintaining the readiness of RC units. Because the Army cannot maintain all of its forces at the highest state of readiness, a process is needed to bring units in a lesser state of readiness to a high state of readiness so they can be deployed to conduct full spectrum operations. The current process the Army employs is known as Army Force Generation (ARFORGEN), a cyclical readiness system that applies to both the AC and RC. Appendix D provides additional details on the ARFORGEN process. Discussions with the Army staff indicate that AC BCTs enter the Available Pool trained up to the brigade level, meaning the unit is ready to be deployed and conduct full spectrum operations as a brigade. In contrast, ARNG BCTs are only trained up to the platoon and company level prior to mobilization, meaning that only that BCT's platoons and companies are ready for full-spectrum operations. Additional resources and authorized training days could enable ARNG BCTs to train to a higher level prior to mobilization, or they can conduct additional train up during post-mobilization training. Nonetheless, the disparity in training readiness has significant implications for the employment of ARNG BCTs in certain operations, particularly those that are complex or short-to-no-notice. Other types of RC units, such as separate battalions and companies, may achieve the same training levels as their AC counterparts prior to mobilization. The Defense Readiness Reporting System is intended to broadly assess the ability of military forces to fight and meet the demands of assigned missions, as illustrated in Table 2 . Thus, two units with a C-1 rating—whether AC or RC—should both have the required resources and training proficiency to accomplish all of their core functions, without significant limitations on their flexibility of methods or increases in unit vulnerability. However, in some circumstances this is not necessarily the case. Some possible examples include The training area relies on a subjective application of professional military judgment. Might there be cases in which some commanders overestimate the training status of their unit while others underestimate it? This could be due to a variety of factors, including having served more or less time as a commander, having observed more or fewer unit training events, having undergone more or less challenging training scenarios, or having a more or less critical attitude towards judging training outcomes. The P, S, and R-level ratings are meant to be fairly objective, but they do not claim to represent all possible readiness factors. Other factors that could significantly affect the ability of a unit to accomplish its core functions might include unit discipline and morale, amount of time key personnel have served in their positions, and the leadership abilities of commissioned and noncommissioned officers in the unit. Might disparities in these unmeasured factors affect the comparability of unit readiness ratings? Commanders have the authority to incorporate such factors with their upgrade/downgrade authority for C-level ratings, but the use of this authority is subjective and may admit to substantial variation between commanders. Variations in experience may not be fully captured in the P-level ratings. The P-level rating attempts to capture experience by determining if a person with the right grade and occupational specialty is filling each authorized position in the unit. It also attempts to capture experience by determining if there are an adequate number of people of senior grade, in comparison to the number of authorized senior positions. However, both of these metrics use grade (rank) as a proxy for experience, rather than experience itself. This is not unreasonable given that grade is closely tied to years of military service; but years of active military service normally produce more military experience than do years of reserve military service. Additionally, civilian experience is not captured at all by these metrics. As such, P-level ratings may not fully capture experience, and the ratings might overlook key differences in the experience of AC and RC personnel. Do the readiness levels of AC and RC units differ in general, or in certain types of units? If so, what factors are associated with this difference? How might any such differences be ameliorated? Are readiness ratings directly comparable between AC and RC units? With respect to the subjective areas of readiness assessment, particularly training assessments and upgrades/downgrade, are there differences in the way AC and RC commanders make their determinations? As discussed above, the Defense Readiness Reporting System (DRRS) is designed to assess the ability of units to "execute their missions, plans, and individual tasks based on their capabilities reflecting demonstrated performance in training and operations." Logically then, readiness levels should correlate strongly with actual unit performance during exercises and operational missions. However, CRS was unable to find any studies which attempted to determine the extent of this correlation. There does not appear to be any systematic assessment of unit performance during the wars in Iraq and Afghanistan that would be suitable for comparing unit effectiveness between AC and RC units. The National Defense Authorization Act for FY2012 included a provision requiring the Department of Defense to submit a report "setting forth an analysis of the costs of a sample of deployable units of the active components of the Armed Forces and the costs of a sample of similar deployable units of the reserve components of the Armed Forces." DOD submitted this report to Congress on December 20, 2013, and it was subsequently evaluated by the Government Accountability Office (GAO). The GAO assessment of the DOD report included the following statement: Second, the report does not consider or comment on the effectiveness of either active- or reserve-component units when compared to each other. DOD officials told us that there are differences across the services in the way that reserve-component units are employed, so it would be difficult to generalize about their relative effectiveness. The officials told us that it is a generally accepted principle that in most cases, similar active and reserve units should have comparable levels of effectiveness after completing sufficient training; however, they added that data for measuring active- and reserve-unit effectiveness are limited and inconsistently collected. Because the report does not include a discussion of active- and reserve-unit effectiveness, the extent to which the unit-cost comparisons presented in the report can be used to inform force-mix decisions is limited. The "generally accepted principle" discussed above that "similar active and reserve units should have comparable levels of effectiveness after completing sufficient training" makes intuitive sense, but it does raise some pertinent questions. For example: What is meant by "sufficient training"—the amount of training that AC and RC units currently receive during the ARFORGEN process or something different? Do RC units currently receive "sufficient training" prior to deployment to make them comparable in effectiveness to AC units? If not, how much additional training, and what types of training, would be required to make RC units comparable to AC units in effectiveness? Do variations in AC and RC training practices disadvantage RC units? If so, are there ways to align RC training practices more closely with AC practices so as to provide more comparable levels of training? What impact, if any, do differences in the military and civilian experience of AC and RC personnel play in the comparative effectiveness of AC and RC units? Are AC and RC units with the same readiness levels equally effective in exercises and operational missions? Are there certain missions or types of units where AC units are more effective than RC units due to training or experience differentials, and vice-versa? Does AC and RC unit effectiveness vary by echelon (i.e., company, battalion, and brigade)? If so, are there ways to mitigate these differences? A key consideration for policy makers when considering AC/RC mix is their comparative cost. Which are less expensive: AC units or RC units? From one perspective, the answer appears obvious: an RC unit that is not activated is inherently less expensive than a similar AC unit, because the large majority of RC personnel only perform military duty part-time, whereas AC personnel perform military duty full-time. This difference also affects comparative training and equipment maintenance costs. Additionally, even when an RC unit is activated , its cost should be roughly equivalent to a similar AC unit, as comparable AC and RC units have nearly identical equipment and personnel authorizations. Various studies have approached the issue of AC/RC costs from this perspective, and come up with different determinations of the size of the cost differential. The differences hinge on three principal factors: (1) the range of costs being considered, (2) the apportionment of those costs between the AC and RC, and (3) assumptions about how often RC units will be in an inactive status versus an active status. Each of these points is discussed below. Additionally, some studies have approached AC/RC costs from a different perspective, one that focuses on the different "outputs" associated with those costs. From this perspective, RC units are not always less expensive than AC units, and in some cases they can be more expensive, because multiple RC units are needed to match the output of one AC unit. This perspective is summarized below as well. An important factor in evaluating AC and RC costs relates to which costs to count. When comparing Army, Army Reserve, and Army National Guard costs, some analyses look only at personnel costs, or only at personnel costs plus operations and maintenance costs. This disregards other costs, such as military procurement, research and development, and construction costs. A more expansive approach looks at the "top-line" budget figure for the Army, the Army Reserve, and the Army National Guard. However, even this approach is not comprehensive as it omits certain costs covered by DOD, such as those associated with health care and commissaries. It also excludes military-related costs covered by other agencies, such as the costs of Veterans' Affairs educational, disability, and survivor benefits, or the Treasury Department's contributions towards military retirement, concurrent receipt, and the Medicare-Eligible Retiree Health Care fund. Including more costs obviously increases the total cost of both AC and RC forces, and the way in which these costs are apportioned to the active component and the reserve component can significantly affect their comparative cost. Another challenge associated with determining comparative AC and RC costs revolve around how to apportion certain costs. Certain costs can be apportioned to their respective component more easily because they are provided through separate budgetary accounts. For example, the active Army, Army Reserve, and Army National Guard each have their own appropriations for personnel costs and for operations and maintenance costs. (Although even within these accounts, there are some shared costs that are difficult to allocate.) Other costs are more difficult to apportion. For example, procurement of major weapons systems and equipment for the reserve components is done primarily via the active component account. A research and development (R&D) account exists only for the active component, although the reserve component benefits from it. Apportioning the costs from these accounts to the respective components poses substantial challenges; but attributing all of the costs to the active component—particularly those spent to purchase reserve component equipment—distorts the comparative cost of active and reserve component forces. Additionally, the reserve component benefits from certain activities conducted and funded largely by the active component—for example, developing doctrine, building and operating bases, and running most military schools. Attributing these costs exclusively to the active component likewise alters the comparative cost calculation. Finally, some costs are difficult to apportion between the active and reserve components due to the lack of research on the most appropriate way to do so. For example, if one wished to consider veterans' benefits in the calculation of comparative active and reserve costs, one obstacle would be the limited understanding of the extent to which active and reserve personnel use these benefits, a problem compounded when one considers that many military personnel serve in both an active and a reserve capacity during their careers. Another key factor in determining comparative AC/RC costs relates to the frequency with which the RC unit is used. If RC units cost less than AC units when not activated, and about the same as AC units when activated, then the comparative costs will vary based on how frequently the RC unit is activated. Or, to put it another way, RC units will cost the least if they are never activated, cost the same as AC units if they are continually activated, and fall somewhere in between based on their ratio of active to inactive time. Thus, an RC unit that is activated for one year out of every two years will be more expensive than one activated for one year out of every three years. Likewise, an RC unit that is activated for one year out of every two years will be more expensive than one activated for nine months out of every two years. These ratios, often referred to as "deployment-to-dwell ratios," became an increasingly important part of understanding RC costs due to the large scale rotational deployment of RC units to Iraq and Afghanistan, and due to the desire of many policy makers to continue using RC units for operational missions in the future. They also play an important role in determining the "boots on the ground" output metric discussed below. A major change in how AC and RC costs are discussed today comes in the area of correlating the "input" of cost (dollars) with various "outputs." Perhaps the most common "output" used historically in AC/RC cost comparisons has been personnel, as when Lieutenant General Jeffrey Talley, Chief of the Army Reserve, noted that the Army Reserve provides "nearly 20% of the Army's trained Soldiers and units, for just six percent of the Army budget." A somewhat different formulation compares budget share and the number of personnel in each component, resulting in a "cost per person" metric. For example, for FY2015 the Army has requested about $120 billion in budget authority. Of this, about $98 billion is for active component accounts, and $22 billion for reserve component accounts. The proposed end strength of active component soldiers is 490,000, while the proposed end strength for reserve component soldiers is 552,200 (350,200 ARNG and 202,000 USAR). Using this approach, the cost per active soldier could be calculated at $200,000 per year and the cost per reserve soldier could be calculated at $40,000 per year, leading to a statement indicating that reserve soldiers costs one-fifth as much as an active-duty soldier. This approach has been has been criticized for how costs are allocated between the AC and RC. (See previous section, " How Should These Costs be Apportioned Between the Active and Reserve Components? ") It has also been criticized for lacking a strong relationship to work performed. That is, even if AC soldiers cost five times more than RC soldiers (using the above example), they also are on duty more often, train more often, and deploy for operational missions more often, potentially resulting in more "bang for the buck." Alternative approaches, therefore, attempted to look at cost in relation to a metric of usage. One such approach sought to "develop a means to compare the use of active versus guard and reserve forces per dollar spent." The authors developed two alternative methods: the first was based on projected AC and RC personnel costs over an individual's full career, including deployments, and into retirement (a "life-cycle" cost approach). This method used the number of deployments as its output metric. The second method calculated AC and RC personnel costs over the course of the year, and used days of duty performed as its output metric. According to the authors, the life-cycle cost method estimated the lifetime cost of an AC servicemember at nearly $2.4 million, and the RC servicemember at about $790,000. "In terms of 'usage,' this works out to $336,000 per deployment 'opportunity' for the active member and $198,000 for a member of the reserves." In this analysis, reserve personnel cost about 60% of what active personnel cost per deployment. The authors' concluded that "In essence, this analysis shows that reserves are a good deal because the military services only have to pay for them when they are needed. Because their retirement is deferred—not paid out until age 60—it is much less expensive than for active members ... However, there are limitations to this assessment too. Utilization of the force is more encompassing than simply being deployed." The second method, which focused on cost per day of duty performed, estimated that AC personnel would perform 275 days of duty per year, that "statutory" reservists would perform 39 days of duty per year, and that "busy" reservists would perform 120 days of duty per year. It then estimated the compensation that each of these three servicemember types would receive over the course of the year, and divided that by days of duty performing. The result was an estimated "cost per duty day" in FY2005 of $261.52 for AC personnel, $284.35 for statutory reservists and $237.30 for busy reservists. Using this method then, reserve personnel cost between 91% (busy reservists) and 109% (statutory reservists) of what active personnel cost per day of duty performed. The authors state, "The bottom line of this analysis is that the more days reservists serve, the less costly they are to use ... in other words, a busy reservist is cheaper than a statutory one. However, this analysis reveals an unanticipated result. The more full-time benefits added to the cost of a reservist, such as TRICARE for Life health care accrual, the more expensive a part-time reservist is relative to his or her availability." Still, at a time when U.S. forces were deploying to Iraq and Afghanistan at a fairly high rate, these individual member cost methods were also critiqued. From this perspective, the key issue was not the relative cost of an AC or RC soldier per duty day, but the relative cost of maintaining a continuous unit presence in an overseas theater . The costing models developed for this "deployed unit cost approach" included two variables that profoundly affected comparative cost calculations: the deployment-to-dwell ratio for AC and RC forces and, for RC forces, the amount of time devoted to pre-deployment training. This approach appears to have been developed first by Jacob Klerman and published in Rethinking the Reserves . In chapter 5 of this monograph, the author reviews several previously published works and identifies the comparative cost of the RC when not activated at 20-30% of AC forces, and 100% of AC forces when activated. The author then estimates the number of RC units and AC units required, according to various deployment-dwell ratios, to maintain one unit "boots on the ground (BOG)" continuously in a given deployment location. The estimate is three for AC units and eight for RC units, assuming that AC units deploy 12 months out of 36 and that RC units train for three months and deploy for nine months out of 72. "Thus, according to policy guidance, we need 3.0 (=36/12) AC units in the force to keep one unit BOG ... and 8.0 (=72/9) units in the [reserve] force to keep one unit BOG. Thus, the ratio of RC to AC units is slightly less than 3 (2.7 = 8.0/3.0)." These rotation estimates are based on DOD guidelines established in 2007 and still in effect today. Combining the average costs of AC and RC units when deployed and non-deployed, with the number of units required to sustain one unit "boots on the ground," the author generates a "cost per unit of BOG" metric. Under the DOD rotation policy guidelines (12:36 for AC; (9+3)/72 for RC), he concludes that in peacetime, the relative cost of RC units is 67% of AC units. In wartime, the relative cost of RC units is 101%. Subsequently, the author manipulates some of the key variables—deployment-to-dwell ratios, the proportion of the reserve component involved in deployments, and the relative cost of RC units when not deployed—to generate a table illustrating a range of potential relative costs. These range from a low of 58% to a high of 141%. The more favorable cost comparisons for reserve units under this approach generally involve: Activating reserves less frequently; When activated, lengthening their deployments (one year BOG instead of nine months BOG) while holding AC rotation policy stable; Reducing the amount of RC train up time from three months to two (hence, generating 10 months BOG for the RC unit); and Using the lower estimates of RC relative costs in peacetime. The less favorable cost comparisons for reserve units under this cost approach generally involve: Activating reserves more frequently; Intensifying the rotation of AC units (for example, one year deployed out of every two) while holding RC rotation policy stable; and Using the higher estimates of RC relative costs in peacetime. Which costs are being considered? Which costs are being omitted? How are these costs being allocated to AC and RC forces? How do policy makers expect AC and RC forces to be used in the future? What are the most appropriate ways to measure the "output" of AC and RC forces in relation to their cost? What types of units generate a cost advantage if maintained in the RC? What types of units generate a cost advantage if maintained in the AC? How does that align with current force structure allocations? Should AC and RC "deployment-to-dwell" ratios be modified? Can RC pre-deployment training be shortened without adverse effects on performance? The Army, as is the case with the other Services, cannot "afford" all of the resources it believes it needs—including force structure—to accomplish its assigned missions due to budgetary constraints. In order to convey the impact of perceived inadequate resources to decision makers, DOD uses the concept of risk. DOD describes risk as follows: 1. Military and Political Risk : Military risk encompasses the ability of U.S. forces to adequately resource, execute, and sustain military operations in the near- to midterm, and the mid- to longer term. In the international context, political risk derives from the perceived legitimacy of our actions and the resulting impact on the ability and will of allies and partners to support shared goals. In the domestic context, political risk relates to public support of national strategic priorities and the associated resource requirements in the near term, midterm, and long term. 2. Operational Risk: Operational risk is the ability of the current force to execute strategy successfully within acceptable human, materiel, financial, and strategic costs. Consideration of operational risk requires assessing the Department's ability to execute current, planned, and contingency operations in the near term. 3. Force Management Risk: Force management risk is our ability to recruit, retain, train, educate, and equip the All-Volunteer Force, and to sustain its readiness and morale. This requires the Department to examine its ability to provide trained and ready personnel in the near term, midterm, and long term. 4. Institutional Risk: Institutional risk is the capacity of management and business practices to plan for, enable, and support the execution of DOD missions. It encompasses the ability to develop effective and efficient organizations and processes over the near term, midterm, and long term. 5. Future Challenges Risk: Future challenges risk is the Department's capacity to execute future missions successfully, and to hedge against shocks. Here most consideration is given to the Department's ability to field superior capabilities and sufficient capacity to deter/defeat emerging threats in the midterm and long term. While some of these risks might be less relevant to AC/RC force mix than others, military risk, operational risk, and future challenges risk are likely directly impacted by decisions related to AC/RC force mix. It should be noted that many of the current AC/RC force mix proposals and related policy debates do not fully explore the risks associated with force mix but instead focus on costs associated with AC and RC units. Perhaps a more fully developed risk assessment, in conjunction with associated cost assessments, might prove to be of greater utility to decision makers. Why are the risks associated with AC/RC force mix proposals not given the same level of examination or discussion as are costs associated with AC and RC units? Are there specific elements of risk that Congress would like examined in greater detail as part of the AC/RC force mix process? As it pertains to force mix decisions, are there guidelines for decision makers when comparing cost savings and associated risks or are decisions made based on subjective criteria alone? The above factors are all tied directly to the ability of the specified military forces to meet national security requirements. However, there are other factors often considered with respect to AC/RC mix, particularly with respect to the National Guard. Perhaps most notably, the United States' long tradition of a keeping a substantial military force structure in the reserve components can be traced to the ideological underpinnings of the nation's founding, which included a powerful aversion to professional military forces. In the colonial and founding eras, "standing armies" and a naval establishment were considered by many to be the principal threat to democratic sovereignty and individual liberty. In the event of military crisis, the preferred solution was to call on "citizen-soldiers"—members of the militia—to augment a relatively small professional force. This distrust of professional forces declined substantially in the aftermath of World War II, and some may find it anachronistic today, but such sentiments continue to undergird support for a robust reserve component vis-à-vis the active component. Additionally, since the advent of the All-Volunteer Force in 1973, policy makers have periodically raised concerns that the military was not adequately reflective of the U.S. population at large and was at risk of becoming isolated from it. The reserve components, while suffering from some of the same representational issues, are more geographically dispersed throughout the country, and its members normally live and work in the civilian world, thus providing a bridge of connection between the two worlds. Using the reserve components to solidify the link between the armed forces and the civilian population it serves may therefore be a consideration that policy makers wish to consider in AC/RC mix decisions. The current debate about Army AC/RC mix revolves around whether or not to shift force structure between the AC and the RC and, if so, how much to shift and of what types of units. Some argue RC performance in recent conflicts demonstrates abilities equivalent to their AC counterparts, and that properly trained and equipped reserve forces can replace a portion of AC force structure and generate cost savings. Others believe that certain RC forces—particularly larger direct combat units and higher echelon headquarters—are not as capable as AC forces without substantial additional preparation; cannot respond to a crisis as rapidly as AC forces; and cannot be used with the same frequency and duration as AC forces due to policy limitations. Those who take this perspective believe that replacing too many or certain types of AC units with RC units could reduce the Army's ability to respond rapidly to an overseas crisis and sustain operations over time; or could require too much additional RC funding and training time to make it cost-effective. There are also those who believe the current mix is about right, and still others who advocate shifting certain types of units between the AC and RC—for example, moving more combat units to the AC and more support units to the RC, or reallocating some units between the AC and the RC based on their comparative costs—which may or may not result in changes to the relative size of the components. As Congress considers the future AC/RC mix for the Army, there are several approaches it may wish to consider. These are outlined below, with additional detail provided later in the report. They are not necessarily mutually exclusive; Congress could elect to pursue some combination of the following options: Support Administration proposals on what the proper mix of Army AC and RC units should be; Gather additional information on key factors that contribute to AC/RC mix decisions; Directly adjust AC/RC mix; and/or Influence AC/RC mix by adjusting factors that contribute to mix decisions. One option for Congress would be to support the Administration's proposals on the mix of AC and RC units (see previous section entitled " Army AC/RC Force Mix "). These proposals, formulated by the Army with input from the Department of Defense, were included in the President's FY2015 budget request. Congress routinely considers the professional judgment of senior military officers and executive branch officials—and accepts them when it seems appropriate—as such judgments are typically backed by significant research and a wealth of experience. Reserve advocates may criticize this approach, arguing the Army has institutional biases that make it resistant to options which lessen the role of the AC in the future, and that the professional judgment of reserve leaders should be considered more fully. Others counter that the RC—the ARNG in particular—has a significant degree of political influence not enjoyed by the AC and that this influence has been used to obtain outcomes more favorable to the RC. Some believe these biases and varying levels of influence result in a less than optimal AC/RC force mix. If Congress wants to evaluate specific AC/RC mix options and develop a deeper understanding of the likely consequences of those options it could seek out additional information. Congress could obtain this information either by directing new studies of existing data or by establishing processes to collect, analyze, and share new types of data. Despite a variety of recent studies—both governmental and private sector—on AC/RC force mix and related issues, a number of issues remain unresolved which, if further examined, might lead to better informed decisions on AC/RC force mix. With regards to cost, recent studies have given decision-makers a better sense of the comparative costs and their relationship with various outputs, but there continues to be disagreement on various methodological aspects, including how best to apportion certain "enterprise" costs between the AC and RC. Other areas have received less research attention, including the comparability of readiness levels between AC and RC units as well as their relative effectiveness on operations. Some analysts also believe the role risk plays in determining the appropriate AC/RC mix needs additional emphasis in the overall process. Thus, if Congress so desired, it could direct studies to determine whether readiness assessments vary between AC and RC, ascertain whether performance differentials existed between similar AC and RC units at the end of the ARFORGEN training cycle, and establish a firmer understanding of the link between readiness metrics and performance during operations. As detailed in Appendix B , the Senate version of the FY2015 National Defense Authorization Act (NDAA) calls for the creation of a National Commission on the Future of the Army. If enacted, such a commission could examine some of the aforementioned issues, potentially improving the overall AC/RC force mix determination process. Army and Army National Guard leaders have conflicting opinions on the need for the National Commission on the Future of the Army. Regarding a commission to study the Army, Chief of Staff of the Army, General Raymond Odierno noted in testimony: For the last year, 12 to 18 months, we've done detailed analysis internal to the Army and we've done external to the Army. The Rand Corporation has studied this. In addition to this, OSD CAPE [Cost Assessment and Program Evaluation] has validated our total force levels as well as the Aviation Restructure Initiative. So we've had outside validate this. So in my mind, I'm not sure what additional expertise would be brought to this by a commission. In addition to that, it would cost us $1 billion additionally a year if we delay this two years, and I worry about that because we already have significant unfunded requirements. Also at the hearing, Chief of the National Guard Bureau, General Frank Grass noted: I think your question to me is there a value in an external look at the Reserve component versus the Active component balance. I will tell you, throughout my career every time we've had challenges, fiscal challenges, this comes up. My personal opinion is that it never hurts to have another look at that balance, because we all learn from it over time. Lieutenant General Jeffery Talley, Chief of the Army Reserve, supported General Odierno's position, stating at the hearing: Senator, it's not clear to me why we need an Army commission. I think the Army, working together and leading through some of the challenges we're having, which are really, to be frank, an impact of the serious budget issues that have been placed upon this service, I think we can resolve them. If the Congress makes the decision to go forward with the commission, the only thing I would ask is it's critical to make sure that all three components are well represented and integrated. Taking into account the Army's mixed feelings about the need for a national commission on the Army, Congress could gain valuable insights through either a national commission on the Army or some other academic endeavor that examines unresolved cost, readiness, effectiveness, and risk issues in greater detail. Existing data may be insufficient to adequately evaluate the competing arguments related to AC/RC mix. For example, as noted earlier in the report, Army readiness data may not fully capture important aspects of the AC and RC readiness, and there is little objective data on the comparative effectiveness of similar AC and RC units. Congress could direct the Army to develop processes to collect, analyze and share data of particular value to congressional deliberations. Alternatively, given the contentious debate which often erupts over the validity of such data, Congress could establish an independent agency or office to do so instead. For example, if Congress wanted more insight into the comparative effectiveness of AC and RC units at the end of the ARFORGEN cycle, it could establish an independent agency to regularly assess the performance of AC and RC units during pre-deployment rotations at the Combat Training Centers. Such assessments could both inform congressional decision making on AC/RC mix, but also identify barriers to AC/RC integration. Congress may elect to change the AC/RC mix directly, by way of adjusting AC and RC strength levels or reallocating major units between components. This might be the most appropriate approach if broad consensus exists in Congress on the desirability of such changes, coupled with a sufficient confidence in the likely costs and benefits of such changes. Concerns about negative and unintended consequences could be mitigated in a variety of ways; for example, by the use of pilot programs, the gradual phase-in of policy changes, or periodic policy assessments. Congress establishes the end strengths for the active and reserve components of each Service on an annual basis in the National Defense Authorization Act. Congress also sets minimum strength levels for the active component, which may be identical to or lower than the end strength. If Congress so desired, it could directly influence AC/RC force mix by adjusting AC and RC end strengths. If Congress believes, for example, the RC should play a more prominent role in national security, it could increase RC end strength or decrease AC end strength or a combination of both. Conversely, if Congress believes the nation needs a more robust AC, it could increase the size of the AC and reduce the RC. Such adjustments, however, are fairly blunt policy tools and could have negative impacts, particularly if the magnitude of such changes were large and phased in rapidly. For example, it could result in a misalignment between combat and support forces or it might result in more frequent activations of reserve units than is considered desirable. It might also engender institutional resistance by the Active Army or its Reserve Components if the adjustments were seen as unrealistic or unduly favoring one side over the other. Congress could also direct that certain types of units be transferred from one component and added to the other component. For example, Congress could specify the number of BCTs and CABs in the AC and in the ARNG. Such an action would likely be taken if Congress was not satisfied with the Army's proposed AC/RC force structure. Congress would likely base such an action on a variety of academic and analytical studies, although reaching a consensus on an appropriate force mix could prove to be contentious. As in the case of adjusting end strength, such a decision could strain the relationship between Congress and the Army and require Congress to assume a greater degree of ownership if their force structure decision proves to be detrimental to the conduct of military operations. Rather than directing a specific force mix, a different approach would be to influence the AC/RC mix by altering certain underlying factors that contribute to mix decisions. Several such options are examined below. Congress could influence AC/RC force mix by assigning or prioritizing roles and missions by component thereby addressing issues concerning the utilization of the components. In this regard, Congress could look at the spectrum of missions and allocate them between components to capitalize on the strengths of the components. Changing the way in which AC and RC units are used would likely change the calculus of the number and types of units in the AC and RC. For example, one study examined in Appendix G offers the following observation: RC is best suited for missions and tasks that are predictable, relatively consistent, and benefit from long-term personnel and geographic relationships. Force generation processes should consider providing predictability to RC units for those missions requiring regional expertise, as well as Homeland Defense or Defense Support to Civil Authorities missions. This observation—"using the RC for missions it is best suited for"—is also offered in other reports CRS examined (see Appendix G ) and suggests, for example, that a mission like engagement might be better allocated to RC as opposed to AC units. Another study suggests "If a mission requires a rapid response or a high state of readiness, it is often seen as a mission best suited to the AC." If Congress were to reallocate or prioritize missions between the AC and RC, there could be a fairly significant reorganization of AC and RC force structure which could substantially change the AC/RC mix. One of the reasons why senior Army officials often appear reluctant to use RC units for certain types of missions is a belief that RC units are not as well trained as AC units, thus limiting their utility for the most complex operations. Such concerns appear to stem from an intrinsic difference between full-time and part-time forces—the greater number of days available for training for AC units in comparison to RC units—and differences in AC and RC training processes. However, these differences could potentially be mitigated with changes to statute, policies, or resource allocations. Several areas where AC advocates believe differences exist are detailed below, along with potential options for addressing them. Some Army leaders have argued that ARNG BCTs cannot perform the most complex operations with the same level of proficiency as AC BCTs. This belief leads to a heavy reliance on AC BCTs to meet requirements in operational plans and thus is a key driver of AC/RC mix. Differences in AC and RC training processes appear to lie at the root of this perception. As previously discussed, AC BCTs are trained up to the brigade level during the ARFORGEN process while ARNG BCTs are only trained up to the platoon and company level. The implication of this current policy is that, upon completion of the ARFORGEN process, only the platoons and companies of an ARNG BCT are fully ready to deploy and conduct their assigned missions. General Raymond Odierno, the Army Chief of Staff, highlighted this issue in testimony before the Senate Armed Services Committee: What the Guard is able to do is do individual proficiency and small unit proficiency. So they get good at their individual MOS [Military Occupational Specialty]. They can do some small unit, platoon level capability, maybe at home station. But without having CTC [Combat Training Centers] rotations, it's much more difficult to get to company, battalion, and brigade. And the more complex the organization, the more difficult it is. The complex organizations are brigade combat teams, aviation brigades. Less complex organizations, such as transportation units and maintenance units, they can do a lot of it at home station. But the impact is really on the more complex, integrated, collective training that has to be done, that they're simply not able to do, where in an active unit you can do it at your home station because you have the ground and air space and facilities to do it and you're collocated together, where the Guard is spread out and they don't have that. So they need the training center in order to build that readiness. This testimony suggests that the Army believes there are significant differences between AC and ARNG BCTs, and that the cause of this distinction is differences in training, including inherent differences in the time available between AC and RC forces. Specifically, General Odierno notes the comparative lack of CTC rotations for ARNG BCTs and the training limits caused by geographic dispersion of their subordinate elements. To address the first factor, Congress could elect to provide for additional CTC rotations for ARNG BCTs. General Mark Milley, the commander of U.S. Army Forces Command, has recently advocated this approach. This option would likely require additional funding for the rotations and may require statutory changes to mandate additional training days for the BCT members; it would also require increased ARNG access to CTCs, either by displacing AC units, expanding the capacity of the existing CTCs, or establishing one or more new CTCs. Addressing the second factor might be more difficult, given that the geographic dispersion of RC units is considered a positive factor in other ways, but it could include statutory or funding changes to facilitate or mandate greater battalion and brigade level training opportunities. In both of these cases, however, any additional training requirements has the potential to conflict with the civilian employment of reserve personnel and will almost certainly increase costs, thereby reducing any cost savings that might be associated with transferring capabilities to the RC. For initial entry training, AC and RC personnel typically attend the same schools in a "resident" status. As their careers progress, the option for resident training decreases for RC personnel in comparison to their AC counterparts, and they instead attend distance learning or distance/resident hybrid courses. At the highest level of professional military education, RC personnel have very limited opportunities for full-time attendance at some of the most valued military educational opportunities, such as the Senior Service Colleges and the Sergeants Major Academy. In part, this reflects the challenge of fitting these long-duration courses into reservists' civilian career, but it also reflects the very limited number of reserve "slots" at these schools. If Congress determines that this divergence in professional military education disadvantages RC personnel in comparison to their AC peers, it may wish to provide for greater opportunities for individuals to attend these schools. Another way to mitigate concerns about training differentials would be to set new criteria for the promotion and assignment of senior RC officers and enlisted personnel. For example, Congress could require that in order to fill certain key leadership positions, the individual must have met certain educational requirements, such as resident attendance at a senior service college, or completed certain developmental assignments, such as tours on active duty in appropriate developmental positions. It might also require that those selected for certain positions serve a higher—perhaps much higher—number of days per year even when not activated. For example, a reserve battalion commander might be required to serve at least 120 days of active and inactive duty per year while holding that position; a brigade commander and certain key staff members might be required to serve full time for the duration of that command. From the perspective of some reserve advocates, the biggest barrier to a greater role for RC units is the institutional biases of senior AC officers. These senior leaders, they believe, are reluctant to use RC units because any RC success weakens the justification for AC force structure. There is a certain logic to this argument, for if part-time RC units are truly identical in capability to similar full-time AC units, then a core justification for AC force structure disappears. RC advocates therefore tend to favor approaches that remove or limit the ability of the AC to keep them "on the sidelines." Additionally, they believe that increased integration of AC and RC personnel help to reduce negative stereotypes on the part of the AC and thereby gradually reduce this institutional bias. Several options for promoting greater use of the RC are listed below. One way to promote greater use of the RC would be to require that RC units be the "force of first choice" for certain missions. While this topic was discussed more generally earlier (see " Reallocate AC and RC Roles and Missions "), some examples of missions dedicated primarily to the RC might include peacekeeping, training of foreign militaries, and humanitarian relief. Such an approach need not rule out the use of AC forces as part of a given operation, but might simply require that RC officers would normally lead those types of missions and RC units would provide the bulk of the forces. One potential means of promoting greater use of the RC—which can also enhance RC training levels—is partnerships between AC and RC units. This is not a new concept. The roundout brigade program, discussed earlier in this report, assigned ARNG brigades to active divisions. Although the roundout brigade program was criticized after Desert Storm and eventually discontinued, a variant of the concept is being used today. At present, the Army has reportedly begun to formally pair AC BCTs with ARNG BCTs to "create partnerships and to increase training opportunities at home, and boost leader development." Called the "Total Force Partnership Program" this pairing of formations is intended to promote informal leader development, encourages units to find shared training opportunities, and share lessons learned. In addition to BCTs, the Army also is partnering active duty corps with ARNG divisions and aviation brigades, fire brigades, and multifunctional brigades from the two components are also partnering. Reportedly as of June 2014, 20 AC BCTs have been paired with 28 ARNG BCTs and sixteen aviation brigades and several fire brigades have also been partnered. These partnerships are not formal command relationships and were based on geographic considerations, unit types, and preexisting relationships. While the Total Force Partnership Program is relatively new, Congress might wish to further explore the potential benefits of this program. While this "peer to peer" program is intended to enhance the effectiveness of both the AC and RC, it could prove particularly beneficial to the RC. It is possible over time this AC/RC partnership could significantly enhance RC readiness, perhaps even having implications for AC/RC force mix. As mentioned above, the roundout brigade program assigned ARNG brigades to active divisions. These divisions were a type of "blended unit." Although the roundout brigade program was criticized and eventually discontinued, Congress may wish to consider other blended unit approaches. For example, the roundout concept could be applied at a lower level, with RC battalions integrated into AC brigades, or RC companies integrated into AC battalions. Alternatively, Congress could require that some portion of AC positions be reserved for RC personnel on active duty tours. For the AC, this could include required tours serving in RC units as part of their full-time manning. Appendix A. Aviation Restructuring Initiative (ARI) As part of the Army's downsizing and reorganizational efforts, the Army plans a major force structure change for its aviation units, as described in the following section: The Aviation Restructure Initiative allows us to eliminate obsolete air frames, sustain a modernized fleet, reduce sustainment costs, and efficiently organize ourselves to meet our operational commitments and imperatives. Disproportionate reductions come from the Active component aviation. We will inactivate and eliminate three complete combat aviation brigades from the Active component. We will move all LUH–72s from the Active component to Fort Rucker in order to train pilots across all three components. In the National Guard we'll maintain 10 aviation brigades. We will move Apaches to the Active component while increasing the fleet of UH–60s by sending 111 of the most modern Black Hawk helicopters to the National Guard. The National Guard will also retain all of its LUH–72s and CH–47s. In the end, the Active component will be reduced by 686 aircraft, which is 86% of the total reduction. The National Guard will be reduced by 111 aircraft, which is 14% of the total reduction. ARI will result in better and more capable formations which are able to respond to contingencies at home and abroad. In addition, the Army Reserve is swapping out its two AH-64 Apache Battalions for two assault battalions (either UH-60 or CH-47 helicopters). Army Reserve leadership notes that this swap is better suited for the Army Reserves as they are predominately combat support and service support. ARI Cost Savings Army leadership has stated that the ARI will save the Army $12 billion. National Guard Association Objections to the Army's Aviation Restructuring Proposal In its advocacy role for the Army National Guard, the National Guard Association noted its objections to the Army's proposal: By taking all AH-64s from the National Guard, they will lose attack and aerial reconnaissance capabilities; Elimination of AH-64s also means the loss of some of the Total Army's most experienced Apache pilots and maintainers; and Eliminating AH-64s also eliminates a place for Active Component pilots and maintainers to serve should they leave active service. Appendix B. Current Legislation Related to Army AC-RC Mix H.R. 4435 , National Defense Authorization Act for FY2015 From H.Rept. 113-446 (pp. 199-200) Army Force Structure The committee believes the Army's current requirement to further reduce planned end strength and force structure by fiscal year 2019 is a direct consequence of the Budget Control Act of 2011 (Public Law 112–25). The committee notes the Army's current plan would reduce the Active Component end strength from a wartime high of 570,000 soldiers to 450,000 soldiers with a potential further reduction to 420,000 soldiers absent repeal of sequestration-level budget caps in fiscal year 2016. As a result, the committee understands the Army is also reducing active brigade combat teams from 45 to 32 and divesting almost 700 aircraft, as well as eliminating 3 combat aviation brigades. The Army's plan would also reduce Army National Guard end strength from 358,000 soldiers to 335,000 soldiers with a potential further reduction to 315,000 soldiers absent repeal of sequestration-level budget caps. The committee understands the Army National Guard would be required to divest its AH–64 Apache attack helicopters, effectively transferring these assets to the Active Component, as well as divest its OH–58 Kiowa Warriors Scout Reconnaissance helicopters. However, the committee understands the Army National Guard would receive 111 UH–60 Black Hawk L and M model utility helicopters from the Active Component to improve the Guard's capabilities to perform title 32 crisis response and defense support to civil authority missions. Therefore, the committee expects that those units that transfer AH–64 Apache attack helicopters to the active Army will receive priority for modernized Black Hawks which should be at a minimum in the UH– 60 Black Hawk L model utility helicopter configuration. In testimony before the committee, the Secretary of the Army and Chief of Staff of the Army officially stated their concerns regarding the potential inability of the U.S. Army to meet the requirements of the current National Military Strategy and execute operational plans absent a repeal of sequestration-level budget caps in fiscal year 2016. The committee remains concerned by this testimony and believes that in order to mitigate the increased strategic risk generated by the Budget Control Act of 2011, the Army is being forced to reduce end strength to preserve near-term readiness through the Future Years Defense Program. The committee is concerned with the planned reductions and realignments the Army has proposed, specifically the greater reductions in Active Component end strength and brigade combat teams, as well as the proposed aviation realignment of combat aviation aircraft. Therefore, elsewhere in this Act, the committee includes a provision that would require a Comptroller General of the United States review of the methods the Army and the Department of Defense Office of Cost Assessment and Program Evaluation used to determine the future force structure of the Army, to include the appropriate mix between Active, Guard, and Reserve Component forces. The committee also recommends increases in funding for procurement and operation and maintenance accounts to accelerate the conversions of UH–60A to UH–60L Black Hawk helicopters, and also recommends additional funding to procure six additional UH–60M Black Hawk helicopters to address Army National Guard modernization shortfalls. Finally, the committee recommends additional funding for operation and maintenance readiness accounts to increase overall training opportunities and increase depot-level maintenance in the Army National Guard. Section 1050—Conditions on Army National Guard and Active Army Force Structure Changes Pending Comptroller General Report (p. 223) This section would prohibit the Secretary of Defense and Secretary of the Army, during fiscal year 2015, from reducing the end strength for active duty personnel of the Army below 490,000; reducing the end strength for Selected Reserve personnel of the Army National Guard below 350,000; or transferring AH–64 attack helicopters from the Army National Guard to the regular Army. This section would also require the Comptroller General of the United States to assess and validate the methods the Army and the Department of Defense Office of Cost Assessment and Program Evaluation used to determine the future force structure of the Reserve Component forces and submit a report to the congressional defense committees not later than March 1, 2015. Elsewhere in this Act, the committee describes its larger concerns regarding the Army's end strength and force structure reductions. As a result of these concerns, the committee also recommends increases in funding for procurement and operation and maintenance accounts to accelerate the conversions of UH–60A to UH–60L Black Hawk helicopters, and additional funding to procure six additional UH–60M Black Hawk helicopters to address Army National Guard modernization shortfalls. Finally, the committee recommends additional funding for operation and maintenance readiness accounts to increase overall training opportunities and increase depot-level maintenance in the Army National Guard. S. 2410 , Carl Levin National Defense Authorization Act for FY2015 TITLE XVII—NATIONAL COMMISSION ON THE FUTURE OF THE ARMY SEC. 1701. SHORT TITLE. This title may be cited as the ''National Commission on the Future of the Army Act of 2014''. SEC. 1702. PROHIBITION ON USE OF FISCAL YEAR 2015 FUNDS TO REDUCE STRENGTHS OF ARMY PERSONNEL. Subject to an authorized reduction under section 691(e) of title 10, United States Code (as applied to the end strengths below), none of the funds authorized to be appropriated or otherwise made available for fiscal year 2015 for the Army may be used to reduce the Army below the authorized fiscal year end strengths for personnel of the Army as follows: (1) 490,000 for active duty personnel of the Army. (2) 350,200 for the Army National Guard. (3) 202,000 for the Army Reserve. SEC. 1703. LIMITATION ON USE OF FISCAL YEAR 2015 FUNDS FOR TRANSFER OR DIVESTMENT OF CERTAIN AIRCRAFT ASSIGNED TO THE ARMY NATIONAL GUARD. (a) LIMITATION.— (1) AIRCRAFT.—None of the funds authorized to be appropriated or otherwise made available for fiscal year 2015 for the Army may be used to divest, retire, or transfer, or prepare to divest, retire, or transfer, any AH–64 Apache aircraft of the Army assigned to units of the Army National Guard as of January 15, 2014. (2) PERSONNEL.—None of the funds authorized to be appropriated or otherwise made available for fiscal year 2015 for the Army may be used to reduce personnel related to any AH–64 Apache aircraft of the Army National Guard below the levels of such personnel as of September 30, 2014. (3) READINESS OF AIRCRAFT AND CREWS.— The Secretary of the Army shall ensure the continuing readiness of the AH–64 Apache aircraft referred to in paragraph (1) and the crews of such aircraft during fiscal year 2015, including through the allocation of funds for operation and maintenance and support of such aircraft and for personnel connected with such aircraft as described in paragraph (2). (b) SCOPE OF LIMITATION.—Nothing in subsection (a) shall be construed to limit the use of funds described in that subsection for the training of members of the Army National Guard or Army Reserve who are pilots, crew, or mechanics of AH–64 Apache aircraft on any other aircraft. (c) EXCEPTION.—Notwithstanding subsection (a), funds described in that subsection may be used for the transfer of not more than 48 AH–64 Apache aircraft from the Army National Guard to the regular Army if the Secretary of Defense certifies in writing to the congressional defense committees that such a transfer would not— (1) degrade the strategic depth or regeneration capacities of the Army; (2) degrade the Army National Guard in its role as the combat reserve of the Army; and (3) occur before October 1, 2014. SEC. 1704. NATIONAL COMMISSION ON THE FUTURE OF THE ARMY. (a) ESTABLISHMENT.—There is established the National Commission on the Future of the Army (in this titlereferred to as the ''Commission''). (b) MEMBERSHIP.— (1) COMPOSITION.—The Commission shall be composed of eight members, of whom— (A) four shall be appointed by the President; (B) one shall be appointed by the Chairman of the Committee on Armed Services of the Senate; (C) one shall be appointed by the Ranking Member of the Committee on Armed Services of the Senate; (D) one shall be appointed by the Chairman of the Committee on Armed Services of the House of Representatives; and (E) one shall be appointed by the Ranking Member of the Committee on Armed Services of t he House of Representatives. (2) APPOINTMENT DATE.—The appointments of the members of the Commission shall be made not later than 90 days after the date of the enactment of this Act. (3) EFFECT OF LACK OF APPOINTMENT BY APPOINTMENT DATE.—If 1 or more appointments under subparagraph (A) of paragraph (1) is not made by the appointment date specified in paragraph (2), the authority to make such appointment or appointments shall expire, and the number of members of the Commission shall be reduced by the number equal to the number of appointments so not made. If an appointment under subparagraph (B), (C), (D), or (E) of paragraph (1) is not made by the appointment date specified in paragraph (2), the authority to make an appointment under such subparagraph shall expire, and the number of members of the Commission shall be reduced by the number equal to the number otherwise appointable under such s ubparagraph. (4) EXPERTISE.—In making appointments under this subsection, consideration should be given to individuals with expertise in national and international security policy and strategy, military forces capability, force structure design, organization, and employment, and reserve forces policy. (c) PERIOD OF APPOINTMENT; VACANCIES.—Members shall be appointed for the life of the Commission. Any vacancy in the Commission shall not affect its powers, but shall be filled in the same manner as the original appointment. (d) CHAIR AND VICE CHAIR.—The Commission shall select a Chair and Vice Chair from among its members. (e) INITIAL MEETING.—Not later than 30 days after the date on which all members of the Commission have been appointed, the Commission shall hold its initial meeting. (f) MEETINGS.—The Commission shall meet at the call of the Chair. (g) QUORUM.—A majority of the members of the Commission shall constitute a quorum, but a lesser number of members may hold hearings. SEC. 1705. DUTIES OF THE COMMISSION. (a) STUDY ON STRUCTURE OF THE ARMY.— (1) IN GENERAL.—The Commission shall undertake a comprehensive study of the structure of the Army, and policy assumptions related to the size and force mixture of the Army, in order— (A) to make an assessment of the size and force mixture of the active component of the Army and the reserve components of the Army; and (B) to make recommendations on the modifications, if any, of the structure of the Army that are necessary to fulfill current and anticipated mission requirements for the Army at acceptable levels of national risk and in a manner consistent with available resources and a nticipated future resources. (2) CONSIDERATIONS.—In undertaking the study required by subsection (a), the Commission s hall give particular consideration to the following: (A) An evaluation and identification of a structure for the Army that— (i) has the depth and scalability to meet current and anticipated requirements of the combatant commands; (ii) achieves cost-efficiency between the regular and reserve components of the Army, manages military risk, takes advantage of the strengths and capabilities of each, and considers fully burdened lifecycle costs; (iii) ensures that the regular and reserve components of the Army have the capacity needed to support current and anticipated homeland defense and disaster assistance missions in the United States; (iv) provides for sufficient numbers of regular members of the Army to provide a base of trained personnel from which the personnel of the reserve components of the Army could be recruited; (v) maintains a peacetime rotation force to avoid exceeding operational tempo goals of 1:2 for active members of the Army and 1:5 for members of the reserve components of the Army; and (vi) maximizes and appropriately balances affordability, efficiency, effectiveness, capability, and readiness. (B) An evaluation and identification of force generation policies for the Army with respect to size and force mixture in order to best fulfill current and anticipated mission requirements for the Army in a manner consistent with available resources and anticipated future resources, including policies in connection with— (i) readiness; (ii) training; (iii) equipment; (iv) personnel; and (v) maintenance of the reserve components as an operational reserve in order to maintain as much as possible the level of expertise and experience developed since September 11, 2001. (C) An identification and evaluation of the distribution of responsibility and authority for the allocation of Army National Guard personnel and force structure to the States and territories. (D) An identification and evaluation of the strategic basis or rationale, analytical methods, and decision-making processes for the allocation of Army National Guard personnel and force structure to the States and territories. (b) STUDY ON TRANSFER OF CERTAIN AIRCRAFT.— (1) IN GENERAL.—The Commission shall also conduct a study of a transfer of Army National Guard AH–64 Apache aircraft from the Army National Guard to the regular Army. (2) CONSIDERATIONS.—In conducting the study required by paragraph (1), the Commission shall consider the factors specified in subsection (a)(2). (c) REPORT.—Not later than February 1, 2016, the Commission shall submit to the President and the congressional defense committees a report setting forth a detailed statement of the findings and conclusions of the Commission as a result of the studies required by sub-sections (a) and (b), together with its recommendations for such legislative and administrative actions as the Commission considers appropriate in light of the results of the studies. SEC. 1706. POWERS OF THE COMMISSION. (a) HEARINGS.—The Commission may hold such hearings, sit and act at such times and places, take such testimony, and receive such evidence as the Commission considers advisable to carry out its duties under this title. (b) INFORMATION FROM FEDERAL AGENCIES.—The Commission may secure directly from any Federal department or agency such information as the Commission considers necessary to carry out its duties under this title. Upon request of the Chair of the Commission, the head of such department or agency shall furnish such information to the Commission. (c) POSTAL SERVICES.—The Commission may use the United States mails in the same manner and underthe same conditions as other departments and agencies of the Federal Government. SEC. 1707. COMMISSION PERSONNEL MATTERS. (a) COMPENSATION OF MEMBERS.—Each member of the Commission who is not an officer or employee of the Federal Government may be compensated at a rate not to exceed the daily equivalent of the annual rate of $155,400 for each day (including travel time) during which such member is engaged in the performance of the duties of the Commission. All members of the Commission who are officers or employees of the United States shall serve without compensation in addition to that received for their services as officers or employees of the United States. (b) TRAVEL EXPENSES.—The members of the Commission shall be allowed travel expenses, including per diem in lieu of subsistence, at rates authorized for employees of agencies under subchapter I of chapter 57 of title 5, United States Code, while away from their homes or regular places of business in the performance of services for the Commission. (c) STAFF.— (1) IN GENERAL.—The Chair of the Commission may, without regard to the civil service laws and regulations, appoint and terminate an executive director and such other additional personnel as may be necessary to enable the Commission to perform its duties. The employment of an executive director shall be subject to confirmation by the Commission. (2) COMPENSATION.—The Chair of the Commission may fix the compensation of the executive director and other personnel without regard to chapter 51 and subchapter III of chapter 53 of title 5, United States Code, relating to classification of positions and General Schedule pay rates, except that the rate of pay for the executive director and other personnel may not exceed the rate payable for level V of the Executive Schedule under section 5316 of such title. (d) DETAIL OF GOVERNMENT EMPLOYEES.—Any Federal Government employee may be detailed to the Commission without reimbursement, and such detail shall be without interruption or loss of civil service status or privilege. (e) PROCUREMENT OF TEMPORARY AND INTERMITTENT SERVICES.—The Chair of the Commission may procure temporary and intermittent services under section 3109(b) of title 5, United States Code, at rates for individuals which do not exceed the daily equivalent of the annual rate of basic pay prescribed for level V of the Executive Schedule under section 5316 of such title. SEC. 1708. TERMINATION OF THE COMMISSION. The Commission shall terminate 90 days after the date on which the Commission submits its report under section 1705(c). SEC. 1709. FUNDING. Amounts authorized to be appropriated for fiscal year 2015 by section 301 and available for operation and maintenance for the Army as specified in the funding table in section 4301 may be available for the activities of the Commission under this title. S.Rept. 113-176 , Carl Levin National Defense Authorization Act for Fiscal Year 2015 Comptroller General of the United States report on the Department of the Army actions to determine the appropriate structure of the Army (page 83) The committee directs the Comptroller General of the United States to submit a report to the congressional defense committees on a comprehensive review of the Department of the Army's data, analysis, decision-making processes, and plans for structuring, readying, and managing the forces of the Army, including the regular Army, the Army National Guard, and the Army Reserve. The required report will include a description and assessment of the manner in which the Department of the Army determines the size and force mixtures of the components of the Army in order to fulfill the national security missions of the Army, including any data on cost, readiness, effectiveness, and other factors available and used by the Department in making that determination. The Comptroller General shall provide an interim briefing not later than March 1, 2015, and a final report on March 1, 2016. TITLE XVII—NATIONAL COMMISSION ON THE FUTURE OF THE ARMY National commission on the future of the Army (Sections 1701– 1709) (pages 245-246) The committee recommends a provision that would create a commission to study the size and force structure of the Army, including active-duty forces, the U.S. Army Reserve (USAR), and the Army National Guard (ARNG). The committee is aware that the Army and the Department of Defense continue their analysis, course of action development, and decision-making process with respect to the distribution of reductions of both end strength and force structure necessary to achieve the savings required by the Budget Control Act of 2011. The committee believes that under these circumstances an independent and objective review of Army size and force structure by a national commission is worthwhile. The commission would be required to submit a report to the congressional defense committees not later than February 1, 2016. The provision would prohibit the use of funds in fiscal year 2015 to reduce the end strength of the regular Army, ARNG, or USAR below the levels provided in the budget request. The provision would also prohibit the use of funds in fiscal year 2015 to divest, retire, or transfer any AH–64 Apache aircraft assigned to the ARNG. An exception to this aircraft prohibition, however, would allow the transfer of up to 48 Apache aircraft from the ARNG to the regular Army. The commission would be made up of four members appointed by the chairman and ranking members of the Committees on Armed Services of the Senate and the House of Representatives and four members appointed by the President. The commission would undertake a comprehensive study of the structure of the Army and policy assumptions related to the size and force mixture of the Army. In addition to the review of the Army's structure, the commission would conduct a study of plans to transfer Apache aircraft from the ARNG to the regular Army. The commission would also evaluate the distribution of responsibility and authority, as well as the strategic basis or rationale, analytical methodology, and decision-making process, related to the allocation of ARNG end strength and force structure to the states and territories. In its assessment of the Army's size and structure, the commission should also consider the need for any changes to existing legislation—such as the Militia Act of 1903, the National Defense Act of 1920, the National Security Act of 1947, and the Goldwater-Nichols Act of 1986—that establishes the roles and missions of the active and reserve components. The committee notes the difficulties expressed by the National Commission on the Structure of the Air Force associated with the Department of Defense's (DOD) interpretation and application of the Federal Advisory Committee Act (FACA) as amended (Public Law 92–463). The commissioners stated in their report that, ''As the Commission proceeded with its work, it became increasingly clear that the DOD's interpretation of FACA's purpose would have a significant, and frequently negative, impact on the Commission's work.'' It is apparent from the views of the commissioners that the Department's interpretation of the oversight safeguards intended by the FACA may have unnecessarily complicated the conduct of their study. The committee expects the Secretary of Defense to support the National Commission on the Future of the Army in a balanced manner and in a spirit consistent with congressional intent and appropriate FACA oversight while avoiding the negative impacts that were experienced by the Air Force Commission. The committee is also aware that certain aspects of the Army's ''1993 Offsite Agreement'' pertaining to reserve component core competencies has, in part, for the last 20 years, guided its analysis and decision making with respect to reserve component force structure. This agreement, between senior leadership of the regular Army, ARNG, USAR, and the associations representing their members, guided the realignment of combat arms, combat support, and combat service support force structure between the ARNG and USAR. The agreement provides that the ARNG should retain a mix of combat arms and support structure while the USAR would divest its combat arms and retain combat support and combat service support capabilities. In this manner the core competencies of the Army's reserve components are established: for the ARNG a balance of combat and supporting arms, and for the USAR combat support and service support. By and since this agreement, therefore, the ARNG has been and remains the reserve component within which the Army places those combat arms capabilities to reinforce, supplement, or compliment the combat capabilities of the active Army. The committee notes that, as appropriate and necessary to address the national security and support for civil authorities requirements of the United States, there are several examples of units and capabilities in the regular Army that are not in the reserves, as well as units and capabilities in the reserves that are not in the regular Army. This system for the alignment of core capabilities among the Army's reserve components has served the Nation, the Army, and the domestic support and public safety needs of the states very well ever since. The committee recognizes the success of this agreement, as evident by the successful partnerships in combat, security, and support missions by active and reserve servicemembers in the conflicts in Afghanistan and Iraq. The committee encourages the Army to continue to maintain the reserve components as an operational reserve and manage the distribution of combat arms, combat support, and combat service support capabilities and forces consistent with and respectful of the intent of its ''1993 Offsite Agreement'' regarding reserve component core competencies. H.R. 4870 , Department of Defense Appropriations Act, 2015 SEC. 8136. None of the funds made available by this Act may be used to transfer AH–64 Attack helicopters from the Army National Guard to the active Army: Provided, That this section shall continue in effect through the date of enactment of the National Defense Authorization Act for Fiscal Year 2015. H.Rept. 113-473 , To Accompany H.R. 4870 , Department of Defense Appropriations Bill, 2015 ARMY AVIATION RESTRUCTURE INITIATIVE The Army's fiscal year 2015 budget request proposes a significant restructuring of Army aviation assets. Part of this proposal is to transfer all Apache helicopters from Army National Guard units to the active Army and to shift Blackhawk helicopters from the active Army to the Army National Guard. Another component of the proposal is to retire the Kiowa Warrior helicopter, including the TH–67 helicopter, currently being used as the training platform for Army aviation. The Committee understands that the Army made this proposal primarily for affordability reasons. The Committee approves the proposal, with the exception of the transfer of Apache aircraft from the Army National Guard, as discussed in title VIII of this Act. With respect to the retirement of TH–67 aircraft, the Committee is extremely concerned about the impact on the rotary wing industrial base of placing such a large amount of excess airframes on the market. Therefore, the Committee directs the Secretary of Defense to submit a report to the congressional defense committees not later than 120 days after the enactment of this Act on the aircraft being retired as part of the Army proposal. This report should include the number of airframes being divested; the number of airframes being transferred to other government agencies, the number of airframes being offered for sale to other nations, the cost of divesting these aircraft, and the impact the divestiture of these airframes will have on the domestic rotary wing industrial base. Further, the Secretary of the Army is prohibited from divesting any aircraft until the report is submitted by the Secretary of Defense. Appendix C. Historical Rationales for Reserve Forces At the end of FY2013, there were slightly more than 1.4 million members of the active components of the U.S. armed forces and roughly 842,000 members of the Selected Reserve. If one looks only at the Army, the active component is slightly smaller than its combined reserve components (530,000 active component personnel versus 555,000 reserve component). While this may seem remarkable, it is not particularly unusual from an historical perspective. In fact, for most of the nation's history, active component forces have been quite small and the reserve components have been comparatively large. This situation was reversed after World War II, with active forces predominating, but the balance shifted back somewhat in the aftermath of the Cold War. Still, regardless of historical era, the United States has always maintained a substantial proportion of its military force structure in the reserve components. There have been four principal reasons for this, each of which is described below. Ideological The long U.S. tradition of a keeping a substantial military force structure in the reserve components can be traced to the ideological underpinnings of the nation's founding, which included a powerful aversion to professional military forces. In the colonial and founding eras, "standing armies" and a naval establishment were considered by many to be the principal threat to democratic sovereignty and individual liberty. In the event of military crisis, the preferred solution was to call on "citizen-soldiers"—members of the militia—to augment a relatively small professional force. The Constitution gives Congress the authority "to raise and support Armies" and "to provide and maintain a Navy," while simultaneously recognizing the existence of the militia and granting the federal government a certain amount of control over it. The intent of this arrangement, as articulated by Alexander Hamilton in in The Federalist Papers , was for the militia to augment the professional forces in time of need and to serve as a check upon their power: it is a matter of utmost importance that a well digested plan should, as soon as possible, be adopted for the proper establishment of the militia. The attention of the government ought particularly to be directed to the formation of a select corps of moderate size, upon such principles as will fit it for service in case of need. By thus circumscribing the plan, it will be possible to have an excellent body of well-trained militia ready to take the field whenever the defense of the State shall require it. This will not only lessen the call for military establishments, but if circumstances should oblige the government to form an army of any magnitude that army can never be formidable to the liberties of the people while there is a large body of citizens, little if at all inferior to them in discipline and the use of arms, who stand ready to defend their own rights and those of their fellow citizens. This appears to me to be the only substitute that can be devised for a standing army, and the best possible security against it, if it should exist. This distrust of professional forces declined substantially in the 20 th century, particularly in the aftermath of World War II, and some may find it anachronistic today. However, such sentiments continue to undergird support for a robust reserve component vis-a-vis the active component, for legal restrictions on domestic military activities such as the Posse Comitatus Act, and for military policies such as the prohibition on military personnel engaging in political activity while in uniform. Military Maintaining a substantial reserve component has also long been justified on military grounds as a mechanism for providing strategic depth. From this perspective, a major reason to maintain reserve forces is to provide a supply of trained individuals and units to augment active forces in the event of a crisis. Examples of this abound in U.S. history: reserve forces have been called into service for every major U.S. conflict, and several less significant ones. The strategic depth provided by reserve forces allows the armed forces to rapidly expand in size. For example, during major wars such as World War II, Korea, and Desert Storm, large numbers of reserve units were activated to expand the overall capacity of the armed forces to perform combat and supporting missions. Additionally, the availability of a wide array of reserve unit types enhances the Services' capacity to conduct specific types of missions, providing flexibility across a wide range of situations. For example, during the intervention in Haiti, reserve activations were more narrowly targeted to provide increased capacity in specialized skills such as military police, transportation, and civil affairs. Economic Another long standing justification for reserve component forces has been cost. When not activated, reserve forces cost much less than active component forces. Based on the traditional model for non-activated reservists—training one weekend per month and two weeks per year—most reserve personnel receive about 1/6 of the pay that their active component peers receive. Historically, reserve personnel costs have also been kept down by intentionally manning many units at less than 100%. Operations and maintenance costs in this paradigm are also much lower, as vehicles and equipment are used less, and less work-related travel occurs. However, new research and cost models have shed a different light on this topic. See the section entitled " Cost " in the main body of this report. Sociopolitical Unlike the World War II era, and for several decades thereafter, the active component military today is comparatively small, composed entirely of volunteers, and has fairly low turnover. This has raised periodic concerns that the military is not adequately reflective of the American population at large and is at risk of becoming isolated from it. The reserve component, while suffering from some of the same representational issues, is more geographically dispersed throughout the country, and its members normally live and work in the civilian world. From this perspective, the reserve component provides a critical link between the armed forces and the civilian population and help ensure that the American public views the armed forces as a part of the community, not as a separate class. Appendix D. The Army Force Generation (ARFORGEN) Model Army Force Generation (ARFORGEN) "The structured progression of increased unit readiness over time resulting in recurring periods of availability of trained, ready, and cohesive units. These units are prepared for operational deployment in support of Combatant Commanders' or civil authorities' requirements. Units are task organized in modular expeditionary forces, tailored for mission requirements. Operational requirements drive the ARFORGEN training and readiness process. These same requirements support the prioritization and synchronization of resourcing, recruiting, organizing, manning, equipping, training, sustaining, sourcing, mobilizing, and deploying cohesive units more effectively and efficiently. This rotational model, which maximizes total force utilization, replaces the Army's linear, tiered readiness strategic construct for force generation. The Army builds the readiness of units as they move through three force pools as described below. 1. Reset Pool . The unit's focus is on reintegrating soldiers and families and completing individual education, development, and institutional training. During this time the institutional Army focuses on manning and equipping the unit so it can conduct collective training. 2. Train/ Ready Pool . The unit's focus is on restoring proficiency through unit training, with the unit leaving this force pool upon completing a culminating collective training event (CTE). This CTE ensures the unit achieves the required operational capability. 3. Available Pool . A unit may be a Deployed Expeditionary Force (DEF) with a "deployed mission" or a Contingency." Appendix E. Laws Governing Access to the Reserve Components There are a number of statutory provisions by which members of the Reserve Components can be ordered to active duty by the federal government. These provisions differ from each other in terms of the statutory requirements for utilization, the number and category of reservists called up, and the duration of the call up. Members of the National Guard can be called up in a nonfederal status, and there is also a special provision for the recall of retired reservists. Each of these authorities is detailed below. Full Mobilization In time of war or national emergency declared by Congress, or when otherwise authorized by law, Section 12301(a) of Title 10 U.S.C. permits the Service Secretaries to authorize the involuntary activation of any member of the reserve components under his or her jurisdiction. There is no limit on the number of reservists which may be ordered to active duty under this provision and mobilized reservists may be kept on active duty for the duration of the war or emergency plus six months. Partial Mobilization In time of a national emergency declared by the President, or when otherwise authorized by law, Section 12302 of Title 10 U.S.C. permits the Service Secretaries to authorize the involuntary activation of members of the Ready Reserve under his or her jurisdiction for a period not to exceed 24 consecutive months. Up to 1 million members of the Ready Reserve may serve on active duty at any one time under this provision of law. Reservists may be mobilized under this provision of law without approval from Congress. This authority was used to mobilize reservists during the latter part of the Persian Gulf War (1991) when the Presidential Reserve Call-up (PRC) authority was no longer sufficient to activate the number of reservists needed. President George W. Bush invoked this authority in the aftermath of the September 11 terrorist attacks. It was used to mobilize reservists for Operations Noble Eagle and Enduring Freedom, and later used for Operation Iraqi Freedom/New Dawn as well. Activations under this authority have continued to the present. Presidential Reserve Call-up (PRC) Section 12304 of Title 10 U.S.C. permits the President to authorize the involuntarily activation of members of the Selected Reserve and the Individual Ready Reserve for a period up to 365 consecutive days. Under this authority, up to 200,000 members of the Selected Reserve and the Individual Ready Reserve "mobilization category"—a sub-component of the Individual Ready Reserve which is currently not being used —may serve on active duty at one time. The President may activate reservists under this provision of law without approval from Congress; however, he is required to notify Congress within 24 hours of such an action. This authority was used to mobilize reservists during the earlier part of the Persian Gulf War (1990-1991), during the intervention in Haiti (1994-1996), during the Bosnian peacekeeping mission (1995-2004), during the low-intensity conflict with Iraq (1998-2003), and during the earlier years of the Kosovo conflict and peacekeeping mission (1999-present). Those activated under this authority may not be used to enforce federal authority or to suppress insurrection; nor may they be used to provide assistance to the federal government or the states for disaster response, unless responding to an emergency involving the use or threatened use of weapons of mass destruction or an actual or threatened terrorist attack of significant proportions. Combatant Command Support Activation The National Defense Authorization Act for Fiscal Year 2012 contained a provision to allow involuntarily activations of Selected Reserve units for up to 365 consecutive days of active duty. No more than 60,000 members of the National Guard and Reserves may be serving on active duty under this authority at any given time. The authority to activate reservists under this provision rests with the Service Secretary, but it may only be invoked for a "preplanned mission in support of a combatant command" where the costs of the activations and a description of the mission are included in the service's budget materials. According to the committee report which accompanied the Senate version of the bill, this new authority "is not designed for use for emergent operational or humanitarian missions, but rather to enhance the use of reserve component units that organize, train, and plan to support operational mission requirements to the same standards as active component units under service force generation plans in a cyclic, periodic, and predictable manner." This provision is now codified at 10 U.S.C. 12304b. In its FY2014 and FY2015 budget requests, the Army specified its plans to use this authority for an array of smaller on-going operations, such as air defense in the United States, counterterrorism partnership efforts in Africa, peacekeeping support in Europe, and an array of theater security cooperation efforts. Disaster Response Activation A separate provision in the National Defense Authorization Act for Fiscal Year 2012, now codified at 10 U.S.C. 12304a, allows the Secretary of Defense to involuntarily order units and individuals of the Army Reserve, Navy Reserve, Marine Corps Reserve, and Air Force Reserve to active duty for up to 120 days "when a governor requests federal assistance in responding to a major disaster or emergency." National Guard forces are not included in this authority, but state governors already have the ability to activate their state National Guard forces and to request support from other state National Guards under the Emergency Management Assistance Compact. The Coast Guard Reserve has long had a short-term, disaster response activation authority (14 U.S.C. 712) which is very similar to 12304a authority. This provision also contained language specifying that when the Armed Forces and the National Guard are employed simultaneously in support of civil authorities within the United States, a dual status commander should be appointed. A dual status commander is a military officer who simultaneously serves as a state National Guard officer under the control of his or her governor, and as a federal military officer under the control of the President. A dual status commander is thus able to command non-federalized National Guard forces and federal forces via these separate chains of command. The language of this provision also specifies that "when a major disaster or emergency occurs in any area subject to the laws of any State, Territory, or the District of Columbia, the Governor of the State affected normally should be the principal authority supported by the primary Federal agency and its supporting Federal entities, and the Adjutant General of the State or his or her subordinate designee normally should be the principal military authority supported by the dual-status commander when acting in his or her State capacity." Recall of Retired Reservists Members of the Retired Reserve can be involuntarily ordered to active duty in the case of a Full Mobilization (see " Full Mobilization ," above). Under this authority, there is no limit on the number of retired reservists who can be called to active duty, and they may be kept on active duty for the duration of the war or emergency plus six months. Additionally, the Secretary of each military department has the authority to involuntarily order certain members of the Retired Reserve to active duty at any time, but this authority only applies to members of the Retired Reserve who have a regular retirement (at least 20 years of active duty). There is a limit on the amount of time recalled retirees can serve, and a limit on the number of officers recalled, but these limits do not apply in times of war or national emergency declared by the Congress or the President. Title 32, Section 502(f) An unique authority to activate National Guard personnel involves duty under Title 32 of the U.S. Code, Section 502(f). This provision of law provides that "a member of the National Guard may ... without his consent, but with the pay and allowances provided by law ... be ordered to perform training or other duty in addition to that prescribed under subsection (a) [subsection (a) covers annual training and inactive duty training, also known as "weekend drill"]." While activated under this authority, National Guard personnel remain under the control of their governor, but receive federal pay and benefits, as though they were in federal services, along with certain legal protections . National Guard personnel were activated under this provision to provide security at many of the nation's airports in the aftermath of the terrorist attacks of September 11, 2001, to assist with the response to Hurricanes Katrina and Rita in 2005, and for the southwest border security mission in 2006-2008 and 2010-2014. State Active Duty As members of the militia of their state or territory, National Guard personnel can also be called up by their governor for full-time duty. When employed in this capacity, referred to as state active duty, National Guardsmen are considered state or territorial employees, not federal employees, and their pay and benefits are determined by state or territorial law. Typical missions performed under state active duty include responding to disasters and civil disorders. Additionally, shortly after September 11, 2001, some governors called up members of the National Guard to protect critical infrastructure in their states, such as nuclear power plants, water treatment facilities, and bridges, from potential terrorist attacks. Appendix F. Contemporary Studies on AC/RC Force Mix The studies surveyed in this appendix are listed below. It should be noted that while some studies directly address the topic of AC/RC cost and/or force mix, many studies only include this topic as a component of an examination of national defense, military reform, DOD budget choices and other defense-related topics. The reports are listed in chronological order. A. John D. Winkler and Barbara Bicksler, The New Guard and Reserves , "Chapter 10: The Cost of the Reserves" by Jennifer Buck, 2008. B. Jacob Alex Klerman, Rethinking the Reserves , RAND, 2008. C. Dennis J. Reimer, Roger C. Shultz, and James R. Helmly, The Independent Panel Review of Reserve Component Employment in an Era of Persistent Conflict , November 2, 2010 D. Office of the Vice Chairman of the Joint Chiefs of Staff and the Office of Assistant Secretary of Defense for Reserve Affairs, Comprehensive Review of the Future Role of the Reserve Component, Volume I: Executive Summary and Main Report , April 5, 2011. E. Michael L. Hansen, Celeste Ward Gventer, and John D. Winkler, et al., Reshaping the Army's Active and Reserve Components , RAND, 2011. F. AC/RC ARFORGEN Costing Model , United States Army G-8 PA&E, January 5, 2012. G. David Barno, Nora Bensahel, and Matthew Irvine, et al., Sustainable Preeminence—Reforming the U.S. Military at a Time of Strategic Change , Center for a New American Security, May 2012. H. Eliminating Gaps in DOD Data on the Fully-Burdened and Life-Cycle Cost of Military Personnel: Cost Elements Should be Mandated by Policy , Reserve Forces Policy Board, January 7, 2013. I. Gary Roughead and Kori Schake, National Defense in a Time of Change , Brookings (The Hamilton Project), February 2013. Key Points and Recurring Themes of Surveyed Reports An examination and comparison of the aforementioned reports revealed a number of key points, often recurring in multiple reports, related to cost and other force mix considerations. These are summarized below. The order in which they are presented does not suggest any sort of prioritization by CRS. Cost When considering AC/RC force mix, some studies noted that while cost is a very important planning factor, it is not the only or the most important factor. The cost elements used in comparisons varied widely, and wide variations existed on whether and how to allocate certain costs that do not lend themselves easily to division between the AC and the RC. Reports note that cost estimating tools for different types of missions, operating profiles, and accounting systems vary greatly between services, although there is a limited degree of commonality in personnel costing methodologies. Non-activated RC personnel are less expensive than AC personnel because they spend much less time training per year and thus receive much less in pay and benefits; this lower training level also results in lower associated operations and maintenance costs. Even when activated, lower RC costs for retired pay and retiree health care benefits make RC forces less costly as far as compensation costs "per day of duty" are concerned. However, compensation costs are not the only costs to consider, nor is "per duty day" the only way to measure output. Using RC forces reduces, and may even eliminate, their cost advantage. In part, this is due to the increase in compensation costs when activated (that is, the government begins to pay the activated RC personnel in the same manner as it does AC personnel). Additionally, if one considers costs in relationship to an output such as "days deployed" (also called "boots on the ground"), RC costs increase significantly in comparison to the AC for two reasons. First, DOD rotation policy puts stricter limits on how frequently a reserve unit can be mobilized in comparison to an active unit. This results in the need for more RC units to sustain the equivalent "boots on the ground" output of a single AC unit. Second, when RC forces are activated, they typically undergo post-activation training, which may be several weeks or several months, depending on the type of unit. This reduces the amount of "boots on the ground" time in each deployment cycle. Taken together, these factors increase the cost per "day deployed" of RC units in comparison to AC units. While dependent on rotational variables, units with high-cost equipment or extensive training needs appeared to have a cost advantage in the AC, while units with less expensive equipment and lower training needs appeared to have a cost advantage in the RC. The cost savings estimates provided in these reports were limited in scope, and therefore may be of limited utility for policy makers as they examine affordability and force-mix issues. This could possibly be attributed to the previously-cited lack of a common cost methodology. The RC provides additional value not captured in cost data. For example, the RC provides the opportunity to serve for those who do not wish to serve full time, RC members have civilian expertise and perspective that AC personnel might not have, and using the RC provides a link between operational use of the Army and the public at large, thereby potentially strengthening public support for the operation. Roles and Utilization: Some studies suggested that the RC perform roles along the lines of "missions and tasks that are predictable, relatively consistent, and benefit from long-term personnel and geographic relationships." While this might be a valid finding or recommendation based on analysis, it also raises issues for potential consideration by policy makers. If the RC is truly part of the Total Force, then why the RC should be relegated only to "tasks that are predictable, relatively consistent?" While this recommendation was likely based on an observation that unpredictable and frequent deployments tend to be aligned with the AC, in theory, a RC unit in the Army Force Generation (ARFORGEN) model "Ready Pool" should be as capable in this arena as an AC unit. With respect to the perceived benefits provided by the RC when long-term personnel and geographical relationships are an essential part of a mission, this is attributed to the comparative long-term stability in many RC units. AC units tend to turn over most of their personnel every two to three years while reservists and National Guardsmen may spend their entire career in just a few units. More specifically, there is a belief held by some that Combatant Commander Theater Security Cooperation and Building Partner Capacity activities benefit from long-term personal relationships that would be more likely if RC units were involved. Several reports also suggest RC forces are particularly well-suited to Homeland Defense or Defense Support to Civil Authorities missions. The RC as a provider of "strategic depth" was a common theme in many reports. For example, the Army noted "it would take five to seven years to build a new Combat Aviation Brigade in the AC" when a similar unit in the RC could be ready for deployment within a few months, depending on its personnel, equipment, and training status. The strategic depth argument is one counter to the criticism that RC brigade combat teams (BCTs) and combat aviation brigades (CABs) are more expensive and less effective than their AC counterparts. To put it another way, some would argue that it worth keeping a number of these equipment and training-intensive combat formations in the RC—even if they cost more than their AC counterparts when used for operational purposes—as a means of quickly reconstituting or "surging" force structure in the event of a crisis. Force Mix A common theme relating to force mix is that of mission requirements. If a mission requires a rapid response or a high state of readiness, it is often seen as a mission best suited to the AC. If the mission is of a more enduring nature, allowing for predictable deployments, it is thought to be a more appropriate mission for the RC. Another theme repeated in a number of reports is that of requiring multiple RC units to match the rotational output of a single AC unit. It should be noted, however, this requirement is more pertinent to an "operationalized" RC—i.e., an RC that is to be included in the Army's routine deployment of units on operations—rather than an RC serving as a "strategic reserve." In the case of an "operationalized RC," the current one year deployed every six years (the 1:5 deploy-to-dwell ratio) rule makes it necessary to have multiple RC units to match the one AC unit that deploys for one out of every three years (the 1:2 deploy-to-dwell ratio). Changing the deployment-to-dwell ratios, whether for the AC or RC, changes the requirements for the number of units needed. Some reports suggested that there are advantages in placing some types of support units in the RC. Lower echelon and support/sustainment units without extensive or complicated equipment (such as a Medium Truck Company), which typically require less post-activation training before deployment, are often cited as examples. Comparatively shorter post-mobilization training periods increase the number of days deployed, and therefore decreases the cost per day deployed ratio. Effectiveness One theme noticeably absent from reports focusing on cost and force mix is that of comparative military effectiveness between AC and RC units. While there were anecdotal examples—such as RC Military Police and Civil Affairs units being more effective than their AC counterparts because many RC soldiers in these units perform their military specialties daily in their civilian lives—there was not a comprehensive examination of military effectiveness as it relates to force mix. Perhaps a quote from a RAND report explains why military effectiveness was not examined in detail: A unit-for-unit cost comparison implicitly assumes that, once trained-up, RC units are as effective as AC units. In many military forums, it is considered impolite to raise this issue, so such discussion appears to go on only in private and with little direct evidence. Appendix G. Individual Study Examinations A. The New Guard and Reserves (Chapter 10: Cost of the Reserves). Executive Summary: This chapter, written by a Jennifer Buck, a former Deputy Assistant Secretary of Defense for Reserve Affairs, "explores several different ways to look at active and reserve costs." It outlines three methods: "The first is a traditional, simple method that compares the total guard and reserve budget with the portion of the total force it supports. This was the method used by the Commission on the Guard and Reserves in reaching its conclusion that 'the cost of the reserve components is approximately 23% of the amount needed to man, train, equip and sustain the active component.'" "The second approach is based on estimating the cost of individual members of the reserve components ... [which determines] the cost of reserves vis-a-vis their 'use'. Use is defined in a number of ways. One is availability for deployment over the course of a career. Another is the number of duty days served within a given year." "The final method examines the cost of guard and reserve units based on an analysis of brigade combat teams. This assessment evaluates the cost of units under different deployment scenarios." Findings: "Differences in active and reserve component costs relate primarily to three factors. First, the guard and reserve have lower operating and training tempo. Second, they received part-time pay and benefits [when not activated]. Third, the guard and reserve incur smaller infrastructure costs—such as, for example, in family housing." "It is obvious that the more the guard and reserve are used, the more they 'cost'." Traditional method Using this method and FY2005 figures, "the guard and reserve require 8.6% of the budget to support 38.4% of the force, which, on the surface, appears to be a great bargain. But this admittedly simplistic approach does not incorporate costs such as research and development, paid by the military services, with benefit to both the active and reserve components. Further, it does not factor in the value of equipment that is transferred to the guard and reserve from the active forces, or the guard and reserve 'share' of institutional support provided by the services, such as schools or training ranges." If supplemental war funding is factored in, the guard and reserve share of the budget rises to 9.4%. The traditional method "is perhaps more relevant for a reserve component used primarily as a force in reserve—as a strategic reserve that serves as an 'insurance policy' for national defense—rather than a reserve that is called on to support operational missions ... this very simple approach is no longer sufficient to answer the question of the relative cost of the guard and reserve." Individual members method The focus of this method "was to develop a means to compare the use of active versus guard and reserve forces per dollar spent." Two alternative approaches were developed: the first was based on projected AC and RC personnel costs over a full career, including deployments, and into retirement (a "life-cycle" cost approach); the second calculated cost per day of duty in FY2004 and FY2005. Life Cycle Variant The "life-cycle" variant estimates the lifetime cost of an AC servicemember at nearly $2.4 million, and the RC servicemember at about $790,000. "In terms of 'usage,' this works out to $336,000 per deployment 'opportunity' for the active member and $198,000 for a member of the reserves." "In essence, this analysis shows that reserves are a good deal because the military services only have to pay for them when they are needed. Because their retirement is deferred—not paid out until age 60—it is much less expensive than for active members ... However, there are limitations to this assessment too. Utilization of the force is more encompassing than simply being deployed." "Duty Days" Variant The "duty day" variant estimates AC personnel will perform 275 days of duty per year, that "statutory" reservists will perform 39 per year, and that "busy" reservists will perform about 120 per year. It estimates "cost per duty day" in FY2005 as $261.52 for AC personnel, $284.35 for statutory reservists and $237.30 for busy reservists. "The bottom line of this analysis is that the more days reservists serve, the less costly they are to use ... in other words, a busy reservist is cheaper than a statutory one. However, this analysis reveals an unanticipated result. The more full-time benefits added to the cost of a reservist, such as TRICARE for Life health care accrual, the more expensive a part-time reservist is relative to his or her availability." Unit method This approach is based on a 2007 unpublished briefing by Jacob Alex Klerman (whose 2008 report Rethinking the Reserves is covered later in this appendix). It compares costs of an active duty unit to its reserve component counterpart based on models that consider costs of both deployed and non-deployed units, and which also factor in the expected deployment-to-dwell ratios. "Taking into account pay and benefits, as well as training and support costs, reserve brigade combat units are much cheaper than active duty units—on the order of 28% of costs during peacetime ... When activated, reserve units costs about the same as active duty units. Thus, if both an active and reserve unit could accomplish the same task, assigning it to a reserve unit would realize considerable cost savings. It was assumed, in the past, that activations would be rare." "But this comparison is fundamentally different when reserve units are used as part of a rotational force. Thus, the second question posed in the analysis becomes critically important—the relative cost of a reserve brigade combat team for one-year of 'boots-on-the-ground'.... For a six year rotation cycle, nine reserve combat teams were needed to sustain continuous operations, versus three active duty teams. Using the reserve in this fashion increases their relative costs to 84% when not activated, and as high as 120% when they are." [Note: It is unclear how the report derives these figures; see comment in "Potentially Contentious Issues"]. "The results show that for use as part of a rotational force, cost does not clearly favor reserve units, as it does under simpler cost calculations ... the less we expect to use the reserves, the lower their relative cost. Further, the more quickly reserve units can be ready for operational missions, the lower their relative cost." Study Methodology: As described above, this study used three separate approaches—one of which has two variants—to estimate the comparative costs of AC and RC forces. The cost data used for the first two methods appears to be taken primarily from FY2004 and FY2005 budget documents; changes in compensation since then might generate different results. It is unclear precisely which costs are included in the individual member variants, but it appears they both include pay and allowances, retired pay, and retiree health care; inclusion of other elements might change the results. The duty day variant also appears to include "money spent for training, medical and dental readiness, equipment, and operations and maintenance" but those costs are not specified. The life cycle model makes some important assumptions about career length, eligibility for retirement, and deployment/dwell ratios (AC deployed one year out of every three; RC deployed one year out of every six); deviations from these assumptions might generate different results. Also, it is unclear how the cost for the entire life-cycle (initial entry into military service through death) is generated. Cost elements used in the analysis are not fully described (although the rough contours are). The unit cost model section appears to rely on a predecessor to Klerman's 2008 study, whose methodology is discussed later in this report. Potentially Contentious Issues: This paper describes several costing alternatives, without endorsing one specific approach; however, it largely rejects the "traditional method": "Merely looking at gross budget share does not address the true cost of the reserves, because it ignores important differences in how each component is used." (p. 184) Those who stress the cost advantage of the reserves may still consider this approach to have value, especially in the context of strategic reserve forces. It is unclear how figures used for the retired pay accrual rate under the "duty days" variant was calculated. The daily rate for a "busy reservist" was higher than that for an active component servicemember ($31.66 vs. $28.77 in FY2004), which seems unlikely given reservists have a lower retired pay accrual rate as they normally cannot draw retired pay immediately upon retirement as active component personnel can. For the unit cost model approach, the report states "using the reserve in this fashion increases their relative costs to 84% when not activated, and as high as 120% when they are." It is unclear how the report derives these figures, as they are based on an unpublished briefing by Jacob Klerman. Klerman's figures accompanying his published 2008 report estimated the relative cost of RC units to range from 58% to 141% of AC units. The range of values was related to the values of key variables (deployment-to-dwell ratios, the proportion of the reserve component involved in deployments, and the relative cost of RC units when not deployed). B. Rethinking the Reserves. Executive Summary: A changed threat environment and different utilization patterns suggest the need to re-think various aspects of the RC, particularly the reserve components of the Army. Reserve personnel are distinguished by the part-time nature of their service, which means that they have competing civilian obligations, are less expensive when not mobilized, and have limited training opportunities when compared to the AC. Traditional costing methods suggest that RC units, when not mobilized, cost about one-fifth to one-third as much as AC forces. However, "the relevant cost computation, and the implied relevant cost changes radically when forces are expected to be used with rotation, which is the reality of stability operations conducted as part of the ongoing Global War on Terrorism." (p. xiv) Under current usage, RC cost computation needs to consider both "peacetime" (non-activated) and "wartime" (activated) costs. Additionally, "with rotation, the appropriate cost is not per unit but per unit "Boots on the Ground" (BOG) (i.e., actually serving in the conflict versus at the rotational base at home)." (p. xiv). Rotation policy is a critical factor in determining the relative costs of AC versus RC BOG. "It seems clear that the relative cost of the RC rises sharply when the projected use involves rotation. What was without rotation a striking cost advantage is nearly cost parity; that is, cost considerations no longer overwhelmingly favor the RC." (p. xv) Some suggestions for modifying reserve compensation and other models of reserve service are also presented. Findings: "Because they are part-time, reservists simply spend less time in uniform. Therefore, in years in which they are not mobilized, they can be paid less. For the Army National Guard, a very rough estimate is that a drilling reservist is paid for only about one-sixth as many days as an equivalent active-duty force soldier. Relative costs are slightly higher, perhaps one-fifth to one-third those of the actives, but still much, much less than the cost of the actives. Thus, in peacetime, reserves are much less expensive ... The in peacetime caveat is crucial ... the relative cost of reservists in wartime is subtler and likely to vary with the frequency of use and rotation policy." "Because reservists are part-time, they may be less capable than AC forces. During peacetime, they train much less than AC forces (perhaps one-sixth as much). Thus, at mobilization, they are often capable of doing only a more limited range of mission-essential tasks. Rather than training intensively during peacetime, after mobilization reservists often need more time (often several months) to sharpen their existing skills and to learn new skills related to their specific anticipated mission. Despite this intensive post-mobilization training, for some tasks, the skill level (or capability) of reservists and the reserve unit may remain lower than that of AC forces, who had the benefit of more intensive training in the years before deployment. This discussion assumes that military skills atrophy when not training. That assumption seems plausible for military-specific skills (e.g., infantry). Alternatively, when a reservist uses his/her civilian career (perhaps a chaplain, civilian affairs, construction, military police), it seems plausible that the reservists is as skilled as (or even better skilled than) his/her AC counterpart." "A unit-for-unit cost comparison implicitly assumes that, once trained-up, RC units are as effective as AC units. In many military forums, it is considered impolite to raise this issue, so such discussion appears to go on only in private and with little direct evidence." " ... It seems likely that there are several different types of military jobs. For some jobs, civilians actually get more repetitions than uniformed individuals ... For these tasks we would expect the RC to perform better than the AC. For activities in which deterioration of skills is slow, older RC member might perform better than younger AC members (this has been claimed for pilots and flying hours). However, for military specific activities for which the skills deteriorate (perhaps physical condition or reaction times in combat simulations), one might expect more-intensive and longer-term AC training to yield higher proficiency than we would expect from a short-term train-up immediately post-mobilization. Whether these conjectures are correct is unclear. We are unaware of any high-quality empirical evidence." "Any evidence of differential combat effectiveness should be used to adjust the earlier unit-for-unit cost estimates. Thus, for example, if it would take five RC units to do the work of four AC units, then the RC costs should be adjusted up by a quarter. Note also that each unit—AC and RC—would require equipment, so equipment costs would need to enter into this analysis." "When forces are used with rotation, the crucial comparison is no longer the cost of an RC unit peacetime compared with the cost of an AC unit in peacetime. Instead, the crucial comparison is: What does it cost to maintain one RC unit BOG compared to the cost to maintain on AC unit BOG." " ... What is the ratio of RC units in the force to AC units in the force to maintain one unit continuously BOG? For Army BCTs ... [g]iven current rotation policy, those calculations suggest that the ratio is slightly less than three RC units in the force for every AC unit in the force in order to maintain one unit BOG. Given recent [2007-08] actual rotation practice, the ratio is slightly less than four." "Again using plausible parameters, Appendix A of "Rethinking the Reserves" then proceeds to convert these estimates of units required in the force into relative costs. Those computations suggest that, for wars fought with rotation, much—but not all—of the RC's cost advantage disappears. Remaining cost differences are sufficiently small that some might argue that they are not commensurate with the RC's lower combat effectiveness." " ... this analysis suggests that the shift to a rotational scenario has substantially increased the relevant cost of the reserves. The standard economic argument would suggest the appropriate reaction would be twofold. First, decrease demand for the solution whose relative cost has risen sharply; that is, use the RC in fewer roles (e.g., only as a deeper reserve). Second, decrease supply (i.e., cut reserve force structure) by decreasing cost (e.g., reserve enlistment bonuses) until the remaining forces are closer to cost-effective. Further study is needed." Study Methodology: The methodology varies depending on the subject matter being discussed. Chapters 2 and 3 are based on historical data and interpretation of reserve policy and utilization from the 1970s onward. Chapter 4 discusses the implications of the part-time nature of reserve service. Chapter 5 considers costs of the reserves relative to active forces, Chapter 6 proposes three alternative reserve organizations, and Chapter 7 looks at changes in reserve compensation to support more intensive use of the reserves. The methodology with regard to Chapter 5 deserves additional description. Chapter 5 reviews several previously published works and identifies the relative cost of the RC as falling within the range of 20-30% of AC forces, when not activated, and 100% of AC forces when activated. The author then estimates the number of RC units and AC units required, according to various deployment-dwell ratios, to maintain one unit "boots on the ground" continuously in a given deployment location. The estimate is three for AC units and eight for RC units, assuming that AC units deploy 12 months out of 36 and that RC trains for three months and deploys for nine months out of 72. "Thus, according to policy guidance, we need 3.0 (=36/12) AC units in the force to keep one unit BOG ... and 8.0 (=72/9) units in the [reserve] force to keep one unit BOG. Thus, the ratio of RC to AC units is slightly less than 3 (2.7 = 8.0/3.0)." These rotation estimates are based on DOD guidelines established in 2007 and still in effect today. If actual rotation practice from 2007-2008 is used instead—AC units deploy 15 months out of 27 and RC unit train for three months and deploy for nine months out of 60—the resulting quotient is 1.8 for AC and 6.7 for RC. Combining the average costs of AC and RC units when deployed and non-deployed, with the number of units required to sustain one unit "boots on the ground," the author generates a "cost per unit of BOG" metric. Under the DOD rotation policy guidelines (12:36 for AC; (9+3)/72 for RC) , he concludes that in peacetime, the relative cost of RC units is 67% of AC units. In wartime, the relative cost of RC units is 101%. Subsequently, the author manipulates some of the key variables—deployment-to-dwell ratios, the proportion of the reserve component involved in deployments, and the relative cost of RC units when not deployed—to generate a table illustrating a range of potential relative costs. These range from a low of 58% to a high of 141%. The more favorable cases for the reserves generally involve activating them less frequently; when activated, lengthening their deployments (one year BOG instead of nine months BOG) while holding AC rotation policy stable; reducing the amount of RC train up time from three months to two (hence, generating 10 months BOG for the RC unit); or using lower estimates of RC relative costs in peacetime. The less favorable cases for the reserves generally involve activating them more frequently coupled with intensifying the rotation of AC units (for example, one year deployed out of every two) in comparison to the RC units. Potentially Contentious Issues: As the author notes, his rotational cost estimates are quite sensitive to assumptions about the proportion of the RC conducting operational missions, BOG/dwell ratios, RC post-mobilization training time, and the relative cost of the RC when not activated. Modest changes in these factors can cause significant changes in the comparative cost of AC and RC units. The author also notes that "The discussion here is deliberately exploratory. A more complete discussion would require a much more thorough analysis." Below are some areas where more the generality of the analysis might lead to disputes about the validity of the results. It is not clear which cost elements are involved in the calculation of AC or RC costs, but it appears to be linked primarily to basic pay (see Appendix 1 of the report, particularly those calculations performed in the footnotes). This may limit the accuracy of the relative costs, as noted in the Reserve Forces Policy Board work discussed earlier, and thereby call into question the output of this report's relative cost model. This work is based on Army BCTs, and includes assumptions about their train up times and rotation rates. These are not necessarily applicable to other types of units. For example, a military police company might need only a month of post-mobilization train up, in contrast to the three months estimated for an Army BCT. In such a case, the ratio of AC to RC units needed to sustain one unit BOG would change significantly, as would the calculation of relative costs. Some might argue that the conclusion to cut reserve force structure does not appear to flow from the report's logic, particularly the suggestion to "decrease demand for the solution whose relative cost has risen sharply." From this perspective, the increase in the relative cost of the reserves under a rotational deployment policy is not the critical consideration; more important is the actual relative cost. Another conclusion—to lower the costs of the RC through reduced compensation—could create imbalances in the force. For example, cutting reserve enlistment bonuses as suggested could impact the number of new accessions, reducing the supply of entry level personnel, but not necessarily the number of more senior personnel, potentially creating a top-heavy reserve. C. Independent Panel Review of Reserve Component Employment in an Era of Persistent Conflict. Executive Summary: This report was intended to provide recommendations to the senior leadership of the Army "to guide development of Army and RC policies and programs for the institutionalization of the RC as part of the operational force, and for employment of the force over the next decade." It looks at AC/RC mix from several perspectives, including balancing capabilities between the AC and RC, between the operating force and the generating force, and between deployments and dwell. It generally supports ARFORGEN as a model for resourcing and sourcing Army requirements, but argues that it needs to be more automated and better synchronized. The authors develop and analyze three AC/RC mix alternatives, and provide summary data on cost drawn from other works. Findings: "Maintaining this careful balance of accomplishing daily missions, ensuring readiness for unplanned contingencies, protecting the All-Volunteer Force, and improving future capabilities will require the Army to institutionalize a cultural change from viewing the RC solely as a reinforcing force to viewing RC units as an operational component of the Total Army that complements AC units by providing capability packages." "For the RC to perform its role and achieve even higher levels of readiness with lesser periods of pre-deployment training, it must be structured, trained, and manned accordingly. The structure should, in addition to building necessary complementary capability packages for conflict, build those capabilities that can be sustained at higher readiness levels in an inactive duty status and deployed with a minimum of pre-deployment training. Largely, the panel views the current structure of the RC as healthy and about right. But more can be done." "Some have argued that the Army's dependence on the RC over the past 20 years somehow violates the RC's purpose and highlights a weakness in the Army. The Panel rejects this argument." "A short 9 years ago the RC was largely viewed as a force of second choice for Army missions. Today, the RC has proven its worth and necessity to current operations and demonstrated a strong capability to contribute further in the future. The experience and adaptability of the RC make it fully capable of operational employment at costs comparable to the AC, yet maintained at much lower expense when not mobilized during periods of reduced operational tempo." Proposes 3 alternatives to supplying the forces needed under an ARFORGEN scenario necessitating rotational availability of 1 corps, 4 divisions, 15 brigades and 72,000 enablers. Alternative 1: An all AC sourcing solution (i.e., no RC used). Alternative 2: An AC and RC sourcing solution that is roughly based on current practice. "Requirements are filled with AC forces first, and the delta of about 37,000 [personnel] is filled with RC forces resourced at a high level or readiness as they leave the Ready pool and enter pre-deployment training in the Available pool." Alternative 3: A "hybrid" solution which provides about 37,000 RC personnel, but allocates AC and RC forces into two Deployed Expeditionary Force (DEF) "bands" and three Contingency Expeditionary Force (CEF) bands. The bands would have different purposes, resourcing levels, and training readiness goals throughout the ARFORGEN cycle. Analysis of these 3 alternatives led to the following conclusions: "Alternative 1 (all AC) is not feasible because it causes too much turbulence in realigning operational and support skills and probably is not affordable given the cost of increased end strength necessary to embed those skills in the AC." "Alternative 2 is doable—it is essentially the current model—but is high cost." "Alternative 3 represents a hybrid approach that, we believe, best leverages the considerable investment that has been made in RC readiness, is cost-effective, and provides flexibility." "The Panel strongly believes that both the business and operational cases provided for continued use of the RC but at a lower and more predictable level. Putting these capabilities 'on the shelf' and not using them unit the next 'big war' will not only ensure that they atrophy, but also will reduce the return on the considerable investment the Nation has made. More importantly, the AC will most likely be unable to meet these demands without a considerable redistribution of operational and sustainment skill sets." " ... our assessment is that the RC is affordable and sustainable as an integral member of the operational force. Providing this assessment in terms of a detailed cost-benefit analysis is a challenge beyond the scope of this report." Provides a table outlining four studies on cost of the RC, comparing RC costs to AC costs broken out by costs when not activated, when deployed, and when used as part of the ARFORGEN cycle. According to the table, the RC costs between 24-33% of the AC when not activated; 95-100% of the AC when deployed; and 77-104% of the AC as part of the ARFORGEN cycle. Study Methodology: This study was directed by the Secretary of the Army, John McHugh, and the Chief of Staff of the Army, General George Casey, in June 2010. The report was completed in November 2010. The purpose was to provide for "a review of the principles, policies, and assumptions governing the employment of U.S. Army Reserve Components (Army National Guard and Army Reserve) in an era of persistent conflict where sustained commitment of U.S. ground forces is the norm." (p. 64) The review was conducted by a panel composed of three retired general officers: General Dennis Reimer (former Army Chief of Staff), Lieutenant General Roger Schultz (former Director of the Army National Guard), and Lieutenant General James Helmly (former Chief of the Army Reserve). The methodology was essentially interviews and a literature review: "To achieve the aims of this review, the Panel conducted numerous personal interviews with key civilian and military leaders inside and outside the Army ... The Panel also reviewed recent and ongoing studies related to operationalizing the RC." Potentially Contentious Issues: The report essentially accepts current (2010) Army structure, including RC structure, as a given. It does not assess any large scale changes in AC or RC structure and asserts that, at least with respect to transferring RC structure to the AC, such changes would be disruptive. This might be contentious for those who advocate substantial changes in AC/RC force mix (including both those who advocate increasing the ratio of AC forces and those who advocate increasing the ratio of RC forces). The recommendation to restructure the RC to build capabilities that can be sustained at higher readiness levels in an inactive duty status implies a focus on lower echelon and support-type units, rather than higher echelon combat forces. This could be controversial for the ARNG, which has a substantial amount of higher echelon, combat structure. With regards to AC/RC mix, the report focused primarily on the question of increasing the ratio of AC forces. While this might have been the dominant concern in 2010, there has been greater focus recently on increasing the ratio of RC forces, potentially limiting the value of its AC/RC mix conclusions. The report assumed that "Zero real growth will occur in the Army's top-line total obligating authority." Changes in Army obligating authority that diverge from this assumption could call into question certain conclusions. The cost table in Chapter 5 provides little detail on the methodological underpinnings of the four studies cited. CRS did not have copies of three of these reports (the Army PA&E report is discussed below). Thus, it is difficult to evaluate the utility of this table. For example, for these three reports, it is not clear precisely which costs elements were included or whether pre-deployment training was included in the costing for rotational deployments under ARFORGEN. D. Comprehensive Review of the Future Role of the Reserve Component, Volume I: Executive Summary and Main Report Executive Summary: This study examines all services, not just the Army. From the report: During a decade of sustained engagement in combat operations, the Reserve Components of our Armed Forces have been transformed, both practically and philosophically, from a strategic force of last resort to an operational reserve that provides full-spectrum capability to the Nation. Repeated combat deployments, as well as peacekeeping and humanitarian relief missions, have produced an operationally savvy and resilient force that fully expects to be employed on a periodic basis. This new force represents a ten-year investment in resourcing commitments and the personal sacrifice of service members and their families. That investment can reliably provide the Department of Defense with essential operational capabilities and strategic agility. Good stewardship demands that we continue to capitalize on this investment. This report provides background and recommendations to inform decisions regarding the future role of the Reserve Component that are consistent with the 2010 Quadrennial Defense Review Report. (p. 1). Findings: The study contains 20 pages of detailed findings and recommendations. A summary of these findings and recommendations includes Importance of the Reserve Component (RC) : The RC provides cost-effective operational forces that can be used on a regular basis and to ensure strategic depth for mid to large-scale contingencies or other unanticipated national crises. When rebalancing the force, the National Guard and Reserve should be a "force of first choice" for those tasks for which they are particularly well-suited, owing to their cost-effectiveness and skill sets. Missions that follow a predictable, operational schedule meet this criterion. Establishing a Common DOD Costing Methodology for the Total Force : Services use cost methodologies that are in line with their respective business models. Services do use some common cost-estimating methodologies (personnel composite rates and the Contingency Operations Support Tool (COST)) but cost estimating tools for different types of missions, operating profiles, and accounting systems vary greatly. In view of these findings, the report recommends that DOD make the following adjustments: Refine existing methodologies to accommodate a long-term view beyond the current Future Years Defense Plan (FYDP) and better compare full-time and part-time personnel, operating, and life-cycle costs, both on an individual and unit basis. Update existing methodologies to reflect emerging operational parameters and as assumptions on how the force will be used change. In conjunction with the Office of Cost Assessment and Program Evaluation (CAPE), develop methods to compare costs of similar capabilities across different services. Develop methods to identify and allocate overhead costs equitably for full and part-time forces and estimate costs for supporting remote and distributed reach back centers, such as the Joint Reserve Intelligence Centers. Using the Guard and Reserve to Best Advantage : RC is best suited for missions and tasks that are predictable, relatively consistent, and benefit from long-term personnel and geographic relationships. Force generation processes should consider providing predictability to RC units for those missions requiring regional expertise, as well as Homeland Defense or Defense Support to Civil Authorities missions. Roles for Which the Guard and Reserve are Well Suited : The RC is well suited to provide strategic depth in the following mission areas: Rotational units for Combatant Commander needs and service requirements. As units or teams to support Combatant Commander Theater Security Cooperation and Building Partner Capacity activities world-wide. Individual augmentees. Units or teams to support Homeland Defense or Defense Support to Civil Authorities, missions as well as to support Governors in state security missions. Units, teams, and individuals assigned to support DOD or service institutional needs. Options for Rebalancing the Total Force: As the services manage their Active and Reserve Components as part of a Total Force, they might wish to consider: Using RC to build force structure in cases where Reserves are particularly well-suited and cost is a consideration. Assigning some recurring operational missions to the RC when these assignments are more cost-effective than using an AC unit. Establishing habitual relationships between specific Guard and Reserve units with Combatant Commands and other DOD service components to develop long-term planning and training relationships. Establishing national or regional RC units staffed with personnel willing to serve on Active Duty more frequently or for longer duration than typically expected of Reservists. Fulfilling demands imposed by emerging needs such as cyber defense; intelligence, surveillance, and reconnaissance (ISR); countering weapons of mass destruction (WMD), regional engagement, and Homeland Defense or Defense Support to Civil Authorities missions. Increasing integration of AC and RC forces into "blended units" with some units being predominately AC and others being predominantly RC. Assigning some institutional support tasks that are the responsibilities of the secretaries of the military departments to RC units, teams, and individuals. Providing for a Trained, Equipped, Available, and Ready Guard and Reserve. DOD needs to change the way it recruits, equips, trains, employs, and cares for its RC personnel. Necessary Revisions to Law, Policy, and Doctrine. If the RC is employed as part of the operational force selected parts of Title 10 of the United States Code, DOD policy and service doctrine will need to be changed. Study Methodology: This report was prepared by the Office of the Vice Chairman of the Joint Chiefs of Staff (JCS) and the Office of Assistant Secretary of Defense for Reserve Affairs as directed by the 2010 Quadrennial Defense Review (QDR). Analytical support for the study was provided by the U.S. Army War College, the Johns Hopkins University Applied Physics Laboratory, and the Institute for Defense Analysis (IDA). It was a six-month collaborative effort of the Office of the Secretary of Defense (OSD), the Joint Staff, Combatant Commands, and the military services. The study does not address the absolute cost of each Service's Reserve Component but it "makes clear the value of those organizations." Potentially Contentious Issues: The report strongly argues for using the reserves as a "force of first choice" in certain circumstances: When rebalancing the force to meet future national security challenges, the Guard and Reserve should be a "force of first choice" for those tasks for which they are particularly well suited, owing to their overall cost-effectiveness and the skill sets that they can provide. Missions that follow a predictable, operational schedule fall clearly into this category. (p. 5) While using the RC "for those tasks for which they are particularly well suited" can be viewed as a prudent recommendation, attributing this to their "overall cost-effectiveness" appears problematic as the report does not establish RC cost-effectiveness relative to the AC. This report essentially takes it as a given that the RC is more cost-effective in many unspecified circumstances and uses this assertion as a major argument to support many of its recommendations. Using RC forces for missions that follow a predictable operational schedule is also a central theme of the report. The implication here is that RC forces are not as useful for immediate or quick action combat roles (for example, the initial attacks on Afghanistan in 2001 or a response to an attack on South Korea). This is distinct from using the RC to conduct combat operations if sufficient time were available to adequately train and resource the units. E. Reshaping the Army's Active and Reserve Components, 2011. Executive Summary: During the Cold War, the RC was viewed as a strategic reserve—"an expansion force and a repository for capabilities that might be needed in support of major combat operations." As a result of operational demands for wars in Iraq and Afghanistan, the RC was reorganized as an operational reserve, with an expected activation time of one year every six (1 to 5 dwell time). Because of the new demands placed on the RC, the Army made changes to AC and RC forces, adjusting and rebalancing authorizations within and across components. This study's goal was to assess the Army's utilization of AC and RC units and to analyze policy options to adjust the balance and mix of forces. The study looked at three underlying questions: (1) are some soldiers being deployed/mobilized more than others and which occupational categories are most heavily and least heavily deployed/mobilized?; (2) do these rates of utilization exceed the planning objectives set by DOD?; and, (3) how much could high utilization rates be decreased if the Army rebalanced its forces from low utilization forces to high utilization forces? The study also identifies cost as a factor in assignment of missions and capabilities to the AC and RC. The study suggests if AC and RC units are equally effective in performing a mission, the mission should be assigned to the most cost-effective component. However, the study recognizes there are differences in capabilities and task efficiency between AC and RC units and this should also be considered along with cost. Noting that there are several different ways for analysts to measure relative cost of the RC, the study suggests these different approaches can lead to different conclusions. Relative cost is also sensitive to assumptions made by the analyst. Using the "traditional approach" of comparing component end strength to appropriations, the report suggests that the cost advantages of the RC are most prominent for strategic depth achieved by placing capabilities in the RC. These capabilities serve as an "insurance policy" for unanticipated missions and the cost of this insurance is lower if these capabilities are in the RC instead of the AC. The report also suggests that cost-effectiveness for the AC and RC is maximized when capabilities are actually used. In the AC, full-time services are cost-effective when used on a full-time basis, while the fixed-costs of part-time RC personnel are spread out over more days if RC personnel are "busy." On the other hand, the approach detailed by Klerman "suggest[s] that, for brigade combat teams, there are unlikely to be significant cost savings from placing operational capabilities in the RC instead of the AC. Rather, the baseline estimates suggest that the costs are roughly identical ... the implication is that any rebalancing of operational units should be done for reasons other than cost." Finally, the study points out that the RC provides additional value not captured in traditional cost data. For example, the RC provides the opportunity to serve for those who do not wish to serve full time. In addition, RC members have civilian expertise and perspective not available to AC personnel. Finally, using the RC provides a link between otherwise distant Army operations and the public at large, perhaps bolstering public support for the operation—the supposed intent of the so-called Abrams Doctrine. Findings: This study poses four questions to policy makers considering any reshaping of the Army's AC and RC: Are high-utilization skills likely to be in high demand in the future? If high utilization skills are likely to be in high demand in the future, they are candidates for rebalancing. If not, current demand is temporary and analysis suggests that the force as currently configured can sustain above-average utilization. Are there significant risks associated with too little strategic depth in high-utilization skills? Even if high-utilization skills are not likely to be in high demand in the future, policy makers might determine that the risk of too little strategic depth is significant enough to warrant rebalancing. Will converting billets from low-utilization skills result in a significant decrease in the ability to meet the demand for those skills? If converting billets from low-utilization skills results in a significant decrease in the Army's ability to meet demand, policy makers might wish to identify other options. Are there significant risks associated with less strategic depth in low-utilization skills? Policy makers need to identify if there is risk associated with less strategic depth in low-utilization skills. If not, these skill areas are candidates for rebalancing. More generally, policy makers should determine if risks associated with less strategic depth in low-utilization skills are fewer or greater than risks associated with too little strategic depth in high-utilization skills. There are additional insights offered in this study. The report finds that despite RAND-developed data on deployment, activation, utilization, and dwell times, DOD does not have a well-developed predictive model for deployment and utilization of individuals. It also concludes that any decisions about reshaping the Army should be based, in part, on future demands; but that any predictions of the future are inherently speculative and entail a degree of risk. Analysis also suggests the Army Reserve is the most unbalanced of the components, based on the extent to which its members in high-utilization career fields are mobilized. Also noted in the study, servicemembers in low-utilization career fields are still performing necessary duties. Converting all of these personnel into a higher-utilization career field may result in a skills shortage if utilization patterns shift. Study Methodology: This study, conducted by RAND, was sponsored by the Office of the Secretary of Defense, Cost Analysis and Program Evaluation (CAPE). The study measured the utilization for each career field in the Active Army, Army National Guard, and Army Reserve. In addition, the study identified high-utilization and low-utilization career fields for all three Army components and suggested how these career fields might be rebalanced. Potentially Contentious Issues: RAND's findings were based on Army data from September 2001 and the study completion date in 2011. It can be argued the Army's missions during this time period were somewhat atypical and ran the gamut from brief force-on-force combat, to security assistance, to counterinsurgency. The data collected and analyzed by RAND, while useful, is directly relevant only in predicting utilization of forces should these types of operations be conducted on a similar scale and scope in the future. In the case of a protracted major regional conflict, the rebalancing insights offered by RAND could prove irrelevant and, therefore, represent an element of risk. This observation reinforces the RAND-identified need for "a well-developed predictive model for deployment and utilization of individuals" that includes data from a full spectrum of Army operations, not just the recent experiences in Iraq and Afghanistan. Given the aforementioned caveat about data drawn from deployments and operations in Iraq and Afghanistan, RAND's analysis of high-utilization and low-utilization career fields in the Active Army, Army National Guard, and Army Reserves suggests that chemical operations and medical and health care career fields are low-utilization career fields in each of the three components. While the lack of utilization of nuclear, biological and chemical defense specialists is understandable, given the nature of the two conflicts, the low utilization of medical and health care personnel could warrant additional detailed study. F. AC/RC ARFORGEN Costing Model, 2012 Executive Summary: This PowerPoint briefing was provided to CRS by the Army G-8 Programs Analysis and Evaluation (PA&E) branch in response to a CRS request for a briefing on Army AC/RC costing and force structure mix studies. The task of this study is limited in scope—to determine the comparable costs to provide like AC and RC units in an ARFORGEN cycle. Because this analytic study takes the form of a Power Point briefing, there was no Executive Summary or a "Bottom Line Up Front" (BLUF) slide that typically is part of Army briefings. Findings: With regard to personnel and Operations and Support (O&S) costs for AC and RC units going through the ARFORGEN process ("pipeline"): In general, RC ARFORGEN pipeline costs are lower for Personnel and O&S. Personnel, O&S, and equipment reset costs for an ARFORGEN-equivalent cycle for units that will be deployed compare the AC at $1.00 to the RC at a range of $0.71 to $1.02, depending on unit type. Cost differential is greatest in units with lower equipment operating costs. The 12-month limit on RC unit mobilization can, when demand is high, cause the RC to provide more units over time at increased cost. Cost to operationalize the RC relative to personnel and O&S costs is small—about 2%-3% of the total ARFORGEN cycle cost for any given unit type. With regards to equipment value and costs: Equipment recapitalization costs can be a significant factor for equipment-intensive units. For the Army National Guard (ARNG), the benefit of Critical Dual Use (CDU) equipment for Title 32 has an additional advantage as the percentage of CDU in ARNG is 25%-94% as a cost of unit equipment. High cost and complex units such as Armored Brigade Combat Teams (ABCTs), Stryker Brigade Combat Teams (SBCTs) and Combat Aviation Brigades (CABs) have more expensive pipeline costs for the RC, especially if demand is low. However, the RC remains a cost-effective measure to preserve strategic depth as an RC unit can be available in months vice years (e.g., it takes five to seven years to build a new active duty CAB). Study Methodology: In addition to Army PA&E, study participants included the Army National Guard and Army Reserve, the Army G-3/5/7 and the G-8 Quadrennial Review (QDR) office. Units examined include the following: Armored BCTs (AC and Army National Guard) Infantry BCTs (AC and Army National Guard) Stryker BCTs (AC and Army National Guard) Combat Aviation Brigades (AC and Army National Guard) Engineer Battalions (AC, Army Reserve, and Army National Guard) Civil Affairs Battalions (AC and Army Reserve) Medium Truck Companies (AC, Army Reserve, and Army National Guard) Military Police Companies (AC, Army Reserve, and Army National Guard) Cost estimates for these units are provided for a variety of ARFORGEN deployment scenarios. These estimates could serve as useful benchmark costs for future Army cost and AC/RC force mix studies. Potentially Contentious Issues: While the cost elements used in this study appear to be fairly broad, the briefing slides do not include a detailed discussion of methodology. As a result, it is not clear how various figures are determined. It also appears that the study assumed two months of post-mobilization training for deploying reserve units. While this might be appropriate for battalion and smaller units, some might question this for brigade combat teams. It is not entirely clear from the slides, but it appears that the cost ratios cited are for one active and one reserve unit over the course of an entire ARFORGEN cycle, rather than the cost to sustain one active and one unit "boots on the ground" in a deployed location. If this is the case, it may understate the cost of reserve units by omitting the cost factors associated with limits on reserve rotation policy (that is, a reserve unit which is activated for a year can typically spend 9 or 10 months "boots on the ground," thus necessitating more than one reserve unit to equal the output of an active unit which serves 12 months "boots on the ground"). G. Sustainable Pre-eminence: Reforming the U.S. Military at a Time of Strategic Change. Executive Summary: From the report: Maintaining the U.S. military's global preeminence is vital to protect American interests and promote American values. Yet, in order to sustain U.S. military pre-eminence in an emerging strategic environment characterized by new threats and constrained resources, the Department of Defense (DOD) will need to organize and operate America's armed forces in new ways. In early 2012, DOD released new strategic guidance and a corresponding budget reflecting $487 billion in cuts over 10 years as imposed by the 2011 Budget Control Act. The guidance directs the U.S. military to prioritize the Asia-Pacific and greater Middle East. However, the Pentagon still has not enacted the types of reforms that we believe are necessary to sustain U.S. military pre-eminence into the future. Too many DOD structures, processes, programs and operational concepts are legacies of the past, which create unnecessary redundancies, waste valuable resources and encourage unproductive competition among the services rather than cooperation. These practices are no longer acceptable in the current fiscal environment. Regarding the AC/RC mix: To accommodate budget cuts and the end of two major ground wars, the Army should shrink to about 480,000 active-duty troops and continue its plans to reset the force after wartime operations. It should transfer up to one-quarter of its active component armored brigades to the reserve component, and mandate more lateral personnel assignments between the active and reserve components. Findings: The primary Army force structure-related recommendation of this report is to "shrink to 480,000 active- duty troops, transfer up to one quarter of its AC armored brigades [ABCTs] to the RC, and mandate more lateral personnel assignments between the AC and RC." To support this recommendation, the study notes: DOD has announced that the planned end strength of the Army will decrease from 520,000 to 490,000 active-duty soldiers by 2017. DOD should further reduce Army end strength, to about 480,000, by downsizing redundant headquarters and overhead support and shifting some capabilities to the Guard and Reserve. These changes will incur minimal risk to the force and the capabilities of the nation. A force of about 480,000 would replicate the size of the Army before the attacks of September 11, 2001, but would possess much greater capabilities. The Army-wide reorganization of combat forces into highly capable brigade combat teams (BCTs), now robustly outfitted with combat-proven weaponry and equipment, makes today's Army substantially more capable than its predecessors. Furthermore, since DOD will have to accept risk in certain areas to reduce its budget, it should accept the risks that result from trimming ground forces because they can be reconstituted more rapidly than either air or naval forces in the event of a crisis. The Army should adjust the balance between its active and reserve components, relying more on the reserves for key roles and missions. Reserve formations are highly capable and are significantly less expensive to maintain than active forces. Their costs only rise to the level of active forces when activated for full-time duties. The Army should migrate as many as one-quarter of armored brigades found in the active component today to the National Guard. After all, the invasion of Iraq—which still had a sizable army in 2003—only required three U.S. Army armored or mechanized brigades alongside their U.S. Marine and British counterparts. Today, the U.S. Army has 17 of those brigades in the active force alone. Moving four of those brigades to the Army National Guard would save considerable resources, assuming they are employed sustainably, while still enabling the Army to react quickly and effectively to any threats that require those capabilities. The Army should develop a robust program of lateral personnel assignments between the active and reserve components to ensure continued readiness. Regularly exchanging officers and NCOs between active and reserve would strengthen the readiness of reserve formations to move rapidly into active operations if required. Army National Guard officers should be able to move onto active duty to command companies or serve on staff, and active officers should be permitted to shift to reserve status and serve as staff officers or commanders in reserve units—perhaps as part of a broader professional development program. Doing so would support the concept of reversibility and help ensure that the Army maintains one readiness standard, while continuing to break down the cultural barriers between the active and reserve components. Study Methodology: This report was published by the Center for a New American Security (CNAS) as a part of its ongoing project titled "Responsible Defense at the Center for a New American Security." This project examines how the U.S. should maximize its national security in an era of defense spending reductions. The first report in this project, "Hard Choices: Responsible Defense in an Age of Austerity," was published in October 2011. Potentially Contentious Issues: There are several assertions in this report that might be considered contentious. The CNAS study cites both the military and cost-effectiveness of RC forces—"Reserve formations are highly capable and are significantly less expensive to maintain than active forces"—noting that the cost of the RC rises only when they are activated. The citation supporting this assertion notes: The comparative cost of active versus reserve component units is a subject of continual debate. The 2010 Quadrennial Defense Review concluded that effective use of the National Guard and Reserves "will lower overall personnel and operating costs, better ensure the right mix and availability of equipment, provide more efficient and effective use of defense assets, and contribute to the sustainability of both the Active and Reserve components." Upon examination, the citation from the Quadrennial Defense Review (QDR) does not appear to fully support the assertion; the quotation notes only that comparative costs between the AC and RC are the subject of debate and that the effective use of the RC will lower personnel and operating costs. There is no quantification of these savings, nor are personnel and operating costs the only costs that could be considered. Similarly, data that demonstrate the capabilities of reserve formations are not provided, particularly in comparison to active forces. This is significant, because the report recommends moving four ABCTs from the AC to the RC, and some would argue that National Guard ABCTs are significantly less effective than AC ABCTs due to the highly sophisticated weapon systems in an ABCT and the limited training time National Guard units have to master the employment of these systems for combat. H. Eliminating Gaps in DOD Data on the Fully-Burdened and Life-Cycle Cost of Military Personnel: Cost Elements Should be Mandated by Policy. Executive Summary: The Reserve Forces Policy Board (RFPB) "found that the Department does not know, use, or track the fully-burdened and life-cycle costs of its most expensive resource—its military personnel. Thus, major military manpower decisions are uninformed by the real present and future costs." According to the report, this data is important for decisions regarding the optimal mix of Active and Reserve forces, but previous Active-Reserve costing studies varied widely in the cost elements used to make comparisons. The RFPB report presents a methodology which, it argues captures the "fully-burdened" costs of AC and RC forces on a "per-capita" basis so that senior leaders can "make more fully-informed decisions about the long-term sustainability of the All-Volunteer Force and the future mix of Active and Reserve Component Forces." Although "life-cycle" costs are mentioned, no specific life-cycle cost methodology is proposed; rather, the report proposes that DOD develop such a model in light of previous work done by the Air Force Reserve and Jennifer Buck, a former Deputy Assistant Secretary of Defense for Reserve Affairs. Findings: "The Department of Defense has no policy in place to define or require complete analytical data for the comparison of Active and Reserve Component cost to determine Total Force mix options. As a result, senior leaders within DOD do not have complete or uniform data on the total costs associated with such forces. Therefore, decisions about the optimal mix of future Active and Reserve Component forces are not fully informed, and an 'apples to apples' comparison is not possible." " ... the services were neither complete nor consistent in the use and consideration of the various cost factors in determining Reserve Component costs. All components (predictably) used personnel costs such as Basic Pay and Housing Allowances in their costs analysis, but there was wide variance in the use of many other costs factors. No component consistently took into consideration the military-related costs borne by other federal agencies such as the Departments of Education, Treasury, Labor or Veterans Affairs." (p. 12) The DOD Deputy Comptroller's "Composite Rates" for full-time manpower includes a limited number of cost elements, but "The annual cost memo includes a statement that says, 'the composite standard pay rates will be used when determining the costs of military personnel for budget/management studies.' This guidance is in clear conflict with [Directive Type Memorandum] 09-007 (draft DOD Instruction 7041.dd) which states 'the DOD composite rates, as published by the [DOD Comptroller], used to calculate manpower costs for program and budget submissions do not account for the full costs of military or DOD civilian personnel ... For this reason, composite rates should not be the only source of data used when answering questions about the cost of the defense workforce, making workforce-mix decisions, or determining the cost impact of manpower conversions.'" "The current DOD Directive (DTM 09-007), and the DODI to replace it (DODI 7041.dd) does NOT include all relevant cost factors." "The retirement and health care costs for RC forces as compared to their AC counterparts are far lower. The RFBP believes that DOD needs to have improved visibility on these costs over the long term. To assist the Department with the development of a life-cycle model, the Board provides two specific examples that already exist where life-cycle costs are examined and modeled." The costs which should always be included in "any study conducted or contracted by the Services or other DOD component for the purposes or comparing the costs of active and reserve component personnel or forces" are: basic pay, retired pay accrual, allowances, special and incentive pay, PCS costs, and Medicare-Eligible Retiree Health Fund contribution, DOD healthcare costs, DOD and Department of Education dependent education costs, DOD and Service family housing costs, DOD commissary costs, Treasury contributions for concurrent receipt, and base operations support costs. The costs that should be considered for inclusion in such studies are: Treasury contribution to MERHCF [the Medicare-Eligible Retiree Health Fund ] and military retirement fund, the budget for the Department of Veterans Affairs, the Department of Labor's Veterans Education and Training Service, and "service-level non-compensation costs such as Other Operations and Maintenance, Procurement, Military Construction, Research and Development, and training costs.... " The fully-burdened, per-capita, cost to the U.S. government in FY2013 was $384,622 for Active Component personnel and $123,351 for Reserve Component personnel. These figures include not only costs associated with compensation—funded by DOD and other federal agencies—but also DOD procurement, operations and maintenance, military construction, and RDT&E. If only DOD compensation costs are included, the cost is $108,307 for AC personnel and $34,272 for RC personnel. Adding the compensation related costs from other federal agencies (e.g., Treasury, Veterans Affairs, Labor, and Education) to the DOD compensation costs increases the figure to $162,586 for AC personnel and $57,242 for RC personnel. Study Methodology: Costing experts from all the services and components "reviewed previous costing studies, then identified the various fully-burdened and life-cycle individual cost elements and developed options and recommendations for use."(p. 10) This work was vetted by active duty and reserve leaders from each of the military services, key decision makers in the Office of the Secretary of Defense (OSD), and subject matter experts within and outside the Department of Defense (p. 10, slide 15). The result of this process was a list of costs that should always be included in manpower cost studies and others that should be considered for inclusion. Potentially Contentious Issues: The report mainly focuses on average annual costs associated with "traditional" reserve duty (i.e., drilling reservists and AGRs) to the costs of active component forces. It does not address differential costs by community (e.g., those reserve unit with higher training demands) nor does it regularly factor in reserve costs associated with periodic mobilization. Slide 37 does contain a "Notional AC/RC Fully Burdened / Life Cycle Cost Illustration based on work by Jennifer Buck" which, assuming a notional reservist is mobilized four times over a career, estimates a life-cycle cost of an AC member at $10.3 million and an RC member at $4.8 million. However, the relationship between these costs and an output such as "days deployed" is unclear. The report also suggests inclusion of some costs that have not historically been linked to personnel costs—procurement, RDT&E, military construction, and large parts of O&M—and allocates those costs between the AC and the RC in ways to which some may object. For example, it allocates procurement costs almost exclusively to the AC and does not appear to factor in each Service's provision of equipment to their respective reserve components. Allocation of certain O&M and military construction costs could also be criticized as inadequately reflecting the comparative consumption of these resources by AC and RC forces. Some might object to the way in which the costs of veterans' benefits are determined. The average cost of veterans' benefits is determined by taking the total VA budget and the veterans education and training budget of the Department of Labor (about $140.5 billion) and dividing by the total number of veterans (22.2 million), to generate a cost per veteran of $6,200 per year. It adds this figure equally to its cost estimate for active and reserve personnel. This methodology may incorrectly estimate the cost of veterans' benefits for currently serving personnel, who may be entitled to different benefits than previous generations of veterans (for example, in the area of educational benefits). Additionally, as the report notes, there may be differences in the consumption of veterans' benefits by active and reserve personnel which, if true, would argue against allocating these costs equally to active and reserve personnel. Some elements of "fully burdened and life cycle costs" may be less sensitive to changes in force mix than others. For example, changes in AC manning levels may result in changes to health program costs that are proportionately lower than changes in cash compensation costs, due to the overhead and infrastructure associated with the former. This can generate a differential between cost projections based on the cost estimate used and actual costs when modifying the force mix. I. National Defense in a Time of Change, February 2013. Executive Summary: From the paper: The current international order provides an opportunity for U.S. policy makers to put the defense budget in order, and the long-term federal budget outlook makes seizing this opportunity essential. Defense spending has come under scrutiny during budget negotiations; most recently, the Budget Control Act of 2011 (BCA) calls for reductions of $500 billion in defense spending over the next ten years. Although defense can and should contribute to spending reductions, the BCA's across-the-board cuts would significantly impair the U.S. military's ability to execute its duties. Instead, responsible reductions in defense spending should be spread more practically across a ten-year period and be designed to strategically focus on the threats we are likely to face and to address internal pressures in the defense budget. Certain internal cost pressures in the defense budget make reductions in spending especially difficult, but unless these areas of cost growth are addressed, they will crowd out spending in other areas and begin to remove military capacity and capability. This paper lays out a strategy to address these challenges in three parts: (1) Design a force better aligned to face future challenges, (2) Improve the efficiency and efficacy of the acquisition system, and (3) Control rising personnel costs. (4) Together, these reforms set the stage for a sustainable defense budget—one that preserves our capability both to face challenges in the near future and to rebuild as new challenges arise. Findings: Army force structure-related recommendations from the paper: The active duty Army would be reduced by 200,000 soldiers from the 490,000 planned in the FY2013 budget, with an increase of 100,000 reservists and National Guardsmen closely entwined in the regular rotation whose principal mission would be arriving in a mature theater for sustained combat. Putting more of the responsibilities for ground combat into the combat-proven reserve component is both consistent with the new demands of the evolving international order and justified by the superb performance of National Guard and reserve units in our recent wars. Study Methodology: From the paper: This discussion paper is a proposal from the authors. As emphasized in The Hamilton Project's original strategy paper, the Project was designed in part to provide a forum for leading thinkers across the nation to put forward innovative and potentially important economic policy ideas that share the Project's broad goals of promoting economic growth, broad-based participation in growth, and economic security. The authors are invited to express their own ideas in discussion papers, whether or not the Project's staff or advisory council agrees with the specific proposals. This discussion paper is offered in that spirit. Potentially Contentious Issues: This paper is billed as a "discussion paper" and, in that regard, can be viewed as simply a collection of creative ideas as opposed to an analytical undertaking. In this regard, the recommendations in this paper can be viewed as contentious due to the lack of strong analytical underpinnings. With regard to Army force structure recommendations, this paper recommends a wide scale change—decreasing the Active Army by 200,000 soldiers and increasing the RC by 100,000 soldiers. Issues such as comparative costs, availability for surge deployments, as well as capabilities are not examined. Because of the magnitude of these proposed changes, it can be inferred that such changes would carry a relatively high degree of risk, but this paper does not discuss associated risks in any degree of detail. | The Army is composed of both an Active Component (AC) and a Reserve Component (RC). The AC consists of soldiers who are in the Army as their full-time occupation. The RC is composed primarily of soldiers who serve part-time but who can be ordered to full-time duty. The Army's RC is made up of both the Army National Guard (ARNG) and the United States Army Reserve (USAR). AC/RC force mix refers to the distribution of units between the active and reserve components of the armed forces. The congressional role in AC/RC force mix is most obvious in its authorization of end strengths for the active and reserve components of each Service. Congressional authority concerning AC/RC mix, however, is much broader than that, as the Constitution provides Congress with broad powers over the armed forces, including the power to "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" and "to provide for organizing, arming, and disciplining the Militia, and for governing such Part of them as may be employed in the Service of the United States.... " Debates over AC/RC mix center on whether or not to shift force structure between the AC and the RC and, if so, what types of units to shift. Although specific force mix recommendations can be nuanced, policy advocates generally divide between those who favor a stronger AC emphasis and those who favor a stronger RC emphasis. In the contemporary debate, those who favor a stronger RC emphasis believe that RC units, if properly trained and equipped, are as capable as their AC counterparts while costing less. Thus, they argue that RC units can replace a portion of AC force structure while saving money. Those who favor a stronger AC emphasis believe that certain RC forces—particularly larger direct combat units and higher echelon headquarters—are not as capable as AC forces without substantial additional preparation; cannot respond to a crisis as rapidly as AC forces; and cannot be used with the same frequency and duration as AC forces due to policy limitations. Those who take this perspective believe that replacing too many or certain types of AC units with RC units could reduce the Army's ability to respond rapidly to an overseas crisis and sustain operations over time, or could require too much additional RC funding and training time to make such an approach cost-effective. Given the nation's current fiscal situation, the contemporary debate has shifted somewhat in favor of a higher ratio of RC forces. For example, in its FY2015 budget request, the Administration proposes that RC forces make up 54.1% of the Army by FY2017, in comparison to 53.6% just before the September 11 attacks and 49.1% when the Army was at its peak size during the Iraq and Afghanistan wars (2010). This proposal would also include a shift of the relative proportion of brigade combat teams (BCTs) towards the ARNG, although the Army's Aviation Restructuring Initiative proposes moving attack helicopters from the USAR and ARNG to the AC. Determining the appropriate mix of AC and RC forces is complex, with many factors affecting the process. Of these, utilization, readiness, effectiveness, cost, and risk are generally considered the major elements in developing the AC/RC force mix. Each of these factors is described in some detail in this report, along with questions for further investigation. As Congress considers the future AC/RC mix for the Army, it may wish to consider several approaches, including supporting Administration proposals on AC/RC mix; gathering additional information on key factors which contribute to AC/RC mix decisions; directly altering AC/RC mix; and influencing AC/RC mix by adjusting factors that contribute to mix decisions. |
The National Health Service Corps (NHSC) is a clinician recruitment and retention program that aims to reduce health workforce shortages in underserved areas. The NHSC has three components: (1) a federal scholarships program, (2) a federal loan repayment program, and (3) a state-operated loan repayment program. Under each of these programs, health providers receive either scholarships or loan repayments in exchange for a service commitment at an NHSC-approved facility located in a federally designated health professional shortage area (HPSA, see text box). Participants in the state loan repayment programs may also serve in state-designated shortage areas; federal program participants may not. NHSC-approved facilities are generally nonprofit or government-operated (federal, state, local, and tribal) organizations that provide care to patients without regard for the patient's ability to pay. The three NHSC programs are managed by the Bureau of Health Workforce (BHW) in the Health Resources and Service Administration (HRSA), an agency in the Department of Health and Human Services (HHS). The NHSC was created by the Emergency Health Personnel Act of 1970 to provide an adequate supply of trained health providers in federally designated HPSAs. Since the program's inception, Congress has reauthorized and revised the program several times, with the most recent reauthorization included in the Patient Protection and Affordable Care Act ( P.L. 111-148 , ACA). The ACA permanently reauthorized the NHSC, creating, among other things, a mandatory funding stream for the program and implementing a part-time option, which allows part-time service in exchange for an extended service commitment. This report provides an overview of the NHSC, including the program's funding, the number and types of providers the program supports, and the locations where they serve. The NHSC consists of three programs: (1) a federal scholarships program, (2) a federal loan repayment program, and (3) a state-operated loan repayment program. The federal scholarship program provides scholarships in exchange for a service commitment at the end of a recipient's education, including any training required before licensure. The two loan repayment programs provide clinicians with loan repayment in exchange for an immediate service commitment. HRSA administers the federal scholarship and loan repayment programs and provides funds to states. States match these funds to operate state loan repayment programs. The largest program is the federal loan repayment program, followed by the state loan repayment program, and then the scholarship program. The section below describes these three programs. The discussion focuses on program differences; however, the programs share a number of common elements. Specifically, all three programs require a minimum service commitment of two years in a HPSA. All are restricted to U.S. citizens or U.S. nationals, and all provide awards that are exempt from federal income and employment taxes. In addition, all three programs allow physicians, dentists, physician assistants, nurse midwives, and nurse practitioners to participate, but the loan repayment programs also permit additional provider types to participate. The three program types are described below; Table 2 presents data on the number of awards made under each of these programs. The NHSC Scholarship Program is established in Section 338A of the Public Health Service Act (PHSA). It provides scholarships—including tuition, reasonable education expenses, and a monthly living stipend—to individuals enrolled full-time in specified education programs at a fully accredited U.S. school. Eligible schools/programs include medical schools (allopathic and osteopathic), physician assistant programs, dental schools, and advance practice nursing schools. Individuals must agree to complete their training (including residency training or required clinical hours, where applicable) in primary care . For each year of scholarship support received (or partial year after the first year), students must agree to provide an additional year of service in a HPSA. For example, if a full-time service scholar receives three years of scholarship support the scholar would owe three years of full-time service at an approved facility. The number of school years of NHSC scholarship support received by the scholar may not exceed four school years. As such, through the scholarship program, the maximum required years of full-time service at an approved facility is four years. NHSC scholars begin their service commitment upon the completion of training, including any advance clinical training needed for licensure (e.g., primary care residency for physicians). Participants must also have obtained a professional license, certificate, or registration before beginning their service commitment. NHSC scholars must fulfill their service commitment on a full-time basis and are required to fulfill their service commitment in a HPSA of "greatest need." Each year HRSA determines the HPSA score indicative of "greatest need." For example, from October 1, 2016, through September 30, 2017, NHSC scholars must work at NHSC-approved service sites with a HPSA score of 17 or above for their discipline (e.g., a dental scholar is required to serve in an area with a dental HPSA score above 17). Individuals participating in the federal loan repayment program may serve part-time and may serve in areas with lower HPSA scores, but scholars may not. At the end of their service commitment, scholars may apply for continuation awards through the loan repayment program if they still have educational debt remaining and are willing to continue service at an NHSC-approved facility. The NHSC Federal Loan Repayment Program is authorized in PHSA Sections 331(i) and 338B. In addition to the list of providers who may participate in the scholarship program, dental hygienists and behavioral/mental health providers may also receive loan repayment. Loan repayment recipients must have a license or certificate needed to practice and must be employed or have accepted an offer to be employed at an NHSC-approved work site. Loan repayment is available only for "qualifying educational debt," which means principal, interest, and related expenses of outstanding government and private student loans obtained for undergraduate or graduate education for tuition, along with reasonable educational and living expenses. Federal loan repayors have a two-year service commitment, which they may fulfill full-time for two years or part-time for four. The amount of loan repayment received varies based on the HPSA score of the site where the loan repayor is employed. For full-time service at an approved site with a HPSA score of 14 or above, a loan repayor may receive amounts up to $50,000 for an initial two-year obligation. Individuals serving at a site with a HPSA score of 13 or lower may receive up to $30,000 for an initial two years of service. Loan repayment recipients may apply for continuation awards if they have educational debt at the end of their two-year loan repayment commitment. Continuation awards are awarded in one-year intervals, and individuals may apply for and receive continuation awards as long as they have qualifying educational debt and remain employed at an NHSC-approved site. In 2012, HRSA used the authority in PHSA Section 338B to establish a new program within the federal loan repayment program called the Students to Service (S2S) Loan Repayment Program. The S2S program provides assistance of up to $120,000 to medical students (allopathic and osteopathic) in their final year of medical school. In return, S2S program recipients must complete an approved primary care residency and undertake their required NHSC service in a HPSA of the greatest need for at least three years (full-time) or six years (half-time). S2S repayors may also complete a one-year fellowship in geriatrics after their primary care residency and before beginning their service commitment. In 2016, HRSA made loan repayment awards through a new program funded by the Zika Response and Preparedness Appropriations Act ( P.L. 114-223 ). This program provides up to $70,000 in loan repayment in exchange for a three-year service commitment at NHSC approved sites in Puerto Rico or other U.S. territories affected by Zika. Health professionals eligible for the federal loan repayment program are also eligible for this program. Licensed professionals in medical specialties and allied health fields who may be able to provide Zika-related care (e.g., physical therapy and certain medical specialties) are also eligible. The state loan repayment program is authorized in PHSA Section 338I. The program is similar to the Federal Loan Repayment Program, except that (1) it is a matching grant between the state and the NHSC, (2) states may choose to expand or contract the types of clinicians who are eligible to participate in their program, and (3) states may require more than two years of service in exchange for loan repayment. For example, states have the option of addressing their unique workforce needs by making additional types of professionals eligible, such as registered nurses and pharmacists, although neither of these provider types are eligible to participate in the federal loan repayment program. State loan repayors must provide care in a HPSA in exchange for their award, but states determine the approved service sites for their programs. State loan repayment participants must also serve two years as an initial commitment, but states may require longer minimum service commitments or may vary the service commitment length by provider type. State loan repayment recipients may fulfill their service commitments on a full- or part-time basis. The amount of total funds that the NHSC receives determines the number of awards that the program can make. Historically, the NHSC had been exclusively funded as part of HRSA's discretionary appropriation. However, that is no longer the case, as the program is now funded by the mandatory Community Health Center Fund (CHCF). The ACA created the CHCF and provided mandatory funding for it over a five-year period (FY2011-FY2015). The fund was intended to supplement the NHSC budget; however, from FY2012 to FY2017, it made up the entirety of the program's funding. The CHCF was initially set to expire at the end of FY2015; however, it was extended for two years (FY2016 and FY2017) as part of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA, P.L. 114-10 , CHIP is the State Children's Health Insurance Program). At the start of FY2018, no mandatory funds had been appropriated for the NHSC; however, a temporary extension ( P.L. 115-96 ) ultimately provided mandatory funding for the first two quarters of FY2018, and the Bipartisan Budget Act of 2018 (BBA 2018, P.L. 115-123 ) later provided full-year funding for FY2018 and FY2019. Amounts provided by the CHCF have also been reduced in some years as part of the mandatory spending sequester (pursuant to the Balanced Budget and Emergency Deficit Control Act of 1985, as amended). Although the program had not received discretionary appropriations from FY2012 through FY2017, it received $105 million in FY2018 in P.L. 115-141 , with funds directed toward supporting health care providers who provide opioid and other substance use disorder treatment in HPSAs. Table 1 presents funding provided for the program between FY2011 and FY2019—though amounts for FY2019 are subject to change. The table also shows the percentage of funding that comes from discretionary and mandatory sources. For FY2019, the table shows mandatory amounts already appropriated for the program, but readers should note that the FY2019 President's budget requested providing discretionary, rather than mandatory, funding for the program in that year. NHSC program size is measured in three ways: (1) funding, discussed above; (2) recruitment , which is the number of awards in different categories; and (3) field strength, which is the number of NHSC clinicians currently fulfilling their service commitments. Recruitment in a given year is generally smaller than the program's field strength because the latter includes loan repayors who are currently fulfilling their service commitments, including those who are fulfilling a second year of their service commitment, and individuals who received scholarships or S2S agreements in earlier years who have completed their required training and are currently fulfilling their service commitments. The section below discusses recruitment and field strength. From FY2011 through FY2017, the most recent year of final data available, the NHSC offered more than 39,000 loan repayment agreements and scholarship awards to individuals who have agreed to serve for a minimum of two years in a HPSA. In FY2011, the beginning of the ACA's CHCF, the NHSC received its largest appropriation to date, which increased the number of awards that the NHSC was able to make. The number of awards made has varied since FY2011, with an increase in FY2016, while the number of awards made in FY2017 was more similar to the number awarded in FY2015. Table 2 shows NHSC clinician recruitment activity for the NHSC's active programs, by type of award, from FY2011 through FY2017. The number of awards the NHSC makes at any point in time is only one component of program size, as not all awardees are currently serving as NHSC providers. Specifically, NHSC scholars and S2S program participants are still completing their training. As such, the NHSC also measures its field strength, which is the number of NHSC providers who are fulfilling a service obligation in a HPSA in a given year. In FY2017, the most recent year in which data are available, total NHSC field strength was 10,179. Field strength is a measure of both the NHSC appropriation, which affects the number of awards that can be made, and the relative balance between scholarships and loan repayment, both in the current fiscal year and in the past. The NHSC field strength has increased in recent years as the number of awards made has increased (see Figure 1 ). As of April 2018, HRSA data indicate that there were 8,256 total providers. The majority of these individuals (7,620) were loan repayors, which reflects the NHSC's prioritization of clinicians who will undertake their service commitment immediately in HPSAs. In contrast, HRSA makes scholarship awards in an earlier year, so the funding investment is not realized for several years, as the scholar completes his or her schooling and required training. Despite increased field strength, more sites are eligible to receive an NHSC provider than there are NHSC providers. Specifically, in April 2018, there were 4,605 open NHSC positions that could not be filled because the NHSC field strength was not sufficient to meet the needs of every NHSC site. The NHSC is made up of an increasingly diverse set of health professionals. The composition of the NHSC has changed over time. In FY2009, physicians accounted for nearly 35% of providers and were the largest group of providers in the NHSC. In contrast, in FY2016, they made up 21%, and behavioral/mental health providers are now largest provider types. Physicians and nurse practitioners are the next largest groups of providers. In FY2017, the most recent year for which complete data are available, the following three professional groups made up 73% of the NHSC: mental and behavioral health providers (30%), nurse practitioners, including nurse midwives (23%), and allopathic and osteopathic physicians (20%). Figure 2 shows the NHSC's workforce by provider type in FY2017, the most recent year for which complete data are available. Some individuals and professional groups have advocated for making additional provider types eligible for the NHSC. For example, legislation in the 115 th Congress ( H.R. 1378 ) would make chiropractors eligible to participate in the federal scholarship and loan repayment programs, and H.R. 1639 and S. 619 would make physical therapists eligible for the federal loan repayment program. The Consolidated Appropriations Act, 2018 ( P.L. 115-141 ), expanded eligibility for the NHSC loan repayment program to substance use disorder counselors; the law also increased NHSC funding and specified that this funding be used to support substance use disorder providers. These specifications in the law may avert a number of the potential concerns that exist with other efforts to expand NHSC eligible provider types or sites. Specifically, because the number of applicants applying for awards exceeds the funding available, past efforts to expand provider eligibility have been met with concerns that it would increase competition for the program unless there was an increase in appropriations. Moreover, adding new provider types or site type does not guarantee that newly eligible clinicians or sites would receive awards, because there are no quotas for specific numbers of providers by discipline; however, the changes in the Consolidated Appropriations Act, 2018 ( P.L. 115-141 ), specify that funds be used to support the newly added providers. Generally, NHSC awards are made competitively, with scholarships generally awarded based on participant characteristics (e.g., the participant's commitment to primary care practice and the likelihood of remaining in a shortage area after the NHSC service commitment has ended). Loan repayment awards are made based on the HPSA score of the site and on the loan repayment program participant's characteristics. Although legislation has been used to modify eligible disciplines, the HHS Secretary has some authority to add disciplines without new laws being enacted. For example, exchanges among the Secretary of HHS and the House and Senate Appropriations Committees seem to suggest that Congress recognizes the Secretary's authority to include additional disciplines in the NHSC without congressional action. For example, in 2012, the Senate Appropriations Committee urged the Secretary to offer loan repayments to pharmacists and chiropractors through the NHSC. Despite what appeared at that time to be congressional support for administrative action, in 2013, the Secretary declined to include pharmacists on the list of eligible NHSC providers. The Secretary's response to this request from the Senate Appropriations Committee was based on an interpretation that pharmacy and chiropractor services would be outside of the core intent of the NHSC to provide "primary health services." In 2015, the Senate Appropriations Committee again raised the issue of the Secretary's authority to add pharmacists, which are sometimes part of primary care teams; however, these providers remain ineligible for loan repayment. Similar conversations have occurred between HHS and the House Appropriations Committee regarding optometry. In each of these instances, HHS has not agreed to expand the program's eligibility out of concern that doing so would shift the program away from its traditional focus of providing primary care to underserved populations. HHS also emphasized that the program is currently competitive and that adding new disciplines as eligible could redirect NHSC funds away from already identified clinical shortage areas and add new ones. Another concern is that adding new providers may limit the total number of individuals served by the NHSC because the new provider types (e.g., optometrists and chiropractors) serve a narrower subset of the population than do primary care providers. Despite debates on expanding the clinicians eligible for the NHSC, Congress has, at times, clarified the range of eligible providers. For example, the 21 st Century Cures Act, enacted in 2016, clarified that adolescent and child psychiatrists are eligible to participate in the federal loan repayment program. This law, however, did not expand the list of NHSC providers. Instead, it sought to clarify that, within the existing group of NHSC-eligible psychiatrists, those who specialize in child and adolescent psychiatry are eligible to participate in the NHSC. NHSC providers may serve at a number of facility types that generally focus on providing outpatient primary care to patients regardless of their ability to pay. In addition, some NHSC provider sites generally focus on primary care, such as community mental health centers, which are more targeted to behavioral health care. As mentioned, these facilities must be located in HPSAs. NHSC eligible sites include community mental health centers, correctional facilities, critical access hospitals, facilities funded by the Indian Health Service (including those operated by Indian Tribes, Tribal Organizations, and Urban Indian Organizations), federal health centers (i.e., Federally Qualified Health Centers [FQHCs]), FQHC look-alikes, free clinics, rural health clinics, and school-based health centers. NHSC providers can be placed at facilities operated by not-for-profit organizations and by government entities (including state, local, tribal, and federally operated facilities). In addition, HRSA requires that NHSC sites are part of a system of care (e.g., have after-hours arrangements for patient care); have a documented record of sound fiscal management; have a history of using NHSC providers appropriately and efficiently; accept beneficiaries from Medicare, Medicaid, and CHIP; have a sliding scale discount schedule; and have general community support for assigning NHSC providers to the facility. More than half of all NHSC providers serve at federally qualified health centers (FQHCs), which provide outpatient—generally primary and behavioral—health care to disadvantaged populations regardless of their ability to pay (see Figure 3 ). NHSC providers also increasingly provide care at facilities funded by the Indian Health Service, including federal, tribal, and urban Indian health facilities. As of August 2017, 492 (5.4%) providers were fulfilling their service commitment at IHS-funded facilities, an increase from the 421 providers who were placed at IHS facilities as of December 2015. As mentioned, NHSC providers generally fulfill their service commitment in outpatient settings. However, some may serve at IHS-funded hospitals, and in recent years, some have fulfilled part of their service commitment (up to 24 hours per week) at critical access hospitals (CAHs), which are small hospitals located in rural areas. As of August 2017, 45 NHSC providers were serving at CAHs. HRSA requires that these providers split their time between inpatient services at the CAH (up to 24 hours per week) and outpatient services at CAH affiliated-outpatient clinics (not less than 16 hours per week). NHSC providers are located at HPSAs throughout the United States and its territories (see Figure 4 ). According to 2016 data, 23% of all NHSC providers served in rural areas. Legislative efforts have also been undertaken to expand the types of sites eligible for NHSC providers, specifically targeting facilities that could provide treatment for individuals with opioid addiction. For example, in the 115 th Congress, S. 1453 would make substance use disorder treatment facilities eligible provider sites. These facilities provide both outpatient and inpatient services, including medication-assisted treatment. Proposals to expand eligible sites may face similar challenges to proposals to expand provider types—namely that the number of sites eligible for NHSC providers exceeds the program's field strength, so adding new site types may increase the number of sites and positions that seek NHSC providers but are unable to obtain one. The NHSC collects limited data on whether NHSC providers remain in HPSAs after fulfilling their service commitments. Available data indicate that less than half (43%) remain at their service site, and nearly 80% practice in a HPSA one year after their service commitment has ended. An FY2012 study found that more than half remain in a HPSA 10 years after completing their service. These data are similar to what HRSA found in an FY2000 evaluation of the program. | The National Health Service Corps (NHSC) provides scholarships and loan repayments to health care providers in exchange for a period of service in a health professional shortage area (HPSA). The program places clinicians at facilities—generally not-for-profit or government-operated—that might otherwise have difficulties recruiting and retaining providers. The NHSC is administered by the Health Resources and Services Administration (HRSA), within the Department of Health and Human Services (HHS). Congress created the NHSC in the Emergency Health Personnel Act of 1970 (P.L. 91-623), and its programs have been reauthorized and amended several times since then. The Patient Protection and Affordable Care Act of 2010 (ACA; P.L. 111-148) permanently reauthorized the NHSC. Prior to the ACA, the NHSC had been funded with discretionary appropriations. The ACA created a new mandatory funding source for the NHSC—the Community Health Center Fund (CHCF), which was intended to supplement the program's annual appropriation. However, between FY2012 and FY2017, the CHCF entirely replaced the NHSC's discretionary appropriation. For FY2018, the NHSC received $105 million from discretionary appropriations in P.L. 115-141 to support awards to expand and improve access to opioid and other substance use disorder treatment providers. The law also reserves $30 million from the $105 million for the new Rural Communities Opioid Response initiative administered by the Federal Office of Rural Health Policy within HRSA. For FY2018, CHCF funding represents 75% of the program's appropriation. The CHCF is time-limited. Initially an appropriation from FY2011 through FY2015, the CHCF was subsequently extended in the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA, P.L. 114-10) through FY2017 and then extended for an additional two years (i.e., through FY2019) in the Bipartisan Budget Act of 2018 (BBA 2018, P.L. 115-123). From FY2011 through FY2017, the most recent year of final data available, the NHSC offered more than 39,000 loan repayment agreements and scholarship awards to individuals who have agreed to serve for a minimum of two years in a HPSA. In FY2017, the NHSC made 5,711 awards. The number of awards the NHSC makes is only one component of program size, because not all awardees are currently serving as NHSC providers; some are still completing their training (e.g., scholarship award recipients). As such, the NHSC also measures its field strength: the number of NHSC providers who are fulfilling a service obligation in a HPSA in a given year. In FY2017, total NHSC field strength was 10,179. NHSC providers are currently serving in a variety of settings throughout the entire United States and its territories. The majority of NHSC providers serve in outpatient settings, most commonly at federally qualified health centers. |
Legislation aimed at revising the law governing the admission of professional, managerial, and skilled foreign workers to the United States received attention in both chambers of the 113 th Congress. This workforce is seen by many as a catalyst of U.S. global economic competitiveness and is likewise considered a key element of the legislative options aimed at stimulating economic growth. The challenge central to the policy debate is facilitating the migration of professional, managerial, and skilled foreign workers without adversely affecting U.S. workers and U.S. students entering the labor market. This report provides legislative analyses of the Border Security, Economic Opportunity, and Immigration Modernization Act ( S. 744 ), as passed by the Senate, and the Supplying Knowledge-based Immigrants and Lifting Levels of STEM Visas Act (SKILLS Visa Act, H.R. 2131 ), as ordered reported by the House Committee on the Judiciary. Both bills would substantially revise the law governing the admission of professional, managerial, and skilled foreign workers to the United States. The companion report, CRS Report R43735, Temporary Professional, Managerial, and Skilled Foreign Workers: Policy and Trends , by [author name scrubbed] , as its name suggests, analyzes the current policy and statistical trends. Currently, there are 24 major nonimmigrant (i.e., aliens who the United States admits on a temporary basis) visa categories, and over 70 specific types of nonimmigrant visas issued. These visa categories are commonly referred to by the letter and numeral that denote their subsection in the Immigration and Nationality Act (INA). Several visa categories are designated for employment-based temporary admission. A variety of temporary visas—by their intrinsic nature—allow foreign nationals to be employed in the United States. Over the past two decades, the number of visas issued for temporary employment-based admission has more than doubled from just over 400,000 in FY1994 to over 1 million in FY2013. The Department of Homeland Security Office of Immigration Statistics estimated that there were approximately 1.1 million temporary workers and long-term exchange residents living in the United States in January 2012. While the data include some unskilled and low-skilled workers as well as accompanying family members, the visas for managerial, skilled, and professional workers dominate the trends. The admission of professional, managerial, and skilled foreign workers raises a series of policy options as the United States competes internationally for the most talented workers in the world without putting downward pressures on the wages and working conditions of U.S. workers and U.S. students entering the labor market. Adding to the complexity of the debate is the variety of temporary visa categories that enable employment-based temporary admissions for highly skilled foreign workers. They perform work that ranges from skilled labor to management and professional positions as well as jobs requiring extraordinary ability in the sciences, arts, education, business, or athletics. Congress has considered several overarching legislative options to reform the system of admitting highly skilled foreign workers, which include the following: streamlining procedures that govern the admission of professional, managerial, and skilled foreign workers so that the rules are less time consuming and burdensome for employers; increasing the number of temporary professional, managerial, and skilled foreign workers admitted each year; requiring employers of professional, managerial, and skilled foreign workers to meet labor markets tests, such as making efforts to recruit U.S. workers and offering wages and benefits that are comparable to similarly employed U.S. workers; extending labor protections and worker rights to professional, managerial, and skilled foreign workers to prevent abuse or exploitation of the worker; enabling professional, managerial, and skilled foreign workers to have "visa portability" so they can change jobs; and permitting professional, managerial, and skilled foreign workers to have "dual intent"; that is, to apply for lawful permanent resident (LPR) status while seeking or renewing temporary visas. In addition to these issues that cross-cut the various temporary employment-based visas, Congress has focused in particular on two visa categories: H-1B visas for professional specialty workers, and L visas for intra-company transferees. These two nonimmigrant visas epitomize the tensions between the global competition for talent and potential adverse effects on the U.S. workforce. The 113 th Congress has considered legislation that would make extensive revisions to nonimmigrant categories for professional specialty workers (H-1B visas), intra-company transferees (L visas), and other skilled temporary workers; and two bills have received action. They are the Border Security, Economic Opportunity, and Immigration Modernization Act ( S. 744 ) as passed by the Senate, and the Supplying Knowledge-based Immigrants and Lifting Levels of STEM Visas Act (SKILLS Visa Act; H.R. 2131 ), as ordered reported by the House Committee on the Judiciary. Both bills would substantially revise these visa categories, with provisions largely aimed at streamlining procedures, strengthening enforcement, and expanding admissions. The major nonimmigrant category for temporary professional workers is the H-1B visa. To obtain an H-1B visa, the foreign national must work in a "specialty occupation." Current law generally limits annual H-1B admissions to 65,000, but most H-1B workers are exempted from the limits because they are returning workers or they work for universities and nonprofit research facilities that are exempt from the cap. In FY2012, the U.S. Citizenship and Immigration Services (USCIS) approved 257,538 H-1B professional specialty worker petitions, an increase from 192,990 in FY2010 (during the recession). In recent years, applications for new H-1B workers have routinely exceeded the numerical limits—in some years exceeding limits during the first week or even on the first day that applications are received. S. 744 would seek to address perceived H-1B shortages by replacing the 65,000 per year cap on new H-1B admissions with a flexible cap that would range from a floor of 115,000 to a ceiling of 180,000 annually, with a "market-based" mechanism to increase or decrease the cap based on demand during the previous year (i.e., whether and how quickly the previous year's limit was reached). Up to 25,000 STEM advanced degree graduates would be exempted from the cap. Spouses of H-1B workers would be permitted to work, thereby eliminating a potential barrier to H-1B recruitment. The bill would ease the renewal of H-1B by limiting the review of such renewals to material errors, substantive changes, and newly discovered information. In addition, H-1B workers would have a 60-day grace period after loss of a job to seek additional employment without losing their visa status. S. 744 would also streamline the adjustment of status for certain aliens with long-standing employment-based petitions for such adjustment, a provision aimed at addressing the backlog of H-1B workers with pending legal permanent resident (LPR) petitions. H.R. 2131 would increase the annual cap on H-1B workers from 65,000 to 155,000 and replace the current higher education degree exemption of 20,000 with an exemption for up to 40,000 foreign nationals who have STEM master's or doctorate degrees. It would also permit the spouses of H-1B workers to seek employment. The Department of Homeland Security (DHS) would be required to develop a streamlined pre-certification process for employers who file multiple petitions. In addition to these concerns about whether employers have adequate access to H-1B workers, some Members of Congress have raised questions about whether H-1B workers may have an adverse effect on U.S. workers and whether H-1B workers are being treated legally under the terms of their employment. Most notable are concerns about H-1B workers displacing U.S. workers in certain occupations and the use of H-1B workers by companies that are out-sourcing jobs overseas. Some also express the viewpoint that the availability of H-1B workers may possibly place downward pressure on certain skilled U.S. workers' wages and/or discourage U.S. workers from entering STEM fields in which H-1B workers are well represented. Current law requires prospective employers of H-1B workers to submit a labor attestation to the Secretary of Labor to bring in foreign workers. The H-1B labor attestation, a three-page application form, is a statement of intent rather than a documentation of actions taken. In the labor attestation for an H-1B worker, the employer must attest that the firm will pay the nonimmigrant the greater of the actual wages paid to other employees in the same job or the prevailing wages for that occupation; the firm will provide working conditions for the nonimmigrant that do not cause the working conditions of the other employees to be adversely affected; and there is no applicable strike or lockout. The firm must provide a copy of the labor attestation to representatives of the bargaining unit or—if there is no bargaining representative—must post the labor attestation in conspicuous locations at the work site. S. 744 would seek to protect U.S. workers by modifying H-1B application requirements for investigating H-1B complaints. The bill would amend the employer H-1B application process to revise wage determination requirements based on Department of Labor (DOL) surveys, and would require employers to advertise for U.S. workers on a DOL website. Section 4213 would impose additional restrictions on how employers advertise for H-1B positions, and would impose limits on the total number of H-1B and L workers certain employers can hire. S. 744 would establish a new fee of $1,250–$2,500 for H-1B (and L) visas that would be aimed at providing a disincentive for employers' undue reliance on these visas. The INA requires that employers defined as H-1B dependent (generally firms with at least 15% of the workforce who are H-1B workers) meet additional labor market tests. These H-1B dependent employers must also attest that they tried to recruit U.S. workers and that they have not displaced U.S. workers in similar occupations within 90 days prior to or after the hiring of H-1B workers. Additionally, the H-1B dependent employers must offer the H-1B workers compensation packages (not just wages) that are comparable to U.S. workers. As passed by the Senate, the Border Security, Economic Opportunity, and Immigration Modernization Act ( S. 744 ) would increase the numerical limits on H-1B workers admitted each year, revise the requirements on businesses that employ H-1B workers, and impose additional provisions aimed at fraud and abuse. These provisions are discussed below by purpose of the revision. Subtitle B of Title IV would establish a new class of H-1B dependent employers: H-1B skilled-worker dependent employers, defined as a function of the proportion of an employer's workforce that consists of H-1B workers in highly skilled occupations. The bill would retain and revise the broader class of H-1B dependent employers defined in current law. Notably, H-1B workers for whom an employer petitions to become LPRs would be considered "intending immigrants" under S. 744 and would not count in calculations of whether their employers were H-1B dependent. New provisions aimed at preventing employers from hiring H-1B workers intentionally to displace U.S. workers would be established, with different requirements for H-1B dependent employers, H-1B skilled-worker dependent employers, and all other H-1B employers. Employers would be required to make good faith efforts to recruit U.S. workers prior to hiring H-1B workers, and those employers deemed H-1B skilled worker dependent would be required to offer a position to any equally or better qualified U.S. worker applying for a job that would otherwise be filled by an H-1B worker. Certain H-1B dependent employers would not be permitted to outsource H-1B workers, and employers who outsource H-1Bs would pay a $500 fee. Over the years, the U.S. Government Accountability Office (GAO) has issued reports that recommended more controls to protect workers, prevent abuses, and streamline services in the issuing of H-1B visas. GAO has observed that DOL has limited authority to question information on the labor attestation form and initiate enforcement activities. In 2011, GAO identified several weaknesses in the H-1B program's ability to protect workers: (1) oversight that is fragmented between four agencies and restricted by law; (2) lack of legal authority to hold employers accountable to program requirements when they obtain H-1B workers through a staffing company; and (3) expansions that have increased the pool of H-1B workers beyond the cap and lowered the bar for eligibility. A 2008 internal Department of Homeland Security (DHS) investigation of H-1B visa adjudications found a 13.4% fraud rate as well as a 7.3% technical violation rate. Violations reportedly ranged from document fraud to deliberate misstatements regarding job locations, wages paid, and duties performed. The investigation also discovered that some petitioning employers shifted the burden of paying various filing fees to foreign workers. A 2010 DHS investigation found a 14% "not verified" rate, which U.S. Citizenship and Immigration Services (USCIS) officials cited to suggest a reduced level of fraud in the H-1B program. It was unclear, however, how the 14% "not verified" rate compared with 13.4% fraud rate and the 7.3% technical violation rate. To address these issues, S. 744 would permit DOL to review an H-1B attestation for evidence of fraud and to investigate and adjudicate any evidence of fraud identified. Subtitle B of Title IV of S. 744 also would broaden DOL's authority to investigate alleged employer violations, and would require DOL to conduct annual compliance audits of certain employers. Employers who willfully violate the terms of their labor attestations would be subject to increased fines and would be liable for the lost wages and benefits of employees harmed by such violations. Employers also would be prohibited from failing to offer H-1Bs insurance, pension plans, and bonuses offered to U.S. workers, and from penalizing H-1B workers for terminating employment before a previously agreed date. The bill would also establish new information-sharing requirements between USCIS and DOL when there is evidence of H-1B employer noncompliance, and new reporting requirements to Congress regarding information about the number and characteristics of H-1B (and L) workers and employers. In addition, the subtitle would require the U.S. Department of State and DHS to provide H-1B (and L) workers with information regarding their rights and employer obligations. Certain H-1B dependent employers would be required to pay an additional $5,000–$10,000 in filing fees. H.R. 2131 would direct the Department of State to verify the authenticity of foreign educational degrees and would authorize a fee on employers to cover the costs of verifying the credentials of the foreign degree. The bill also would add requirements for DHS to verify that the employer is either a bona fide business with "aggregate gross assets with a value of not less than $50,000," an institution of higher education (as defined in §101(a) of the Higher Education Act of 1965), or a governmental or nonprofit entity. Furthermore, H.R. 2131 would authorize the Secretary of Labor to issue subpoenas to employers of H-1B (and E-3) workers. The L intra-company transferee visa was established for companies that have offices abroad to transfer key personnel freely within the organization. It is considered a visa category essential to retaining and expanding international businesses in the United States. Some, however, have raised concerns that intra-company transferees on the L visa may displace U.S. workers who had been employed in those positions for these firms in the United States. Others express concern that the L visa has become a substitute for the H-1B visa, noting that L employees are often comparable in skills and occupations to H-1B workers, yet lack the labor market protections the law sets for hiring H-1B workers. These concerns have been raised, in particular, with respect to certain outsourcing and information technology firms that employ L workers as subcontractors within the United States. A related concern is that an unchecked use of L visas will foster the transfer of STEM and other high-skilled professional jobs overseas. After investigating the L visa, the Department of Homeland Security Inspector General offered this assessment: "That so many foreign workers seem to qualify as possessing specialized knowledge appears to have led to the displacement of American workers, and to what is sometimes called the 'body shop' problem." Under current law, the prospective L nonimmigrant must demonstrate that he or she meets the qualifications for the particular job as well as the visa category. The alien must have been employed by the firm for at least six months in the preceding three years in the capacity for which the transfer is sought. More precisely, the foreign national must be employed in an executive capacity, a managerial capacity, or have specialized knowledge of the firm's product to be eligible for the L visa. The INA does not require firms who wish to bring L intracompany transfers into the United States to demonstrate that U.S. workers will not be adversely affected in order to obtain a visa for the transferring employee. S. 744 would extend some of the same provisions that it would require for employers of H-1B workers to employers of L workers. It would impose limits on the total number of L workers certain employers can hire. S. 744 would establish a new fee of $1,250–$2,500 for L visas that would be aimed at providing a disincentive for employers' undue reliance on these visas. It would also add new requirements for reporting to Congress regarding information about the number and characteristics of L workers and employers. The Senate-passed bill would require DHS and DOS to provide L workers with information regarding their rights and employer obligations. In addition, S. 744 would add prohibitions on the outsourcing and outplacement of L employees, including by charging a $500 fee to be deposited in the proposed STEM Education and Training Account. Employers seeking to bring an L-visa worker to the United States to open a new office would face special application requirements. DHS would be required to work with DOS to verify the existence of multinational companies petitioning for the L workers. Section 4304 would impose caps on the total proportion of certain employers' workforces that may consist of L and H-1B workers, falling from an upper limit of 75% in FY2015 to an upper limit of 50% after FY2016. Section 4305 would also impose additional fees of $5,000–$10,000 for certain H-1B/L-dependent employers beginning in FY2014. With respect to compliance, S. 744 would authorize DHS to investigate and adjudicate alleged employer violations of L visa program requirements for up to 24 months after the alleged violation; and DOL would be required to conduct annual compliance audits of certain employers. The subtitle also would impose civil monetary penalties and other remedies for violations, including debarment from L-worker petitions and liability for lost wages and benefits to employees harmed by violations. In addition, Section 4308 would add whistleblower protections for L-workers. And DHS would be required to report on the L visa blanket petition process. H.R. 2131 would add labor market tests to the L-1B visa for individuals with specialized knowledge who would be working in the United States for at least six months over a two-year period. In those cases, the employer would be required to pay either the actual wage paid to similarly employed workers or the prevailing wage (whichever is higher). In addition, the employer would be required to provide working conditions that would not adversely affect the working conditions of similarly employed workers. DHS would be required to develop a streamlined pre-certification process for employers who file multiple petitions. Foreign nationals who are treaty traders enter on E-1 visas, whereas those who are treaty investors use E-2 visas. An E-1 treaty trader visa allows a foreign national to enter the United States for the purpose of conducting "substantial trade" between the United States and the country of which the person is a citizen. An E-2 treaty investor can be any person who comes to the United States to develop and direct the operations of an enterprise in which he or she has invested, or is in the process of investing, a "substantial amount of capital." Both these E-class visas require that a treaty exist between the United States and the principal foreign national's country of citizenship. The E Treaty visas are especially attractive to global businesses and subsidiaries of international corporations. As a consequence, interest in expanding access to these visas has grown as more businesses seek access to U.S. markets. S. 744 would amend the requirements for the E visa to allow E visas to be issued to citizens from countries where there is a bilateral investment treaty or a free trade agreement. The legislation would also expand the use of treaty professional workers and would lower the educational and training requirements for foreign nationals coming from specified countries. The E-3 treaty professional worker visa is a temporary work visa limited to citizens of Australia. It is usually issued for two years at a time. Occupationally, it mirrors the H-1B visa in that the foreign worker on an E-3 visa must be employed in a specialty occupation. S. 744 would amend the E-3 visa category so that nationals of Ireland would be eligible. The Irish national would not be required to be employed in a professional specialty, and could provide services as an employee, provided he/she has at least a high school education or, within five years, two years work experience in an occupation that requires two years of training or experience. There would be a limit of 10,500 E-3 visas per year for Irish nationals. H.R. 2131 would require employers of E-3 employees to pay the $500 Fraud Detection and Prevention Fee currently required of employers of H-1B and L employees. In addition, H.R. 2131 would authorize the Secretary of Labor to issue subpoenas to employers of E-3 workers to enhance investigation and enforcement efforts. S. 744 also would create a new E-4 visa category that would be limited to 5,000 visas per year per country; only principal aliens would be counted against the cap. Additionally, the bill would create an E-5 visa category for South Korean workers in specialty occupations that would be limited to 5,000 visas annually. Employers seeking to hire E-4 or E-5 workers would have to file a labor attestation form with DOL. A new E-6 nonimmigrant visa category also would be established for nationals of eligible sub-Saharan African countries or beneficiary countries of the Caribbean Basin Economic Recovery Act who are coming to the United States to work, and have at least a high school education or, within the past five years, two years of work experience in an occupation that requires at least two years of training/experience. These visas would be limited to 10,500 per year. The U.S. Department of State's Bureau of Educational and Cultural Affairs (BECA) is responsible for approving the J visa cultural exchange programs. Most foreign nationals on J-1 visas are permitted to work as part of their cultural exchange program participation. The J cultural exchange visas have expanded over time from visas issued for educational, research, or scholarship purposes to visas issued for programs engaged in more mundane tasks, such as child care, resort work, or camp counseling. Spouses and minor children of J-1 visaholders may accompany them on J-2 visas, but they are not permitted to work. As the J visa has transformed from a predominately educational visa to a largely employment visa, a new set of concerns has arisen. In 2011, about 400 temporary workers on J visas went on strike at the Hershey's Chocolate packing plant in Palmyra, PA, garnering national attention. The DOS Office of Inspector General made the following observation in 2012: "Public criticism of the Summer Work Travel (SWT) program is the most recent negative consequence of unfettered growth and weak regulation of privately funded exchanges. BECA should strictly limit SWT until it can provide proper oversight." The following year, however, another group of temporary workers on J visas employed by a MacDonald's franchise in Pennsylvania protested their working conditions. Efforts to address these matters have been met by those who maintain that it is inappropriate to treat cultural exchange programs "the same way as non-immigrant labor programs (like migrant farm workers, "Deadliest Catch" fishing boat crews and construction crews)," because they are public diplomacy programs. The Senate approved a floor amendment to S. 744 that included provisions that would establish a new definition of foreign labor recruitment for use with the J visa, and would give the J visaholder as well as DOS the right to bring a civil action in federal court against a program sponsor, foreign entity, or an employer. The bill would also prohibit retaliation against a J visaholder complaining about program conditions, including housing and job placements, wages, hours, and general treatment, or for disclosing retaliation. DOS would be required to promulgate new regulations in consultation with DOL on various J-1 categories, to provide J visaholders with additional disclosures on rights and protections under the INA, and to maintain a list of employers who have had substantiated complaints. Also, the Senate approved a floor amendment to S. 744 that added language to impose a $100 fee on designated program sponsors for each nonimmigrant entering on a J visa as part of a summer work/travel exchange. The $100 fee would be deposited in the proposed Comprehensive Immigration Reform Trust Fund and could not be charged to the nonimmigrant. The bill would also specify that summer work/travel exchange participants on J visas are eligible to be employed in seafood processing in Alaska. S. 744 would also make eligible for a J visa foreign nationals who are coming to the United States to perform specialized work that requires proficiency of languages spoken in countries with less than 5,000 LPR admissions in the previous year. Currently, foreign medical graduates (FMGs) may enter the United States on J 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 permitted to sponsor up to 30 waivers per state, per year on behalf of FMGs under a temporary program, colloquially known as the Conrad 30 Program because it was originally sponsored by former Senator Kent Conrad. The objective of the Conrad 30 Program is to encourage immigration of foreign physicians to medically underserved communities. Both S. 744 and H.R. 2131 would make the Conrad 30 J waiver permanent and would allow the program to grow by up to five waivers per year, or be reduced (though never below 30), based on demand for the program. The bills also include a number of provisions to regulate working conditions and add flexibility to the J visa program for such physicians. S. 744 would make changes to facilitate physicians holding J or H-1B visas seeking to remain in the United States, including by allowing dual intent for J-1 foreign medical graduates, making alien physicians who received a Conrad waiver or completed their two-year home residency requirement exempt from numerical limits if they adjust to LPR status, and making the spouses and children of J-1s no longer subject to the two-year home residency requirement. The bill would also allow physicians in H-1B status and completing their medical training to automatically have such status extended. Persons with extraordinary ability in the sciences, arts, education, business, or athletics are admitted on O visas, whereas internationally recognized athletes or members of an internationally recognized entertainment group come on P visas. Generally, the O visa is reserved for the highest level of accomplishment and covers a fairly broad set of occupations and endeavors, including athletics and entertainers. The P visa has a somewhat lower standard of achievement than the O visa, and it is restricted to a narrower band of occupations and endeavors. The P visa is used by a foreign national who performs as an artist, athlete, or entertainer (individually or as part of a group or team) at an internationally recognized level of performance and who seeks to enter the United States temporarily and solely for the purpose of performing in that capacity. The law allows individual athletes to stay in intervals up to five years at a time, up to 10 years in total. Both S. 744 and H.R. 2131 would add visa portability (i.e., the ability to change employers without reapplying for a new visa) for foreign nationals on O-1 visas. Both bills also would add flexibility to the requirements for being admitted on an O-1 visa based on achievement in motion picture or television production. DHS would be required to develop a streamlined pre-certification process for employers who file multiple O or P petitions. Temporary professional workers from Canada and Mexico may enter according to terms set by the North American Free Trade Agreement (NAFTA) on TN visas. In many ways, these visas are similar to H-1B visas because of the nature of the work performed as well as the education and skills required to obtain these visas. H.R. 2131 would add labor market tests to the TN visas for Canadian and Mexican professional workers. In those cases, the employer would be required to pay either the actual wage paid to similarly employed workers or the prevailing wage (whichever is higher). In addition, the employer would be required to provide working conditions that would not adversely affect the working conditions of similarly employed workers. DOL would also have authority to investigate these elements. The $500 Fraud Detection and Prevention fee would also be required in the cases of TN visas as well as the E-3 visas. Foreign students on F-1 visas are generally barred from off-campus employment. After completing their undergraduate or graduate studies, however, F-1 foreign students are permitted to participate in employment known as Optional Practical Training (OPT), which is temporary employment that is directly related to an F-1 student's major area of study. Generally, an F-1 foreign student may work up to 12 months in OPT status. In 2008, DHS expanded the OPT work period to 29 months for F-1 students in STEM fields. To qualify for the 17-month extension, F-1 students must have received STEM degrees included on the STEM Designated Degree Program List, be employed by employers enrolled in E-Verify, and have received an initial grant of post-completion OPT related to such a degree (i.e., already approved for 12 months in OPT). Much like the evolution of the J visa from cultural exchange to employment, concerns have arisen that the F-1 visa is transforming into an employment visa. Many observers point to difficulties in obtaining an H-1B visa and the backlogs in adjusting to lawful permanent residence as reasons that drive the relaxation of the work rules for F-1 students. GAO recently released a report noting the potential for fraud and abuse of the OPT status. GAO concluded that DHS' Immigration and Customs Enforcement was unable to "fully ensure foreign students working under optional practical training are maintaining their legal status in the United States." Aimed at easing the transition from international student to LPR, both S. 744 , as passed by the Senate, and H.R. 2131 , as ordered reported by the House Judiciary Committee, would make changes to the F visa category. S. 744 would allow aliens on F visas who are seeking bachelor's or graduate degrees, dual intent; thus, they could seek LPR status while maintaining F status. H.R. 2131 would allow dual intent only for aliens on F visas who are seeking bachelor's and graduate degrees in STEM fields. In other words, many F-1 students working with OPT would, if enacted, be able to apply for LPR status while engaged in OPT employment. In addition, H.R. 2131 would require employers of OPT students to pay either the actual wage paid to similarly employed workers or the prevailing wage (whichever is higher). DOL would also have authority to investigate. The likelihood of enacting legislation to revise laws on the migration of professional, managerial, and skilled foreign workers is linked to the competing approaches to immigration reform. Among those who support immigration reform, some favor a package of incremental reform bills and others support one comprehensive immigration reform (CIR) bill. While the Senate passed a bi-partisan CIR bill ( S. 744 ), the House Republican leadership had favored approaching the issues in discreet "chunks" as H.R. 2131 does. At this point in time, there appears to be a consensus that action on either approach is unlikely. | The admission of professional, managerial, and skilled foreign workers raises a complex set of policy issues as the United States competes internationally for the most talented workers in the world, without adversely effecting U.S. workers and U.S. students entering the labor market. Legislative proposals that Congress has considered include streamlining procedures that govern the admission of professional, managerial, and skilled foreign workers; increasing the number of temporary professional, managerial, and skilled foreign workers admitted each year; requiring employers of professional, managerial, and skilled foreign workers to make efforts to recruit U.S. workers and offer wages and benefits that are comparable to similarly employed U.S. workers; extending labor protections and worker rights to professional, managerial, and skilled foreign workers to prevent abuse or exploitation of the worker; enabling professional, managerial, and skilled foreign workers to have "visa portability" so they can change jobs; and allowing professional, managerial, and skilled foreign workers to have "dual intent"; that is, to apply for lawful permanent resident (LPR) status while seeking or renewing temporary visas. Adding to the complexity of the debate is the variety of temporary visa categories that enable employment-based temporary admissions for highly skilled foreign workers. They perform work that ranges from skilled labor to management and professional positions to jobs requiring extraordinary ability in the sciences, arts, education, business, or athletics. These visa categories are commonly referred to by the letter and numeral that denote their subsection in the Immigration and Nationality Act (INA). Congress has focused on two visa categories in particular: H-1B visas for professional specialty workers, and L visas for intra-company transferees. These two nonimmigrant visas epitomize the tensions between the global competition for talent and potential adverse effects on the U.S. workforce. The United States struggles to support the recruitment of highly skilled professionals on H-1B visas and L visas without displacing U.S. workers or putting downward pressures on the wages and working conditions of U.S. workers and U.S. students entering the labor market. Achieving this end through a process that both meets the expeditious needs of U.S. business and preserves employment opportunities for U.S. workers is a challenge, and there are critics of the current H-1B and L policies on each side of the issue. Congress is also weighing reforms of other professional and outstanding worker visas as well as treaty-specific visas. The 113th Congress has acted on legislation that would make extensive revisions to nonimmigrant categories for professional specialty workers (H-1B visas), intra-company transferees (L visas), and other skilled temporary workers. The Border Security, Economic Opportunity, and Immigration Modernization Act (S. 744), as passed by the Senate, and the Supplying Knowledge-based Immigrants and Lifting Levels of STEM Visas Act (SKILLS Visa Act, H.R. 2131), as ordered reported by the House Committee on the Judiciary, would substantially revise these visa categories. Both bills have provisions aimed at streamlining procedures, strengthening enforcement, and expanding admissions. |
The 112 th Congress is currently discussing how to fund the federal government's discretionary programs for the remainder of FY2011, which began on October 1, 2010. Congress approved a series of seven short-term continuing resolutions (CRs) to fund government activities. The current CR provides funding until April 15, 2011. If further funding were not provided, much of the federal government would be shut down. This report compares the various funding levels that have been considered during the 112 th Congress with H.R. 1473 , a compromise reached just before the expiration on April 8 of the sixth CR ( P.L. 112-8 ). H.R. 1473 provides discretionary budget authority to run the federal government for the remainder of FY2011, and includes both discretionary and mandatory spending reductions. Budget authority (BA) provides government agencies with the legal ability to make obligations on behalf of the federal government, subject to restrictions in appropriations legislation. Outlays occur once the U.S. Treasury Department disburses funds to discharge those obligations. The last part of this report summarizes long-term trends in federal spending and presents projections of FY2011 and FY2012 federal spending in terms of outlays. Congress approved a series of seven short-term continuing resolutions to fund government activities since October 1, 2010, when the fiscal year began. The current CR ( P.L. 112-8 ; H.R. 1363 ) provides funding until April 15, 2011. The bill reflecting the last minute compromise reached on April 8, 2011, H.R. 1473 , the Department of Defense and Full-Year Continuing Appropriations Act, 2011, is expected to be considered this week. Table 1 shows both short-term and longer-term continuing resolutions considered during the 112 th Congress. Congressional discussions of FY2011 measures have opened a vigorous interchange of views on the federal budget, with a strong focus on restraining federal spending. Some contend that FY2011 funding decisions should take a first step in reshaping the size and responsibilities of the federal government. Others note that the economy has not yet fully recovered from the 2009 recession, and criticize the proposed reductions for their likely impact on programs and services provided by the government, and potentially on a still fragile economy. In particular, unemployment rates remain high in most parts of the country, the housing sector remains weak, and the number of banking and financial institutions on watch lists is at historically elevated levels. Much of the discussion has focused on comparing proposed funding levels with the FY2010 enacted level, the President's FY2011 budget request, and H.R. 1 , the funding level approved by the House on February 19, 2011, which was intended to return spending levels for most agencies other than the Defense Department and other security-related agencies to FY2008 levels. For several years, the Administration has shown funding levels for "security" and "non-security" agencies separately. In its definition, security agencies include the Defense Department, the Veterans Administration (VA), the State Department/USAID, and the Department of Homeland Security (DHS). All other agencies are non-security. There has been little debate about the Administration's proposed funding levels for the Afghan and Iraq wars, which is treated separately. More recently, the House Budget Committee and the House Appropriations Committee have adopted a definition of "security" which includes DOD, VA, and DHS but excludes the State Department/USAID. Some House presentations of spending data also exclude war funding (described as Overseas Contingency Operations) from security totals. Table 2 below shows funding levels for H.R. 1473 and other funding proposals by the House subcommittee allocations, with subtotals for "security" and "non-security" using the House definition to give a sense of how funding for different purposes compares in the various funding proposals. (See Appendix for a summary of other FY2011 funding measures.) As Table 2 shows, for non-emergency funding, the continuing resolution enacted at the end of the 111 th Congress ( H.R. 3082 ; P.L. 111-322 ) set funding levels at close to FY2010 levels—a total of $1.087 trillion compared to $1.090 trillion until final levels could be agreed upon. H.R. 1 , as passed by the House on February 19, 2011, but which failed in the Senate on March 9, 2011, proposed a total of $1.026 trillion, below the FY2010 enacted level and substantially below the President's FY2011 budget request. H.R. 1473 , being considered this week, proposes a level of $1.050 trillion, an overall total below the FY2010 enacted level but above the level proposed in H.R. 1 . Comparisons between various spending measures, as noted above, have been central to the spirited discussions of FY2011 funding measures. Table 3 presents dollar differences between bills. Overall, H.R. 1473 is $66.5 billion below FY2010 enacted levels including a decrease of $42.0 billion for non-security agencies and a $1.3 billion increase for security agencies. Decreases relative to FY2010 levels are concentrated in Commerce, Justice, Science (CJS; $11 billion); Labor, HHS, and Education ($7.1 billion); and Transportation, Housing and Urban Development, and Related Agencies (T-HUD)($12.4 billion). Much of the decrease in CJS funding relative to FY2010 reflects the winding down of costs of the 2010 decennial census of population and housing. Much of the decrease in T-HUD funding relative to FY2010 was in cuts to transportation funding; the largest cuts came from zeroing out funding for the high speed rail grant program for FY2011 (as well as rescinding $400 million from prior year funding and from rescissions in prior year highway contract authority). (These comparisons do not reflect the 0.2% across-the-board reduction in Section 119 of Division B of H.R. 1473 .) Table 4 shows those differences in percentage-change terms. In percentage terms, the largest spending (BA) decreases relative to FY2010 enacted levels would affect program funding controlled by the following subcommittees: Agriculture/Rural Development (-14%); Commerce, Justice, Science (-17%); Financial Services (-9%); Interior and the Environment (-8%); and Transportation and Housing (-18%). The President's FY2011 budget request sets another benchmark for FY2011 funding proposals. Compared to the FY2011 request, H.R. 1473 would be $78.5 billion lower, or 6% overall. Decreases range from 8% (Labor-HHS-Education) to 19% (Transportation-HUD) in all of the non-security subcommittee jurisdictions. H.R. 1 , the FY2011 funding measure passed by the House, provides another benchmark. H.R. 1473 funding is $28.8 billion or 2% higher than H.R. 1 . Levels in H.R. 1473 are higher for Agriculture (10%), Labor/HHS (10%), as well as Energy & Water (6%), Financial Services (8%), and Interior-Environment (7%). A comparison of totals for "Security" and "Non-Security" shows that essentially all reductions are being taken in non-security areas. While the funds within the Defense Appropriations Subcommittee's jurisdiction would receive funding below the President's FY2011 request in all of the proposals, both H.R. 1473 and H.R. 1 propose funding above FY2010 enacted levels—almost $5 billion in the case of H.R. 1473 and about $7 billion in the case of H.R. 1 . These totals omit some Department of Defense funding because military construction is considered by the Military Construction/VA Subcommittee. That funding was slated to decrease in FY2011 with completion of funding for base closures. If that funding is taken into account, overall funding for the Department of Defense in H.R. 1473 would be $2 billion below FY2010 enacted levels. Discretionary spending is provided and controlled through appropriations acts, which fund many of the activities commonly associated with such federal government functions as running executive branch agencies, congressional offices and agencies, and international operations of the government. Essentially all spending on federal wages and salaries is discretionary. Discretionary spending, in general, funds costs of administering federal programs such as Medicare and Social Security, whose benefits are funded by mandatory spending. Mandatory spending, by and large, has grown more rapidly than discretionary spending over the past several decades. Figure 1 shows trends in spending, as measured by budget authority, since FY1976. Budget authority (BA), which gives federal agencies the legal ability to obligate federal funds, has been compared to funds in a checking account. Outlays occur once the U.S. Treasury disburses funds to federal contractors, employees, grantees, or other payees. Congressional analysts often consider spending in terms of budget authority, which Congress controls, rather than outlays, which can depend on decisions made in the executive branch. Deficits, however, are computed as the difference between revenues and outlays. Both discretionary and mandatory spending spiked in FY2009 due to the effects of the financial crisis of 2007-2009 and the subsequent recession. President Obama has proposed a five-year freeze in discretionary spending in his FY2012 budget submission, which is reflected in the projected decline in discretionary spending as a proportion of the economy after FY2011. Net interest payments are expected to rise after FY2011 because interest rates typically increase during economic recovery. CBO current-law baseline projections are computed using assumptions set forth in budget enforcement legislation. The CBO baseline projections are not intended to serve as a prediction of what budget outcomes are most plausible or likely. Rather, the CBO baseline projections are designed to serve as a budgeting tool, which is used to determine how legislative changes would increase or decrease the federal deficit. CBO baseline projections are based on current law, not current policy. If under current law a provision is slated to expire, the CBO baseline is computed on the assumption that the provision will expire—even when past Congresses have repeatedly extended similar provisions. For example, if a tax cut is slated to expire under current law, the baseline revenue projections would include an increase in revenues after the scheduled expiration of that tax cut—even if similar tax cuts had been extended in the past. CBO baseline projections presume that discretionary spending remains constant in inflation-adjusted (real) terms. As Figure 1 shows, discretionary spending in past decades has generally kept pace with growth of the economy as a whole, and thus has increased in terms of inflation-adjusted dollars. For these reasons, the CBO current-law baseline projections typically yield estimates of higher growth in revenue and slower growth of discretionary spending relative to scenarios that independent forecasters consider likely. CBO typically includes alternative projections that use assumptions that many economists consider more plausible as predictions of future budgetary outcomes. Appropriation legislation sometimes includes changes in mandatory programs (CHIMPs). CBO often includes summaries of cost savings or increases due to CHIMPs in its cost estimates. H.R. 1473 includes $17.5 billion in reductions in mandatory programs. A new CBO estimate suggests that these reductions in mandatory programs would have relatively little effect on outlays. The treatment of CHIMPs in CBO scoring differs from changes in discretionary spending. Suppose a proposal to increase discretionary spending by $1 is offset by a $1 reduction in mandatory spending in order to keep scoring of discretionary spending below a cap. If the proposal were enacted, the next update of the CBO current-law baseline would be rebased in order to reflect the legislative changes necessary to achieve the mandatory spending reduction. To keep the increased discretionary spending below the cap would then require a new decrease in mandatory spending. By contrast, if the discretionary spending increase were offset by a reduction in another discretionary program, additional offsets would not be necessary. Thus, changes in mandatory spending serve as one-time offsets to discretionary spending increases. While discussions of appropriations legislation typically consider spending in terms of budget authority, data on estimated outlays are important because they are used to compute total budget deficits. Furthermore, the federal government's current fiscal policy stance (i.e., its effect on current macroeconomic trends) depends on outlays. Table 5 presents projections and proposals for FY2011, along with enacted levels for FY2010. Table 6 presents projections and proposals for FY2012, along with actual levels for FY2010. | The 112th Congress is considering H.R. 1473, the Department of Defense and Full-Year Continuing Appropriations Act, 2011, which would fund the federal government's discretionary programs for the remainder of FY2011, which began on October 1, 2010. H.R. 1473 represents a last-minute compromise reached on April 8, the eve of the expiration of the sixth short-term continuing resolution (CR) enacted to date. The current CR (H.R. 1373/P.L. 112-8) provides funding until April 15, 2011. If further funding is not provided, much of the federal government would be shut down. The difficulty in reaching agreement on funding levels for the current fiscal year reflects a larger debate about how to restrain federal spending in the face of large deficits this year and in years to come. Much of the debate has focused on how various proposed funding levels compare to the FY2010 enacted level and President Obama's FY2011 budget request. H.R. 1473 proposes a total federal spending level of $1.21 trillion, or $66.5 billion below the FY2010 enacted level and $78.5 billion below the President's request. All of the proposed funding levels include $159 billion in emergency spending for the Afghan and Iraq wars as proposed by the President. While funding levels for the Defense Department and other security-related agencies (defined here as Defense, Military Construction/Veterans' Administration, and the Department of Homeland Security) have been reduced below the President's request in H.R. 1473, those levels are slightly above FY2010 enacted levels. Most of the debate about reducing spending has focused on discretionary spending for all other non-security areas ranging from Agriculture and Commerce to Transportation and Housing. For all non-security agencies, H.R. 1473 proposes a funding level of $421.7 billion—$42.0 billion or 4% below the FY2010 enacted level and $56.1 billion or 7% below the President's request. H.R. 1473 proposes a funding level of $23.8 billion or 2% above H.R. 1, which was passed by the House on February 19, 2011, and intended to return non-security spending to FY2008 levels. These comparisons are not precise because the $42 billion decrease relative to FY2010 enacted includes $17 billion in decreases to mandatory programs. A new CBO estimate suggests that H.R. 1473 reduces cumulative outlays by about $20 billion to $25 billion, largely because many of the changes to mandatory programs would have little effect on outlays. This report will be updated as necessary. |
Exports of U.S. livestock and poultry products are important both to farmers and to the U.S. economy. In 2009, U.S. livestock and poultry exports were valued at more than $10 billion, accounting for about 12% of total global meat trade (estimated at nearly $87 billion in 2009). In recent years, however, some countries have considered or implemented changes to their agricultural and trade policies that could potentially affect U.S. livestock and poultry exports. One such change pertains to the use of antimicrobial drugs in animal production systems. Some U.S. trading partners and competitors, such as the European Union (EU), New Zealand, and South Korea, have implemented restrictions on the importation of livestock and poultry products grown with antimicrobial drugs. In the United States, legislation has been introduced that seeks to restrict the use of certain antimicrobial drugs for subtherapeutic or nontherapeutic purposes in food-producing animals. In the 112 th Congress, H.R. 965 and S. 1211 (Preservation of Antibiotics for Medical Treatment Act of 2011, PAMTA) seek to restrict the use of certain antimicrobial drugs for subtherapeutic or nontherapeutic purposes in food-producing animals. Most U.S. livestock and poultry producers are opposed to such restrictions because of concerns about animal welfare and food safety, as well as concerns about possible increases in production costs, among other reasons. This report is organized into three parts. First, it provides an overview of U.S. export markets for livestock and poultry products, and highlights key U.S. foreign trading partners. Second, it discusses policies in selected foreign markets that may restrict or limit the use of antimicrobial drugs in food animal production, including imports of animal products grown with these drugs. Third, it discusses some implications of these policies for U.S. livestock and poultry exports to selected foreign markets. Antimicrobials are used in food animal production as therapeutics (i.e., treatments), prophylactics (i.e., preventatives), and growth promoters. The U.S. Department of Agriculture (USDA) reports that antimicrobial use in the U.S. livestock and poultry sectors is a common practice. Available data suggest that antimicrobials are used in most phases of swine and poultry production and that usage has been increasing. Approximately 25%-30% of small cattle feedlot operations and about 60%-70% of larger feedlots use or are exposed to antimicrobials, most frequently through in-feed additives at feedlot operations. In December 2010, the U.S. Food and Drug Administration (FDA) reported sales and distribution of all approved uses of all dosage forms (e.g., injectable, oral, medicated feed) of the identified classes of actively marketed drugs in food-producing animals for 2009. These data have been widely cited as indicating that animal agriculture accounts for a large share of total use. Some industry groups, however, claim that FDA's estimate is overstated because, among other things, it includes ionophores, even though they claim that these drugs are not used in human medicine. When antimicrobials are used for therapeutic and prophylactic purposes, they help treat and prevent disease in exposed animals. When used at low levels in animal diets and feed for subtherapeutic (essentially nonmedical) purposes, antimicrobials help improve animal growth rates and feed efficiency, and also help reduce mortality and morbidity and may improve reproductive performance. Some studies show that higher growth rates from subtherapeutic antimicrobials have positively influenced producer incomes and resulted in higher per-animal net returns. Some studies suggest that large-scale confined animal operations are particularly dependent on the use of antimicrobial drugs in production. Growing scientific evidence shows, however, that certain bacteria are becoming increasingly resistant to these drugs, and that antimicrobial resistance may be transferred from animals to humans through the consumption or handling of meat that contains resistant bacteria. Public health experts also attribute such resistance to a number of other causes, such as overuse of antimicrobial drugs by medical professionals and their patients. Internationally, the issue of antimicrobial use in animal production and concerns about antimicrobial resistance continue to be actively reviewed by the World Health Organization (WHO) and the Food and Agriculture Organization (FAO) of the United Nations, as well as the World Organization for Animal Health (OIE). The United States is participating with other member countries in a Codex Alimentarius Commission Ad Hoc Intergovernmental Task Force on Antimicrobial Resistance aimed at helping to develop guidelines to assess human health risks associated with the presence of antimicrobial-resistant agents transmitted through food and feed. WHO first published global principles for the containment of antimicrobial resistance in food-producing animals in 2000. In the United States, legislation has been introduced in the last three Congresses seeking the phased elimination of nontherapeutic use in animals of "critical antimicrobial animal drugs" such as penicillin, tetracycline, macrolide, lincosamide, streptogramin, aminoglycoside, and sulfonamide, or other drugs that are used in humans to treat or prevent disease or infection. In the 112 th Congress, H.R. 965 and S. 1211 (Preservation of Antibiotics for Medical Treatment Act of 2011, PAMTA) seek to restrict the use of certain antimicrobial drugs for subtherapeutic or nontherapeutic purposes in food-producing animals. Some federal agency officials have indicated support for restricting the nontherapeutic use of antimicrobials. Other possible policy options that might limit the use of these drugs for growth promotion include assessing user fees, imposing targeted bans, or limiting new antimicrobials for human use only, among other options. See CRS Report R40739, Antibiotic Use in Agriculture: Background and Legislation , for background information on other recent actions on this issue in the United States. An understanding of the available information on country restrictions is often complicated by a divergence of policy objectives. Three aspects of antimicrobial use are regulated by U.S. authorities, and may also be regulated by most U.S. trading partners. More specifically, policies on antimicrobials may include restrictions on: 1. The use of certain antimicrobial drugs in producing livestock and poultry for meat consumption. As reported by FDA, scientific studies demonstrate a relationship between the use of antimicrobials in food-producing animals, antibiotic resistance in humans, and adverse health consequences. Studies also demonstrate that antimicrobial resistance among feedborne bacteria may cause prolonged duration of illness, and increased rates of bacteremia, hospitalization, and death. In the United States, FDA regulates these drugs and approves conditions of their use. 2. Residues of antimicrobial drugs remaining in meat tissues, which may exceed allowable standards, tolerance levels, or maximum residue levels. In some cases, even trace amounts of these drugs in meat and poultry products may pose a public health hazard for consumers who are allergic, or for some drugs that have been shown to cause other severe illnesses in some consumers. This problem is different from the problem of antimicrobial resistance in foodborne pathogens that may be transmitted through the meat and poultry products. In the United States, FDA sets tolerances or allowance limits in meat, and USDA's Food Safety and Inspection Service (FSIS) samples the products to assure compliance. 3. The use of certain antimicrobial washes and pathogen reduction treatments (PRTs) for treating meat during packing and processing of food products. These processes typically involve products that are used to treat animal carcasses by meat packers and processors, not drugs that are used in live animals. In the United States, products used in these processes are regulated by FSIS. This report focuses on available information on country restrictions regarding the first topic, namely, the use of certain antibiotics in feed for growth promotion (subtherapeutic or nontherapeutic) purposes in food-producing animals. World trade in livestock and poultry products totaled nearly $87 billion in 2009, with the United States accounting for 12% ($10.4 billion) of all global trade ( Table 1 ). Within product categories, in 2009, the United States supplied 31% ($3.8 billion) of all world trade in fresh, chilled and frozen poultry products; about 18% ($2.6 billion) of all fresh, chilled and frozen beef products; and 17% ($3.2 billion) of fresh, chilled and frozen pork products. The United States also supplied about 4% ($0.6 billion) of all world trade in processed livestock and poultry products. These statistics are based on country compilations of total reported imports, as reported in the Global Trade Atlas, and do not always comport with other country statistics, such as reported U.S. export data compiled by the U.S. Census Bureau. Following is an overview of U.S. export markets for beef, pork, and poultry products, highlighting key U.S. foreign trading partners and recent market shares for these importing countries. U.S. beef exports have been highly variable since 2000, primarily because of a significant decline in 2003-2004 due to concerns about U.S. cases of mad cow disease, among other trade issues. By 2008, U.S. beef exports had recovered somewhat and totaled nearly $3 billion worldwide, according to official U.S. export data ( Table 2 ). By volume, exports account for about 7% of total annual U.S. beef production. Fresh, chilled, and frozen beef accounts for the bulk of U.S. annual exports, comprising more than 90% of the total value of beef exports. Mexico and Canada are the leading importers of U.S. beef, receiving about two-thirds of annual U.S. exports ( Table 2 ). Several Southeast Asian countries also are among the leading international markets for U.S. beef, including Japan, Korea, Taiwan, and Hong Kong, accounting for about 30% of all exports in 2008. Exports to the European Union (EU) nations total about 3% annually. U.S. pork exports have seen sharp, steady growth in the past decade, increasing from less than $1 billion in 1998 to nearly $4 billion in 2008, according to official U.S. export data ( Table 3 ). By volume, exports account for about 20% of total annual U.S. pork production. Fresh, chilled, and frozen pork products account for the bulk of U.S. annual exports, comprising more than 90% of the total value of pork exports. Japan is the leading importer of U.S. pork products, accounting for nearly 40% of all exports annually ( Table 3 ). Several other Southeast Asian countries also are among the leading international markets for U.S. pork, including Hong Kong, Korea, China, the Philippines, and Taiwan, accounting for another 20% of all exports in 2008. Mexico and Canada account for about one-fourth of annual exports. Exports to the EU-27 nations total about 3% annually. According to official U.S. export data, U.S. poultry exports more than doubled in the past decade, increasing from $2.3 billion in 1998 to $4.6 billion in 2008 ( Table 4 ). By volume, exports account for about 20% of total annual U.S. broiler meat production, and about 10% of U.S. turkey meat production. Fresh, chilled, and frozen poultry meats account for the bulk of U.S. annual exports, comprising more than 90% of the total value of poultry exports. Russia is the leading importer of U.S. poultry products, accounting for about 20% of annual exports, with Ukraine importing another 3% ( Table 4 ). Several Southeast Asian countries also are among the leading international markets for U.S. poultry, including China, Hong Kong, and Taiwan, accounting for about 20% of all exports. Mexico and Canada account for another one-fourth of exports. Exports to the EU-27 nations total less than 4% annually. Growing concerns about antimicrobial resistance have caused some U.S. trading partners and competitors, including the EU, New Zealand, and South Korea, to implement restrictions and prohibitions on the use of certain antimicrobials for subtherapeutic or nontherapeutic purposes in animal production. As noted in the first section of this report, various aspects of antimicrobial use may complicate an understanding of the available information on country restrictions and policy objectives. These include (1) the use of certain antimicrobial drugs in producing livestock and poultry for meat consumption; (2) residues of antimicrobial drugs remaining in meat tissues, which may exceed allowable standards, tolerance levels, or maximum residue levels; and (3) the use of certain antimicrobial washes and pathogen reduction treatments (PRTs) for treating meat during packing and processing of food products. This report focuses on country restrictions on the use of certain antibiotics in feed for growth promotion purposes (subtherapeutic or nontherapeutic) in food-producing animals. The United States has had a long-standing trade dispute with the EU regarding PRTs since the EU first banned the use of antimicrobial rinses or PRTs on poultry, effectively shutting out U.S. poultry exports. In the United States, such treatments are approved by the federal government and are routinely used in U.S. chicken and turkey plants. In a separate example, in 2008 and 2009, Russia has refused imports of meat products from several European countries and from several U.S. plants—including plants owned by Tyson Foods Inc. and a unit of Smithfield Foods—because trace amounts of tetracycline and oxytetracycline were reportedly found in some of the pork tested. These examples are different types of scenarios involving policies regarding antimicrobials and antibiotics in food animal production, and involve different sets of policy issues. In June 2011, a forum of multinational consumer organizations—the so-called Trans Atlantic Consumer Dialogue (TACD)—approved a resolution calling on countries to ban the non-therapeutic use of antibiotics in food animals, among other recommendations. The United States and many of its key trading partners and competitors differ in their use and regulation of antimicrobials in food animal production. As highlighted in a 2004 report by the U.S. Government Accountability Office (GAO), the areas of difference include (1) the specific drugs that can be used for growth promotion and (2) the availability of these drugs to producers (by prescription or over the counter). Such differences complicate a straightforward comparison of policies regarding the use of these drugs in food animals between the United States and its key trading partners and competitors. Table 5 provides a summary of the policies regarding antimicrobial use in animal feed for selected countries. Since GAO conducted its summary in 2004, other available updated information for some countries became available as follows: European Union. The EU prohibits the use of antibiotics for growth promotion in animal production. The EU's effort is part of its overall strategy to address the emergence of bacteria and other microbes resistant to antimicrobials, due to their perceived overexploitation or misuse, by phasing out these drugs for non-medicinal purposes. This action was part of a broader EU regulation on the use of additives in animal nutrition that established rules for the authorization, marketing, and labeling of feed additives. The regulation covers several feed additive categories, including technological, sensory, nutritional, and zootechnical additives, as well as the use of certain anti-parasitic drugs. In June 2001, the EU prohibited all but four antibiotics used for growth promotion; prohibition of the remaining four products went into effect as of January 1, 2006. In 2011, the EU passed a resolution that, among other things, calls on EU member states to "ensure a better control over the implementation of the ban (2006) on antimicrobials being used as growth promoters," and to "work towards an international ban on antimicrobials as growth promoters in animal feed, and to bring this matter up in its bilateral negotiations with third countries such as the United States." New Zealand . New Zealand claims that its "regulatory control of antimicrobials remains one of the most stringent in the world" and that its prohibitions are effectively similar to the EU's in the extent to which antibiotic use is regulated. All antibiotics must be registered and approved for use by the New Zealand Food Safety Authority (NZFSA) and cannot be used unless there is a veterinary prescription (except for those antibiotics not relevant to the resistance problem). Registrations specify the veterinarians' responsibilities to ensure that they prescribe these drugs in a prudent manner, and only approved traders are allowed to sell these drugs to ensure that access to them is effectively limited by the prescription condition. These products may not be promoted or advertised to the public. Further action on New Zealand's restrictions and registration process is proceeding, and more updated information is available at the NZFSA website. South Korea . In 2008, reports indicated that Korea's Ministry for Food, Agriculture, Forestry, and Fisheries (MIFAFF) was tightening restrictions on the use of antibiotics in animal feed. USDA reported that Korea would phase down the number of allowable drugs as a way to reduce their overall use in compound feed that are premixed during production. In July 2010, MIFAFF published its notice banning the "addition of antibiotics in animal feed ... to strengthen the safety management of domestic livestock products," prohibiting the use of "eight antibiotics (enramycin, tyrosine, virginiamycin, bacitracin methylene disalicylate, bambermycin, tiamulin, apramycin and avilamycin) and one antimicrobial agent (sulfathiazole) in animal feed as feed additives," effective in the "latter half of 2011." Korea notified World Trade Organization (WTO) members of its intention in August 2010 since, as stated in its notification, this could affect Korea's trade in "animal feed." These policies followed other legislation enacted in 2007 regarding Korea's requirements for labeling meat products as "antibiotic free" or "organic." Other Southeast Asian Countries. Other media reports indicate that similar bans might have been enacted or are being considered in several other Southeast Asian countries, including Singapore, Japan, Thailand, Taiwan, and Malaysia. Whether or not such restrictions have actually been implemented is difficult to confirm. Direct comparisons with prohibitions in the EU and New Zealand are not straightforward. South American Countries. Some U.S. meat export competitors, such as Argentina, Brazil, and Uruguay, likely do not use many antimicrobials in food-producing animals, given that these countries raise livestock that are mostly rangeland- or grass-fed. Other Countries. Several countries such as the United States, Canada, and Australia continue to review and monitor antimicrobial use in food animals. As discussed in its report, GAO had difficulty obtaining information comparing policies across countries, given the limited availability and varying responses from these countries, reporting errors and other administrative issues, and an inability to independently verify this information, among other concerns. Because of these difficulties, GAO's report did not claim to provide a definitive and comprehensive summary across all selected countries on policies regarding antibiotics in animal feed. Limited additional information is available on how policies regarding antimicrobial use in animal feed may have changed since the GAO completed its report. Discussions with key staff that work on these issues at the U.S. Meat Export Federation (USMEF) and the USDA's Foreign Agricultural Service (FAS) confirmed that neither USMEF nor USDA regularly compiles consolidated and readily available information on country policies regarding antimicrobial use in feed. Additional country surveys were not conducted, given time constraints and the types of procedural difficulties in obtaining and verifying information on such policies for selected countries. In its 2004 report, GAO addressed the question of whether restrictions on antimicrobial use in food animals had affected U.S. trade and whether such polices might become an issue in the future. GAO stated that, according to officials of USDA's FAS, the Office of the U.S. Trade Representative, the USMEF, and the U.S. Poultry and Egg Export Council, "antibiotic resistance associated with use in animals has not been a significant factor affecting U.S. trade in meat products." GAO concluded, however, that there was evidence that country restrictions on the use of these drugs could become an issue in the future and could affect U.S. export markets for livestock and poultry products. At issue is whether increased restrictions and prohibition on the use of certain drugs in animal feed in some countries, including the EU, New Zealand, and South Korea, could affect or may already be affecting international trade in livestock and poultry products from countries, such as the United States, that do not actively restrict the use of these drugs for growth promotion in animal production. At this time, it is not possible to provide a quantitative assessment of the potential trade implications of future restrictions on antimicrobial use in food animal production, for reasons outlined in the following sections. Instead, following is a discussion of two possible scenarios for the potential trade implications on U.S. livestock and poultry exports of tightened restrictions or prohibitions on the use of antimicrobial drugs in animal feed for growth promotion: Scenario 1: Tightened restrictions or prohibitions in key U.S. export markets, without corresponding changes in the United States on the use of antimicrobials in animal feed for growth promotion. Scenario 2: Tightened restrictions or prohibitions in key U.S. export markets, with corresponding prohibitions in the United States on the use of antimicrobials in animal feed for growth promotion, which might increase meat exports from the United States. This scenario discusses possible tightened restrictions or prohibitions in key U.S. export markets on use of antimicrobials in animal feed for growth promotion without corresponding changes in the United States. Such a scenario could result in lower U.S. meat exports and reduced U.S. market share in global markets, if U.S. producers continue to regularly use these drugs in animal feed. At present, few key U.S. export markets have imposed such restrictions. The EU and New Zealand have the tightest restrictions on antimicrobial drug use in food animal production, which also affects countries wishing to export into these markets. However, these countries are meat export market competitors with the United States and receive only a small part of U.S. annual meat exports. Total meat exports to the EU range from about 3%-4% of all U.S. beef, pork, and poultry exports annually, suggesting that industry-led quality assurance efforts regarding antimicrobials still allow for U.S. meat exports to some EU markets. Although South Korea (a major importer of U.S. beef) and other markets either have initiated or are considering actions to restrict antimicrobial drug use in feed, an assessment of future trade trends is complicated for any number of reasons, as will be discussed. In U.S. beef markets, the top five export markets in 2008 were Mexico, Canada, Japan, Korea, and Taiwan, accounting for about 80% of all exports ( Table 2 ). Among these countries, Korea (with about 10% of annual exports) is phasing in restrictions over the next few years to 2011 regarding antimicrobial use in feed for growth promotion. In U.S. pork and poultry export markets, none of the top five export markets in 2008 are confirmed as having restrictions in place or as actively considering prohibitions on antimicrobial use in feed for growth promotion. The top five U.S. pork export markets were Japan, Canada, Mexico, Russia, and Hong Kong, accounting for about 75% of all exports ( Table 3 ); the top five U.S. poultry export markets were Russia, China, Mexico, Canada, and the Ukraine, accounting for about 60% of all exports ( Table 4 ). Canada is reportedly reviewing its policies regarding use, and there are unconfirmed media reports that some other countries, such as Japan and Taiwan, might also be considering similar restrictions. At this time, however, such restrictions have not yet been initiated in these countries. Given myriad technical and administrative issues regarding U.S. meat trade, it is difficult to generalize about what future restrictions on these drugs in feed might mean for U.S. meat exports. For example, comments submitted by the U.S. Meat Export Federation (USMEF) to the U.S. Trade Representative regarding various international sanitary and phytosanitary (SPS) and technical trade barriers highlight the wide-ranging types of issues facing U.S. meat exporters in global markets. Among these are growing consumer concerns in markets such as Japan, South Korea, and Taiwan about certain U.S. production practices, including the use of antimicrobial drugs in U.S. livestock and poultry animals but also including other practices such as the use of growth promoting hormones, feeding genetically modified organisms to livestock, cloning, animal welfare, and the impact of livestock production on the environment. Other priority trade issues involve problems of market access due to various other types of restrictions, including concerns about bovine spongiform encephalopathy (BSE, or mad cow disease), biotechnology, antimicrobial washes, other feed additives, drug residues in meat tissue, labeling requirements, animal traceability, the H1N1 influenza virus, and various other food safety issues. Each of these issues is highlighted and outlined as part of USMEF's public comments. With respect to South Korea, there is still uncertainty about whether future U.S. meat exports will be affected by its recently enacted restrictions. Korea's restrictions do not prohibit use of all antibiotics (presumably, Korea would still allow for the use of other animal drugs). Also, it is not clear whether meat imports to Korea from other countries that allow for the use of the prohibited animal drugs in production will be affected; other U.S.-Korea trade issues may take precedence over the issue of antimicrobial drug use in feed. As previously noted, Korea's notification to the WTO claimed that its policy change could affect Korea's trade in "animal feed," and did not mention trade in meat products. Media reports differ in terms of the extent of Korea's recent policy changes. Based on 2008 trade data, Korea accounted for about 6% of U.S. beef exports and 8% of U.S. pork exports ( Table 2 and Table 3 ). One possible scenario is that certain higher-income Asian countries, such as Japan and Taiwan, may choose to follow South Korea and impose similar restrictions on antibiotic use in food animal production. These countries tend to have consumers that place a high value on premium quality, often higher-priced meats, including niche markets such as antibiotic-free meat products. Consumers in these markets also tend to have heightened sensitivities to food safety concerns and other related issues. In such a case, absent changes in the U.S. meat market that would restrict the use of antimicrobial drugs in food animal production, it is possible that the United States could lose its export markets to these countries. Based on 2008 trade data, these three markets—Korea, Japan, and Taiwan—account for a sizable combined share of total annual U.S. beef and pork exports, comprising 26% ($0.8 billion) of annual U.S. beef exports and 43% ($1.7 billion) of U.S. pork exports in 2008 ( Table 2 and Table 3 ). In other markets, the United States has already encountered trade restrictions with regard to other types of antimicrobial-related trade issues in its poultry trade. In Russia, imports of meat products from the United States and from several European countries have been periodically denied because trace amounts of tetracycline and oxytetracycline were found in some of the pork tested. In 2010 Russia, the leading export market for U.S. poultry products (with 18% of exports in 2008), implemented a ban on poultry treated with chlorine rinses. Similarly, in the EU, U.S. poultry exports are currently being restricted because the EU is prohibiting the use of antimicrobial rinses or pathogen reduction treatments (PRTs) on poultry, effectively shutting out U.S. poultry exports. At present, two of the United States' key meat competitors—the EU and New Zealand—have imposed restrictions on their own domestic industries regarding the use of antimicrobials in feed for growth promotion, which also affects countries wishing to export into these markets. Although other U.S. major export competitors, such as Brazil, Argentina, Uruguay, and Australia, currently do not have similar restrictions in place, these countries generally grow animals that are rangeland- or grass-fed. These animals may be less exposed to antimicrobials, compared to other countries where the majority of animals raised may be regularly exposed through in-feed additives at feedlot operations. Under such a scenario, this might suggest that some U.S. export competitors, such as the EU and other major net-exporting countries, may be better poised to capture a larger share of world meat export markets. As noted, current production practices and regulatory regimes in some of these markets make these net-exporting countries already better able to supply antibiotic-free meats to markets demanding such products, irrespective of any future policies or prohibitions that might be enacted. However, some U.S. competitor markets may likely face certain capacity and production constraints, and have limited opportunity to increase production to meet growing global demand. Most export competitors have only a small share of the global meat export market, such as Australia (about 5% of world exports in 2008), Argentina (less than 2%), and New Zealand and Uruguay (each with about 1% of exports). Brazil accounted for about 10% of global livestock and poultry exports in 2008. The EU accounted for well over one-half of all global exports in 2008; however, it faces a sizable domestic market, similar to the United States. The United States accounted for 12% of global livestock and poultry exports ( Table 1 ). Relative export per-unit price differences among these countries is also a factor. In general, U.S. meat exports tend to be price-competitive compared to some competitors. This scenario discusses possible tightened restrictions or prohibitions in key U.S. export markets on use of antimicrobials in animal feed for growth promotion, with corresponding changes in the United States. It is unclear whether such a scenario would result in opportunities for U.S. meat exports in global markets, or whether U.S. restrictions would adversely affect overall meat production in the United States. Some might speculate that should the United States restrict or prohibit the use of antimicrobials in animal feed for growth promotion, U.S. meat exports might increase, given general expectations that consumer demand for antibiotic-free meats is growing. One possible model for this scenario is the Non-Hormone-Treated Cattle (NHTC) Program, which was established to address EU prohibitions against imports of U.S. beef that are produced with growth hormones. Under this program, USDA's Food Safety and Inspection Service (FSIS) certifies the processes and procedures in place for meats produced without the use of growth hormones, which are commonly used in the United States. Any U.S.-exported beef to the EU is accompanied by both a health certificate and a certificate of authenticity issued by USDA. Initially, few U.S. plants participated in this program or were approved for export to the EU, and the volume of U.S. beef exports were low and often well below the allowable quota limit set by the European Union. Over time, however, some larger facilities have been approved and U.S. export volumes have been higher, approaching or possibly exceeding the quota limit, and there is renewed interest in increasing U.S. market access under the quota. Nevertheless, despite recent increases in exports of U.S. hormone-free beef, total U.S. beef exports are still much lower than traded levels prior to the enactment of the EU's ban. The U.S. beef industry claims that, absent the EU's hormone ban, U.S. beef exports to the European Union would be much greater. Regarding antimicrobial use, the U.S. livestock and poultry industries have initiated a number of producer-driven quality assurance programs that address administration of these drugs and their proper use, handling, and application. These programs include: American Association of Avian Pathologists (AAAP) . "Statement on Use of Antibiotic Feed Additives by the Poultry Industry" (www.aaap.info) and "Guidelines to Judicious Therapeutic Use of Antimicrobials in Poultry" ( http://www.avma.org/issues/policy/jtua_poultry.asp ). National Pork Board (NPB) and National Pork Producers Council (NPPC). "Take Care—Use Antibiotics Responsibly" ( http://www.pork.org ); Pork Quality Assurance Plus ( http://www.pork.org/Producers/PQA/PQAPlusEdBook.pdf ). National Cattlemen's Beef Association (NCBA). Beef Quality Assurance Program (BQA) and Producers' Guide for Judicious Use of Antibiotics ( http://www.beef.org and http://www.beefboard.org ). American Feed Industry Association (AFIA). Safe Feed/Safe Food Certification Program ( http://www.afia.org ). National Grain & Feed Association (NGFA). Model Feed Quality Assurance Program ( http://www.ngfa.org ). The availability of such programs could help to hasten a transition to antimicrobial-free meat production in the United States, in the event that the United States or some of its key export markets were to restrict or prohibit the use of antimicrobial drugs in feed for growth promotion. At this time, the United States does not have an export verification program specific to these drugs. It is important to keep in mind the principal reasons why livestock and poultry growers in the United States and elsewhere use low levels of these drugs in animal diets and feed: this practice helps improve animal growth rates and feed efficiency, and also helps reduce mortality and morbidity and improve reproductive performance. Improved growth rates and feed efficiency translate into important cost savings for most growers, which in turn positively influences producer incomes and per-animal net returns. Prohibiting the use of these drugs for growth promotion purposes use would likely carry cost implications for growers, raising overall production costs possibly beyond what growers may be willing to accept and still remain in business. This could potentially lower U.S. meat production and reduce supplies available for export. Alternatively, U.S. prices might increase relative to those of competitors and remove any price advantage U.S. meat exporters might have currently, which could also erode U.S. export market share. Furthermore, under a scenario whereby the United States produces and exports antibiotic-free meat, overall traded product volumes would likely be very low compared to current volumes without such restrictions, at least initially (as is the case with hormone-free meat exports to the EU under the NHTC Program). Rather than raise U.S. meat exports, this could, alternatively, initially decrease overall U.S. meat exports and erode overall U.S. export market share in world markets. There is general uncertainty about how the United States would respond to a worldwide ban on the use of these drugs in animal feed for growth promotion, since this would depend largely on the ability of U.S. producers to adapt and transition effectively in response to global or domestic market conditions and consumer demand. In fact, the NHTC Program example might provide a poor model for predicting what might happen in global meat markets under a worldwide ban, since this program addresses U.S.-EU bilateral trade only, which still allows for the United States to ship conventional beef products elsewhere in the world. Although the potential trade flow outcomes of changes to import policies among key U.S. trading partners and export competitors regarding antimicrobial use cannot be precisely quantified or predicted, what seems clear is that existing and future policy changes in some countries could carry important implications for U.S. meat trade. Overall, policy changes restricting U.S. livestock and poultry trade could result in adverse effects on U.S. poultry and livestock producers and exporters, either with or without similar policy changes restricting use of these drugs. A number of bills were introduced in the 111 th Congress aimed at curtailing agricultural uses of medically significant antibiotics, but none was enacted. These included bills introduced in the House and Senate on March 17, 2009, as H.R. 1549 by Representative Slaughter and S. 619 by Senator Reid (for Senator Kennedy). These bills, the Preservation of Antibiotics for Medical Treatment Act of 2009 (PAMTA), were similar in title and purpose to bills introduced but not enacted in the 110 th Congress ( H.R. 962 , S. 549 ), the 109 th Congress ( H.R. 2562 , S. 742 ), the 108 th Congress ( H.R. 2932 , S. 1460 ), and the 107 th Congress ( H.R. 3804 , S. 2508 ). Top officials of the U.S. Food and Drug Administration (FDA) have weighed in on the debate by expressing support in concept for phasing out nontherapeutic (essentially, nonmedical) uses of antimicrobials in food animal production. For more information, see CRS Report R40739, Antibiotic Use in Agriculture: Background and Legislation . Industry groups generally oppose these bills because of concerns about animal welfare and food safety, as well as concerns about possible increases in production costs, among other reasons. Some, including Chairman Peterson of the House Agriculture Committee, also continue to question whether the scientific evidence supports the claim that a reduction in antibiotic use in animal agriculture results in public health benefits. Lawmakers with important poultry and meat industry constituents are likely to monitor import policy changes regarding antimicrobial use among U.S. trading partners and competitors, as well as legislative proposals suggesting similar policy changes in the United States. | Exports of U.S. livestock and poultry products are important both to farmers and to the U.S. economy. In 2009, U.S. livestock and poultry exports were valued at more than $10 billion, accounting for about 12% of total global meat trade (estimated at nearly $87 billion in 2009). Growing concerns about antimicrobial resistance have caused some U.S. trading partners and competitors to implement restrictions and prohibitions on the use of certain antimicrobials for subtherapeutic or nontherapeutic purposes in animal production. Although antibiotic use in animals has not been a significant factor affecting U.S. trade in meat products to date, evidence suggests that country restrictions on the use of these drugs could become an issue in the future and could affect U.S. export markets for livestock and poultry products. At issue is whether increased restrictions and prohibitions on the use of certain drugs in animal feed in some countries, including the European Union (EU), New Zealand, and South Korea, could affect or may already be affecting international trade in livestock and poultry products from countries, such as the United States, that do not actively restrict the use of these drugs for growth promotion in animal production. In the United States, H.R. 965 and S. 1211 (Preservation of Antibiotics for Medical Treatment Act of 2011, PAMTA), seek to restrict the use of certain antimicrobial drugs for subtherapeutic or nontherapeutic purposes in food-producing animals. Most U.S. livestock and poultry producers are opposed to such restrictions because of concerns about animal welfare and food safety, as well as concerns about possible increases in production costs, among other reasons. Presently, it is not possible to precisely predict or to provide a quantitative assessment of the potential trade implications of future restrictions on antimicrobial use in food animal production. Given the number of market variables that would need to be evaluated, along with other trade issues facing U.S. meat exporters in global markets, it is difficult to precisely predict trade implications of possible future restrictions on antimicrobials in animal feed in selected countries. However, it is possible to examine the range of possible outcomes from two scenarios involving potential trade implications for U.S. livestock and poultry exports from tightened restrictions or prohibitions on the use of antimicrobial drugs in animal feed for growth promotion: Scenario 1: Tightened restrictions or prohibitions in key U.S. export markets, without corresponding changes in the United States on the use of antimicrobials in animal feed for growth promotion. Scenario 2: Tightened restrictions or prohibitions in key U.S. export markets, with corresponding prohibitions in the United States on the use of antimicrobials in animal feed for growth promotion. This report discusses the possible outcomes under these scenarios in terms of changes in U.S. livestock and poultry exports and changes in U.S. market share in global meat markets. |
By exercising its power to determine whether federal and state government actions are constitutional, the Supreme Court has developed a large body of judicial decisions, or "precedents," interpreting the Constitution. Rules and principles established in prior cases inform the Court's future decisions. The role that precedent plays in the Court's decisions on highly controversial issues has prompted debate over whether the Court should follow or overrule rules it established in prior decisions. Such questions underscore the challenges the Court faces in maintaining stability in the law by adhering to precedent under the doctrine of stare decisis so that parties may rely upon its decisions, while at the same time correcting prior decisions that rest on faulty reasoning, unworkable standards, abandoned legal doctrines, or outdated factual assumptions. One notable example of a precedent that has prompted significant debate is the Supreme Court's 1992 decision in Planned Parenthood v. Casey . In Casey, a plurality of Justices reaffirmed the core aspects of the Court's earlier holding in Roe v. Wade that a woman has a protected constitutional liberty interest in terminating her pregnancy prior to fetal viability, stating that the essential holding of Roe "should be retained." But the plurality's opinion in Casey suggests that several Justices who voted to reaffirm Roe had significant doubts about the quality of its reasoning. Despite these doubts, the Casey plurality decided that other considerations required reaffirming Roe 's central holding, including societal reliance on a fundamental constitutional right; concern for the Court's legitimacy as an institution; and the principle that the Court should adhere to rules in its prior decisions (i.e., stare decisis), particularly when a case implicates a highly divisive issue like abortion. Although the Supreme Court's decision to retain a precedent may prompt significant debate, the Court's overruling of precedent can also be controversial, as the Court's 2010 decision in the campaign finance regulation case Citizens United v. FEC illustrated. That case established that the First Amendment prohibits governments from restricting independent expenditures on political speech related to an election campaign by corporations, labor unions, and other organizations. In reaching this result, the Court overturned its decision in Austin v. Michigan State Chamber of Commerce , which had held that the government could prohibit political speech funded from a corporation's general treasury fund based on the fact that the speaker was a corporation. The Court's overruling of Austin in Citizens United sparked debate about whether the Court should have adhered more strictly to the principle of stare decisis. Debate over the role that stare decisis plays in the Supreme Court's decision making continued during the 2017-2018 term as the Justices overruled four longstanding precedents. For example, in Janus v. American Federation of State, County, and Municipal Employees, the Court overturned its 1977 holding in Abood v. Detroit Board of Education and determined that laws that require public employees to pay "fair share" fees to the union designated to represent their bargaining unit, even if the employees are not members of the union, violated the First Amendment by compelling speech on matters of public concern. And in South Dakota v. Wayfair , the Court overturned holdings in two earlier cases, concluding that the Commerce Clause does not restrict states from requiring retailers that lack a physical presence in the state to collect and remit taxes on sales made to state residents. In light of these developments, this report examines how the Supreme Court determines whether to overrule its prior decisions on questions of constitutional law. It provides an overview of the doctrine of stare decisis, under which a court generally follows rules adopted in prior decisions in future cases with arguably similar facts. It discusses how Justices who have adopted textualism and originalism as philosophies for interpreting the Constitution handle conflicts between precedent and their judicial philosophies. Finally, the report examines various factors that the Court weighs when determining whether to overrule or limit its precedents interpreting the Constitution, providing examples from the Court's recent jurisprudence. Understanding stare decisis may assist the Senate in evaluating the judicial philosophy of nominees to the federal courts. For example, in July 2018, President Donald J. Trump announced the nomination of Judge Brett M. Kavanaugh of the U.S. Court of Appeals for the District of Columbia Circuit to fill retiring Justice Anthony M. Kennedy's seat on the Supreme Court of the United States. Members of Congress, the public, and legal scholars expressed interest in Judge Kavanaugh's views on stare decisis, as they could potentially provide insight into his future decisions in important areas of constitutional law, including abortion, affirmative action, labor law, and separation of powers, among others. The Appendix to this report lists Supreme Court decisions on constitutional law questions that the Court has overruled specifically during its more than 225-year history. Stare decisis , which is Latin for "to stand by things decided," is a judicial doctrine under which a court follows the principles, rules, or standards of its prior decisions or decisions of higher tribunals when deciding a case with arguably similar facts. The doctrine of stare decisis has "horizontal" and "vertical" aspects. A court adhering to the principle of horizontal stare decisis will follow its prior decisions absent exceptional circumstances (e.g., the Supreme Court following its decisions unless they have become too difficult for lower courts to apply). By contrast, vertical stare decisis binds lower courts to follow strictly the decisions of higher courts within the same jurisdiction (e.g., a federal court of appeals must follow the decisions of the U.S. Supreme Court, the federal court of last resort). This report addresses how the U.S. Supreme Court determines whether to overrule its prior decisions. Thus, this report discusses only horizontal stare decisis. The Supreme Court applies the doctrine of stare decisis by following the rules of its prior decisions unless there is a "special justification"—or, at least, "strong grounds"—to overrule precedent. In adopting this approach, the Court has rejected a more formalistic view of stare decisis that would require it to adhere to its prior decisions regardless of the merits of those decisions or the practical implications of retaining or discarding precedent. Instead, while the Court has stated that its precedents are entitled to respect and deference, the Court considers the principle of stare decisis to be a discretionary "principle of policy" to be weighed and balanced along with its views about the merits of the prior decision and several pragmatic considerations when determining whether to retain precedent in interpreting the Constitution or deciding whether to hear a case. The Court may avoid having to decide whether to overrule precedent if it can distinguish the law or facts of a prior decision from the case before it or, rather, limit the prior decision's holding so that it is inapplicable to the instant case. The doctrine of stare decisis in American jurisprudence has its roots in 18 th century English common law. In 1765, the English jurist William Blackstone described the doctrine of English common law precedent as establishing a strong presumption that judges would "abide by former precedents, where the same points come again in litigation" unless such precedents were "flatly absurd or unjust" in order to promote stability in the law. And the Framers of the U.S. Constitution, who conferred the "judicial power" of the United States on the Supreme Court and lower federal courts, echoed Blackstone in their writings during the late 18 th century, favoring judges' adherence to judicial precedent because it limited judges' discretion to interpret ambiguously worded provisions of written law. For example, writing in the Federalist during the debates over adoption of the Constitution at the end of the 18 th century in an essay addressing concerns about judicial power, Alexander Hamilton argued that courts should apply precedent to prevent judges from having unbounded discretion to interpret ambiguous legal texts. However, historical sources provide only limited insight into the Founders' views on stare decisis, and it is unclear whether Hamilton was referring to the presumption that a court should adhere to its own prior decisions or, rather, those of higher tribunals. Despite the Founders' general approval of judges following precedent, at least one Framer, James Madison, acknowledged that courts should occasionally make exceptions to the doctrine of stare decisis for certain policy reasons. During the tenure of Chief Justice John Marshall in the early 1800s, the Supreme Court combined a strong preference for adhering to precedent with a "limited notion of error correction" when precedents had been eroded by subsequent decisions, were "premised on an incomplete factual record," or were clearly in error. Another characteristic of these early decisions is that the Court was reluctant to overrule prior decisions when doing so would upset commercial reliance interests (e.g., precedents concerning matters of property or contract law). Although the Court has only recently sought to enumerate the factors it considers when determining whether to overrule precedent, the Court has long sought to strike a balance between maintaining a stable body of consistent jurisprudence while at the same time preserving some "mechanism for error correction." The Supreme Court has often stated that following its prior decisions supports the legitimacy of the judicial process and fosters the rule of law by encouraging stability, certainty, predictability, consistency and uniformity in the application of the law to cases and litigants. As Justice Lewis Powell once remarked, "the elimination of constitutional stare decisis would represent an explicit endorsement of the idea that the Constitution is nothing more than what five Justices say it is." Thus, one view is that following the carefully considered decisions of past Justices by adhering to principles of stare decisis supports the Court's role as a careful, unbiased, and predictable decisionmaker that decides cases according to the law rather than the Justices' individual policy preferences. Another reason for adhering to stare decisis is to save judges and litigants time by reducing the number and scope of legal questions that the court must resolve in litigation (e.g., whether the Court may declare a federal law unconstitutional—a question settled in the 1803 decision of Marbury v. Madison ). In a similar vein, the Court has suggested that having a precedent established on a particular question of law allows for the quick and efficient dismissal of lawsuits that can be resolved through recourse to rules in prior decisions, which may encourage parties to settle cases out of court and thereby enhance judicial efficiency. Arguing against a strict adherence to the principle of stare decisis, some Justices and legal commentators have noted that overruling incorrect precedents may occasionally be necessary to rectify egregiously wrong or unworkable decisions or to account for changes in the Court's or society's understandings of the facts underlying a legal issue (e.g., the changed understanding of the stigmatic effect of racial segregation in public schools). Critics of strict adherence to stare decisis have also argued that the Court's application of the doctrine in constitutional cases has been unpredictable, has been based on ideology, has lacked a basis in the Constitution, and has often been used to shield the Court's errors from correction, hurting the Court's legitimacy. Consequently, some Justices and scholars have argued that when a precedent conflicts with the proper understanding of the Constitution, Justices should follow the Constitution and overrule incorrect precedents instead of adhering to mistaken interpretations by past Justices. The Supreme Court has established special rules for applying stare decisis in constitutional cases. During the twentieth century, the Court adopted a weaker form of stare decisis when deciding cases that implicated a prior interpretation of the Constitution rather than a previous interpretation of a federal statute. The Court has sought to justify this approach on the grounds that Congress may amend federal laws to address what it deems to be erroneous judicial interpretations of statutes, whereas amending the Constitution to overturn a Supreme Court precedent is much more difficult. In fact, in the history of the United States, only five Supreme Court precedents have been overturned through constitutional amendment. Despite the Court's assertion that it applies a weaker form of stare decisis in constitutional cases, the Court has in the last couple of decades still specifically required a "special justification" or at least "strong grounds" for overruling constitutional precedents. Another notable issue surrounding stare decisis is the difficulty that a judge may face in adhering to the principle of stare decisis when application of his or her philosophy for interpreting the Constitution (e.g., originalism or pragmatism) in a particular case would produce a result contrary to existing precedent. Although any method for interpreting the Constitution may conflict with precedent, debate has often focused on conflicts between judicial precedent and interpretation of the Constitution based on its text or its original meaning—that is, the meaning of its words as understood by some segment of the populace alive at the time of the Founding. Some proponents of textualism and original meaning as methods of constitutional interpretation object to the use of judicial precedent that conflicts with the text of the Constitution and its original meaning, because it favors the views of the Supreme Court over the views of those who ratified the Constitution, thereby allowing mistaken interpretations of the Constitution to persist. Nevertheless, textualists and originalists may adhere to precedent for pragmatic reasons, such as when doing so would promote stability in the law. For example, Justice Scalia, a solid textualist and originalist, followed longstanding precedent allowing for the Supreme Court to incorporate rights specifically enumerated in the Bill of Rights against state governments even though he harbored significant doubts that such incorporation comported with the original meaning of the Constitution. One example of this approach is Justice Scalia's concurrence in McDonald v. City of Chicago , a case in which the Supreme Court considered whether the city of Chicago could, consistent with guarantees in the Second and Fourteenth Amendments, ban the possession of handguns in the home. Two years earlier, the Court in District of Columbia v. Heller, had determined that the Second Amendment's protection of the "right of the people to keep and bear arms" extended to all citizens and was not merely related to, or conditioned on, service in a militia, striking down a similar D.C. law. But the City of Chicago was not directly subject to the Second Amendment because it was part of a state rather than a federal enclave like the District. Nevertheless, a 5-4 majority of the Court held, in line with the Court's precedents, that the Second Amendment applied to the state and its subdivisions through the Fourteenth Amendment's Due Process Clause because the Second Amendment protected a fundamental right that was necessary to the American scheme of "ordered liberty" and was rooted in American traditions, and, therefore, its incorporation against state governments was constitutional. Justice Scalia concurred with this result, stating, "Despite my misgivings about substantive due process as an original matter, I have acquiesced in the Court's incorporation of certain guarantees in the Bill of Rights because it is both long established and narrowly limited." Thus, Scalia demonstrated a willingness to make a pragmatic exception to his philosophy for interpreting the Constitution by adhering to a longstanding line of precedents that had become "woven in the fabric of the law" when it would serve the practical objective of maintaining stability in the Court's jurisprudence. As noted, in recent decades, the Supreme Court has often stated that a decision to overrule precedent must be based on some special justification—or, at least "strong grounds"—that extends beyond the Court's mere disagreement with the merits of the prior decision's reasoning. In this vein, the Justices have expressed some concern that the Court's legitimacy might suffer if it constantly overruled its prior decisions based on such disagreements. Consequently, when deciding whether to overrule a past decision in a constitutional case, the Court has historically considered several "prudential and pragmatic" factors that seek to foster the rule of law while balancing the costs and benefits to society of reaffirming or overruling a prior holding. The Court's 2018 decision in Janus v. American Federation of State, County, and Municipal Employees sets forth a nonexhaustive list of these factors: the quality of [the precedent's] reasoning, the workability of the rule it establishes, its consistency with other related decisions, developments since the decision was handed down, and reliance on the decision. This section briefly discusses examples from the Supreme Court's jurisprudence that illustrate the Court's use of each of these factors in its analysis: (1) the quality of the precedent's reasoning; (2) the workability of the precedent's rule or standard; (3) the precedent's consistency with other related decisions; (4) factual developments since the case was decided; and (5) reliance by private parties, government officials, courts, or society on the prior decision. The first factor that the Supreme Court may consider when determining whether to reaffirm or overrule a prior decision is the quality of the Court's reasoning in the prior case. However, it does not appear that the Court's disagreement with a prior case's reasoning is enough by itself to overrule that case. An example of the Supreme Court overruling precedent because it had significant disagreements with its reasoning is West Virginia State Board of Education v. Barnette. In that case, the Court held that the First Amendment prohibited a state from enacting a law compelling students to salute the American flag. In doing so, the Court overruled its three-year-old decision in Minersville School District v. Gobitis , which had upheld a state's flag-salute requirement. In Barnette, Justice Robert Jackson, writing for the majority, offered a point-by-point refutation of Gobitis ' reasoning. For example, in addressing the Gobitis Court's argument that legislatures rather than courts were the best forum to hear disputes over the imposition of the flag-salute requirement, the Barnette majority noted that the Bill of Rights had removed certain subjects, such as freedom of speech, from the political arena and committed resolution of disputes concerning these issues to the judiciary. And in rejecting the core argument of Gobitis that compelled flag salutes were necessary to achieve national unity, Jackson invoked the unique character of American constitutional government, which in contrast to authoritarian regimes, eschewed the use of government coercion as a means of achieving national unity. The Court's belief that Gobitis rested on flawed reasoning thus played a key role in its overturning of that precedent. A case from the 2017-2018 term in which the Court overturned precedent partly because of the purportedly poor quality of its reasoning is Janus v. American Federation of State, County, and Municipal Employees . In that case the Court overturned its 1977 holding in Abood v. Detroit Board of Education by determining that a government, by requiring public employees, who were not members of a union designated to represent their bargaining unit, to pay "fair share" fees to the union, violated the First Amendment by compelling speech on matters of public concern. The Court in Janus rested its decision to overrule Abood on several grounds, including the unworkability of Abood 's standard for distinguishing union expenditures that could be legally charged to employees from those that could not and a lack of reliance on the decision. However, it began its analysis with a discussion of the merits of Abood . Characterizing Abood as "poorly reasoned," the Supreme Court explained that the Abood decision permitting "fair share" fee arrangements improperly rested upon Court precedents involving government authorization of private sector collective bargaining agreements instead of government compulsion of public sector employees' payment of "fair share" fees. Moreover, the Janus Court stated, Abood accorded too much deference to the government's asserted interest in achieving "labor peace" by requiring employees to pay public sector fees and gave too little consideration to fundamental free speech rights. These merits-based reasons, among others, motivated the Court's decision to discard Abood . Another factor that the Supreme Court has considered when determining whether to overrule a precedent is whether a rule or standard that the prior case establishes for determining the constitutionality of a government action is too difficult for lower federal courts or other interpreters to apply and is thus "unworkable." An example of a case in which the Court overturned a precedent because its rule was unworkable is Garcia v. San Antonio Metropolitan Transit Authority . In Garcia , the Court considered a key question implicating the relationship between the federal and state governments: whether Congress could impose the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA) on employees of the San Antonio Metropolitan Transit Authority, a municipally owned and operated mass-transit system. Garcia raised the question of whether Congress's exercise of its Commerce Clause power in FLSA unconstitutionally impinged on state sovereignty—a question the Court had attempted to answer nine years earlier in National League of Cities v. Usery . In Usery, the Court had developed a test for when state activities qualified for immunity from congressional regulation under the Commerce Clause, determining that Congress lacked authority to regulate state employees' working conditions when the state employees performed activities in "areas of traditional government functions." But a 5-4 majority of the court in Garcia determined that Usery 's test was unworkable because it was difficult for lower courts to apply consistently. The Court stated that Usery "did not offer a general explanation of how a 'traditional' function is to be distinguished from a 'nontraditional' one. Since then, federal and state courts ha d struggled with the task, thus imposed by the Court, of identifying a traditional function for purposes of state immunity under the Commerce Clause ." The Court thus discarded Usery 's test and further held that Congress could, consistent with the Constitution, impose wage and hour requirements on state employees. As noted, more recently, in Janus, the Court overruled Abood 's holding that the government could constitutionally require public employees to pay fees to a union, even if the employees were not members of the union, so long as those fees qualified as "chargeable" union expenses under a three-part test intended to balance governments' interests in "labor peace" with the First Amendment free speech rights of employees. The Abood test examined whether: (1) the expenses were "germane to collective bargaining"; (2) were "justified by the government's labor-peace and free-rider interests"; and (3) did "not add significantly to the burden on free speech." Noting that " Abood 's line between chargeable and nonchargeable union expenditures has proved to be impossible to draw with precision," the Court characterized the Abood test as unworkable because the unclear standard left judges with too much discretion and resulted in unpredictable outcomes concerning the permissibility of compelled payment of union fees. The Abood test's unworkability was one reason that the Court chose to overrule that precedent. Another factor the Supreme Court may consider is whether the precedent is inconsistent with other Court decisions on similar matters of constitutional law. One manner in which a precedent may become inconsistent with related decisions is when its legal foundation, including its reasoning, principles, or rules, has been subsequently eroded by later decisions. In addition, the Court has occasionally considered whether a precedent should be overruled because it is a recent outlier among the Court's decisions by examining the precedent's consistency with past decisions and determining whether overruling the case would "restore" coherency in the law. An example of the Court overruling a prior decision because it had been eroded by subsequent case law is Janus 's overruling of Abood . In overruling Abood 's determination that the government could require public employees to pay certain fees to a union, the Janus Court noted that Abood had become inconsistent with the Court's First Amendment cases. In particular, subsequent decisions of the Court had criticized the Abood Court for failing to scrutinize a significant restriction on employees' First Amendment rights sufficiently, as required by more recent Court jurisprudence examining various laws compelling speech or association. In addition, the Court determined that Abood was inconsistent with a related line of subsequent cases "holding that public employees generally may not be required to support a political party." Consequently, the Court deemed Abood 's First Amendment analysis to have been eroded by several of its subsequent decisions. In other cases, the Supreme Court may overrule a recent decision that it deems an outlier in order to restore an older line of precedents. An example is Ad arand Constructors, Inc. v. Peña. In Adarand, the Court considered whether the federal government violated a subcontractor's equal protection rights under the Fifth Amendment's Due Process Clause when the government provided financial incentives for prime federal contractors to award subcontracts to businesses owned by minorities, such as racial minorities. The Court held, contrary to its earlier decision in Metro Broadcasting, Inc. v. FCC , that the Fifth Amendment does not impose a lesser duty on the federal government than the Equal Protection Clause of the Fourteenth Amendment does on state governments, which meant that the federal government's racial classifications are subject to the most stringent form of review (i.e., strict scrutiny). The Court characterized the overruled Metro Broadcasting case as a recent departure from the equal protection principles of a long line of prior cases that stood for the principle that the same equal protection obligations apply to federal, state, and local governments. The majority wrote, "By refusing to follow Metro Broadcasting, then, we do not depart from the fabric of the law; we restore it." Sometimes, the Justices may disagree over which line of precedents the Court should retain, and which line of precedents it should overrule or ignore. For instance, in Lawrence v. Texas , the Court struck down a Texas law that banned private, consensual same-sex sexual activity as violating the Due Process Clause of the Fourteenth Amendment. In doing so, the Court held that the concept of liberty in that clause "presumes an autonomy of self that includes freedom of thought, belief, expression, and certain intimate conduct." Justice Kennedy's opinion for the majority overruled a prior decision, Bowers v. Hardwick , which had upheld a Georgia law banning similar sexual conduct. Kennedy's opinion characterized Bowers as inconsistent with the Court's subsequent 1992 decision in Casey reaffirming abortion rights and its 1996 decision in Romer v. Evans , which struck down Colorado legislation removing protections for homosexuals from state antidiscrimination laws as violating the Fourteenth Amendment's Equal Protection Clause. Kennedy's opinion stated that the Casey and Romer decisions stood for the notion that the Fourteenth Amendment's Due Process Clause protects personal autonomy to make decisions related to "marriage, procreation, contraception, family relationships, child rearing, and education." The Court thus viewed Bowers as wrongly decided in part because it was inconsistent with the Court's subsequent jurisprudence. A dissenting Justice Scalia strongly disagreed, characterizing Casey and Romer as outliers whose legal foundations had been eroded by a 1997 case holding that only "fundamental rights" that are "deeply rooted in [the] Nation's history and tradition" qualified for enhanced protection under the Due Process Clause. The majority and dissent in Lawrence thus disagreed over whether the Court had "restored" the law or, rather, departed from it, by overruling Bowers. The Supreme Court has also indicated that changes in how the Justices and society understand the facts underlying a prior decision may undermine the authoritativeness of a precedent, leading the Court to overrule it. In Casey , the plurality opinion pointed to two major examples from the Court's twentieth-century jurisprudence that it stated had demonstrated the occasional necessity of overruling a prior decision based on subsequent factual developments. In the first case from 1937, West Coast Hotel v. Parrish , the Court effectively overturned precedents that had struck down as unconstitutional state laws instituting a minimum wage or maximum working hours for employees, reversing its prior holdings that these laws violated employers' freedom to contract guaranteed by the Fourteenth Amendment's Due Process Clause. Supposedly dispensing with its earlier acceptance of principles of contractual freedom, the Court in West Coast Hotel held that overruling precedent was necessary in light of the nation's struggles during the Great Depression, stating that "the economic conditions which have supervened" required consideration of the "exercise of the protective power of the state" to institute minimum wage laws. The Court, resting its decision in part on these recent factual developments, concluded that the state could enact legislation to address its concerns about the exploitation of "defenseless" workers with less bargaining power than their employees, as well as the burden on taxpayers to provide for workers denied a living wage. The Casey plurality's second example of how the Court's overruling of precedent stemmed from changes in factual understandings involved supposed social change rather than economic developments. In the 1954 case of Brown v. Board of Education, the Court held that that a state, in segregating its public school systems by race, violated the Fourteenth Amendment. Specifically, the Court held that the practice of "separate but equal" as applied to schools violated the Equal Protection Clause, a provision that prohibits state governments from depriving their citizens of the equal protection of the law. Brown rejected factual understandings underlying the Court's prior decision in Plessy v. Ferguson , which had upheld the constitutionality of a Louisiana law mandating racial segregation in railway cars, determining that "separate but equal" public accommodations did not violate Thirteenth or Fourteenth Amendment guarantees. The Court in Brown, relying on academic studies, pointed to changes in society's understanding of the stigmatizing effects of racial discrimination in reaching its result, noting that "[w]hatever may have been the extent of psychological knowledge at the time of Plessy v. Ferguson , this finding [of racial stigma] is amply supported by modern authority. Any language in Plessy v. Ferguson contrary to this finding is rejected." The Court later characterized Brown as having overruled Plessy. Regardless of whether the Casey plurality's account of the Court's decisions in West Coast Hotel and Brown was completely accurate, it is clear that, throughout the Court's history, at least some Justices have considered changes in factual understandings to be a key element in determining whether to retain or overrule precedent. Factual developments also played a key role in a decision from the 2017-2018 term, South Dakota v. Wayfair , in which the Court overturned its holdings in two earlier cases, determining that the Commerce Clause does not restrict states from requiring retailers that lack a physical presence in the state, such as Internet retailers, to collect and remit taxes on sales made to state residents. In rejecting its precedents to the contrary, the Court noted that since deciding these cases, the economy had changed drastically, with a marked increase in the prevalence and power of Internet access and concomitant increases in retailers selling goods remotely to consumers. As a result, states faced an increased "revenue shortfall" estimated at up to $33 billion per year in sales tax revenue, allegedly traceable to the Court's prior decisions. These drastic changes in the economy required the Court to overturn two of its precedents that had prevented states from taxing such sales. In contrast to the four factors above, which generally ask whether a precedent should be overruled because of some deficiency in its legal or factual underpinnings, the reliance factor asks whether the Supreme Court should retain a precedent, even if flawed, because certain parties would suffer hardship if a case were overruled. This factor considers reliance on the rules and principles contained in the Supreme Court's prior decisions by individuals, companies, or organizations; society as a whole; or legislative, executive, or judicial government officials. Throughout its history, the Supreme Court has often adhered to precedent because of economic reliance interests (i.e., investment of time, effort, or money). The early Court held that economic reliance by businesses or individuals on the Court's precedents should weigh against overruling precedent, particularly in matters of property or contract law. By contrast, although economic reliance may counsel against overturning precedent, the Court has not given much weight to individual reliance on procedural or evidentiary rules. A recent example of the Supreme Court considering economic reliance when determining whether to overrule precedent is Janus , in which the Supreme Court overturned Abood v. Detroit Board of Education and determined that laws that require public employees to pay "fair share" fees to the union designated to represent their bargaining unit, even if the employees are not members of the union, violated the First Amendment by compelling speech on matters of public concern. In doing so, the Court rejected arguments that public employers and labor unions relied upon Abood allowing compelled payment of fees when negotiating and entering into collective bargaining agreements. The Court stated that reliance was insufficient to save Abood for several reasons, including that free speech rights were of greater importance than reliance interests; the labor contracts would expire in a few years anyway; Abood' s unworkable standard for deciding when a union could charge fees to nonmembers meant that parties should not have relied upon it; and the Court had given notice in its prior decisions that Abood might be overruled by criticizing Abood 's reasoning. In the late twentieth century, the Supreme Court recognized that reliance could be by society as a whole. A prominent example of this type of reliance is the Court's decision in Casey , in which the plurality opinion stated that "for two decades ... people have organized intimate relationships and made choices that define their views of themselves and their places in society, in reliance on the availability of abortion in the event that contraception should fail." The plurality indicated that societal reliance on Roe required retention of its central holding, arguing that the "ability of women to participate equally in the economic and social life of the Nation has been facilitated by their ability to control their reproductive lives." On the other hand, a dissenting Chief Justice Rehnquist accused the plurality of "having failed to put forth any evidence to prove any true reliance" and having instead relied "solely on generalized assertions about the national psyche, on a belief that the people of this country have grown accustomed to the Roe decision over the last 19 years and have 'ordered their thinking and living around' it." As is evident, arguments for retaining precedent based on societal reliance prompted strong debate among the Justices in Casey . An example of a majority of the Supreme Court adhering to precedent because of societal reliance is the Court's decision in Dickerson v. United States , which addressed the constitutionality of a federal statute governing the admissibility of statements made during police interrogation, a law that functionally would have overruled the 1966 case of Miranda v. Arizona . In striking down the statute, the majority opinion, authored by Chief Justice Rehnquist, declined to overrule Miranda despites doubts about the merits of its reasoning, noting that the 1966 case had "become embedded in routine police practice to the point where the warnings have become part of our national culture." Although the Court's reference to societal reliance as a justification for retaining precedent may help to preserve precedents that recognize constitutional protection of an individual right, the notion of "cultural" or "societal" reliance has been criticized by some commentators as providing the Court with unbounded discretion to retain or overturn precedent. Indeed, the Supreme Court has not provided significant guidance as to when societal or cultural reliance interests favor overruling precedent and when they do not. The Supreme Court's precedents may also foster government reliance. They may provide guidance for officials in the legislative, executive, and judicial branches as to what actions and practices comport with the Constitution. As a result, they may demarcate and illuminate the relationships between the branches of the federal government or the federal government and states. Government reliance has been implicated in some of the Court's most critical, long-standing precedents of major economic importance, such as decisions that adopted a broad view of Congress' power under the Commerce Clause and thereby established the foundation for the modern administrative state and the Court's 1870 decision in Knox v. Lee, which established the constitutionality of Congress authorizing the issuance of paper money as legal tender. Some Justices have argued that legislators may rely on the Supreme Court's decisions about the constitutionality of certain types of laws when they draft legislation. For example, in Lawrence v. Texas , the Court struck down a Texas law that banned private, consensual same-sex sexual activity as violating the Due Process Clause of the Fourteenth Amendment. Justice Kennedy debated a dissenting Justice Scalia over whether reliance on the Court's earlier decision in Bowers v. Hardwick , which had upheld a law criminalizing similar same-sex activities, required retaining Bowers as precedent. Justice Kennedy argued that there were no relevant reliance interests that counseled against overruling Bowers. In a vigorous dissent, Justice Scalia argued that legislators had relied upon Bowers in enacting numerous laws regulating certain sexual behaviors deemed immoral by the governing majority. Scalia argued that Lawrence called into question the viability of these laws, and that protecting legislative reliance interests merited retention of Bowers . Executive branch officials also arguably rely on Supreme Court precedents. For instance, in Arizona v. Gant , the Court held that the search-incident-to-arrest exception to the Fourth Amendment's requirement that the government obtain a warrant to search an arrestee's vehicle applied only if the arrestee could access the vehicle at the time of the search so that he could have gained possession of a weapon or destructible evidence or, alternatively, when it was "reasonable to believe that evidence of the offense of arrest might be found in the vehicle." Justice Alito authored a dissent in which he argued that the majority's opinion had effectively overruled New York v. Belton, a case that he characterized as providing police officers more certainty as to the permissibility of searching a vehicle's occupant after arrest. Alito wrote that law enforcement officers had relied on Benton , and that "the Benton rule has been taught to police officers for more than a quarter century. Many searches—almost certainly including more than a few that figure in cases now on appeal—were conducted in scrupulous reliance on that precedent." And, as noted, judges often rely on precedent, both explicitly by citing to precedent in their opinions, and implicitly, by accepting principles established by precedent, such as the power of judicial review. The Supreme Court's prior decisions on matters of constitutional law appear to inform the Justices' decisions in future cases. Because these precedents may implicate highly divisive and controversial issues, much debate and litigation has turned on the manner in which the Court determines whether to retain or overrule its prior decisions. Although this debate has often focused on the doctrine of stare decisis, the Court has stated that this doctrine is just one factor, among several others, that it considers when reviewing precedent. A survey of Court decisions, applying the various stare decisis factors, suggests that it is difficult to predict when the Court will overrule a prior decision. This uncertainty stems from a number of sources, including the fact that the Court has not provided a complete list of factors that it considers when making that determination or explained how it weighs each factor. Furthermore, sometimes a Justice's judicial philosophy may conflict with precedent, potentially requiring a Justice to choose between following his or her philosophy or making a pragmatic exception to it in order to maintain stability in the law. Although much about how the Supreme Court views precedent remains unclear, the Court's factors for determini ng whether to retain or overrule precedent provide the Justices with significant discretion. As Justice Samuel Alito stated during his confirmation hearings when asked what "special justifications" counsel for overruling precedent: Well, I think what needs to be done is a consideration of all of the factors that are relevant. This is not a mathematical formula. It would be a lot easier for everybody if it were. But it is not. The Supreme Court has said that this is a question that calls for the exercise of judgment. They have said there has to be a special justification for overruling a precedent. There is a presumption that precedents will be followed. But it is not—the rule of stare decisis is not an inexorable command, and I don't think anybody would want a rule in the area of constitutional law that ... said that a constitutional decision, once handed down, can never be overruled. Thus, if the Court is unable to distinguish a precedent from the case before it, the Justices, to preserve the Court's legitimacy, generally attempt to strike a delicate balance between maintaining a stable jurisprudence on which parties can rely while preserving sufficient flexibility to correct errors. The table below lists Supreme Court decisions on substantive questions of federal constitutional law that the Court subsequently overruled. The table was compiled by searching the LEXIS database for all Supreme Court decisions that use the word "overrule" in the headnotes, syllabus, or text of the Court's opinion. Decisions supported by a majority of the Court that expressly overruled an earlier decision were listed in the table. The listed cases include decisions identified by the search terms in which the Court partially overruled or otherwise qualified a prior case. These findings were also cross-checked with other sources to ensure that the search had captured any relevant results. For a decision to be listed as overruled, a majority of the Court must have explicitly stated, in a subsequent decision, that the case has been overruled. Consequently, the table does not include cases that the Court distinguished or limited or cases identified by concurring or dissenting Justices or commentators as overruled, unless such cases have also been expressly overruled by a majority of the Court. The list also does not include cases whose legal foundations have merely been eroded by subsequent decision without explicitly being overruled or that the Court treats as discredited. It also does not include cases in which the Court issued a ruling on the merits after having split evenly on the issue previously. The list does not necessarily reflect the current state of the law. The table is arranged in chronological order by the date of the overruling decision. For each overruling decision listed, the table gives (1) the name of the overruling decision; (2) the date of the overruling decision; (3) the name of the overruled decision; (4) the date of the overruled decision; and (5) the exact words used by the overruling Court in overturning the earlier decision. | By exercising its power to determine the constitutionality of federal and state government actions, the Supreme Court has developed a large body of judicial decisions, or "precedents," interpreting the Constitution. How the Court uses precedent to decide controversial issues has prompted debate over whether the Court should follow rules identified in prior decisions or overrule them. The Court's treatment of precedent implicates longstanding questions about how the Court can maintain stability in the law by adhering to precedent under the doctrine of stare decisis while correcting decisions that rest on faulty reasoning, unworkable standards, abandoned legal doctrines, or outdated factual assumptions. Although the Supreme Court has shown less reluctance to overrule its decisions on constitutional questions than its decisions on statutory questions, the Court has nevertheless stated that there must be some special justification—or, at least "strong grounds"—that goes beyond disagreeing with a prior decision's reasoning to overrule constitutional precedent. Consequently, when deciding whether to overrule a precedent interpreting the Constitution, the Court has historically considered several "prudential and pragmatic" factors that seek to foster the rule of law while balancing the costs and benefits to society of reaffirming or overruling a prior holding: Quality of Reasoning. When determining whether to reaffirm or overrule a prior decision, the Supreme Court may consider the quality of the decision's reasoning. Workability. Another factor that the Supreme Court may consider when determining whether to overrule a precedent is whether the precedent's rules or standards are too difficult for lower federal courts or other interpreters to apply and are thus "unworkable." Inconsistency with Related Decisions. A third factor the Supreme Court may consider is whether the precedent departs from the Court's other decisions on similar constitutional questions, either because the precedent's reasoning has been eroded by later decisions or because the precedent is a recent outlier when compared to other decisions. Changed Understanding of Relevant Facts. The Supreme Court has also indicated that changes in how the Justices and society understand a decision's underlying facts may undermine a precedent's authoritativeness, leading the Court to overrule it. Reliance. Finally, the Supreme Court may consider whether it should retain a precedent, even if flawed, because overruling the decision would injure individuals, companies, or organizations; society as a whole; or legislative, executive, or judicial branch officers, who had relied on the decision. A survey of Supreme Court decisions applying these factors suggests that predicting when the Court will overrule a prior decision is difficult. This uncertainty arises, in part, because the Court has not provided an exhaustive list of the factors it uses to determine whether a decision should be overruled or how it weighs them. The Appendix to this report lists Supreme Court decisions on constitutional law questions that the Court has overruled during its more than 225-year history. |
Total private nonfarm employment fell from a peak of 111.6 million in February 2001 to a trough of 108.4 million in July 2003. It then expanded through 2007, reducing the unemployment rate to a relatively low level, although not as low as was reached at the end of the previous expansion. Since the beginning of 2008, employment has fallen again and the unemployment rate has risen. Job loss—declines in employment—is one of the most important macroeconomic problems facing policymakers, both in terms of its economic cost and the social toll it takes on our society. But what is often missing from the policy debate is a distinction between net job loss and gross job loss. Gross job loss is the total number of jobs eliminated by all contracting firms in a given period, whereas net job loss is the result of greater gross job loss than gross job gains in a given period. In expansions, the labor market is characterized by net job creation amidst gross job loss. This is required to maintain steady employment rates with a growing population. It is only during recessions that the overall labor market experiences persistent net job loss. Economists view net job loss as a detrimental phenomenon and most recommend that policy be used to mitigate it. However, they view gross job loss, as long as it is offset by gross job gains, as a healthy and normal part of a functioning market economy, although it may have social costs. A quarterly data series from the U.S. Bureau of Labor Statistics (BLS), shown in Figure 1 , provides data that help to put the distinction between gross and net job loss into perspective. These data are measured from the firm's perspective—changes in the size of the firm's workforce—not the employee's perspective. For this reason, the data, in a sense, undercount the amount of change in the workforce because they do not account for movements of individual workers to and from any given firm if the firm remains the same size (e.g., a worker quits and is quickly replaced by a new hire). The gross job loss figures, from the employee's perspective, could be involuntary (layoff, firing) or voluntary (quitting, retirement). In the third quarter of 2007, gross job loss and gains equaled 7.5 million and 7.2 million per quarter, respectively, each about 5% of total employment. As can be seen in Figure 1 , gross job loss and job gains are each, on average, around 20 times higher than net job loss (or gains) in any given quarter. This is true in both expansions and recessions. The rate of job gains increased steadily from the beginning of the series in 1992 until the end of 1999; at the same time, job losses increased steadily from 1992 to 2001. Some, but not all, of the long run increase in gross job gains and losses can be attributed to a growing labor force. The rest of the increase indicates that the U.S. labor force is becoming more mobile over time, but the data do not indicate whether this is the worker's or the firm's decision, or both. Most of the gross job flows occur at existing firms, and are not due to new firms opening or old firms closing. Clearly, gross job loss is not incompatible with a healthy labor market: during an expansion in which the unemployment rate was lower than it had been in three decades, gross job losses steadily increased as the expansion progressed. And even during the 2001 recession and subsequent "jobless recovery," gross job gains continued to average about 8 million per quarter; but gross job gains in this period were more than offset by gross job losses. In the current expansion, job gains and losses have been modestly lower than in the second half of the 1990s. Although gross job gains stayed relatively constant, net employment began to rise again because gross job losses fell. There is not yet data available on whether net job loss in 2008 has been driven primarily by gross job gains or losses. It is often claimed that small businesses are the engine of job creation in the U.S. economy. To an extent, this is a misconception based on the confusion between net and gross job flows. Firms with 99 employees or fewer, which account for 38.1% of total private employment, accounted for 61.1% of gross job gains between 1992:3 and 2005:1. But while these firms had a disproportionate share of gross job gains, they also had a disproportionate share of gross job loss, 62.1% of the total. On net, they accounted for 46.3% of net job gains over that time period—modestly more than their share of total employment, but significantly less than gross flows would indicate. (Recent employment trends followed a similar pattern.) Interestingly, in the 2001 recession and jobless recovery, very large firms accounted for a disproportionate share of net job loss. Overall, these data provide a picture, during expansions, of a highly dynamic U.S. labor market in which labor rapidly shifts from firm to firm to its most efficient use. This vitality is the essence of economic growth and rising living standards for society as a whole in a market economy. It is caused both by output shifting from some firms to more efficient ones within an industry and by shifts in spending from one industry to another, due to factors such as changing consumer tastes, technology, or comparative advantage. Of course, there will always be winners and losers in a market economy. Although significant gross job loss is consistent with net job creation (because it is offset by gross job gains) for the nation as a whole, gross job loss can translate into net job loss at the local level even when national employment is rising because the losses and gains may not occur in the same geographic area. Furthermore, while steady net employment gains are unambiguously good for society as a whole, the data do not necessarily indicate that the same individuals who lose jobs also gain jobs. The data also do not indicate whether the job loss is voluntary or involuntary, nor how many of the individuals who involuntarily changed jobs were forced to take new jobs that were less desirable or paid less. A separate (and noncomparable) data series on worker displacement from BLS can help to answer these questions. BLS classifies workers as displaced if they lost their job because their plant closed down or moved, their positions or shifts were abolished, or there was insufficient work. From 2003 to 2005, 3.8 million workers with tenure of three years or more were displaced (another 4.3 million short-tenured workers were displaced during that period). Although the two data series cannot be compared directly, gross job loss equaled 90 million over that three-year period. Displacement is significantly higher during recessions; for example, from 2001 to 2003, 5.3 million long-tenured workers were displaced. Of the displaced workers, about 70% were reemployed, 13% were unemployed, and 17% had left the labor force at the beginning of 2004. Of those reemployed full-time, about 51% were now earning more than they had at the displaced job, and 29% were now earning significantly lower wages (at least 20% lower). Workers 55 years of age and older had lower reemployment rates than younger workers. Displaced workers fared better during expansions. For example, in 2001-2003, 20% of displaced workers were unemployed, and 33% of those re-employed had significantly lower wages. Some gross job loss takes the form of mass layoffs, during both expansions and recessions. In another (non-comparable) survey from BLS, 0.9 million workers lost their jobs from extended mass layoffs in the four quarters ending 2008:1. This figure undercounts workers affected by mass layoffs because it does not include mass layoffs of less than 50 workers or layoffs that lasted less than 30 days. Mass layoffs tend to be cyclical: workers separated by mass layoffs rose from 1.2 million in 2000 to 1.5 million in 2002. Since unemployment totaled 8.4 million in 2002, mass layoffs are an important but not primary cause of unemployment. BLS has not kept a continuous data series long enough to determine if there has been a long-term upward trend in mass layoffs beyond the cyclical trend. Several economic phenomena have been identified in popular discussion as purportedly causing job loss. Although all of these phenomena cause gross job loss, most have a much smaller effect on net job loss than popularly perceived. The exception is the business cycle: in each instance, recessions have been the cause of persistent net job loss in the post-war period. When trade expands, greater imports cause gross job loss, as products that were previously produced in the United States are now produced by workers in other countries, rendering those U.S. workers redundant. However, economic theory states that expansions in trade have no effect on net employment. As foreign countries increasingly exchange their goods for U.S. exports, more workers are needed in U.S. export industries. In addition, because trade is based on comparative advantage, trade increases the purchasing power of U.S. incomes in the aggregate. Thus, trade allows the U.S. economy as a whole to produce and consume more domestic goods, requiring more workers to produce them. It is possible that there could be some transitional loss in net employment if workers cannot easily be reallocated into other sectors of the economy, causing net employment to temporarily be greater than zero. For example, workers who have lost their jobs in the import-competing industries may not have the skills needed by export industries. But this transitional effect would disappear once markets had adjusted. U.S. history offers persuasive evidence that trade liberalization has no effect on net employment, as can be seen in Figure 3 . During the post-war period, U.S. trade has become progressively liberalized, with eight rounds of world trade liberalization negotiated between 1947 and 1993 through the General Agreements on Tariffs and Trade (GATT, later became World Trade Organization), as well as the Canadian Free Trade Agreement in 1989 and North American Free Trade Agreement (NAFTA) in 1994. Imports have increased steadily as a percentage of GDP throughout the post-war period, from about 4% of GDP in the 1940s to about 14% of GDP in recent years. If trade caused net job loss, employment would have declined and unemployment risen throughout the post-war period. The opposite is the case: employment has steadily increased during the post-war period, and the unemployment rate has mirrored the business cycle, not trade patterns. Indeed, trade liberalization does not appear to have strong effects on even transitional unemployment. For example, NAFTA was implemented when aggregate employment was rising and unemployment was falling. GATT Rounds 1, 3, 4, 6, 7, and 8 were completed when unemployment was low, and unemployment, though high, fell subsequent to GATT Rounds 2 and 5. The most recent example the United States has with significantly increasing trade restrictions was the Smoot-Hawley tariffs, which did not stem the loss of employment during the Great Depression. Although regression analysis, which allows other factors to be held constant, is beyond the scope of this report, informal quantitative evidence on the relationships portrayed in Figure 3 can be gleaned using correlation analysis. The results are presented in Table 1 , which shows that between 1946 and 2007, changes in employment are highly correlated with changes in imports. Thus, the historical experience is the opposite of the typically claimed relationship: when imports increased, employment typically also increased. Although this is not evidence that higher imports cause higher employment—the two variables are correlated because both usually increase—it is evidence that higher imports do not cause lower employment. The table also demonstrates that the implementation of trade liberalization agreements has virtually no relationship historically to changes in net employment in the same or following year (in case there is a lagged effect), as economic theory would suggest. In sum, the results suggest that trade either has no negative effect on employment, or the effect is swamped by other factors. Survey data from mass layoffs does not identify trade as a major source of gross job loss either. For example, only 2,900 of the 301,400 workers laid off in the first quarter of 2008 reported import competition to be the cause of the layoff. A recent study found that trade had a limited effect on net job loss in the recent recession and jobless recovery. It found that the industries with the greatest job loss during that period included both those affected (business services, manufacturing) and unaffected (leisure and hospitality, transportation, construction, and communications) by trade and outsourcing. It then measured the number of American workers that would be needed to produce U.S. imports compared to the number of workers that are needed to produce U.S. exports, and found that the difference amounted to only 2.4% of total employment in 2003. This estimate should not be interpreted as how much employment would rise in the absence of trade since workers affected by trade may be re-employed producing non-tradable goods. Some policymakers are particularly concerned that trade is responsible for the continuing decline in manufacturing employment in recent years. Even after employment began increasing in the rest of the economy in 2003, manufacturing employment has continued to fall, from 17.6 million in 1998 to 13.9 million in 2007. Yet trade cannot be the primary cause of this decline because manufacturing output has grown by 22% in real terms over those years. By identity, employment can fall as output rises only if productivity is rising faster than output. So the decline in manufacturing employment must be primarily attributable to rapid technological change and efficiency gains, not trade. Some who concede that trade has no effect on net employment when higher imports are matched by higher exports argue that trade nevertheless reduces net employment when higher imports are matched instead by a larger trade deficit. They reason that higher imports cause gross job loss, but are not offset by gross job gains in the export sector if they lead to a trade deficit. While this is true, trade deficits do lead to gross job gains in other ways. When the United States runs a trade deficit, it exchanges foreign imports for U.S. assets. This puts downward pressure on U.S. interest rates, stimulating spending on physical investment (plant and equipment). Lower interest rates also stimulate spending on housing and interest-sensitive goods, such as automobiles and appliances. As a result, the trade deficit causes gross job gains in the sectors that produce plant, equipment, housing, and interest-sensitive goods, all else equal. These gross job gains may not occur instantaneously—so there could be transitional net job loss—but when they do occur, they will offset the gross job loss caused by higher imports so that the trade deficit causes no net job loss. As can be seen in Figure 3 , the historical experience confirms this conclusion: the large increase in the trade deficit in the 1980s and 1990s took place at a time of rising employment and falling unemployment. While the trade deficit rose during the 2001 recession and jobless recovery, it continued to rise from 2003 to 2007 as unemployment fell. This suggests that some other factor, such as strong aggregate demand growth, tends to simultaneously push the trade deficit up and unemployment down. In 2008 (to date), unemployment rose despite a decline in the trade deficit. Table 1 demonstrates that there was almost no correlation between changes in the trade balance and changes in employment. The term offshore outsourcing or offshoring is frequently used in several different ways. It can refer to U.S. multinational firms shifting production from the United States to an overseas subsidiary, U.S. firms importing intermediate goods from foreign companies, importing services, or U.S. firms making overseas investments. Economists view the first three phenomena similarly to trade (the latter phenomenon will be discussed separately in the next section). When U.S. firms outsource production to foreign firms, gross job loss occurs because goods and services that were being produced by U.S. workers are now being produced by workers in other nations. When outsourcing occurs, those foreign firms must be paid using U.S. dollars. The foreign firms, in turn, can use those dollars in three ways. First, they can buy U.S. exports, resulting in gross job gains in the export sector. Second, they can buy U.S. assets (increase the trade deficit), resulting in gross job gains in the interest-sensitive sectors that produce plant, equipment, housing, and interest-sensitive goods, as explained in the previous section. Third, they can sell their U.S. dollars for another currency, causing the dollar to depreciate; as a result, the output of U.S. exporting firms and U.S. import-competing firms would increase as U.S. goods become more price competitive internationally. Thus, in all three scenarios, gross job loss is offset by gross job gains so that there is no net job loss, although there may be for a transitional period. Quality data on outsourcing is scarce because the term has only recently been coined, there is not yet any consensus as to how it should be defined, and the concept cannot easily be measured accurately. It is popularly used to mean net job loss, but conceptually the term applies only to gross job loss. A net measure of outsourcing's effects would be hard to calculate because it would be difficult for BLS to measure gross job gains caused by foreign firms outsourcing to the United States, and impossible to trace the rise in employment caused by the spending on U.S. goods of foreign firms that U.S. firms have engaged in outsourcing. Changes in imports of services suggests that outsourcing, by that definition, is a minor phenomenon relative to total gross job loss. The one official data source on outsourcing comes from the BLS mass layoffs series, and this only includes one type of outsourcing, U.S. firms relocating work abroad. In the first quarter of 2008, only 1,200 employees out of 301,400 were subject to extended mass layoff because of relocation abroad. The argument is sometimes made that when U.S. firms decide to undertake direct investment abroad, it reduces U.S. employment. According to the argument, if the U.S. firm had not, say, built the new factory abroad that employs foreign workers, it would have built a factory in the United States that employed U.S. workers. As a result, net employment is lower than it would have been. Economic theory states that capital investment determines the wages of employees, not the level of employment. That is because capital investment increases the productivity of existing workers, and in a competitive market wages are determined by productivity. If the level of employment was based on the amount of capital available per worker, then the United States would not have been able to achieve full employment in the past since capital per worker has increased steadily over time. Yet throughout its history, the United States has achieved full employment most of the time. Even if U.S. investment abroad did lead to net job loss, the data do not suggest that this explanation is possible since the United States is a net recipient of foreign capital, and has been for the past few decades. In other words, any jobs hypothetically lost by U.S. investment abroad have been more than offset by the jobs created by greater foreign investment in the United States. Although U.S. direct investment abroad exceeds foreign direct investment in the United States, overall foreign investment in the U.S. (direct, portfolio, and official) is greater than U.S. investment abroad. Ultimately, foreign investment has the same effect on the economy regardless of the form it takes. Net foreign investment in the United States is, by identity, equal to the U.S. current account deficit (trade deficit plus net transfers and net investment income). That is because capital cannot flow into the country on net (net borrowing cannot occur) unless the United States imports more than it exports. Any time U.S. investment abroad increases, all else equal, the trade deficit must fall. Thus, explanations of net job loss attributed to the trade deficit and explanations of net job loss attributed to U.S. investment abroad are mutually exclusive— both stories cannot be correct . This can be proven by considering the foreign exchange market. If U.S. direct investment in the euro area increased, dollars must be exchanged for euros. This causes the dollar to depreciate against the euro, causing U.S. exports to the euro area to rise and euro imports to the United States to fall. As a result, the trade deficit narrows. Declines in aggregate employment are often blamed on restructuring in the economy. For example, the decline in employment from 2001 to 2003 is often attributed to the collapse of the "dot-com" industry. According to this argument, resources had been overinvested in the dot-com industry in the late 1990s. When this situation was rectified in the late 1990s, workers in that industry were no longer needed, causing overall employment to decline. The reallocation of resources in the economy is probably the primary reason that gross job loss occurs. Changes in tastes, technology, and comparative advantage continually cause labor and capital to be shifted from one industry to another in a market economy. As this report has demonstrated, sizeable reallocations of labor across industries has been a constant in the United States for as long as data has been collected. But in most years, the economy has not had any problem offsetting gross job loss with a greater number of gross job gains. Thus, economic restructuring typically is not accompanied by net job loss overall, even though it often results in net job loss at the local level. It is possible that if restructuring were unusually large at any given time, perhaps like the dot-com collapse, the economy could be unable to absorb that many workers in new jobs fast enough to prevent net job loss. Unfortunately, there is no way to systematically identify which restructuring events are large enough and separate their effects on net job loss from other economic phenomena occurring simultaneously. For example, the net job loss associated with the 2001 recession could be caused by nothing more than an unrelated decline in aggregate spending, as is typical of other historical recessions. In the absence of this decline in aggregate spending, it is possible that the dot-com collapse would not have had any effect on aggregate employment. Even if restructuring does not cause net job loss, there is debate as to whether recessions have the beneficial effect of hastening restructuring. Some argue that when times are tough, firms are forced to innovate to survive and during booms weak firms are propped up by prosperity. If correct, this points to an economic benefit from recessions, in contrast to the mainstream economic view that recessions are economically wasteful because they cause productive labor and capital to lay idle. But it is difficult to evaluate this argument quantitatively. Unlike the other factors described above, economic downturns are the only factor that causes both gross and net job loss according to economic theory. This theory is borne out by historical experience, as illustrated in Table 2 , which show the high correlation between contemporaneous GDP growth and employment growth. (In fact, falling employment is part of the official definition of a recession.) Economic downturns are characterized by insufficient aggregate spending to support existing labor and capital resources. As a result, capital goes idle and workers are laid off until spending revives. The government can boost aggregate spending back to "full employment" through expansionary fiscal policy (a larger government budget deficit) or monetary policy (lower short term interest rates by the Federal Reserve). Net job loss caused by economic downturns is temporary because insufficient aggregate spending is only a temporary phenomenon—in the long run, markets adjust to bring spending back into line with potential production. Since 1947, net job loss lasting more than one quarter has only occurred during or immediately following a recession. There have only been two recoveries in which net job loss has continued for more than one quarter after the recession had ended, the recoveries beginning in 1991 and 2001. In the long run, the effects of business cycle changes on net job creation cancel out—net job loss in downturns is offset by net job gains in booms. Thus, in the long run net job creation is determined by the characteristics of the labor market. Over time, a growing population leads to rising employment, or net job creation. In 1950, the U.S. population equaled 151.3 million and nonfarm employment equaled 45.3 million; in 2000, the U.S. population equaled 281.4 million and employment equaled 131.8 million. (The fraction of the population employed in 2000 was so much higher than in 1950 primarily because of the entrance of women into the labor force.) What proportion of the population is employed—both the labor force participation rate and what economists refer to as the "natural rate" of unemployment or NAIRU (non-accelerating inflation rate of unemployment)—is determined in the long run by demography (e.g., younger workers have higher unemployment rates), social norms (e.g., the large scale entrance of wives into the working force), and policy (e.g., welfare reform). In the long run, the rate of net job creation will equal the rate needed to keep the economy at the natural rate of unemployment. Sometimes the rate of employment growth will change because the natural rate is changing. For example, from the 1970s until the early 1990s, the average unemployment rate was higher than in the 1950s or 1960s for reasons that cannot be explained by the business cycle alone. Changes in demography, social norms, and policy, as well as the coinciding productivity slowdown, all played a role in the increase, but there is little consensus among economists on the relative importance of each factor. Because changes in the natural rate are gradual, an increase in the natural rate is more likely to be associated with a slower rate of net job creation than net job loss, all else equal. At other times, the employment growth rate will change in order for the actual unemployment rate to return to the NAIRU. Since unemployment rates in the most recent expansion never fell to 1990s levels, part of the labor market sluggishness from 2001 to 2003 may have been caused by a return to the natural rate after unemployment was held below it in the late 1990s. Most economists agree that net job loss is an undesirable phenomenon, and recommend that public policy be used to offset it. Policymakers can use expansionary monetary policy (lower short term interest rates by the Federal Reserve) or expansionary fiscal policy (an increase in the budget deficit) to stimulate aggregate spending and offset net job loss. If used properly and prudently, these policy tools can theoretically minimize net job loss. Unfortunately because of policy lags in recognition, implementation, and effectiveness, fiscal and monetary policy will probably never be conducted effectively enough to eliminate recessionary periods of net job loss. Direct job creation programs have been used by the government in past recessions to stem net job loss, but from an economic perspective, these policies have a similar effect to any expansionary fiscal policy, and they also are prone to implementation lags. Policies that impede gross job loss (e.g., regulatory restrictions on dismissal or layoffs) may seem to be a desirable way to limit net job loss at first blush. However, such policies could have the unintended effect of making firms reluctant to take on new workers, because a firm would not be able to subsequently reduce its workforce easily if the need for the new workers proved to be only temporary. As a result, gross job gains could decline; if gross job gains declined by more than gross job loss declined, net job creation would decline. This suggests that attempts to limit gross job loss could be counterproductive. Because gross job flows are, on the whole, caused by the reallocation of resources to their most efficient use, policies to impede gross job loss would also likely have adverse consequences for growth and efficiency. Helping job losers make the transition into a new employment situation is a less costly alternative, and one that is compatible with an efficient, dynamic labor market. International comparison confirms this view. The Organization of Economic Cooperation and Development (OECD) ranked countries on a scale of zero to six based on regulatory restrictions on dismissal from regular employment, temporary employment, and mass layoffs. As seen in Table 2 , countries with little protection such as Switzerland, Japan, Australia, New Zealand, and the United States had low unemployment rates, between 3.6% and 5.3% in 2007. Countries with greater protection had a mixed experience: some small countries like Austria, the Netherlands, and Norway kept unemployment low, but the four large countries with the most protection (Germany, France, Italy, and Spain) had relatively high unemployment rates. The unemployment rate in the United States was lower at the trough of the recession than the lowest level many of these countries attained at the peak of their business cycles. If policies to forestall gross job loss are deemed to have too high an efficiency cost, what role can policy play? Two perspectives can be used to answer that question. One perspective would view the labor reallocation issue as a purely social problem. That is, allowing gross job loss to occur with no impediment from the government may be an economically desirable outcome as long as it is cancelled out by job creation, but the situation creates social problems that government may wish to tackle on non-economic grounds. These social problems include poverty, psychological problems, crime, alcoholism and substance abuse, the undermining of families and communities, and so on that reportedly increase when gross job loss occurs. Economic analysis provides little guidance on the best role for the government to play in tackling these non-economic problems. Alternatively, an economic perspective would ask if any market failure is associated with gross job loss, and what role the government can play in potentially rectifying that market failure. Although it can be argued that gross job loss poses no market failure in and of itself, a persuasive argument can be made that there are market failures that prevent individuals from efficiently insuring themselves in the private market against the risks posed by gross job loss. To a considerable extent, the possibility of gross job loss is a risky event beyond a worker's control, such as adverse changes in the business cycle, tastes, technology, or trade patterns. One would expect a worker to be willing to use some of his income to privately purchase insurance against those risks, just as individuals insure against the risk of death, fire, health problems, and so on. Yet the limited use of private unemployment insurance to supplement government-provided insurance suggests that market failures may significantly hamper the functioning of the private market. All insurance markets are hampered by two important market failures—adverse selection and moral hazard. A persuasive argument can be made that unemployment insurance may be more adversely affected by both types of market failure than most other types of insurance. Adverse selection is caused by asymmetric information: buyers of insurance know more about their riskiness than sellers. As a result, only buyers with higher risks will tend to purchase insurance because they are more certain that the benefit of the insurance will exceed the cost. This pushes up the price of insurance and hampers insurers' efforts to pool risk. Adverse selection hampers efficiency in the market for unemployment insurance because some causes of unemployment are beyond the worker's control, and some are not. Since insurance firms cannot identify which workers have a greater chance of losing their jobs because of the factors within their control, they cannot efficiently pool the risks that workers do not control. Moral hazard occurs when an individual's behavior becomes more risky once he is insured. Moral hazard also drives the cost of insurance above its efficient level. Moral hazard can occur in the unemployment insurance market in two ways: it can cause insured workers to engage in behavior that is more likely to lead to job loss, and once job loss has occurred it can make an insured worker less willing to take a new job (because the worker can subsist on the income provided by the insurance). Government provision of unemployment insurance solves the adverse selection problem by making participation universal. As long as all workers are participating, insurance can be priced at its efficient level, even though benefit will not match cost for any given worker. Government mitigates, but does not eliminate, the moral hazard problem by making the insurance temporary (normally 26 weeks in most states) and imposing eligibility restrictions (e.g., not providing insurance when the worker has quit or been fired). The government has also tended to extend the duration of insurance during economic downturns, since events beyond the worker's control are a greater source of job loss then. The private sector could use the same methods as the government to mitigate moral hazard, but it could not prevent adverse selection. If one accepts that government provision of unemployment insurance is more efficient than private provision, then the policy issue is whether or not insurance is adequate or excessive at current levels. Are workers adequately protected against the risk of gross job loss at existing benefit levels? Should benefit levels or duration be increased or coverage be expanded since gross job loss seems to be following an upward trend? Would more generous insurance reduce the social problems associated with gross job loss? The tradeoff here is between both benefit and cost to the individual (more generous insurance would require higher premiums) and cost to the economy because of the moral hazard problem: as the insurance becomes more generous, disincentives to maintain employment or seek new employment among the unemployed increase. Government's role in insuring workers against the risks associated with gross job loss can also be viewed through a broader prism than the unemployment insurance program. Disability insurance insures against the risk of job loss due to physical incapacity. Trade Adjustment Assistance (TAA), which offers extended unemployment benefits and job training, reduces the risk that workers adversely affected by trade will be unable to find re-employment. (Some policymakers have suggested that TAA be extended to workers in the service industry, given the growing concern with offshore outsourcing.) Government programs such as COBRA (named after Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985) reduce the loss of health care associated with job loss. Some would argue that income redistribution, in general, is a form of income insurance, whether it takes the form of progressive taxation, the Earned Income Tax Credit, the food stamps program, the Supplemental Security Income program, and so on. Kletzer and Litan have argued that the government should implement a "wage insurance" program so that workers who lose their jobs and are forced to take lower paid employment are directly compensated by the government. Along these lines, the Alternative Trade Adjustment Assistance Program for Older Workers was introduced in 2002. An eligible worker (over 50 years old, earning less than $50,000, and meeting other criteria) can receive half the difference between the wages received from reemployment and the wages received at the displaced job for up to two years and payments up to $10,000. This program applies only to workers affected by trade, although the economic rationale for such a program could apply to all workers. Bills in the 110 th Congress, such as S. 1330 (Senator Schumer) and H.R. 2202 (Representative McDermott), would create broader wage insurance programs. At the community level, fiscal transfers (differences between outlays received and taxes paid) that change with economic conditions and government programs such as the Empowerment Zone/Enterprise Communities Program provide what could be characterized as "insurance" for the community as a whole against the economic effects of significant job loss. Drawing a distinction between net job loss and gross job loss can help to inform the policy debate. Net job loss is a serious economic problem that fiscal and monetary policy can be used to mitigate. Although it has social costs, gross job loss is part of the normal functioning of a market economy, and has the beneficial role of reallocating resources to their most efficient use when tastes, technology, or comparative advantage changes. Even in expansions, gross job loss is sizeable, between 6.5 million and 8.5 million per quarter from 1992 to 2000, but it is more than offset by gross job gains. Trade, trade deficits, offshore outsourcing, overseas investment, and economic restructuring all cause gross job loss. But in normal economic conditions, none typically causes net job loss, according to theory and evidence. To see why, consider that they all have the same effect on employment as technological advances. For example, the advent of the automobile caused gross job loss in the horse buggy industry, but was more than offset by gross job gains in the rest of the economy. As the buggy example suggests, policies that impede gross job loss can have high efficiency costs. The difference in the unemployment experience of countries with high barriers to job loss, such as the high unemployment countries of Western Europe, and countries with low barriers, such as the United States, offers some evidence that barriers to gross job loss can lead to lower gross job gains, making such barriers ultimately self-defeating. However, public policies to protect workers against the risks posed by gross job loss can be justified on both social and economic grounds. If crafted properly, they have been shown not to reduce gross job gains, and they can arguably raise efficiency by addressing market failures. For example, public provision of unemployment insurance helps overcome moral hazard and adverse selection problems in that market. The challenge for policymakers going forward is to find the right balance between mitigating risk and maintaining market dynamism in an increasingly fluid labor market. | Total nonfarm private employment has fallen since the beginning of 2008. Job loss is one of the most important macroeconomic problems facing policymakers, both in terms of its economic and social cost. But what is often missing from the policy debate is a distinction between net job loss and gross job loss. Gross job loss is the total number of jobs eliminated by all contracting firms in a given period, whereas net job loss is the result of greater gross job loss than gross job gains in a given period. Economists view net job loss as a detrimental phenomenon, and most recommend that fiscal and monetary policy be used to mitigate it. However, they view gross job loss, as long as it is offset by gross job gains, as a healthy and normal part of a functioning market economy, although it may have social costs and will not affect all regions or industries equally. Data reveal that gross job loss and job gains are each, on average, 20 times higher than net job loss (or gains) in any given quarter. This is true in both expansions and recessions. Clearly, gross job loss is not incompatible with a healthy labor market: during the 1990s expansion in which the unemployment rate was lower than it had been in three decades, gross job losses steadily increased as the expansion progressed. Even during the 2001 recession and subsequent "jobless recovery," gross job gains continued to average about 8 million per quarter; but these gross job gains were more than offset by gross job losses. In the subsequent expansion, gross job gains stayed relatively constant, but gross job losses fell. Small businesses have both higher gross job gains and losses than large firms, and have tended to contribute modestly more net job creation. Many causes of job loss have been offered, including imports, trade deficits, offshore outsourcing, direct investment abroad, and restructuring. But economic theory suggests that all of these cause gross job loss, not net job loss. Historical experience is supportive: neither imports, the trade deficit, nor the implementation of trade liberalization agreements are correlated with net job loss. Theory suggests, and empirical evidence has confirmed, that only recessions cause net job loss. Policies that impede gross job loss may seem to be a desirable way to limit net job loss at first blush. However, such policies could make firms reluctant to hire new workers, because a firm would not be able to subsequently reduce its workforce easily if the need for the new workers proved to be only temporary. As a result, gross job gains could decline; if gross job gains declined by more than gross job loss declined, net job creation would decline. International comparison confirms this view: Germany, France, Italy, and Spain all had high barriers to job loss and unemployment rates that were typically twice as high in the 1990s as low barrier countries like the United States. Although attempts to impede gross job loss may reduce economic efficiency, policy can (and does) assist some of those affected by gross job loss through unemployment insurance and other parts of the social safety net. Whether the existing social safety net is adequate as gross job loss increases is the subject of policy debate. This report will be updated as events warrant. |
The Impact Aid program, administered by the U.S. Department of Education (ED), is one of the oldest federal education programs, dating from 1950. Impact Aid compensates local educational agencies (LEAs) for a "substantial and continuing financial burden" resulting from federal activities. These activities include federal ownership of certain lands, as well as the enrollments in LEAs of children whose parents work or live on federal land and children living on Indian lands. The federal government provides compensation because LEAs are unable to collect property or other taxes from these individuals (e.g., members of the Armed Forces living on military bases) or their employers, even though the LEAs are obligated to provide free public education to their children. Thus Impact Aid is intended to compensate LEAs for the resulting loss of tax revenue The Improving America's Schools Act of 1994 ( P.L. 103-382 ), which reauthorized and substantially revised the Elementary and Secondary Education Act (ESEA), also reauthorized and revised the Impact Aid program, incorporating Impact Aid into Title VIII of the ESEA. Title XVIII (the Impact Aid Reauthorization Act of 2000) of P.L. 106-398 (Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001), signed into law in 2000, made changes to the Impact Aid program and reauthorized it through FY2003. On January 8, 2002, the President signed the No Child Left Behind Act of 2001 (NCLB; P.L. 107-110 ), which reauthorized the ESEA. The act made certain technical amendments to the Impact Aid program, including extending its authorization of appropriations through FY2007. As Congress has not acted to reauthorize the Impact Aid program, appropriations for it are currently not explicitly authorized. However, because the Impact Aid program continues to receive annual appropriations, these appropriations are considered to be implicitly authorized. During the 114 th Congress, the House Education and the Workforce Committee reported the Student Success Act ( H.R. 5 ), which would provide for a comprehensive reauthorization of the ESEA. The bill was subsequently passed on the House floor on July 7, 2015. The Senate Health, Education, Labor, and Pensions (HELP) Committee reported the Every Child Achieves Act (ECAA; S. 1177 ), which would also provide for a comprehensive reauthorization of the ESEA. S. 1177 was subsequently passed on the Senate floor on July 16, 2015. Both H.R. 5 and S. 1177 would reauthorize the Impact Aid program. This report begins with a general overview of the various payments made under the Impact Aid program, followed by a detailed discussion of each section of Title VIII. This discussion is followed by information about recent appropriations for Impact Aid. The report concludes with an overview of programs administered by the U.S. Department of Defense (DOD) that are often referred to as the "DOD Impact Aid" programs. ESEA Title VIII authorizes several types of Impact Aid payments. These include payments under Section 8002, Section 8003, Section 8007, and Section 8008, which are discussed briefly below. Section 8002 compensates LEAs for the federal ownership of certain property. To qualify for compensation, the federal government must have acquired the property, in general, after 1938 and the assessed value of the land at the time it was acquired must have represented at least 10% of the assessed value of all an LEA's real property. About 216 LEAs receive Section 8002 payments annually. Payments are usually used by LEAs for general operating expenses (e.g., teacher salaries, books, supplies, and utilities). In FY2015, $66.8 million was appropriated for Section 8002 (5.2% of total Impact Aid appropriations) and payments are expected to range from $150 to $5.0 million. Section 8003 compensates LEAs for enrolling federally connected children. These are children who reside with a parent who is a member of the uniformed services living on or off federal property; with a parent who is an accredited foreign military officer living on or off federal property; on Indian lands; in low-rent public housing; or with a parent who is a civilian working or living on federal land. Two payments are made under Section 8003. Section 8003(b) authorizes "basic support payments" for federally connected children. In FY2015, 1,151 LEAs are eligible to receive payments under Section 8003(b). These LEAs serve over 900,000 federally connected students. In FY2015, $1.1 billion was appropriated for Section 8003(b) (89.3% of total Impact Aid appropriations) and payments are expected to range from $100 to $53 million. Section 8003(d) authorizes additional payments to LEAs based on the number of certain federally connected children with disabilities who are eligible to receive services under the Individuals with Disabilities Education Act (IDEA). Payments are limited to federally connected IDEA-eligible children—those with a parent who is a member of the Armed Forces (residing on or off federal property), those with a parent who is an accredited foreign military officer (living on or off federal property), and those residing on Indian lands. In FY2015, $48.3 million was appropriated for Section 8003(d) (3.7% of total Impact Aid appropriations) and about 878 LEAs are expected to receive these payments, ranging from $515 to $1.2 million. Section 8007 provides funds for construction and facilities upgrading to certain LEAs serving high percentages of children living on Indian lands or children of military parents. These funds are used to make formula and competitive grants. In FY2015, $17.4 million was appropriated for Section 8007 (1.4% of total Impact Aid appropriations) and, per provisions included in the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ), grants will be awarded only by competition. It is estimated that 6 to 10 LEAs will receive competitive grants, ranging from $50,000 to $5.0 million. Section 8008 provides funds for emergency repairs and comprehensive capital improvements to schools that ED currently owns but LEAs operate and use to serve federally connected military dependent children. Statutory language requires that ED transfer ownership of these facilities to LEAs or other entities. In FY2015, $4.8 million was provided for Section 8008 (0.4% of total Impact Aid appropriations). This part of the report provides a section-by-section analysis of ESEA Title VIII. Sections are generally discussed in order. There is also a summary of the Title VIII sections that focus primarily on program administration and are not otherwise discussed in the section-by-section analysis, including Section 8005 and Section 8010 through 8014. Section 8001 includes the purpose of the Impact Aid program. This section clearly states that there are activities of the federal government that place a financial burden on LEAs and that the purpose of the program is to assist LEAs serving areas in which such activities take place, including assisting federally connected children in meeting challenging state academic standards. The federal government provides financial assistance to these LEAs in such a way as to promote control by LEAs with little or no federal or state involvement. More specifically, the purpose of the Impact Aid program is to provide financial assistance to LEAs that (1) "experience a substantial and continuing financial burden due to the acquisition of real property by the United States," (2) educate children residing on federal property whose parents also work on federal property, (3) educate children of parents who are in the military services and children residing in low-rent housing, (4) educate heavy concentrations of children whose parents are civilian employees of the federal government but do not live on federal property, or (5) need assistance with capital expenditures for construction due to the enrollment of substantial numbers of children who reside on federal land and have difficulty raising local revenue through bond referendums due to the inability to tax federal property. Section 8002 authorizes a program to compensate LEAs for the federal ownership of certain property. LEAs may receive a payment under this section if they can demonstrate, among other things, that the federal government has acquired property in the LEA since 1938 and the property had an assessed value at the time it was acquired of at least 10% or more of (1) all the real property in the LEA at the time the federal property was acquired, or (2) the greater of all real property as assessed in the first year preceding or succeeding the acquisition of the property, if the property was not assessed at the time it was acquired and state law requires an assessment of property acquired. About 216 LEAs receive Section 8002 payments annually. Payments are generally used by LEAs for general operating expenses (e.g., teacher salaries, books, supplies, and utilities). The National Defense Authorization Act for Fiscal Year 2013 (NDAA; P.L. 112-239 ) amended the formula used to calculate Section 8002 payments for LEA applications received for FY2010 and subsequent fiscal years. These amendments, however, were required to be repealed on January 2, 2015 (two years following their enactment). The Carl Levin and Howard P. "Buck" McKeon National Defense Authorization Act for Fiscal Year 2015 ( P.L. 113-291 ) subsequently changed the date of repeal of the amendments to January 2, 2018. As of January 3, 2018, barring further action by Congress, the amendments will be repealed and the formula used to calculate grants under current law prior to the enactment of the amendments will once again be in effect. This section of the report first describes the formula used to calculate Section 8002 grants under current law, which applies to FY2009 and earlier, and which is scheduled to take effect again beginning January 3, 2018. This discussion is followed by an overview of the Section 8002 formula enacted by the NDAA amendments. The maximum payment an LEA is eligible to receive for a fiscal year is determined by multiplying the current real property tax rate for current expenditures levied by fiscally independent LEAs, or imputed real property tax rate for fiscally dependent LEAs, by the estimated current aggregate assessed value of the federal property. The assessed value of the federal property is determined on the basis of the "highest and best use" of property adjacent to the federal property. This value must be determined by the local official responsible for assessing the value of real property in the jurisdiction in which the LEA is located for the purpose of levying a property tax. When full funding for maximum payments is not appropriated, as has been the case in recent years, payments are made based on a hold-harmless formula designed to preserve historical funding levels for individual LEAs. First, payments are made to LEAs that were eligible for a Section 8002 payment from 1989 to 1994 (referred to as foundation payments). Pre-1995 recipients receive grants equal to 38% of the LEA's maximum entitlement amount for FY1994. If funds are not sufficient to make these grants, the grants are ratably reduced. If funds remain available after providing the foundation payments to the pre-1995 recipients, LEAs that received a payment for FY1995 or LEAs determined to have filed their applications in a timely manner to receive payments in subsequent years receive a proportional share of the funds determined by subtracting the amount used for foundation payments for pre-FY1995 recipients from the total FY1995 appropriation for Section 8002. Following the distribution of funds through foundation payments and payments for 1995 grant recipients, a special payment is made to the Highland Falls-Fort Montgomery Central School District in New York. If funds still remain available after making these payments, the remaining funds are distributed among pre-FY1995 recipients and FY1995 recipients based on two proportional share formulas: 25% of the remaining funds are distributed to LEAs that received foundation payments, and 75% are distributed to all LEAs. The 25% of funds provided to foundation payment recipients are allocated based on the proportion that each LEA's foundation payment was of all foundation payments made. The 75% is distributed based on the proportion that each LEA's maximum payment was of all maximum payments for the current fiscal year. Section 8002 payments are subject to two caps. First, the combination of payments under Section 8002 and Section 8003(b) may not exceed an LEA's maximum Basic Support Payment under Section 8003 or maximum payment under Section 8002, whichever is greater. The second cap reduces an LEA's Section 8002 payment if the combination of the calculated payments and any revenue the LEA receives from the federal property exceeds the LEA's calculated maximum payment under Section 8002. An LEA that was eligible for Section 8002 payments prior to the Impact Aid Reauthorization Act of 2000 was eligible to receive a payment only if it submitted an application for payment within seven years of the enactment date of this law. LEAs that became eligible for Section 8002 payments after the 2000 reauthorization have seven years from the date of acquisition to apply for a Section 8002 payment. The maximum payment an LEA is eligible to receive for a fiscal year is determined by multiplying the current real property tax rate for current expenditures levied by fiscally independent LEAs, or imputed real property tax rate for fiscally dependent LEAs, by the current estimated taxable value of the federal property. When full funding for maximum payments is not appropriated, payments are made based on a hold-harmless formula with four steps. First, a "foundation payment for pre-2010 recipients" is made to eligible LEAs that were also eligible for a Section 8002 payment in FY2009. The amount of the payment is equal to the greater of (1) 90% of the payment the LEA received in FY2009, or (2) 90% of the average payment the LEA received for FY2006, FY2007, FY2008, and FY2009. Second, after making these payments, a special payment is made to the Highland Falls-Fort Montgomery Central School District in New York, provided the LEA continues to meet the eligibility requirements to receive this payment. Third, a "foundation payment for new applicants" is made from the remaining funds to LEAs that were not eligible to receive a Section 8002 payment in FY2009. Payments for these LEAs are calculated by multiplying 90% of the LEA's maximum payment by the ratio of the appropriation to the total of all LEAs' maximum payments in the most recent year in which payments have been completed. Fourth, if funds remain after the foundation payment for new applicants, they are distributed to LEAs based on prorated shares of maximum payments for the current year. According to ED, the two caps that apply to payments under current law would only apply to any remaining funds distributed in the last step of the formula to LEAs that received a foundation payment for pre-2010 recipients. LEAs that are newly eligible for Section 8002 payments would have their foundation payment for their first year limited by both caps in the third step of the formula and would have their payment under the last step of the formula limited by both caps in all years. Limits on the amount of time an LEA has to submit an application for a Section 8002 payment following the federal government's acquisition of property were not changed by the NDAA amendments. Section 8003(b) authorizes payments to LEAs to compensate them for the cost of serving certain groups of federally connected children. The presence of these children can both increase the number of students the LEA must serve and decrease taxes that support public education. As previously discussed, federally connected children include children of parents in the military, children living on Indian lands, children of civilian federal employees, and children living in low-rent housing. To be eligible for Section 8003(b) payments, an LEA must have at least 400 federally connected children, or such children must represent at least 3% of an LEA's average daily attendance (ADA). Of the more than 18,000 LEAs nationwide, about 1,140 LEAs currently meet one of these eligibility criteria. Thus, about 6% of all LEAs qualify for Section 8003(b) payments. The Impact Aid basic support grants formula for Section 8003(b) has several components: LEAs provide ED with counts of various types of federally connected children. Weights are applied to each count with the intention of reflecting differences in tax revenues lost and educational costs. A cost factor or Local Contribution Rate (LCR, basically a per pupil expenditure amount) is determined for each LEA. Maximum grants are calculated by multiplying the weighted child count by the LCR. Actual payments are reduced if appropriations are insufficient to make maximum grant payments. Table 1 shows the categories of federally connected children and the weights that the act assigns to them. As Table 1 shows, children residing on Indian lands receive the highest weight. The next highest weight is given to children who live on federal land and whose parents are employed on federal land, members of the uniformed services, or accredited foreign military officers. These relatively high-weighted children (including children living on Indian lands) are sometimes known by a shorthand designation as "3(a)" or just "a" children, which is a reference to a subsection of the previous Impact Aid statute (P.L. 81-874). Although no longer relevant to the current law, this shorthand designation is still widely used and will be referenced in this report. Those receiving much lower weights are children with a parent in the Armed Forces living off-base, with a parent who is a foreign military officer not living on federal land, residing in low-rent public housing, living on federal land but whose parents do not work on federal land, and whose parents otherwise work on federal land but do not live on federal land. These children receiving lower weights are sometimes known as "3(b)" or just "b" children, According to ED, "b" children create a lesser, but still significant, burden on LEAs compared to "a" children. To illustrate how child count weighting works, suppose that a school district has 215 students whose parents are in the military and live on the base, 100 students who live on Indian lands, and 300 students whose parents are in the military but live off the base. The school district's weighted student count would be Thus, this hypothetical district has 615 federally connected children, but for the purposes of the formula the weighted count of these children is 400. The weighted student count (or "weighted student units") is multiplied by a cost factor (or LCR), which is the greatest of one-half of the state average per-pupil expenditure (APPE), one-half of the national APPE, the previously determined LCR for comparable districts with unusual circumstances, such as those serving a particularly large number of disabled children, or the state APPE times the local contribution percentage (i.e., the percentage of educational revenues that come from the local level). Thus, the LCR may vary from LEA to LEA, even within the same state. The weighted student count is multiplied by whichever of these amounts is greatest for a given LEA. For example, suppose in the hypothetical LEA that one-half of the national APPE was the highest LCR amount, and it is estimated at $5,200. The maximum basic support payment would be $5,200 * 400 = $2,160,000. Providing maximum payments to all eligible LEAs in FY2015 would require approximately $2.15 billion. Because Section 8003(b) appropriations are well below this "full funding" amount, statutory language provides a mechanism for reducing payments to LEAs. The general principle is that more heavily impacted districts (i.e., those more dependent on Impact Aid payments) receive higher percentages of their maximum payments than less-impacted districts. This principle is achieved by calculating a Learning Opportunity Threshold (LOT) payment. This is a percentage of the maximum payment determined by adding the percentage of an LEA's average daily attendance that is federally connected children, and the percentage of an LEA's total current expenditure that is Section 8003 payments. This total percentage must not exceed 100%. It is multiplied by the maximum payment to produce the LOT payment. If, in the hypothetical LEA, federally connected children account for 20% of all children in average daily attendance and Impact Aid funds are 30% of the LEA's current expenditures, then the LOT percentage would be 50% and the LOT payment, assuming appropriations were sufficient to provide the full LOT payment, would be $1,080,000 (50% of $2,160,000). If current appropriations were not sufficient to make all LOT payments, only a percentage of the LOT payment would be made. That is, if appropriations were sufficient to pay 80% of the full LOT payments for all LEAs, the hypothetical LEA would receive 40% (50% * 80%) of its maximum basic support payment. That is, the LEA would receive $864,000 (40% of $2,160,000). Conversely, the statute provides that funds in excess of what is needed to provide all LEAs with 100% of their LOT payment be distributed in proportion to LEAs' LOT payments; however, no LEA may receive a payment in excess of its maximum support payment. This provision gives priority for additional funding to LEAs with higher LOT payments; that is, priority for funding goes to LEAs that are more affected or impacted by federally connected children or more dependent on Impact Aid as a revenue source. Returning to the hypothetical LEA, if funds were sufficient to pay 125% of LOT, the LEA would receive 62.5% (50% * 125%) of its maximum basic support payment. That is, the LEA would receive $1,350,000 (62.5% of $2,160,000). In addition to the "regular" Impact Aid LEAs, certain LEAs are specifically classified as "heavily impacted" (Section 8003(b)(2)). In general, there are two classifications of these LEAs: (1) those that received heavily impacted payments in FY2000 (referred to as "continuing heavily impacted LEAs"), and (2) those that were not eligible to receive such a payment until FY2002 or later ("new heavily impacted LEAs"). With certain exceptions, eligibility is based on the LEA's percentage of total ADA composed of federally connected children and the LEA's tax rate. For example, most continuing heavily impacted LEAs must have at least 35% of their ADA composed of federally connected children and have a tax rate that is at least 95% of their states' average tax rate or have at least 30% of their ADA composed of federally connected children and have a tax rate that is at least 125% of the average tax rate of comparable LEAs in their state. In FY2015, 26 LEAs received payments as heavily impacted LEAs. Calculations for these LEAs' payments differ in three ways from calculations for regular Impact Aid LEAs. First, weights for certain classifications of federally connected children are greater for some heavily impacted LEAs. For example, LEAs that qualify as heavily impacted and have 100 or fewer federally connected children have their entire count of federally connected children weighted at 1.75 (as opposed to using the weights depicted in Table 1 ). Second, the maximum basic support payment for most heavily impacted LEAs is based on 80% (rather than 50%) of the state or national APPE, whichever one is higher. Finally, given sufficient funds, the LOT percentage for these LEAs is 100%. That is, they receive 100% of their maximum basic support payment if funds are sufficient to provide these amounts. If funds are insufficient to provide regular LEAs with 100% of their LOT payments, payments to heavily impacted LEAs are ratably reduced by the same percentage as payments to regular LEAs. As a result of these provisions, the 26 heavily impacted LEAs are estimated to receive about $292 million, or about 34.0%, of the total funding for basic support grants under Section 8003(b) in FY2015. In terms of per student payments, these 26 LEAs receive over four times the amount per child that regular Impact Aid LEAs receive. Impact Aid payments differ from funds provided by most other federal elementary and secondary education programs. Impact Aid funds provided under Section 8003(b) are not limited to specified uses (such as improving the educational achievement of disadvantaged students). While funds are generally used for current local education expenditures, they may also be used for capital expenditures. In addition, funds need not be spent just on federally connected children. Finally, because Impact Aid payments are not aimed at specific educational goals, accountability requirements for the use of funds or specific outcomes are minimal. In addition to basic support payments, Section 8003 authorizes payments to LEAs serving certain federally connected children who are eligible to receive services under the IDEA. Payments are limited to certain federally connected IDEA-eligible children—those with a parent who is a member of the Uniformed Services (residing on or off federal property), those with a parent who is an accredited foreign military officer (living on or off federal property), and those residing on Indian lands. ED determines weighted counts of children with disabilities by multiplying more heavily weighted eligible children under Section 8003(b) (i.e., children with disabilities who live with a parent in the military on federal property, live with a parent who is an accredited foreign military officer on federal property, or live with parents on Indian lands) by 1.0 and lower weighted children (i.e., children with disabilities who live with a parent in the military or an accredited foreign military officer on non-federal property) by 0.5. An LEA's payment is simply its percentage share of the total weighted child count multiplied by the funds appropriated for Section 8003(d). Unlike basic support payments, LEAs receiving 8003(d) payments must use the funds to meet the needs of the federally connected children with disabilities for whom they received the payments. In addition, the funds must be used to provide a free appropriate public education to these children in accordance with the provisions of IDEA. Any LEA that claims children residing on Indian lands for purposes of Section 8003 payments must establish policies and procedures to ensure the following: 1. Children living on Indian lands must participate in programs and activities supported by Section 8003 funds on an equal basis with all other children. 2. Parents of such children and Indian tribes must be provided with an opportunity to present their views on such programs and activities, including being able to make recommendations regarding the needs of such children. 3. Parents and Indian tribes must be consulted and involved in planning and developing such programs and activities. 4. All relevant applications, evaluations, and program plans must be disseminated to parents and Indian tribes. 5. Parents and Indian tribes must have an opportunity to present their views to the LEA regarding the LEA's general education program. LEAs claiming Indian children for purposes of Section 8003 payments must maintain records demonstrating that the agency is in compliance with the aforementioned requirements. An LEA may receive a waiver related to the establishment of the aforementioned policies and procedures and the related record maintenance requirement with respect to any Indian tribe if such tribe provides a written statement saying the LEA does not have to meet the requirements because the tribe is satisfied with the provision of the educational services provided by the LEA. Section 8004 also contains provisions requiring the Secretary to provide technical assistance to LEAs, parents, and Indian tribes to enable them to carry out the requirements of this section. The Secretary is required to enforce the provisions of this section, including through the withholding of funds. Section 8007 provides funds for construction and facility repair and renovation to certain LEAs with high percentages of children living on Indian lands or children of military parents. These funds are used to make formula and competitive grants. Under current law, 40% of the funds appropriated under Section 8007 are used to make construction payments by formula to LEAs receiving Section 8003 payments and in which either (1) students living on Indian land constitute at least 50% of the LEA's total student enrollment or (2) military students living on or off base constitute at least 50% of the LEA's total student enrollment. The funds available for construction payments are divided equally between these two groups of LEAs (with 20% of the total Section 8007 appropriation going to each group). Grants for LEAs impacted by military dependent students are calculated by dividing the total amount of available funding by the total number of weighted student units of military children living on or off base across all eligible LEAs, and multiplying this result by the total number of weighted student units of these children enrolled in an LEA. A similar calculation is made for LEAs impacted by children living on Indian lands. The remaining 60% of Section 8007 appropriations are used to make school facility emergency and modernization competitive grants. Emergency grants must be used to repair, renovate, or alter a K-12 public school facility to ensure the health and safety of students and staff. Modernization grants may be used to relieve overcrowding or upgrade facilities to support a "contemporary educational program." Statutory language requires that emergency grants be given higher priority than modernization grants in the grant competition. Within each category of award, the Secretary is required to prioritize grant awards based on specified criteria. The top priority for emergency grants is for LEAs meeting the following criteria: 1. The LEA must have no practical capacity to issue bonds, have minimum capacity to issue bonds and is at not less than 75% of the LEA's limit of bonded indebtedness, or is a heavily impacted LEA under Section 8003; and 2. The LEA is eligible for a formula grant under Section 8007 and has a school facility emergency (as determined by the Secretary) that poses a health or safety hazard to students and staff at the facility. Since 2002, all competitive grants that have been awarded have gone to LEAs based only on the top priority. If funds are still available for emergency grants after awarding grants based on the aforementioned criteria, the next priority for emergency grants is for LEAs that meet the following criteria: it receives a basic support payment under Section 8003, students living on Indian land or military students living on or off base constitute at least 40% of the LEA's total student enrollment, and it meets specific requirements related to bond indebtedness and assessed value of real property. In addition, an individual school that is not located inside an LEA that would otherwise be eligible for an emergency grant also may apply for a grant if it meets specific criteria, including students living on Indian land constituting at least 40% of the school's total enrollment or military students living on or off base constituting at least 40% of total enrollment. If funds remain after awarding emergency grants, the top priority for modernization grants is for LEAs meeting the following criteria: 1. The LEA is eligible to receive assistance under ESEA Title VIII; 2. The LEA meets the first criterion for receiving an emergency grant (see above); and 3. The LEA has facility needs resulting from the presence of the federal government (e.g., enrollment of federally connected children). If funds are still available for emergency grants after awarding grants based on the aforementioned criteria, the next priority for modernization grants is for LEAs that meet the following criteria: it receives a basic support payment under Section 8003, students living on Indian land or military students living on or off base constitute at least 40% of the LEA's total student enrollment, and it meets specific requirements related to bond indebtedness and assessed value of real property. LEAs that are eligible to receive a grant under Section 8002 and that meet specific requirements related to bond indebtedness and assessed value of real property also are eligible to receive a modernization grant. In addition, an individual school that is not located inside an LEA that would otherwise be eligible for a modernization grant also may apply for a grant if it meets specific criteria, including students living on Indian land constituting at least 40% of the school's total enrollment or military students living on or off base constituting at least 40% of total enrollment. In awarding emergency and modernization grants, the Secretary is required to consider specific factors. The Secretary must take into account the ability of the LEA to respond to the emergency or pay for the modernization project. The Secretary must also consider the percentage of property in the LEA that is nontaxable due to the presence of the federal government, as well as the number of federally connected children that reside on federal property with a parent employed on federal property, reside on federal property with a parent who is an official of a foreign government and is a foreign military officer, reside on or off base and have a parent on active duty in the uniformed services, or reside on Indian lands that are served in the school facility with the emergency or modernization proposal. With respect to emergency grants, the Secretary must consider the severity of the emergency. With respect to modernization grants, the Secretary must consider the severity of the need for modernization, as measured by such factors as overcrowding, the LEA's inability to use technology to offer a curriculum aligned with state standards due to the physical limitations of the facility, and the age of the facility. Emergency and modernization grants are limited to 50% of the total cost of the project receiving assistance. They cannot exceed $4 million over a four-year period if the LEA qualifies for the grant based on its minimal capacity to issues bonds or as a heavily impacted LEA under Section 8003, or qualifies for the grant based on the lower priority criteria for each type of grant. During the most recent award cycle (FY2015), ED only accepted applications for competitive grants under the first and second priorities for emergency grants. During past award cycles (FY2004-FY2005, FY2005-FY2006, FY2008-FY2009, FY2012, and FY2013), all competitive grants were awarded to LEAs under the first priority for emergency grants and nearly all of the competitive grants were awarded as emergency grants to LEAs serving students living on Indian land. It should be noted that while current law requires Section 8007 funds to be used for both formula and competitive grants, since FY2006 appropriations language included in the Labor, Health and Human Services, Education and Related Agencies appropriations acts has altered the distribution of funds. For example, the FY2014 act ( P.L. 113-76 ) required that funds be used only for formula grants, while the FY2015 act ( P.L. 113-235 ) requires that Section 8007 appropriations be used only for competitive grants. Table 3 indicates whether Section 8007 grants were awarded by formula, competition, or both since FY2006. The Administration has argued that Section 8007 grants should be awarded by competition rather than formula as competitive grants often result in larger grant amounts that allow "districts with the greatest needs" to receive "meaningful amounts of funding to make emergency repairs." It should be noted, however, that although the provision of competitive grants generally results in larger grant amounts for grant recipients, there are usually fewer grantees than there would be when funds are awarded by formula. Section 8008 provides funds for emergency repairs and comprehensive capital improvements to 12 schools that ED currently owns but LEAs operate and use to serve federally connected military dependent children. Statutory language requires ED to transfer ownership of these facilities to LEAs or other entities. Since 1983, the Department of Defense (DOD) has assumed funding responsibility for other facilities owned by ED but located on domestic military bases that serve students whose parents are in the Armed Forces. These were formerly known as Section 6 schools in reference to that section of P.L. 81-874. Since FY2008, ED has transferred the titles to 47 facilities that DOD operates as Domestic Dependents Elementary and Secondary Schools (DDESSs) to DOD. Of the remaining 26 facilities owned by ED and located on military bases, DOD is responsible for 14. ED is in the final stages of transferring the titles to these facilities to DOD. ED is responsible for the other 12 facilities, which are operated and used by LEAs to serve military dependent students. ED may not charge LEAs for their use of these facilities and must gain an LEA's consent to accept ownership of them. Many of the 12 facilities operated by LEAs are deteriorating, overcrowded, or fail to meet building standards. Most LEAs will not assume ownership of the facilities unless ED provides funding for needed repairs. The estimated cost of repairs and renovations for all 12 schools is approximately $72 million (approximately $6 million per school). State school finance equalization programs seek to increase educational equity by structuring state school finance formulas to take into account local capacity to raise educational revenue. An equalization formula would compensate LEAs to reduce discrepancies in APPE or the ability to raise revenues for public K-12 education throughout the state. With one exception, state school finance formulas are not permitted to take into account funds LEAs receive from Impact Aid. The exception, which is contained in Section 8009 of the Impact Aid statute, involves a state equalization program that is approved by the Secretary. If a state's program is approved, the state may consider as local funds for the purpose of equalizing educational expenditures some, or all, of an LEA's Impact Aid funding. Currently, Alaska, Kansas, and New Mexico have approved state equalization programs. The statute specifies the criteria the Secretary must use to evaluate a state's equalization program. The general principle is that the Secretary must find that the state program results in a discrepancy between those LEAs with the highest APPE and those with the lowest (excluding the APPEs of the top and bottom 5% of LEAs) that is no more than 25%. The appendix to the regulations related to Section 8009 provides several examples of the application of this test. The following is an example for determining whether spending disparity is 25% or less: In State X, after ranking all LEAs organized on a grade 9-12 basis in order of the expenditures per pupil for the fiscal year in question, it is ascertained by counting the number of pupils in attendance in those agencies in ascending order of expenditure that the 5 th percentile of student population is reached at LEA A with a per pupil expenditure of $820, and that the 95 th percentile of student population is reached at LEA B with a per pupil expenditure of $1,000. The percentage disparity between the 95 th and 5 th percentile LEAs is 22 percent ($1,000-$820 = $180/$820). That is, after LEAs are ranked based on expenditures, ED identifies the LEAs with the highest expenditures that collectively enroll 5% of the student population. This process is repeated for the LEAs with the lowest expenditures. Thus, ED currently implements this provision based on both LEA expenditures and student enrollment in the LEAs with the highest and lowest expenditures. Two LEAs in New Mexico (Zuni and Gallup-McKinley) sued ED over the implementation of the equalization formula. The LEAs argued that ED should identify the 5% of LEAs with the highest and lowest APPE based on expenditures only with no consideration given to student enrollment. Doing so, they argued, would only have enabled ED to eliminate 10 rather than 23 of the state's 89 LEAs from consideration in determining whether the remaining LEAs met the 25% spending disparity requirement. If implemented based on expenditures only, the LEAs noted that New Mexico would not have qualified as an equalized state. The case went to the Supreme Court, which ruled that the procedures used by ED to determine whether educational expenditures were equalized across LEAs were appropriate. In addition to the sections already discussed, Title VIII contains several sections that are related to program administration and function. Each is described briefly below. Section 8005: prescribes the process by which an LEA may apply for a Section 8002 or Section 8003 payment. Section 8010: prescribes requirements related to the federal administration of the Impact Aid program, including requirements related to child eligibility under Section 8003(a) and timely payment requirements. Section 8011: prescribes requirements related to administrative hearings and judicial review. Section 8012: includes provisions related to the forgiveness of overpayments under any Title VIII program if the overpayment was made as a result of an error by the Secretary or an error by the LEA if repayment of the full amount of the overpayment would result in an "undue financial hardship on the agency and seriously harm the agency's educational program." Section 8013: includes definitions that apply to Title VIII. Section 8014: includes the authorization of appropriations for Title VIII programs. Appropriations for the Impact Aid program are made through the annual Departments of Labor, Health and Human Services, and Education, and Related Agencies appropriations acts (L-HHS-ED). Appropriations to provide additional funding to LEAs serving significant numbers of military dependent students and federally connected children with severe disabilities have also been made available through the Department of Defense appropriations acts (see subsequent section for more information). This section provides detailed information about Impact Aid funding provided through L-HHS-ED appropriations from FY2008 through FY2015. Table 4 details the most recent appropriations for Impact Aid (FY2008-FY2015). Congress has slightly increased appropriations for Impact Aid payments over the eight-year period examined. The overall increase has been 3.9%. More specifically, basic support payments for federally connected children (Section 8003(b)) rose by 4.1% ($46 million). Payments for federal property (Section 8002) also increased 4.1%, but the dollar increase was less than $3 million. Payments for children with disabilities, facilities maintenance, and construction decreased. As Table 4 shows, payments for federally connected children (Section 8003) accounted for more than 90% of Impact Aid appropriations in FY2015. Moreover, the basic support payments (Section 8003(b)) alone accounted for 89.3% of the appropriations. In comparison, payments for federal property accounted for 5.2%, payments for construction accounted for 1.4%, and payments for facilities maintenance accounted for less than 0.4%. From FY2014 to FY2015, appropriations for the Impact Aid program overall and each individual payment remained constant. For FY2016, the President's budget request would continue to fund the Impact Aid program at its FY2015 level of $1.289 billion. However, the Administration has proposed to eliminate payments for Section 8002 and increase funding for Section 8008 by a commensurate amount. The Administration believes that the "majority of LEAs receiving assistance under [Section 8002] have now had sufficient time—more than 60 years—to adjust to the removal of the property from their tax rolls." In addition, the Administration points out that many of the LEAs receiving Section 8002 funds do not meet the basic eligibility requirements to receive them. This scenario can occur when multiple LEAs consolidate into one LEA. While at least one of the LEAs involved in the consolidation met the requirement that the property acquired by the federal government has an assessed value of at least 10% or more of the aggregate assessed value of the real property in the LEA, the "new" LEA could no longer meet this requirement as a result of the consolidation. Thus, ED argues "the consolidated LEAs are no longer demonstrably burdened by the historic loss of taxable property." All other Impact Aid payments would continue to be level funded at their FY2015 amount. Unlike many other federal education programs, the Impact Aid program is not forward funded, meaning that the earliest appropriations could be made available to LEAs is the first day of the fiscal year. Education programs that are forward funded generally have funds made available for a 15-month period, starting nine months into a fiscal year. For example, FY2016 funds became available on July 1, 2016, for forward-funded programs, and will remain available through September 30, 2017. On the other hand, current-funded programs, including Impact Aid, have funds available for the 12-month fiscal year. Funds become available on October 1 of a given year and remain available through September 30 of the following year. The DOD Impact Aid program was established in the early 1990s to supplement the Impact Aid programs administered by ED. The most recent DOD authorization bill, the Carl Levin and Howard P. "Buck" McKeon National Defense Authorization Act for FY2015 ( P.L. 113-291 ), specifically authorized funding for two DOD Impact Aid programs that provide additional funding for LEAs serving significant numbers of military dependent children and LEAs serving military dependent children with severe disabilities. In the past, DOD authorization bills have also authorized a DOD Impact Aid program for LEAs affected by base closures, force structure changes, or force relocation. The authorizations of appropriations for these programs have been lower than those provided for the Impact Aid programs administered by ED. Funds for these programs are appropriated in the DOD annual appropriations acts under operation and maintenance for Defense-wide activities, but line item appropriation levels are not provided for these programs in the appropriations bills. The annual National Defense Authorization Act (NDAA) provides the authorization of appropriations for these programs. This section provides an overview of the three Impact Aid programs administered by DOD and their appropriations. The Supplemental Assistance program (also referred to as "DOD Supplemental Impact Aid" and "Assistance to Schools with Significant Numbers of Military Dependent Students") provides funds to LEAs with significant numbers of military students. Funds are provided to eligible LEAs if, without the additional funding, an LEA would be unable to provide students with a level of education equivalent to the minimum level of education available in the schools of other LEAs in the state. LEAs are eligible for assistance if at least 20% of their students in average daily attendance during the preceding school year were military dependent students counted under Section 8003(a)(1) of ESEA, Title VIII. About 120 districts receive funds through Supplemental Assistance. DOD appropriations for military students with severe disabilities are provided to reimburse LEAs for money previously spent on providing such children with a free appropriate public education. Section 363 of the Floyd D. Spence National Defense Authorization Act for FY2001 ( P.L. 106-398 ) authorized payments for this purpose beginning in FY2002. An LEA may receive funding if it serves at least two severely disabled students who are military dependent (ESEA, Section 8003(a)(1)(B) or (D)(i)) or have a parent who is a foreign military officer (ESEA, Section 8003(a)(1)(A)(ii) or (D)(ii)]). Payments may only be made on behalf of children with severe disabilities whose cost of educational and related services exceed (1) the lesser of five times the national or state average per pupil expenditure for a child who receives services in a program outside of the boundaries of the LEA that pays for the services; or (2) three times the state average per pupil expenditure for a child receiving services through a program offered by the LEA or provided within the boundaries of the LEA. The payment provided to an LEA for each child with severe disabilities is based on the expenditures made by the LEA on behalf of the child that are in excess of the average per pupil expenditure in the state in which the LEA is located, less the sum of funds received by the LEA from the state to defray the costs of educational and related services for the child; under the IDEA to defray the costs of services for the child; and from any other source to defray the costs of services for the child provided specifically because the child has a severe disabling condition. If the amount of funds appropriated is insufficient to pay the full amount for all eligible LEAs, the Secretary of Defense is required to ratably reduce payments to all eligible LEAs by an equal percentage. Approximately 40 to 50 LEAs are awarded funds through this program each year. The Large Scale Rebasing Program (also referred to as the DOD Impact Aid BRAC Program or Assistance to Schools with Enrollment Changes Due to Base Closures, Force Structure Changes, or Force Relocations) provides assistance to LEAs affected by base closures, force structure, or force relocation. Funds are available to LEAs that experienced an overall increase or reduction in student enrollment of not less than 5% of military dependent students or not less than 250 military dependent students in daily attendance. Eligible LEAs have to meet two additional criteria: (1) military dependent students constituted at least 20% of the average daily attendance (or would have if not for the reduction in students), and (2) the change in military student enrollment was due to DOD's global rebasing plan, the official creation or activation of one or more new military units, the realignment of forces as a result of BRAC, or a change in the number of housing units on a military installation. No LEA is permitted to receive more than $1 million in assistance in a fiscal year under this provision. In FY2006 and FY2007, 45 LEAs received BRAC funding through DOD Impact Aid. Although appropriations for this program were authorized through FY2013, it has not received funding since FY2007. In recent years, appropriations for the Supplemental Assistance and Military Students with Severe Disabilities programs have ranged from $45 million to $30 million. The Large Scale Rebasing program was only funded in FY2006 and FY2007. Table 5 shows the amount appropriated for each of these three activities for FY2008 through FY2015. | The Impact Aid program, administered by the U.S. Department of Education (ED) and authorized by Title VIII of the Elementary and Secondary Education Act (ESEA) is one of the oldest federal education programs, dating from 1950. Impact Aid compensates local educational agencies (LEAs) for "substantial and continuing financial burden" resulting from federal activities. These activities include federal ownership of certain lands, as well as the enrollments in LEAs of children whose parents work or live on federal land and children living on Indian lands. The federal government provides compensation because LEAs are unable to collect property or other taxes from these individuals (e.g., members of the Uniformed Services living on military bases) even though the LEAs are obligated to provide free public education to their children. Thus Impact Aid is intended to compensate LEAs for the resulting loss of tax revenue. Authorizations of appropriations for the program were explicitly authorized through FY2007. Congress has not acted to reauthorize the Impact Aid program, though it continues to receive annual appropriations (which are thus considered to be implicitly rather than explicitly authorized). The Impact Aid program authorizes several types of payments: Federal Property (Section 8002), Federally Connected Children: Basic Support Payments (Section 8003(b) and Payments for Children with Disabilities (Section 8003(d), Construction (Section 8007), and Facilities Maintenance (Section 8008). Overall, the Impact Aid program received about $1.3 billion in FY2015. The largest Impact Aid payment is basic support payments for federally connected children (Section 8003(b)), accounting for nearly 90% of the total appropriation. Federally connected children are children who reside with a parent who is a member of the Uniformed Services living on or off federal property; with a parent who is an accredited foreign military officer living on or off federal property; on Indian lands; in low-rent public housing; or with a parent who is a civilian working or living on federal land. Basic support payments are allocated directly to LEAs based on a formula that uses weights assigned to different categories of federally connected children and cost factors to determine maximum payment amounts. This report begins with a general overview of the various payments made under the Impact Aid program, followed by a detailed discussion of each section of Title VIII. This discussion is followed by information about recent appropriations for Impact Aid. The report concludes with an overview of programs administered by the U.S. Department of Defense (DOD) that are often referred to as the "DOD Impact Aid" programs. |
Diplomacy is the art and practice of conducting negotiations between representatives of groups or states. It usually refers to international diplomacy, the conduct of international relations through professional diplomats with regard to issues of treaties, trade, war and peace, economics and culture. According to Senator Hagel, "Diplomacy is not a weakness ... but rather an essential tool in world affairs using it where possible to ratchet down the pressure of conflict and increase the leverage of strength." Going back to Benjamin Franklin, America's first diplomat, and Thomas Jefferson, America's first Secretary of State, the United States has engaged in diplomacy to represent America and further its interests around the world. According to the Henry L. Stimson Center, "Since 1945, the United States has conducted its foreign relations in the context of a world that practiced what can be called Classic Diplomacy. It was a world in which government-to-government relations were the principal activity. A world in which ambassadors and embassies were often a nation's only venue for expressing its national interests. A world in which heads of state met to discuss the great questions of the day. It was a world, in short, in which nations were more sovereign and independent actors than today's environment allows them to be on the cusp of the 21 st century." Many viewed the first term of the George W. Bush Administration as not engaging in diplomacy often enough or as a first line of action in implementing its foreign policy. The Administration gained the reputation in some quarters as conducting "cowboy diplomacy" or having a "go-it-alone" approach to international relations. The Bush Administration has responded to its critics by saying that the world is a different place since September 11 th , and traditional diplomacy may not always be the right strategy. Diplomacy became a more visible option in December 2006 when the Iraq Study Group highlighted diplomacy in its recommendations and urged the Administration to launch a comprehensive "new diplomatic offensive" to deal with the problems of Iraq and the region. In early 2007, Secretary Rice seemed to shift the Administration's Iraq policy when she stated in testimony that the Administration would engage in talks with Syria and Iran. As transformational diplomacy continues to be implemented, Congress may opt to consider the implications it has for future funding requests, changes to the Foreign Service system and its representation of U.S. interests around the world, the nature of the U.S. foreign assistance program, the reconstruction and stabilization initiative, and ultimately how the proposal in its totality addresses U.S. interests. At issue is how the United States adjusts its diplomacy to address foreign policy demands for the 21 st Century. Many foreign affairs experts believe that the international system is undergoing a momentous transition affecting its very nature. For indicators of this change, they point to the end of the bipolar world of the Cold War, the changing nature of the nation state on which the existing international system is based, the rise of new national power relationships, as well as the growth in the number and the role of non-state participants in the international arena. These experts also note the impact that the changes in worldwide communications, due to advances in technology, have had on international relations. For the United States to continue to lead in this world, they argue, it will have to make adjustments to how it operates and relates within the changing system and the new, intense political aspirations causing these changes. Even before the United States entered the 21 st Century, however, foreign affairs officials and experts were calling for reforms of the foreign affairs infrastructure, foreign assistance and public diplomacy programs, as well as the need to address the changing roles between the Department of State (State) and the Department of Defense (DOD) in foreign affairs. According to then Secretary of State, Madeleine Albright in 1999, The past decade has witnessed a transformation of the world political situation.... Challenges such as transnational law enforcement, global terrorism, democracy building, protection of the environment, refugee issues, and access to global markets and energy sources now compete with traditional security and political issues for policymakers' attention. These changes demand that we reexamine the nature and basic structure of our overseas presence. In the 1990s, several organizations and think tanks voiced concerns about the inadequacy of the U.S. diplomatic infrastructure. The Department of State's own report said that the United States overseas presence "is near a state of crisis" and "perilously close to the point of system failure." Experts called for the enhancement of the security of U.S. posts and missions abroad, the right-sizing of these posts based upon U.S. interests in a particular country and a continual readjustment as policy needs changed, the improvement of training opportunities in terms of foreign language skills and job-related training, and the modernization of communications/information technology at the State Department and its posts and missions abroad. Furthermore in 1999, Congress reorganized the U.S. foreign policy mechanism by eliminating the Arms Control and Disarmament Agency (ACDA) and the U.S. Information Agency (USIA) and merging those functions into the Department of State. State, however, was not fully reorganized to incorporate these functions. Many foreign assistance experts have concluded that, after six decades, U.S. foreign assistance lacks strategic coherence and accountability and needs major readjustments. Critics point out that U.S. foreign assistance has been highly fragmented among the State Department, the U.S. Agency for International Development (USAID), and approximately 20 other federal government agencies that have their own assistance programs. In looking at U.S. foreign assistance allocations, many observers conclude that application of U.S. foreign aid has been neither strategic nor consistent. Further as early as 2002, the President Bush called for a change in the methodology of foreign assistance that looks not just at the resources spent but results achieved. Going beyond the use of traditional foreign assistance programs, the Bush Administration began new initiatives such as the Millennium Challenge Account, the Global HIV/AIDS Initiative (GHAI) and the President's Emergency Plan for AIDS Relief (PEPFAR). Due to a myriad of reasons, including the elimination of the United States Information Agency (USIA) and the transfer of its functions to State, some have contended that public diplomacy has become the weakest part of U.S. foreign policy and is in need of significant reform. However it appears that while public diplomacy programs were becoming weaker, the importance of public diplomacy quickly became apparent as the image and influence of the United States decreased around much of the world. Questions were raised as to whether the United States is losing the "war of ideas and inspiration." The Government Accountability Office (GAO) and others criticized State's public diplomacy program for its general lack of strategic planning, inadequate coordination of agency efforts, problems with measuring performance and results, and posts not pursuing a campaign-style approach to communications that incorporates best practices endorsed by GAO and others. Among many who have voiced similar concerns, the 9/11 Commission Report said that the role of the Department of State has diminished somewhat over the decades following the 1960s. "State came into the 1990s overmatched by the resources of other departments and with little support for its budget either in Congress or in the President's Office of Management and Budget.... Increasingly, the embassies themselves were overshadowed by powerful regional commanders in chief reporting to the Pentagon." Since the 1990s with experience in Somalia, Haiti, Bosnia, and Kosovo, some concluded that calling on the military for nation-building placed a heavy burden on these forces that were neither trained nor equipped for such assignments. Nevertheless, U.S. policy makers continued to turn to the military because there was no civilian government organization with either the same resources or on-going organizational and management experience required for complex reconstruction and stabilization situations. Many experts suggested that a designated civilian office was needed. Those calling for a new civilian organization believed winning a war as opposed to winning the peace draws on different attitudes and training, and that State's role in nation-building needs to be more clearly defined. On January 18, 2006, in a speech at Georgetown University in Washington, D.C., Secretary Rice outlined her vision for diplomacy that she referred to as "transformational diplomacy." According to Secretary Rice, the objective of transformational diplomacy is to "work with our many partners around the world to build and sustain democratic, well-governed states that will respond to the needs of their people and conduct themselves responsibly in the international system." Her proposal included moving people and positions from Washington, D.C., and Europe to "strategic countries;" it also created a new position of Director of Foreign Assistance and changed U.S. foreign policy emphasis away from relations among governments to one of supporting changes within countries. The Administration did not request new authority from Congress for these changes, but used existing authority. In 2007, the Administration sought legislative authority ( S. 613 / H.R. 1084 ) to authorize funding and personnel issues for some aspects of the plan. Congress did not take up the legislation, so it is likely to be considered in 2008. Implementing the transformational diplomacy proposal includes significant changes to the very culture and view of diplomacy, as well as the structure of the foreign affairs institutions in Washington and abroad; to diplomats' post assignments and their roles at the post; and to the tools of diplomacy, including reconstruction and stabilization efforts, foreign assistance, and public diplomacy programs. Fully instituting transformational diplomacy is expected to take years, beyond the Bush Administration's second term. Organizational changes to the diplomatic infrastructure include efforts to (1) bring U.S. foreign assistance programs more in line with foreign policy objectives through the creation of a new Deputy Secretary-level Director of Foreign Assistance; (2) improve U.S. civilian capability to assist countries and societies rebuild and stabilize themselves; (3) increase the effectiveness of public diplomacy; and (4) renew efforts to expand long-needed Foreign Service training programs. On January 19, 2006, a day after she announced the concept of transformational diplomacy at Georgetown University, Secretary of State Rice announced the creation of the position of the Director of Foreign Assistance (DFA). The appointee holds a rank equivalent to a Deputy Secretary (to denote the importance of the position, but does not confer any legal power or increased salary, according to State's Office of Legal Affairs) and serves concurrently as USAID Administrator—a position that requires confirmation by the Senate. The DFA, with offices and staff at both the State Department and USAID, has authority over most but not all State Department and USAID foreign assistance funding, and is to provide improved organizational structure and coordination of more than 18 federal foreign assistance funding programs to bring this assistance into alignment with U.S. foreign policy objectives. The DFA has direct jurisdiction over most of State's and USAID's approximately $20 billion in foreign assistance funds. Foreign assistance programs, now under the DFA, accounted for about 53% of the total calendar year 2005 U.S. development assistance disbursements. The DFA is to provide guidance to the other agencies that control the remaining 47% of U.S. foreign assistance funds. A starting point in understanding the reforms proposed for transformational development is the new Foreign Assistance Framework developed by the DFA. (See Appendix B for the new Foreign Assistance Framework matrix). The Foreign Assistance Framework is a tool to help policy makers with strategic choices on the distribution of funds and to ensure that U.S. foreign assistance advances the Administration's foreign policy objectives. The Framework identifies as the ultimate goal "to help build and sustain democratic, well-governed states that respond to the needs of their people, reduce widespread poverty and conduct themselves responsibly in the international system." Five transformational diplomacy objectives funnel funds and programs toward that goal. The five objectives are Peace and Security, Governing Justly and Democratically, Investing in People, Economic Growth, and Humanitarian Assistance. These five objectives are linked to the traditional account structure, such as Development Assistance (DA), Child Survival and Health (CSH), or the Economic Support Funds (ESF). The objectives are also linked to activities such as "Rule of Law and Human Rights programs" under the "Governing Justly and Democratically" objective or "Health programs" under the "Investing in People" objective. Corresponding to the five foreign assistance objectives, the new Foreign Assistance Framework also has five country categories, with countries in those categories sharing common development challenges. The country categories are as follows: Rebuilding States —States in, or emerging from, and rebuilding after internal or external conflict. Developing State s—States with low or lower-middle income, not yet meeting certain economic and political performance criteria. Transforming States —States with low or lower-middle income, meeting certain economic and political performance criteria. Sustaining Partnership States —States with upper-middle income or greater for which U.S. support is provided to sustain partnerships, progress, and peace. Restrictive States —Those States where the State Department or Congress has determined that serious freedom and human rights issues are of concern. Global or Regional Programs —The category is for assistance programs that extend beyond country boundaries. An end goal for U.S. assistance is also designated for the countries in a particular country category as well as what the next step would be for countries graduating from a particular country category. For instance, those nations designated as "Developing States" would have as their end goals the "continued progress in expanding and deepening democracy, strengthening public and private institutions, and supporting policies that promote economic growth and poverty reductions." Country categories are also used to determine the distribution of funds among the various five objectives to help those countries graduate. For example, large portions of the assistance provided to the "Developing States" nations would be for the Peace and Security and Investing in People objectives. In explaining the funding distribution for the "Developing States" category as proposed in the FY2008 Administration request, the DFA stated that the main obstacles facing the countries in this category are poverty, governance, and human capacity. Since the late 1990s, foreign affairs observers have recognized that, in lieu of what had become a de facto military responsibility, a civilian capability needed to be established to provide large-scale humanitarian assistance and nation-building following conflict and crisis situations. However, despite the issuance of a Presidential Decision Directive and the interest of influential Senators and Representatives in developing a civilian response capability, such an organization has proved difficult to institutionalize. In June 2004 while awaiting congressional action, Secretary of State Colin Powell created the Office of the Coordinator for Reconstruction and Stabilization (S/CRS), to serve directly under and report to the Secretary of State. The military supported Secretary Powell's action in creating S/CRS. In February 17, 2005 testimony before the Senate Armed Services Committee, General Richard B. Myers, then Chairman of the Joint Chief of Staff, said that the creation of S/CRS was important to helping post-conflict countries by providing a synchronized, integrated U.S. government approach to reconstruction and stability efforts. In her January 2006 transformational diplomacy announcement, Secretary Rice included the office and its role as part of the proposal as she discussed the linkage between struggling states to a growing global threat. The State Department described the threat struggling states can pose as providing "breeding grounds for terrorism, crime, trafficking, and humanitarian catastrophes, and can destabilize an entire region." According to the State Department, S/CRS assists societies and countries in stabilizing and rebuilding themselves as they emerge from conflict and crisis situations. The office, which has a staff of about 70 people, is composed of 19 permanent State Department personnel, and others detailed from USAID, Office of the Secretary of Defense, Central Intelligence Agency, Army Corps of Engineers, Joint Forces Command, Joint Chiefs of Staff, and the Treasury Department, which reflects the wide array of departments and agencies that have been involved in reconstruction and stabilization efforts. S/CRS's role is to coordinate U.S. civilian agencies and the military, the United Nations, and other multilateral organizations; create plans for a unified response; develop training of civilian personnel; and manage an interagency response to deploy civilians to peace operations in partnership with the military and other multilateral institutions. Further, S/CRS monitors political and economic instability worldwide and anticipates needs to prevent conflict when possible and provide a response when reconstruction and stabilization efforts warrant. Beyond the planning, training, and the development of links to the international community, S/CRS is also in the process of creating integrated groups of crisis response personnel. An Active Response Corps (ARC), was established in 2006 and as of August 2007 has 11 trained ARC staff. The President's FY2008 Budget request sought to increase the ARC to 33 people. The ARC is composed of current State Department employees who volunteer for one-year tours. Secretary Rice described ARCs as an "expeditionary arm of the Department of State" that could be immediately deployed to a failed or failing state, anywhere in the world, possibly embedded with the military, to begin the assessments and arrangements that would accommodate larger follow-up teams of civilians who are expert in law enforcement and justice administration, soil experts, urban planning and infrastructure repair, and other skills required to rebuild a nation. The larger follow-up groups referred to by the Secretary include a second tier, the Stand-by Reserve Corps (SRC), composed of active duty and retired Foreign Service personnel. About 300 people are on the SRC roster and have identified themselves are willing to be deployed. SRC personnel would be deployed within 30-60 days after call-up, and would serve up to six months. President George W. Bush, in his 2007 State of the Union address, discussed a third tier, Civilian Reserve Corps (CRC). The CRC would be composed of, at least, 350 individuals from a variety of sources and professions needed to help nations stabilize and rebuild. The CRC, not yet implemented, would be deployed as security conditions allow. Currently, ARC teams of one-five people are working in Sudan, Kosovo, Liberia, and Afghanistan. The ARC deployments to Nepal, Haiti, Iraq, and Chad are completed. Public diplomacy is a multi-faceted effort extending beyond the government and official channels in a host country to influence the people's views about U.S. policies, culture, society, and values. There is, however, a new dynamic in the public diplomacy world that is the result of the information/communications technology revolution. Then-Under Secretary of State for Public Diplomacy and Public Affairs Karen Hughes has said that, unlike the era of the Cold War, today, "there is an information explosion and no one is hungry for information. We are now competing for attention and for credibility in a time when rumors can spark riots, and information, whether it's true or false, quickly spreads across the world, across the internet, in literally instants." After USIA's elimination in 1999, public diplomacy activities were merged into the State Department. Since then, public diplomacy has been viewed by many at State as less important than political-military functions. Under Secretary Rice's plan, however, public diplomacy is elevated to be an integral component of transformational diplomacy, and part of every diplomats' job description. According to the Department of State, the strategic framework for U.S. public diplomacy now consists of three goals: foster a sense of common interests and values with the people of other countries; isolate, marginalize, and discredit violent extremists; and foster a positive vision of hope and opportunity that is rooted in U.S. values (i.e., a belief in freedom, equality, the dignity and worth of every human being). Several new programs were created to advance the transformational public diplomacy agenda in today's communications environment. Rapid Response Unit—The Bureau of Public Affairs now monitors foreign broadcasts and blogs and produces a daily one-to-two page report on stories and issues that are discussed. It also provides a U.S. position on those issues. This daily report, which is sent to an e-mail list of several thousand senior officials from Cabinet secretaries to ambassadors and military commanders, serves to provide a common "American message." "Echo Chamber" Technique—Policy statements are posted on the State Department Intranet to present a unified message on key issues attracting attention in the international media. This provides a common position for those who need to write speeches, draft editorials, and prepare responses to inquiries. A common message is "echoed" instead of several different messages. "Unleashing" ambassadors—Under Secretary Hughes eliminated former pre-clearance rules so that ambassadors or senior embassy officers can engage the media in their host countries without permission from Washington. Ambassadors and senior embassy officers are expected to speak out, and the ability to engage in public diplomacy is now part of their rating system. Further, transformational diplomacy also treats public diplomacy on a regional basis by establishing three new regional public diplomacy hubs—in London, Dubai, and Brussels—to focus on regional news outlets, such as Al-Jazeera, instead of focusing on the bilateral relations with those countries. Reporting an approximate 25% rise in broadcast media appearances in Europe and the Middle East, the State Department says that these hubs "are having a tremendous impact, helping to make U.S. officials a regular on TV and radio news programs, as well as talk shows in Europe and the Middle East." Inadequate training opportunities for the Foreign Service was one of the major criticisms in the 1990s. Former Secretary Powell had made expanded training one of his priorities under the Diplomatic Readiness Initiative (DRI) designed to increase State Department hiring, training, and technology funding. Today, enrollment in State's training classes at the Foreign Service Institute (FSI) has increased by 62% above the FY2000 level, the year prior to the DRI-related hiring increases. Enrollment in the critical needs languages has more than doubled since FY2002 from 569 students to 1,277 students, and training in Arabic has increased from 173 students in FY2002 to 468 students in FY2006. Secretary Rice, in her announcement on transformational diplomacy, indicated that enhanced training would be available to Foreign Service Officers to improve skills in public diplomacy, technology, languages, and administering programs "to help foreign citizens strengthen the rule of law, start businesses, improve health, and reform education." To meet the increased language and new trade craft training needs of transformational diplomacy, FSI developed a new series of transformational diplomacy training seminars in such topics as Democracy Building and Rule of Law that bring together leaders from across the government. FSI also developed new curricula on Reconstruction and Stabilization, Foreign Assistance and Development, and Public Diplomacy and the Media. The Long Term Economic Training course is being revised. FSI is also placing a greater emphasis on Distance Learning (DL) programs so personnel can study at their posts instead of returning to Washington. Currently about 90 in-house developed DL products are being offered including language courses in Russian, Japanese, Chinese, Arabic, Pashto, Korean, French, Polish, and Spanish; as well as courses in Asset Management; Grants and Cooperative Agreements and an Intellectual Property Curriculum. Providing individuals the opportunity to take training at FSI, however, requires the State Department to have sufficient personnel so that some can take training without leaving a post empty. The Department requested $20.8 million for FY2008 for 104 additional training positions. The Foreign Affairs Council estimated that the State Department needs an additional 900 positions beyond its current training complement. Secretary Rice has stated that she believes the current use of resources no longer reflects 21 st Century diplomacy demands to meet U.S. foreign policy objectives. Therefore, she is shifting the Department's resources to begin (1) a global repositioning of the Foreign Service by moving diplomatic assignments to different countries and new types of postings such as the use of American Presence Posts (APP), (2) a new emphasis on regionalization, and (3) more effective use of technology with Virtual Presence Posts (VPP) and a Digital Outreach Team. Secretary Rice has stated that many U.S. diplomatic personnel, responsible for implementing U.S. foreign policy on a day-to-day basis, are in the wrong place and need to be repositioned globally. Under the Global Repositioning Initiative, several hundred positions—primarily political, economic, and public diplomacy diplomats—are being transferred largely out of Washington and Europe often to more difficult "strategic" posts in the Near East, Asia, Africa, and Latin America viewed, according to Secretary Rice, as either "emerging" influential nations, or countries critical to U.S. interests. In these new positions, U.S. diplomats are called upon to do more than manage the relations between United States and the host government; they will be called upon to manage programs and build institutions to help these nations move toward a more democratic and prosperous world, according to the Secretary. The plan is to reposition several hundred positions, a total of about 200 of which will be filled by Fall 2007, with the exception of those requiring skills in the hardest languages. Appendix A shows the movement of diplomatic personnel in Phases 1 and 2 of the Secretary's transformational diplomacy initiative. Phase 3, affecting 93 positions, was part of the FY2008 State Department budget request. The Secretary's plan "localizes" U.S. diplomacy by establishing small offices called American Presence Posts (APP) outside of the world's capitals to a host country's provincial, trade, and opinion centers. There are currently eight APPs in four countries. APPs, which were first established in France in 1999, are generally staffed by one or two Foreign Service Officers with support from a few locally hired staff. The office space is generally rented, classified material is not kept in an APP, and the diplomats assigned there are to engage in public diplomacy, outreach, and the promotion of American commercial and strategic interests. The APPs maintain a working liaison with local government, labor, and commercial officials, the media, civic organizations, opinion leaders, American businesses in the area, and the resident American community. Under the plans for transformational diplomacy, regional and transnational strategies are taking a higher profile. State Department officials believe this is necessary because of the changing nature of the nation-state, and the growth of non-state and regional actors such as the European Union, the African Union or the Asia Pacific Economic Cooperation forum, and the growing number of transnational issues including international terrorism, international criminal syndicates, trafficking of people, environmental, and global health concerns. For example, the plan calls for deploying rapid response teams (small, transnational networks of diplomats) to monitor and combat the regional spread of pandemics, rather than having experts in every embassy. As noted earlier, the plan also establishes public diplomacy hubs to promote understanding of U.S. culture and policies in a regional effort. A major effort behind the implementation of transformational diplomacy is to go beyond the traditional diplomacy of relations between governments to engage the people in "localized diplomacy." American Presence Posts are one part of this localization effort. Another approach is to utilize new opportunities presented by changes in information technology with the development of Virtual Presence Posts (VPP) and Digital Outreach Teams. VPPs are one or two officers at an embassy managing an internet site explaining U.S. policy, providing news of U.S. relations with the host country, answering questions, and providing requested material. As of July 2007, there were 40 VPPs worldwide with more planned. One example is the VPP in Davao, the second largest city in the Philippines. The Davao VPP website provides news pertinent to U.S.-Philippines relations such as an article on "USAID Helps Former Moro Rebels Diversify into Banana Production." It also has hyperlinks for "Residents of Davao," "Americans in Davao," "Students," and "Business Info." The virtual aspect of the VPP is augmented with many other programs including frequent travel to Davao, outreach programs, cultural and commercial exchanges, and regular chat sessions. Digital Outreach Teams, started in November 2006, are based in the State Department and engage Arabic language blogs and forums to provide information about U.S. policies and to counter misinformation and myths posted on the blogs. The team members identify themselves as employees of the State Department. The Department reports that "the tenor of the views on these blogs and forums is decidedly unfavorable to the United States and often exhibits a virulent strain of elaborate conspiracy theories." The State Department estimates that on average, a few hundred to several thousand people see the team's postings on each site. Many view a shake up of U.S. diplomacy and foreign aid mechanisms as necessary in this era of transboundary issues and actors. Retired Ambassador Robert P. Finn said, "Secretary Rice ... outlined a vision for a refocusing of United States diplomatic efforts to make them conform to the realities of politics and population in the twenty-first century.... Her admirable vision for making our diplomats be in touch with the real world, both physically and virtually, is an inescapable imperative." Likewise, the American Foreign Service Association, while expressing concern for certain aspects, stated, "The American Foreign Service Association strongly supports Secretary of State Rice's proposals to adapt the Foreign Service and the foreign affairs institutions to meet the foreign policy challenges of the new world that began to come into being...." There have also been important criticisms of specific aspects of the transformational diplomacy plan and how it is being carried out. Observers believe that many of the criticisms could have been avoided if there had been greater transparency as well as inclusion of diplomats, Congress, and other stakeholders in the planning stages. While there is support for a civilian capability to provide reconstruction and stabilization assistance, some question whether a small office has the "clout" to fulfill this responsibility. S/CRS is given the responsibility to lead, coordinate and institutionalize the U.S. government reconstruction and stabilization response. To do so, it must work with several Departments and agencies throughout the government, as well as several bureaus in its own Department. However, while S/CRS has been given an extremely large mandate, many supporters are concerned that it has not been given the authority to compel cooperation. Some have suggested that what is really needed is a new cabinet-level Department that encompasses parts of State and the other federal Departments as well as the entire USAID. Further, supporters are concerned as to S/CRS having an adequate level of funding to meet its mandate. Beyond the operating expenses portion of S/CRS, the Bush Administration requested $100 million in FY2006 and $75 million in FY2007 for a new Conflict Response Fund to be available to accelerate delivery of critical expertise and resources to address post-conflict situations. Congress is hesitant to provide funding as a "blank check," and did not appropriate funding for a new Conflict Response Fund for either fiscal year. Instead in 2006, appropriators requested a "... comprehensive, disciplined and coherent strategy detailing how the Office of the Coordinator for Reconstruction and Stabilization will coordinate United States Government-wide efforts to respond to international post-conflict contingencies." To provide financial support to the work of S/CRS, the Department of Defense was authorized, through September 30, 2007, to transfer up to $100 million to the Secretary of State in FY2006 and in FY2007 for services, defense articles, and funding for reconstruction, security, and stabilization assistance if required. It was also clear that such funding is considered a temporary authority until S/CRS has adequate resources. The National Defense Authorization Act for Fiscal Year 2008, ( H.R. 4986 ) extends the transfer authority to September 30, 2008. The accompanying Senate Committee Report of an earlier version of the legislation ( S. 1547 ), describes the transfer authority as a "pilot program," and expresses the Committee's intention to review the implementation of the authority carefully to determine if and in what manner it might be reauthorized. The measure requires final congressional action. In its Fiscal Year 2008 budget request, the Administration requested $14.6 million for S/CRS to fund an additional 57 positions for the S/CRS office and the Active Response Corps. Congress already provided $50 million, contingent upon specific authorization, for the Civilian Reserve Corps in the FY2007 supplemental appropriation ( H.R. 2206 / P.L. 110-28 ). The State Department sought authorizing legislation to fully implement and fund the Civilian Reserve Corps. The "Reconstruction and Stabilization Civilian Management Act of 2007" ( S. 613 / H.R. 1084 ), introduced by Senator Lugar and Representative Sam Farr, respectively, and still awaits action, would provide necessary authority for personnel and expenditure of funds for S/CRS and the Civilian Reserve Corps. Beyond the concerns that only a small group within the new DFA office had input on the formation of the transformational development program and the lack of transparency and consultation involved, some proponents of development assistance have concerns about the proposal. For example, some are questioning whether the DFA has sufficient authority to truly coordinate all U.S. foreign assistance, noting that DFA authority extends to only about 53% of the total, government-wide foreign aid funds. Among the greatest concerns expressed by traditional supporters of development assistance is the continued importance of U.S. development and humanitarian programs. They ask about the meaning of a phrase stated by Acting DFA Henrietta Fore and others in the Administration: "foreign assistance ... advances our foreign policy objectives." These supporters of traditional development assistance question whether sustainable development and poverty alleviation as rationales for U.S. foreign assistance are being replaced by national security and democracy promotion considerations. As evidence, those concerned point to the fact that earlier versions of the Foreign Assistance Framework had no reference to "poverty alleviation," the shifting of a large amount of foreign assistance funds from Development Assistance (DA) to the Economic Support Fund (ESF) in the Administration's FY2008 budget request, and the "overwhelming focus on the capacity of states and little reference to the well being of the poorest," as evidence that long-term development was being subordinated to short-term strategic, diplomatic goals. Furthermore, physically locating the DFA in the State Department adds to their concerns of potential politicization of foreign assistance and a diminishing of USAID's role. The Administration counters that the emphasis on development continues and the changes in funding for DA and ESF was to make the distribution of these funds more easily identified in terms of the funding the needs of each country categories. Acknowledging criticism by the Congress, non-governmental organizations, and from USAID personnel in the field regarding the lack of transparency and consultation in developing these plans, Acting DFA Fore said, "We are at the beginning of this important reform process, not the end. We must continually work to improve our reform," and she expressed her commitment to an increased spirit of consultation and transparency. Dr. James Zogby, a noted pollster and President of the Arab American Institute, testified in early 2007 before two House Foreign Affairs Subcommittees that Arabs generally have a favorable view of Americans, their values, culture and products. More often now, though, according to Zogby, it is Bush Administration policies that are negatively influencing their opinions of the United States. He reports that while they express positive views regarding Americans, they overwhelmingly assert that they do not want U.S. help in dealing with matters of internal reform or the propagation of American-style democracy in their countries. Organizational and structural difficulties continue to impede the full implementation of public diplomacy within transformational diplomacy. The Government Accountability Office (GAO) reports that there are too few public diplomacy officers, they have insufficient time to do their work, and many positions are filled by officers without the requisite language skills. Further, questions continue as to the appropriate balance between Foreign Service personnel posted abroad and limitations, largely due to security concerns, that impede them getting out to talk to local officials and citizens. GAO reports that, in many cases, the security requirements at overseas posts send an "ancillary message that the United States is unapproachable and distrustful." Another concern developed with the establishment of the public diplomacy strategic framework. The framework and the new implementing programs resulted in a single message being provided to U.S. officials, as well as foreign audiences. Some public diplomacy experts are concerned that the "top down" approach is reflective of a public relations-style approach to public diplomacy more suited to politics than foreign affairs. Some also raise the concern that public diplomacy is a matter of persuasion and not one-sided propaganda. When the United States Information Agency existed, there were on-going debates between public diplomacy officers and political officers as to whether official speakers and official events should support only the "party line" or incorporate opposing ideas, as well. Two retired, USIA Public Diplomacy Foreign Service Officers explained the reaction to the USIA approach of providing a diversity of views: In our experience, when foreign audiences heard U.S. officials discussing policy, they were attentive. When USIA-sponsored academics respectfully differed with current policy, the result from the audiences was unalloyed admiration for the courage of the U.S. in showcasing free and open discussion. Some report that this showcasing of a diversity of opinion is no longer allowed. In January 2006, AFSA expressed its concerns to both the Administration and Congress regarding the security of U.S. diplomats as more are deployed to more dangerous posts under transformational diplomacy. Service in the APPs is of particular concern because Foreign Service personnel are working away from host country capitals, in rented offices, and without Marine Guard security. Following the February 15, 2006, testimony by Secretary Rice before the Senate Foreign Relations Committee, Senator Paul Sarbanes expressed similar concerns when he asked, as part of the Questions for the Record , about the security studies being done prior to the opening of APPs. The Department of State, in response to Senator Sarbanes question, explained that State's Bureau of Diplomatic Security, working with an inter-departmental working group, studies the security needs of APPs. Once a post has identified a potential site for an APP and before it can be occupied, State's Diplomatic Security Bureau will examine whether the proposed site meets security standards or is being modified and will soon meet security requirements. If a waiver of certain requirements is found to be necessary so that an APP can be opened and staffed, the Secretary may make such a waiver in compliance with the Secure Embassy Construction and Counterterrorism Act ( P.L. 106-113 ). Staffing shortfalls, the increasing amounts of time spent at unaccompanied and hardship posts, and the perception of increased pressure to volunteer for these posts could have a negative impact on Foreign Service morale. Reports of Foreign Service personnel assigned to extremely difficult postings developing Post Traumatic Stress Disorder (PTSD) add additional concerns about the relationship between staffing and morale. The Foreign Affairs Council states in discussing the issue of staffing shortages and morale: ... under existing conditions morale is increasingly precarious even though current attrition rates are close to normal except for senior officers. This was the lesson of the 1990s cutbacks. Personnel shortages cause lengthy staffing gaps, particularly overseas, and, eventually, burnout for those at posts.... Danger and turmoil have increased as well at many posts. The number of positions at overseas posts where families may not go is up, adding more stress.... The world of transformational diplomacy is not easy. Of the 7,500 State Department Foreign Service positions around the world, about 750 positions (250 of which are in Iraq) are designated as unaccompanied or limited-accompanied-by-family-members assignments because of the difficult and dangerous situation in those countries. Most of these unaccompanied tours are one year in duration as opposed to the two or three years for a normal tour. Because of the nature and short term of the unaccompanied tours, new personnel need to be found to staff those positions every year. The Secretary of State has the authority to assign a qualified member of the Foreign Service to any position classified as a Foreign Service position as the needs of the Service may require. She says, however, that she prefers to staff the positions on a voluntary basis, and currently both the hardship positions and other regular positions around the world are being filled, with growing difficulty, by Foreign Service personnel bidding for these positions. Since January 2005, the State Department has made several changes to the personnel and assignment bidding systems. Changes include requiring a hardship tour before a person can be considered for promotion to the Senior Foreign Service and changing the bidding system itself so that hardship/danger posts would have to be filled first. However, indicative of the difficulty of staffing posts, especially in Iraq, the State Department announced further changes to the bidding system in June 2007—an unprecedented country-specific assignment cycle for Iraq. The Iraq assignments would have to be filled before any of the other positions, including other hardship/danger posts, for the 2008 assignment cycle. The announcement further stated that if Iraq was not fully staffed, State's Human Resources Bureau would hold the assignments of highly qualified individuals until the Iraq staffing issue was resolved. In addition, staffing became stretched when Congress did not provide the Administration-requested appropriations to fund additional generalist staffing positions in Fiscal Years 2006 and 2007. Some also believe increased staffing levels called for by the global repositioning of the Foreign Service and transferring personnel slots to an increasing number of hardship assignments will only aggravate the staffing situation further. Transformational diplomacy is about the nature of political regimes in other countries, and it promotes the United States "working with partners to build and sustain democratic, well-governed, responsible states that will respond to the needs of their people." The views of other nations then become important as to whether sovereign governments accept this agenda of the United States. For instance, will other governments take issue with Secretary Rice's January 2006 speech on transformational diplomacy in which she stated that U.S. diplomats will be "helping foreign citizens to promote democracy building, fight corruption, start businesses, improve healthcare, and reform education?" Will other governments allow the expansion of U.S. representation to American Presence Posts around their countries? And how receptive will people in other countries be to the new U.S. initiatives? The following are examples of international reactions to the Administration's transformational diplomacy plan. The State Department intends to increase U.S. representation through the Global Repositioning initiative in three of these countries, China, Indonesia, and Malaysia. "Many people think the logic in transformation of diplomacy [ sic ] is wrong because it thinks the character of a regime is the fundamental issue of the current international politics.... As long as the supreme state characterized by the disappearance of the borders of states has not come, it is reasonable to protect a country's sovereignty. Therefore, the theory that in order to protect the U.S. national security, it denies other country's sovereignty is an arbitrary logic as if it only let itself live, but not others.... U.S. democracy is not necessarily the prioritized choice for every country. Under the pretext of promoting democracy to intervene in other country's domestic affairs, U.S. action will surely inflict boycott from various nations and peoples." "Where the Middle East is concerned, the plan signifies a change in attitude, not in policy. Its call for many more Middle East specialists and Arabic-speakers in the Foreign Service and for greater openness to the people will not affect American policy in terms of the region's conflicts. But it might help ease some of the tension—... a positive step in the Middle East." "The U.S. Secretary of State Rice has recently elaborated on her transformational diplomacy strategy in an effort to transform the posture of U.S. diplomacy to focus more on promoting democratic and economic changes. Washington has apparently recognized the rapid changes in the global political environment and is now making preparations to cope with these changes. But we are afraid that this U.S.-style democracy may not be applicable in the present day emerging world environment.... If this U.S.-style democracy cannot improve the lives of people of other countries, this transformational diplomacy can only remain a political slogan of U.S. politicians. It is only when the United States is able to reduce the 30 percent high unemployment rate in Iraq, we can see a successful model of U.S. democracy taking shape in the Middle East." "[Indonesia] is receiving extraordinary attention in Secretary Rice's vision of 'Transformational Diplomacy.' Five new positions have been added to American posts in Indonesia—second only to China in the number of new positions created in Asia. As a convert to the democratic system, Indonesia seeks to improve its bonds with the birthplace of modern democracy. This, however, does not mean that we agree with Washington's unilateralist view of the world... . We end in the same way that we began. By exchanging views on how to emancipate the world via democratic processes ( sic ). And by being honest about our views and the fact that we cannot condone many of her country's international exploits nor the way in which it is seeking to reshape the world." Except for needed appropriations, congressional involvement in the implementation of the transformational diplomacy proposal appears to some observers to have been minimal. Changes were made under existing authorities, and no legislation or new authority was requested from Congress. In 2007, at the State Department's request, Congress considered but did not move forward, bills to authorize the full implementation of the Civilian Response Corps in the "Reconstruction and Stabilization Civilian Management Act of 2007 ( S. 613 / H.R. 1084 )." As the proposal continues to be implemented, increased transformational diplomacy-related appropriations may be requested. Congress may also exercise its oversight responsibilities to monitor the effect that transformational diplomacy has on achieving foreign policy goals, maintaining a top quality Foreign Service, and providing the best possible representation around the world. Some areas of consideration may include the following: Foreign Service Personnel and Security Issues—Reports of personnel shortfalls at the Department of State, because of the staffing effects of Iraq, Afghanistan, and the new transformational diplomacy proposal, and the lack of authority to expand the number of positions may need to be addressed in future appropriations and authorizations. Concern about adequate security may also need to be monitored as Foreign Service personnel are regularly posted to more difficult and dangerous assignments. Monitoring the impact of transformational diplomacy on Foreign Service morale, recruitment, and attrition may be required to maintain a strong and effective diplomatic representation of America overseas in the future. Funding—While the 110 th Congress passed the FY2007 Continuing Appropriations ( P.L. 110-5 ), which included funding for the Department of State, no FY2007 money was provided specifically to implement transformational diplomacy as requested by the Administration. Instead, funds were reprogrammed from other accounts within State to handle early implementation. In order to implement transformational diplomacy changes in FY2008, the Department of State is requesting a total of $124.8 million: $20.8 million for training, $14.6 million for Reconstruction and Stabilization, $39.9 million for global repositioning, $34.5 million for Foreign Service Modernization, and $15 million for public diplomacy. Through the appropriation and authorization process, Congress will likely provide oversight and funding for the plan. Foreign Assistance in the Future—The Administration's foreign assistance reform proposals appear to some as already being amended by Congress. The Administration requested an increase in Economic Support Funds (ESF) and a decrease in Development Assistance (DA) funds in FY2008. According to the House Appropriations Committee's summary, the House shifted $365 million in requested ESF and International Disaster and Famine Assistance (IDFA) accounts to the DA account to "reassert the role of USAID as the primary development agency of the U.S. Government." The enacted law ( P.L. 110-161 ) did not include the shift in funds. The Future of the Reconstruction and Stabilization Initiative—Congress may consider whether to codify the existence S/CRS by adding its authorization to the State Department Basic Authorities Act of 1956, and to increase S/CRS authority to lead and coordinate a government-wide response to international reconstruction and stabilization. Further, there continues to be a question of providing an authorization and funding for a Conflict Response Fund. Some supporters have suggested that such a fund might be created as a no-year revolving fund similar to the Emergency Refugee Migration Assistance (ERMA) fund. Also, the State Department requested authorizing legislation for the CRC. The Future of Transformational Diplomacy—While many foreign policy experts generally agree that the world has changed and diplomacy must change with it, experts and foreign governments have raised concerns about specific aspects of the Administration's proposal. Secretary Rice said that "Transforming our diplomacy and transforming the State Department is the work of a generation." If transformational diplomacy is perceived as negatively affecting U.S. interests around the world, the next administration may rethink or replace it. It is unclear how flexible the plan is and how difficult, in terms of financial and human resource costs, this plan may be to adjust or replace. Transformational diplomacy still does not address State's organizational structure, which was never fully reorganized when the U.S. foreign policy mechanism was reformed, merging new functions into the Department. Some, including the former House Speaker, Newt Gingrich, have said the Department is "broken" and needs to be overhauled. State and Defense Departments' roles in some activities, and division of labor between the two, continue to be unclear. According to former USAID Administrator, Andrew Natsios, "If State doesn't become more operational, it's going to be overwhelmed by the Defense Department." Retired Ambassador Prudence Bushnell said: "To implement transformational diplomacy you need a clear chain of command and accountability. This is lacking. We don't seem to have settled the role of the military and the role of the career diplomat." Appendix A. Transformational Diplomacy and Global Repositioning Appendix B. Foreign Assistance Framework (Prepared by the Department of State) | Many foreign affairs experts believe that the international system is undergoing a momentous transition affecting its very nature. Some, such as former Secretary of State Henry Kissinger, compare the changes in the international system to those of a century ago. Secretary of State Rice relates the changes to the period following the Second World War and the start of the Cold War. At the same time, concerns are being raised about the need for major reform of the institutions and tools of American diplomacy to meet the coming challenges. At issue is how the United States adjusts its diplomacy to address foreign policy demands in the 21st Century. On January 18, 2006, in a speech at Georgetown University in Washington, D.C., Secretary Rice outlined her vision for diplomacy changes that she referred to as "transformational diplomacy" to meet this 21st Century world. The new diplomacy elevates democracy-promotion activities inside countries. According to Secretary Rice in her February 14, 2006 testimony before Senate Foreign Relations Committee, the objective of transformational diplomacy is: "to work with our many partners around the world to build and sustain democratic, well-governed states that will respond to the needs of their people and conduct themselves responsibly in the international system." Secretary Rice's announcement included moving people and positions from Washington, D.C., and Europe to "strategic" countries; it also created a new position of Director of Foreign Assistance, modified the tools of diplomacy, and changed U.S. foreign policy emphasis away from relations among governments to one of supporting changes within countries. Except for needed appropriations, Congressional involvement in the implementation of the transformational diplomacy proposal appears to some observers to have been minimal. Changes were made under existing authorities, and no legislation or new authority was requested from Congress. In 2007, the State Department sought legislative authority (S. 613/H.R. 1084) to authorize funding and personnel issues for some aspects of the plan. To date, Congress has not considered the legislation. As the transformational diplomacy proposal continues to be implemented, increased transformational diplomacy-related appropriations may be requested. Congress may also exercise its oversight responsibilities to monitor the effect that transformational diplomacy has on achieving foreign policy goals, maintaining a top quality Foreign Service, and providing the best possible representation around the world. This report provides an overview of Secretary of State Rice's transformational diplomacy plan. It examines the calls for reform of America's current diplomatic institutions, and the Administration's response—transformational diplomacy. The report also presents the concerns many experts have expressed regarding specific elements of this proposal, and a sample of reactions in other countries. Finally, the report discusses various issues that may be considered by Congress. This report will be updated as warranted. |
Article III, Section I, of the Constitution provides, in part, that the "judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish." It further provides that Justices on the Supreme Court and judges on lower courts established by Congress under Article III have what effectively has come to mean life tenure, holding office "during good Behaviour." Along with the Supreme Court, the courts that constitute the Article III courts in the federal system are the U.S. circuit courts of appeals, the U.S. district courts, and the U.S. Court of International Trade. This report concerns nominations made by President Obama and other recent Presidents to the U.S. circuit courts of appeals and the U.S. district courts. Outside the report's scope are the occasional nominations that these Presidents made to the Supreme Court and the U.S. Court of International Trade. In recent Congresses, there has been ongoing interest in the process by which U.S. circuit and district court judges are nominated by the President and approved by the Senate. During Senate debates over judicial nominations, differing perspectives have been expressed about the relative degree of success of a President's nominees in gaining Senate confirmation, compared with the nominees of other recent Presidents. Additionally, Senate debate often has concerned whether a President's judicial nominees, relative to the nominees of other recent Presidents, had to wait longer before receiving consideration by the Senate Judiciary Committee or "up-or-down" floor votes on confirmation. Of related concern to Congress has been increases in recent years in the number of vacant judgeships in the federal judiciary, the frequency with which vacant judgeships are considered "judicial emergencies," and the effect of delays in the processing of judicial nominations on filling vacancies. Perhaps in response to some of the issues described above, the Senate, on November 21, 2013, 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, ... In light of continued Senate interest in the judicial selection and confirmation process, this report seeks to inform the ongoing debate in four ways: (1) by using various statistical measures to compare the progress of President Obama's judicial nominees, during his first five years, in advancing through the Senate confirmation process with that of the judicial nominees during the first five years of the three most recent preceding Presidents who served two terms (Ronald Reagan, George W. Bush, and Bill Clinton); (2) by providing statistics related to the length of time it has taken President Obama and his three predecessors to nominate individuals to vacant circuit and district court judgeships; and (3) by providing statistics related to judicial vacancies existing at the beginning of each President's fifth and sixth years in office. For the purposes of this report, a President's first five years in office are defined as the period of time between January 20, the date he assumed office during the first calendar year of his presidency, to December 31 of his fifth calendar year in office (rather than to January 19, which falls during his sixth calendar year in office). Operationalizing a President's fifth year in this manner allows for the analysis to coincide more closely with dates for which congressional action on judicial nominations might occur (prior to the Senate adjourning sine die ). This section of the report contains various statistical measures to compare the judicial nomination and confirmation process during the first five years of the Obama presidency to the presidencies of his three immediate two-term predecessors (Presidents Reagan, G.W. Bush, and Clinton). It first compares the number and percentage of U.S. circuit and district court nominees who were confirmed during the first five years of the Reagan, Clinton, G.W. Bush, and Obama presidencies. It then provides, for the same four Presidents, a comparison of selected features of the judicial nomination and confirmation process during each President's first five years in office. The section concludes by comparing the percentage of circuit and district court judgeships vacant at the beginning of each President's fifth and sixth years in office as well as the percentage of such vacancies considered "judicial emergencies." This report does not analyze or take a position on the number or percentage of a President's judicial nominees that would be appropriate for the Senate to confirm or on the average (or median) length of time that would be appropriate for, or needed by, the Senate Judiciary Committee to process judicial nominations or for the Senate to take final action on them. Similarly, this report does not analyze or take a position on the appropriate amount of time for an Administration to select nominees for circuit and district court judgeships. Table 1 presents, during the first five years of a presidency for Presidents Reagan through Obama, the total number of circuit court nominees, the total number (and percentage) of circuit nominees confirmed by the end of a President's fifth year in office, the number (and percentage) confirmed after his fifth year, and the number (and percentage) of circuit nominees never confirmed. While Presidents sometimes have nominated particular individuals to a court more than once, Table 1 counts such nominees only once (as does Table 2 below). In other words, neither table accounts for multiple nominations of the same individual to the same court. Table 1 reveals that each President nominated between 50 and 60 individuals to circuit court judgeships during his first five years, with Presidents Reagan and Obama nominating the greatest number of individuals (58 and 57, respectively). For President Reagan, all but three of the circuit court nominees who were nominated during his first five years in office were also confirmed by the end of his fifth year. President Clinton had the lowest percentage of circuit court nominees confirmed by the end of his fifth year in office (69.8%), followed by Presidents Obama (71.9%) and G.W. Bush (77.8%). Ten circuit court nominees who were nominated during President Clinton's first five years were eventually confirmed later in his presidency (i.e., during the sixth year or later), raising the overall confirmation percentage of individuals nominated to circuit courts during the first five years of his presidency to 88.7%. This compares to a high of 96.6% for individuals nominated during President Reagan's first five years and a low of 81.5% for those nominated during President G.W. Bush's first five years. Of those individuals nominated during the first five years of a presidency, President G.W. Bush had the highest percentage who were never confirmed (18.5%), followed by Presidents Clinton (11.3%) and Reagan (3.4%). Table 2 presents, during the first five years of the Reagan, Clinton, G.W. Bush, and Obama presidencies, the total number of district court nominees, the total number (and percentage) of district nominees confirmed by the end of each President's fifth year in office, the number (and percentage) confirmed after his fifth year, and the number (and percentage) of district court nominees never confirmed. The table reveals that each President nominated between 194 and 239 individuals to district court judgeships during his first five years in office, with Presidents Clinton and Obama nominating the greatest number of individuals (239 and 226, respectively). Presidents Clinton and Obama, however, also had the lowest percentages of those individuals confirmed during their first five years (82.8% and 76.5%, respectively). President Reagan had the greatest percentage of individuals who were nominated during his first five years also confirmed prior to the end of his fifth year in office (95.5%), followed by President G.W. Bush (93.8%). Twenty-two district court nominees who were nominated during President Clinton's first five years in office were eventually confirmed later in his presidency (i.e., during his sixth year or later), raising the overall confirmation percentage of individuals nominated during the first five years of his presidency to 92.0%. This compares to an overall confirmation rate of 99.0% for individuals nominated during President G.W. Bush's first five years and 98.5% of those nominated during President Reagan's first five years. Of those individuals nominated during the first five years of a presidency, President Clinton had the highest percentage of nominees who were never confirmed (7.9%), followed by Presidents Reagan (1.5%) and G.W. Bush (1.0%). There is variation across the four Presidents in the number of U.S. circuit and district court nominees confirmed solely during a President's fifth year in office. The number of circuit court nominees confirmed during a fifth year ranged from a high of 22 during the Reagan presidency to a low of 7 during both the Clinton and G.W. Bush presidencies. President Obama had 11 circuit court nominees confirmed during his fifth year in office. For district court nominees, the number of nominees confirmed during a fifth year ranged from a high of 62 during the Reagan presidency to a low of 14 during the G.W. Bush presidency. For Presidents Clinton and Obama, 29 and 32 district court nominees were confirmed, respectively, during their fifth years in office. Although President Obama had the second greatest number of district court nominees confirmed by the Senate during his fifth year in office, he trailed (as shown in Table 2 ) the other three Presidents in both the overall number and percentage of district court nominees confirmed during the first five years. This might reflect, in part, the relatively longer time it has taken the Senate to confirm President Obama's district court nominees. Some judicial nominations at the end of a President's fifth year in office might still be awaiting action by the Judiciary Committee or the full Senate when the Senate adjourns sine die . For the purposes of this report, nominations awaiting Judiciary Committee action include those for which a hearing had not yet been held as well as those for which a hearing had been held but not reported by the committee. Nominations awaiting action by the full Senate are those that, due to being reported by the Judiciary Committee, are pending on the Executive Calendar . President Obama, compared to the other three Presidents, had at the end of his fifth year in office the second greatest number of circuit court nominees whose nominations were still awaiting action by either the Judiciary Committee or full Senate. Altogether there were 10 circuit court nominees with nominations still awaiting committee or floor action by the end of December 2013. These 10 nominees accounted for 17.5% of the 57 individuals nominated to circuit courts by President Obama by the end of his fifth year. At the end of the fifth years of the Clinton and G.W. Bush presidencies there were 13 and 7 nominees, respectively, awaiting action. These nominees accounted for 24.5% and 13.0%, respectively, of individuals nominated during the first five years of the Clinton and G.W. Bush presidencies. By the end of President Reagan's fifth year in office there was one circuit court nomination still awaiting action (accounting for 1.7% of those nominated during his first five years). President Obama had the greatest number of district court nominees pending before either the Judiciary Committee or the full Senate by the end of his fifth year in office compared to his three predecessors. By the end of December 2013, there were 46 district court nominees with nominations awaiting committee action or final Senate action (accounting for 20.4% of all those nominated to district court judgeships during President Obama's first five years). In contrast, 11 district court nominees were awaiting committee or final Senate action by the end of President G.W. Bush's fifth year in office (accounting for 5.7% of those nominated during his first five years), while 30 district court nominees were awaiting committee or floor action by the end of President Clinton's fifth year in office (accounting for 12.6% of those nominated to district court judgeships during his first five years). At the end of President Reagan's fifth year in office, eight district court nominees were still awaiting action by the Judiciary Committee or full Senate (accounting for 4.0% of his nominees). Like other parts of this report, the discussion under this heading is based upon nomination and confirmation statistics from each President's first five years in office. For the discussion related specifically to the confirmation process in the Senate, the statistics generally account only for those nominees who were confirmed by the Senate during a President's first five years (thus excluding from the analysis nominees who were never confirmed or who were later confirmed in a President's term, i.e., during his sixth year or later, and, for President Obama, those nominations for which final disposition cannot yet be discerned). Figure 1 tracks by President, from Reagan to Obama, the average and median number of days from a judicial vacancy occurring to a President nominating someone for that vacancy. Included in the calculations are individuals, whether confirmed or not, who were nominated to circuit and district court judgeships during a President's first five years. If a nomination was for a vacancy existing prior to a President taking office, the date the President first took office (January 20 of his first year) was used as the date a vacancy occurred for the purpose of calculating the days elapsed from vacancy to nomination. If a nomination was made for a vacancy occurring while a President was in office, the actual date of the vacancy occurring was used in the calculations. It took President Clinton, on average, the longest amount of time to nominate individuals to circuit court vacancies (370.6 days). Presidents Obama and G.W. Bush took, on average, 261.6 and 256.4 days, respectively, while President Reagan took 234.3 days. In terms of the median number of days from vacancy to nomination, both Presidents G.W. Bush and Obama took less than 200 days to nominate individuals to circuit court vacancies (146 and 162.5 days, respectively). President Reagan took 234 days while President Clinton took 372 days. As for district court nominees, President Obama took, on average, the longest amount of time to nominate individuals to district court vacancies (348.3 days), while President G.W. Bush took the least amount of time (258.8 days). President Reagan took, on average, 258.8 days, while President Clinton took 341.6 days. In terms of the median number of days from vacancy to nomination, it took President Clinton the longest amount of time to nominate individuals to district court vacancies (303 days), while President G.W. Bush took the least amount of time (194 days). President Reagan took 240 days and President Obama took 288.5 days. It is not clear based on these statistics alone whether there is a relationship between the length of time it takes a President to nominate individuals to vacant judgeships and the number or percentage of those individuals confirmed by the Senate. President Clinton, for example, took nearly as long as President Obama, on average, to nominate individuals to vacant district court judgeships. Despite this, there were 25 more district court judges confirmed during the first five years of the Clinton presidency than during the first five years of the Obama presidency. For his part, the speed with which the President submits judicial nominations to the Senate reflects factors both within an Administration's control and outside its control. Factors within an Administration's control include the priority a particular President places on filling judicial vacancies, the number of individuals in the White House involved in identifying and screening potential nominees, and the nature of the vetting process to which the nominee is subject prior to his or her nomination being submitted to the Senate. Factors outside an Administration's control include whether a vacancy on the Supreme Court occurs (thus perhaps delaying a President's selection of lower court nominees) and whether (or how quickly) Senators submit to the President their recommendations for a vacancy existing in their particular state. Figure 2 tracks by President the average and median number of days from nomination to confirmation for all circuit and district court nominees confirmed during a President's first five years in office. If a nominee was nominated more than once by a President during his first five years (and he or she was also confirmed within those five years), the first date he or she was nominated was used to calculate the days elapsed from nomination to confirmation. President G.W. Bush's circuit court nominees who were confirmed during his first five years waited, on average, the longest period of time from first nomination to confirmation (402 days). President Obama's nominees waited, on average, the second-longest period of time (253.7 days), followed by the circuit court nominees of Presidents Clinton (158.2 days) and Reagan (56.8 days). In terms of the median number of days from nomination to confirmation, President G.W. Bush's circuit court nominees also waited the longest period of time from nomination to confirmation (245 days), followed by President Obama's circuit nominees (228 days). The circuit court nominees who were confirmed during President Clinton's first five years had a median wait time of 108 days while President Reagan's circuit nominees had a median wait time of 37 days. An additional way to analyze the data concerning the length of time from nomination to confirmation is to calculate the percentage of judicial nominees for whom, once nominated, it takes a certain length of time to be confirmed. For example, as Table 3 shows, a majority (61.8%) of President Reagan's circuit court nominees were confirmed within 60 days (or approximately within two months) after first being nominated. A plurality (48.6%) of President Clinton's circuit nominees were confirmed within 61 to 120 days (or between two and four months) of first being nominated. For President G.W. Bush's circuit court nominees, 69.0% were confirmed after more than 180 days (or six months) had elapsed after their first nomination, whereas 80.5% of President Obama's circuit nominees were confirmed after more than 180 days of first being nominated. These percentages, when compared with the average and median number of days from nomination to confirmation for President Obama's and President G.W. Bush's circuit court nominees, indicate that a greater number and percentage of President Obama's circuit court nominees who were confirmed during his first five years waited more than 6 months after being nominated. At the same time, a subset of President G.W. Bush's circuit court nominees who waited more than six months to be confirmed waited much longer than six months to be confirmed (thus, increasing the overall average wait time from nomination to confirmation during his presidency). As discussed above, it took President Obama longer, on average during his first five years, to nominate individuals to district court vacancies than it did the other three Presidents (see Figure 1 above). Once nominated, however, these individuals also waited relatively longer periods of time to be confirmed compared to the district court nominees of other Presidents. Figure 2 shows that President Obama's confirmed nominees waited, on average, 223.3 days from nomination to confirmation. President G.W. Bush's district court nominees waited, on average, 161.2 days. The district court nominees confirmed during President Clinton's first five years waited an average of 106.9 days while those confirmed during President Reagan's first five years waited 50.0 days. The median waiting times from nomination to confirmation for district court nominees ranged from a high of 214.0 days during President Obama's first five years to a low of 31.0 days during President Reagan's first five years. For Presidents Clinton and G.W. Bush, the median waiting times from nomination to confirmation for district nominees were 90.0 and 137.5 days, respectively. Overall, as displayed by Table 4 , a relatively large majority (81.2%) of President Reagan's district court nominees were confirmed within 60 days (or within two months) of first being nominated. A plurality of both President Clinton's district court nominees (44.4%) and President G.W. Bush's nominees (37.3%) were confirmed between 61 and 120 days (or between two and four months) after being nominated. For President Obama's district court nominees, a majority (68.8%) waited more than 180 days (or more than six months) to be confirmed after being nominated. President Obama is the only President of the four for whom, during his first five years in office, a majority of U.S. circuit and district court nominees waited more than six months (approximately 180 days) to be confirmed after being nominated. Figure 3 tracks, for each of the four Presidents, the mean and median number of days from first nomination to first committee hearing for all circuit and district court nominees who received hearings during a President's first five years. All nominees who received hearings were included in the calculations, regardless of whether they were eventually confirmed or their nomination was returned, withdrawn, or rejected by the Senate. Figure 3 shows that circuit court nominees of President G.W. Bush waited more days (during his first five years) to receive a hearing than did the nominees of the other four Presidents. The mean and median number of days for a circuit court nominee to receive a committee hearing after being nominated ranged from a low of 28.8 and 18.5 days, respectively, during the Reagan presidency to 296.6 and 176.0 days, respectively, for the G.W. Bush presidency. President Clinton's circuit court nominees waited an average of 88.9 days to receive hearings (although the median waiting time was slightly lower—84.0 days). Although a relatively low number and percentage of President Obama's circuit court nominees were confirmed in his first five years, his circuit court nominees received hearings relatively quickly. His circuit court nominees waited, on average, less time from first nomination to first hearing, 76.4 days, than the circuit nominees of Presidents Clinton, and G.W. Bush. Only President Reagan's circuit nominees waited, on average, less time from first nomination to first hearing (28.8 days). Figure 3 shows, by presidency, less striking differences in the amount of time district court nominees, compared with circuit court nominees, waited for hearings during a President's first five years. The mean and median number of days from first nomination to first hearing for district court nominees ranged from a low of 25.7 and 17.0 days, respectively, during the Reagan presidency to a high of 106.2 and 81.5 days, respectively, during the G.W. Bush presidency. The average waiting time, from first nomination to first hearing, for President Obama's district court nominees during his first five years, 81.8 days, is close to the average waiting time experienced by district court nominees during the Clinton presidency, 76.1 days. The median number of days for President Obama's and Clinton's district court nominees was 77.0 and 62.0 days, respectively. A notable change during the Obama presidency has been the length of time judicial nominees await final consideration by the Senate once the Judiciary Committee has finished its work processing a nomination and the nomination has been reported to the full Senate. Specifically, judicial nominations have remained on the Executive Calendar for relatively longer periods of time (relative to past President's nominees) before receiving consideration by the full Senate. For confirmed circuit court nominees during the four presidencies, the fewest days, on average, that elapsed from first committee report to confirmation occurred during the first five years of the Reagan presidency (15.8 days). The mean number of days from committee report to confirmation for nominees who were confirmed during a President's first five years increased to 52.7 days during the first five years of the Clinton presidency and then to 109.4 days during the G.W. Bush presidency. During President Obama's first five years, the average number of days from committee report to confirmation increased to 144.9 days. The median number of days from first committee report to confirmation ranged from a low of 4 days during the first five years of the Reagan presidency to a high of 131 days during President Obama's first five years. During the first five years of the Clinton and G.W. Bush presidencies, the median number of days from committee report to confirmation were 7 and 30.5 days, respectively. As with President Reagan's confirmed circuit court nominees, district court nominees during his first five years waited, on average, a shorter amount of time from committee report to confirmation (12.2 days) than did the district nominees confirmed during the first five years of the three other Presidents. The average number of days increased to 18.2 days during the Clinton presidency and to 33.1 days during the G.W. Bush presidency. During the first five years of the Obama presidency, the average number of days increased further to 109.2 days (or approximately 3.5 months). As Figure 4 shows, the median number of days from committee report to confirmation ranged from a low of 2.0 days during the Reagan presidency to a high of 90.0 days during the Obama presidency. The median number of days for district nominees confirmed during the first five years of the Clinton and G.W. Bush presidencies were 6.0 and 18.0 days, respectively. The relatively longer wait times from committee report to confirmation for President Obama's district court nominees did not translate into a majority (or even plurality) of his nominees being broadly opposed, as measured by the number of "nay" votes a nomination received, when confirmed by the Senate. For example, of the 85 district court nominees whose time from committee report to confirmation was greater than 90.0 days (which is the median identified above for President Obama's district court nominees), 65.0% were confirmed by voice vote or with zero nay votes when a roll call vote was held. Another 14.0% received five or fewer nay votes. Additionally, of the 19 circuit court nominees whose time from nomination to confirmation was greater than 131 days (which is the median for President Obama's circuit court nominees), 10 (52.6%) were confirmed by voice vote or with zero nay votes when a recorded roll call vote was held. Another two (10.5%) were confirmed with fewer than five nay votes. The percentage of vacant circuit and district court judgeships varies over the course of a presidency and is affected, in part, by the pace at which a President selects nominees for vacancies as well as the speed by which the Senate considers the President's nominees. Table 5 compares for the four Presidents: (i) the percentage of vacant U.S. circuit and district court judgeships on January 1 of a President's fifth year in office; (ii) the percentage of vacant U.S. circuit and district court judgeships vacant on January 1 of a President's sixth year in office; and (iii) the change in the percentage of vacant U.S. circuit and district court judgeships from January 1 of a President fifth's year to January 1 of his sixth year in office. Table 5 reveals that the percentage of circuit court judgeships that were vacant at the beginning of a President's fifth year in office was greatest during the Reagan and Clinton presidencies (14.9% and 12.8%, respectively) while, at the beginning of a President's sixth year in office, the percentage of circuit court judgeships that were vacant was greatest during the Clinton and Obama presidencies (12.8% and 9.5%, respectively). Of the four Presidents, President Obama is the only one for whom the percentage of vacant circuit court judgeships increased, albeit slightly, from the beginning of his fifth year to sixth year in office (+0.6%). The percentage of vacant circuit court judgeships declined by 9.5% and 1.1% from the beginning of the fifth to the sixth years of the Reagan and G.W. Bush presidencies, respectively. The percentage of vacant circuit court judgeships on January 1 of President Clinton's sixth year in office was the same as the percentage of such judgeships that were vacant on January 1 of his fifth year in office. As with circuit court vacancies, the percentage of vacant district court judgeships on January 1 of a President's fifth year in office was greatest during the Reagan and Clinton presidencies (13.1% and 10.0%, respectively). On January 1 of a President's sixth year in office, the percentage of vacant district court judgeships was greatest during the Clinton and Obama presidencies (9.3% and 11.1%, respectively). From the beginning of a President's fifth to sixth year in office, the percentage of vacant district court judgeships declined during the Reagan presidency (-5.4%) and, slightly, during the Clinton presidency (-0.7%). The percentage of vacant district court judgeships increased from the fifth to sixth years during the G.W. Bush (+2.1%) and Obama (+2.3%) presidencies. A vacancy is deemed a "judicial emergency" by the Judicial Conference by the United States if certain criteria are met regarding the number of case filings for that judgeship or court and, in some cases, the length of time a particular judicial vacancy has existed. As with vacancies, generally, the percentage of vacant circuit and district court judgeships deemed judicial emergencies is affected by a combination of factors. A full accounting is beyond the scope of this report, but such factors include, in part, the pace at which a President selects nominees for vacancies as well as the speed by which the Senate considers the President's nominees. For circuit court vacancies, a judicial emergency exists if adjusted case filings per appellate panel are in excess of 700 or, for any circuit court vacancy that is in existence for more than 18 months, where adjusted filings are between 500 to 700 per panel. For district court vacancies, a judicial emergency exists when a district court has weighted case filings in excess of 600 per judgeship; or a vacancy is in existence more than 18 months where weighted filings are between 430 to 600 per judgeship; or any district court with more than one authorized judgeship and only one active judge. Table 6 compares, for President Obama and two of his predecessors, (i) the percentage of circuit and district court vacancies considered judicial emergencies on January 1 of each President's fifth year in office; (ii) the percentage of circuit and district court vacancies considered judicial emergencies on January 1 of each President's sixth year; and (iii) the change in the percentage of judicial vacancies considered judicial emergencies from January 1 of a President's fifth to sixth year in office. Data on judicial emergencies is not available for the Reagan presidency; consequently, it is omitted from this part of the analysis. Table 6 reveals that the percentage of vacant circuit court judgeships considered judicial emergencies on January 1 of a President's fifth year in office was greatest during the G.W. Bush presidency (80.0%), followed by the Clinton and Obama presidencies (42.1% and 37.5%, respectively). The percentage of such vacancies considered judicial emergencies on January 1 of a President's sixth year in office was also greatest during the G.W. Bush presidency (61.5%). The percentage of circuit court vacancies considered judicial emergencies at the beginning of President Obama's and Clinton's sixth years was 58.8% and 39.1%, respectively. Of the three Presidents, President Obama is the only one for whom the percentage of vacant circuit court judgeships deemed judicial emergencies increased from January 1 of his fifth year to January 1 of his sixth year (increasing from 37.5% to 58.8%). For Presidents G.W. Bush and Clinton the percentage of vacant circuit court judgeships considered judicial emergencies decreased by 18.5% and 3.0%, respectively. As shown by Table 6 , the percentage of vacant district court judgeships considered judicial emergencies on January 1 of a President's fifth year in office was greatest during the Obama presidency (35.6%), followed by the G.W. Bush and Clinton presidencies (28.6% and 25.5%, respectively). The percentage of such vacancies considered judicial emergencies on January 1 of a President's sixth year in office was also greatest during the Obama presidency (36.0%). The percentage of district court vacancies considered judicial emergencies at the beginning of President G.W. Bush's and Clinton's sixth years was 22.9% and 33.3%, respectively. President G.W. Bush is the only one of the three Presidents for whom the percentage of vacant district court judgeships deemed judicial emergencies declined from January 1 of his fifth to sixth year in office (i.e., declining from 28.6% to 22.9%). For Presidents Clinton and Obama the percentage of vacant circuit court judgeships considered judicial emergencies increased (by 7.8% and 0.4%, respectively) from January 1 of each President's fifth to sixth year. | The selection and confirmation process for U.S. circuit and district court judges is of continuing interest to Congress. Recent Senate debates over judicial nominations have focused on issues such as the relative degree of success of President Barack Obama's nominees in gaining Senate confirmation compared with other recent Presidents, as well as the relative prevalence of vacant judgeships compared to years past, and the effect of delayed judicial appointments on judicial vacancy levels. This report addresses these issues, and others, by providing a statistical analysis of nominations to U.S. circuit and district court judgeships during the first five years of President Obama's time in office and that of his three most recent two-term predecessors. Some of the report's findings include the following: During his first five years in office, President Obama nominated 57 persons to U.S. circuit court judgeships. Of the 57, 41 (71.9%) were also confirmed during this same five-year period. The 41 confirmed Obama circuit court nominees represented the second-lowest number of nominees confirmed during recent Presidents' first five years. President Clinton had the lowest number at 37. The percentage of circuit court nominees confirmed during President Obama's first five years, 71.9%, was also the second-lowest, while the percentage confirmed during President Clinton's, 69.8%, was the lowest. Of the four Presidents, President Reagan had both the greatest number (55) and percentage (94.8%) of circuit court nominees confirmed within the first five years of his presidency. Of the 226 persons nominated by President Obama to U.S. district court judgeships during his first five years, 173 (76.5%) were confirmed. Of the four Presidents, this was the lowest number and percentage of district court nominees confirmed. Of the comparison group, President Clinton had the greatest number of district court nominees confirmed during his first five years (198) while President Reagan had the greatest percentage of district court nominees confirmed (95.5%)—followed closely by the percentage of district court nominees confirmed during the first five years of the G.W. Bush presidency (93.8%). The average number of days elapsed from nomination to confirmation for circuit court nominees confirmed during a President's first five years ranged from 56.8 days during the Reagan presidency to 402.0 days during the G.W. Bush presidency. The median number of days from nomination to confirmation for circuit court nominees confirmed during a President's first five years ranged from 37.0 days (Reagan) to 245.0 (G.W. Bush). The average and median number of days from nomination to confirmation for President Obama's circuit nominees were 253.7 and 228.0 days, respectively. The average number of days elapsed from nomination to confirmation for district court nominees confirmed during a President's first five years ranged from 50.0 days during the Reagan presidency to 223.3 days during the Obama presidency. The median number of days from nomination to confirmation for district court nominees confirmed during a President's first five years ranged from 31.0 days (Reagan) to 214.0 (Obama). President Obama is the only President of the four for whom, during his first five years in office, a majority of U.S. circuit and district court nominees waited more than 180 days to be confirmed after being nominated. President Obama is the only President of the four for whom there was an increase in the percentage of both U.S. circuit and district court judgeships that were vacant from January 1 of his fifth year in office to January 1 of his sixth year. The percentage of circuit court vacancies deemed "judicial emergencies" increased from January 1 of the fifth year to January 1 of the sixth year of the Obama presidency and decreased over the same period during the Clinton and G.W. Bush presidencies. The percentage of district court vacancies deemed judicial emergencies increased from January 1 of the fifth to the sixth years of the Clinton and Obama presidencies and decreased over the same period during the G.W. Bush presidency. |
Four major principles currently underlie U.S. policy for admitting lawful permanent residents (LPRs): reunifying families, admitting individuals with needed skills, providing humanitarian assistance, and diversifying immigrant flows by country of origin. These principles are expressed in the Immigration and Nationality Act (INA), which contains a pathway for acquiring LPR status for each principle. Family reunification occurs primarily through family-sponsored immigration. Admitting individuals with needed skills occurs through employment-based immigration. Humanitarian assistance occurs primarily through the U.S. refugee and asylum programs. Origin-country diversity occurs primarily through the Diversity Immigrant Visa. This report focuses on the second LPR pathway noted above, employment-based immigration. Employment-based immigrants enter the United States through one of five preference categories, each with its own eligibility requirements and numerical limitations and, in some cases, different application processes. In addition to the numerical limits imposed upon each preference category, employment-based immigrants face a per-country ceiling, or "cap," that limits the number of immigrants from any single country of origin to 7% of the annual limit for each of the five preference categories. This limitation was imposed to prevent any one country or handful of countries from dominating the flow of employment-based immigration to the United States. The numerical limits imposed upon each preference category, combined with the per-country ceiling, mean that employment-based immigrants from certain countries can face considerable waits before they can acquire LPR status. In recent years, some Members of Congress have shown interest in reassessing the 7% per-country ceiling for employment-based immigration. Some assert that the current numerical limits on employment-based LPRs are not working in the national economic interest and potentially lead to exploitation of foreign workers who are waiting to acquire LPR status. Others argue that such limits prevent a few countries from dominating employment-based immigration. The report opens with explanations of the employment-based preference categories and the per-country ceiling governing annual permanent immigration. It then presents trend data on employment-based immigration. Focusing primarily on the five major employment-based preference categories, the report continues by analyzing pending queues of six distinct pools of petitions and applications found across the administrative process of acquiring employment-based LPR status. The report then presents arguments for and against removing the per-country ceiling on employment-based LPRs. It discusses recent congressional proposals to alter the per-country ceiling, and considers possible outcomes that might occur as a result of eliminating it. The INA limits worldwide permanent immigration to 675,000 persons annually: 480,000 family-sponsored immigrants, made up of family-sponsored immediate relatives of U.S. citizens (immediate relatives), and a set of four ordered family-sponsored preference immigrant categories ("preference immigrants"); 140,000 e mployment-based immigrants comprised of a set of five preference immigrant categories and 55,000 diversity visa immigrants . This worldwide limit, however, is referred to as a "permeable cap" because immediate relatives are exempt from numerical limits placed on family-sponsored immigration and thereby represent the flexible component of the 675,000 worldwide limit. Consequently, the actual total of foreign nationals receiving LPR status each year (including immigrants, refugees, and asylees) has averaged roughly 1 million persons during the past decade. The INA further specifies a "per-country ceiling," or "cap," limiting the number of family-sponsored preference immigrants and the number of employment-based immigrants from any single country to 7% of the limit in each preference category. The per-country level is not a "quota" set aside for individual countries, as each country in the world could not receive 7% of the overall limit. The Department of State (DOS) notes that "the country limitation serves to avoid monopolization of virtually all the annual limitation by applicants from only a few countries," and is not "a quota to which any particular country is entitled." The INA outlines five distinct employment-based preference categories and their individual numerical limits within the overall worldwide total of lawful permanent residents. How prospective immigrants apply for employment-based LPR status depends on where they reside. They may apply directly from abroad as new immigrant arrivals or from within the United States as "status adjusters." Adjusting status refers to the process of changing from a temporary (nonimmigrant) status (e.g., F-1 student visa, H-1B skilled temporary worker visa) to LPR status. In either case, petitioning and application involve multiple steps and federal agencies. While some prospective employment-based immigrants can self-petition, most require U.S. employers to petition on their behalf. DOS and the Department of Homeland Security (DHS) each play key roles in administering the law and policies on immigrant admission. In addition, petitioners for 2 nd and 3 rd preference category immigrants must apply for labor certification (described below) from the Department of Labor (DOL). Once any required labor certification is approved, DHS's U.S. Citizenship and Immigration Services (USCIS) must adjudicate an immigrant petition. If the prospective immigrant resides in the United States, USCIS also processes the application to adjust to LPR status (discussed below). In contrast, if the prospective immigrant resides abroad, they must subsequently apply to DOS's Bureau of Consular Affairs for a visa to travel to the United States. DOS is also responsible for the allocation, enumeration, and assignment of all numerically limited "visa numbers" or slots, regardless of where prospective immigrants reside. Among prospective immigrants, the INA distinguishes between principal prospective immigrants (principals) who meet the qualifications of the employment-based preference category, and derivative prospective immigrants (derivatives) who include the principals' spouses and children. Derivatives appear on the same petition as principals and are entitled to the same status and order of consideration as long as they are "accompanying" or "following to join" principal immigrants. Employment-based LPR status is granted to eligible immigrants in the order in which immigrant petitions have been filed under the specific employment-based preference category for the origin country. Visa numbers are prorated according to the preference system allocations ( Table 1 ). The INA provides for certain adjustments within the numerical limits imposed for each of the five employment-based preference categories. First, unused visa numbers for each of the preference categories can "roll down" and be used by immigrants applying in the next preference category. Second, in any given quarter, if the number of available visa numbers exceeds the number of applicants, then the per-country ceiling does not apply for the remainder of available visa numbers for that quarter. Third, any unused family-based preference immigrant visa numbers can be applied to employment-based preference immigrant visa numbers in the next fiscal year. Due to numerical limitations for each preference category, the number of approved immigration petitions for a specific preference category in a given year may exceed visa numbers available for that category as well as the country of origin (due to the 7% per-country ceiling). As a result, individuals with approved petitions may be placed in a queue until a visa is available (see " Pools of Prospective Employment-Based LPRs "). DOS's Visa Bulletin for December 2018 presents action dates (also known as "cut-off dates") for employment-based preference immigrants ( Table 2 ). If a date appears for any preference category, it indicates that the category is "oversubscribed" and that a numerically limited visa number is available only to prospective employment-based immigrants with priority dates that are on or earlier than that cut-off date. Such prospective employment-based immigrants are eligible to submit their visa application to DOS or their adjustment of status application to USCIS. The term "current" indicates that DOS can issue visa numbers to all qualified applicants in that category regardless of priority date or country of origin. Usually cut-off dates in the Visa Bulletin advance with time. However, visa number demand by applicants with a variety of priority dates can fluctuate from month to month, invariably affecting cut-off dates. Such fluctuations can cause cut-off date movement to slow or stop. In some cases where visa number demand unexpectedly exceeds supply, DOS may have to regress cut-off dates to earlier dates to maintain an orderly queue, a situation referred to as "visa retrogression." In sum, visa retrogression occurs when more people apply for a visa number in a particular category or country than there are visa numbers available for that month. Priority dates shown in the Visa Bulletin are not necessarily an accurate guide for visa applicants to gauge their expected wait times until they can apply for a visa or adjust status. Changes in the rate at which foreign nationals apply for LPR status can alter waiting times substantially. For example, the Visa Bulletin for December 2018 indicates that Indian nationals, whose 2 nd preference employment-based petitions (professionals with advanced degrees) were submitted on or before April 1, 2009, could apply for a visa. Indian nationals who were considering applying as employment-based immigrants might interpret this to mean that filing a 2 nd preference employment-based immigrant petition in December 2018 would result in an expected wait time of about 9.5 years until they could receive LPR status. However, if more or fewer Indian nationals applied for employment-based LPR status between 2009 and 2018 than those who applied for LPR status during the 9.5 years prior to April 1, 2009, expected wait times for LPR status could be longer or shorter, respectively. Before petitioning for 2 nd and 3 rd preference category workers, employers must first apply for a foreign labor certification from DOL. To grant it, DOL must determine through its foreign labor certification program that (1) there are insufficient able, willing, qualified, and available U.S. workers to perform the work in question; and (2) the employment of foreign workers will not adversely affect the wages and working conditions of similarly employed U.S. workers. Following this step, sponsoring employers and self-petitioning individuals must file one of three employment-based immigrant petitions with USCIS: an Immigrant Petition for Alien Workers (USCIS Form I-140) for 1 st , 2 nd , and 3 rd preference categories; a Petition for Amerasian Widow(er), or Special Immigrant (USCIS Form I-360) for the 4 th preference category; and an Immigrant Petition by Alien Entrepreneur (USCIS Form I-526) for the 5 th preference category. USCIS sends processed and approved immigrant petitions to DOS's National Visa Center (NVC), which assigns a priority date (the petition filing date) that represents the prospective immigrant's place in the visa queue. Individuals must wait for their priority date to "become current" before proceeding. Priority dates become "current" when they are earlier than the "final action dates" (often referred to as the "cut-off dates") published for the five numerically limited, employment-based immigrant preference categories in DOS's monthly Visa Bulletin (see Table 2 below). Once a prospective immigrant's priority date becomes current, the next steps taken depend on whether he or she resides abroad or in the United States. If the prospective immigrant resides abroad, he or she must apply to DOS for a visa to enter the United States with an Application for Immigrant Visa and Alien Registration (DOS Form DS-260). If the prospective immigrant is already residing in the United States, he or she must apply to USCIS to adjust status with an Application to Register Permanent Residence or Adjust Status (USCIS Form I-485). The final stage in the employment-based immigration process is an interview with either a DOS consular official for foreign nationals residing abroad or a USCIS adjudicator for foreign nationals residing in the United States. If the prospective immigrant is living abroad, the DOS consular office in the applicant's home country will schedule an interview with the prospective immigrant to determine if he or she can receive an immigrant visa to come to the United States and seek admission as an LPR, a pathway known as consular processing. Regardless of whether the potential LPR is applying for a visa abroad from a DOS consular office or applying to adjust status with USCIS in the United States, DOS assigns the visa priority dates and allocates the visa numbers. Figure 1 presents the trends in the admission of employment-based immigrants from 1997 to 2017 by preference category. Over this period, the total number of employment-based immigrants fluctuated from a low of 56,817 (in 1999) to a peak of 246,877 (in 2005). In FY2017, these 137,855 employment-based immigrants represented 12% of the 1,127,167 foreign nationals who received LPR status. The data illustrate that, as noted in Table 1 above, the INA allocates most employment-based LPRs to the 1 st , 2 nd , and 3 rd preference categories. The 2003 dip and the 2005 spike in employment-based LPRs resulted from disruptions caused by the transfer of immigration functions from the legacy Immigration and Naturalization Service in the Department of Justice to the new USCIS in the newly created Department of Homeland Security in 2003. The 2005 increase in employment-based LPRs resulted from a provision in the Real ID Act of 2005, which provided for the "recapture" or re-use of past unused employment-based visa numbers. Within the total number of employment-based immigrants, the annual number of employment-based preference LPRs have fluctuated substantially over the two decades. In contrast with all other employment-based preference immigrants, the number of 5 th preference immigrants increased tenfold between FY1997 and FY2017 (from 936 to 9,863), largely from the popularity of the USCIS EB-5 Regional Center Program. Most foreign nationals who became employment-based LPRs in the past two decades were already living in the United States and adjusted to LPR status from some other temporary (nonimmigrant) status ( Figure 2 ). In FY2017, for example, 82% of employment-based LPRs adjusted to LPR status from within the United States; only 18% acquired LPR status as new arrivals from abroad. The 5 th preference immigrant investors were the exception, with a majority being admitted as new arrivals since 2006. As noted above, acquiring LPR status through the INA's employment-based immigration provisions requires a series of administrative steps performed by various federal agencies involving labor certifications, immigration petitions, and visa applications. The following section isolates and describes six distinct groups of LPR petitions and applications in order of administrative processing: pending labor certification applications at DOL, pending immigrant petitions at USCIS, pending approved visa applications at DOS, pending approved adjustment of status petitions at USCIS, visa applications submitted to DOS, and adjustment of status applications submitted to USCIS. Because each step in the process involves some form of review or adjudication, a certain number of petitions or applications in each pool are denied and do not advance to the next step. As such, foreign nationals at the early stages of the employment-based immigration process face a lower likelihood of ultimately obtaining LPR status compared with those near the end of the process. While the six distinct groups of petitions and applications discussed here illustrate the pools of prospective employment-based immigrants at different stages of administrative processing, only two pools represent applicants who are limited from advancing because of the INA's numerical limits. Those two pools (the third and the fourth) include those with approved employment-based immigrant petitions who are either waiting overseas to obtain a visa or waiting in the United States to adjust their status. As such, those two pools represent the employment-based immigration queue. Employment-based immigrant petitions are submitted not only on behalf of principal immigrants who meet the qualifications of the applicable preference category but also on behalf of derivative immigrants (i.e., the spouses and children accompanying or following to join the principal prospective immigrants) who are included in the same petition. In the discussion below of the fourth pool of prospective immigrants waiting to adjust status with USCIS, the number of derivative immigrants is estimated using USCIS data (see " Pending Approved Adjustment of Status Petitions at USCIS "). As noted above, employers who wish to file a petition with USCIS for 2 nd (professionals) and 3 rd (skilled/unskilled) preference category immigrant workers must first obtain a foreign labor certification from DOL. The INA does not impose limits on the number of labor certification requests that DOL can approve, and annual fluctuations in certification application volume generally reflect fluctuating employer labor demand. For FY2018, DOL's Office of Foreign Labor Certification reported receiving 104,360 applications - and processing 119,776 applications from FY2018 and earlier years. Of the applications processed, 109,550 beneficiaries (91%) received certification, 6,255 (5%) were denied, and 3,971 (3%) were withdrawn. Once any required labor certification has been obtained, petitioners file one of three employment-based immigrant petitions (I-140, I-360, or I-526, as described above) with USCIS. As such, this queue represents a workflow of employment-based immigration petitions "in process" that have not yet been approved. Data on petitions in this pool are presented in USCIS processing statistics issued each quarter. As of June 30, 2018 (the most recent date for which data are publicly available), pending employment-based immigration petitions numbered 45,889 for I-140 petitions, 49,898 for I-360 petitions, and 17,126 for I-526 petitions, totaling 112,913 for all three petition types. By comparison, 3 rd quarter pending petitions for these three petition types totaled 115,159 in FY2017 and 81,302 in FY2016. Approval or denial hinges not on any numerical limits imposed by the INA but on whether petitioners have provided sufficient and appropriate documentation and whether the beneficiaries meet the qualifications for the specific preference category. The third pool of pending employment-based applicants includes foreign nationals living abroad with approved employment-based immigrant petitions who are waiting to apply for a numerically limited visa. Unlike the first and second pools above, this pool is limited from advancing to the next administrative step because of numerical restrictions imposed by the INA. This pool is the overseas equivalent to the pool of applicants with approved immigrant petitions waiting to adjust status at USCIS (discussed below). At the end of each fiscal year, DOS' National Visa Center (NVC) publishes a tabulation of persons with approved immigrant petitions who are waiting to apply for a visa. The NVC reported 112,189 pending applications for employment-based LPR visas as of November 1, 2017. Unlike the data on approved immigrant petitions that are pending with USCIS, visa applicants with DOS include both principal petition beneficiaries as well as their derivative spouses and children. Table 3 presents the total number of persons, including derivatives, with approved employment-based immigrant petitions pending with the NVC as of November 1, 2017, by preference category and country of origin. Overall, almost half (47%) were for 3 rd preference "professional and skilled workers." The next two categories with the largest number of pending visa petitions were for 5 th preference employment creation "investors" and 2 nd preference "professionals with advanced degrees or of exceptional ability." Table 3 also shows that China, India, and the Philippines dominate as the source countries for foreign nationals in this queue, comprising over four fifths (82%) of the total. The fourth pool of pending employment-based applications includes foreign nationals already present in the United States with approved employment-based immigrant petitions who have not yet adjusted status. This pool is the domestic equivalent to the pool of applicants with approved immigrant petitions waiting to apply for a visa (discussed above). This pool is the largest of the six discussed in this section. These foreign nationals reside in the United States as legal nonimmigrants, and many work as skilled temporary workers with H-1B visas. Prospective immigrants can only file an adjustment of status application (Form I-485) after DOS has indicated that a visa number is available. Such availability depends on how many visa numbers DOS has already allocated—for persons applying from abroad as well as those seeking to adjust status from within the United States—for the specific employment preference category during that fiscal quarter. It also depends on whether visa numbers are available within that category for persons from their country of origin, given the 7% per-country ceiling. If a visa is available even with these two constraints, prospective immigrants with approved immigrant petitions can submit an adjustment of status application to USCIS. Although USCIS does not regularly publish reports on the population of foreign nationals with approved immigrant petitions who are waiting to adjust status, one recent report on this pool of applicants is publicly available ( Table 4 ). It indicates that 395,025 approved petitions were pending as of April 20, 2018. Indian nationals, with 306,601 approved petitions (78%), and Chinese nationals, with 67,031 approved petitions (17%), together account for 95% of all petitions in this pool. More than half of these petitions are for the 2 nd employment-based preference category. Figures presented in Table 4 represent only principal immigrants and do not account for derivative immigrants. However, the USCIS report cited in the table also presents FY2016 data on the average number of derivative immigrants receiving LPR status through principal immigrants for each employment-based preference category ( Table 5 ). These "derivative multipliers" presented by USCIS can then be applied to the pending principal petitions to estimate the numbers of derivative immigrants included in the principal immigrant petitions for each preference category. CRS used these multipliers to compute estimated numbers of derivatives that are shown in Table 5 . Summing the total estimated derivative figure (431,842) with the actual principal figure (395,025) yields an estimate of the total number of foreign nationals included in this pool of approved pending immigrant petitions (826,867). The fifth pool of pending employment-based applications includes visa applicants overseas who have had their I-140 immigration petitions approved, have been allocated a numerically limited visa number, and have submitted their application for a visa. Most can expect to receive an interview with a DOS consular official, the last major step in this pathway to LPR status. DOS does not publish statistics on this pool of applications, but in its monthly Visa Bulletin, it presents visa application filing dates in addition to application "cut off" or final action dates. Prospective employment-based immigrants with priority dates on or prior to the filing dates may submit their visa applications and accompanying documentation to DOS. The filing dates, which DOS began publishing in 2015, are intended to have applicants submit their paperwork ahead of time to ensure a more accurate tally of visa numbers available each quarter. A rough estimate of this pool of visa applications submitted to DOS would consist of those whose priority dates fall between the filing dates and the final action dates in the Visa Bulletin. The sixth pool of pending employment-based applications includes foreign nationals (including derivatives) with approved employment-based petitions who had been granted a numerically limited visa number and had filed I-485 ( Application to Register Permanent Residence or Adjust Status ) applications with USCIS to adjust status. Applications in this pool, sometimes referred to as the "I-485 Inventory," fall into two groups. The first group of I-485 adjustment of status applications include those that had received visa numbers prior to March 6, 2017. These were being processed by USCIS's Service Center Operations (SCOPS), and totaled 29,471 as of July 2018 ( Table 6 , Notes). Among this group, almost two-thirds (63%) were filed by 2 nd preference applicants (professionals with advanced degrees or of exceptional ability), and one fourth (26%) by 1 st preference applicants (priority workers). India was the dominant source country for these I-485 applicants with over two-thirds (68%) of the total. The second group of I-485 adjustment of status applications include all those submitted on or after March 6, 2017 which are processed by the USCIS Field Operations Directorate (FOD). Data on the FOD group of I-485 applications are not publicly available. According to USCIS, however, the FOD group is several times larger than the SCOPS group described above. As noted above, prospective immigrants can only file an I-485 application once a visa number is available. For both groups of submitted I-485 applications, therefore, DOS has already allotted visa numbers. As such, these applications represent an administrative processing backlog and not a queue of prospective immigrants waiting for numerically limited visa numbers. USCIS data indicate that the agency approves most I-485 applicants. Thus, these I-485 applicants, who have almost completed the employment-based immigration process, are among the most likely to receive LPR status among the six pools of petitioners and applicants discussed in this section. The discussion above, which described six pools of petitions and applications processed by DOL, USCIS, and DOS across the employment-based LPR process, requires several caveats. First, because the six pools sometimes represent petitions and applications that are summed and presented by agencies at different dates (e.g., November 1, 2017, April 2018), they may not be strictly comparable. Second, figures for petitions at USCIS do not include prospective derivative immigrants, although the latter were estimated for the fourth pool described above (pending approved adjustment of status petitions at USCIS). Third, according to USCIS, some portion of petitions and applications in the fourth pool may be included in other pools discussed because of accounting protocols and processing timing differences. According to the agency, the fourth pool also includes many duplicate or inactive petitions. The six pools present (to the extent permitted by available data) a cross-sectional view of petition and application processing. The first and second pools represent workload queues that reflect relative demand for foreign workers during the fiscal year. The third and fourth pools represent queues of approved pending visa and adjustment of status applications that cannot advance because of the INA's numerical limits and the 7% per-country ceiling. The fifth and sixth pools represent administrative backlogs of applications that have been allocated numerically limited visa numbers and are closest to completion. Proposals to adjust or eliminate the per-country ceiling on employment-based immigration have appeared in legislative proposals in recent Congresses. For example, the Border Security, Economic Opportunity, and Immigration Modernization Act ( S. 744 ), a comprehensive immigration reform bill which passed the Senate in the 113 th Congress, would have eliminated the per-country ceiling for employment-based immigration and raised it for family-based immigration from 7% to 15%. An identical provision was introduced in the 115 th Congress with H.R. 392 (i.e., the "Yoder Amendment" to the Department of Homeland Security Appropriations Act, 2019 ( H.R. 6776 )). Those who favor raising or eliminating the employment-based per-country ceiling argue that the current employment-based immigration system makes prospective employment-based immigrants wait for excessively long periods to acquire LPR status. During these waits, such foreign workers are generally unable to reunite with spouses and children who reside overseas. Others who favor eliminating the per-country ceiling contend that the current system discriminates against some foreign workers based on their country of origin, a characteristic they contend has little bearing on workers' labor market contributions. Such proponents argue that the current system effectively ties immigrant workers to the employers that sponsor them for extended periods and invites potential exploitation. According to this perspective, employers who petition on behalf of prospective employment-based immigrants have disproportionate power over them. Because such employers can withdraw their petitions at will, they discourage foreign workers from negotiating for higher wages and/or improved working conditions. All else being equal, rational employers therefore benefit financially by sponsoring such workers who remain relatively immobile during their extensive waits to receive LPR status. Prospective immigrants who consider leaving their employers face the prospect of effectively forfeiting their pending employment-based immigrant petitions. If they cannot utilize another immigration pathway to remain in the United States, they must return to their home countries. In particular, Indian (and to a lesser extent Chinese and Filipino) nationals sit in much longer queues of pending employment-based petitions submitted to USCIS and visa applications to DOS than their counterparts from other countries. They consequently must wait the longest to obtain LPR status. Those who favor eliminating the per-country cap contend that such circumstances effectively encourage employers to sponsor prospective employment-based immigrants primarily from India. According to this perspective, de facto discrimination results on the basis of origin country, fostered partly by U.S. laws which otherwise prohibit most forms of labor market discrimination. The more that employers follow this hiring approach, the greater the queue of Indian prospective immigrants and the longer the waiting times for acquiring LPR status, creating a self-reinforcing cycle that may limit hiring of prospective employment-based immigrants from other countries. Proponents argue, therefore, that removing the per-country ceiling from employment-based immigrants would "level the playing field" by making immigrants from all countries more equally attractive to employers. If the per-country ceiling is eliminated and the current queue of pending petitions and visas is processed, proponents argue, employers would have no incentive to sponsor employment-based immigrants from any one country over others except based on conventional labor market criteria. As a result, waiting times for prospective employment-based immigrants to receive LPR status would ultimately equalize across countries of origin. From a national interest perspective, many have argued that current circumstances discourage skilled foreign workers from countries such as India from seeking employment and immigration sponsorship in the United States. Prospective immigrants, aware that they could wait for substantial periods of time before actually receiving LPR status, may decide to start their careers and conduct entrepreneurial activities in other countries where the equivalent of LPR status is more quickly obtained. Consequently, firms who wish to attract highly skilled foreign workers may face competitive disadvantages compared to firms based in countries that provide permanent legal status more easily. Some empirical research suggests that long waits for LPR status affects the number of highly trained students in science, technology, engineering, and mathematics (STEM) programs who remain in the United States to work after completing their studies. Opponents of removing the per-country ceiling contend that doing so would substantially reduce country-of-origin diversity and potentially allow a few countries to dominate all permanent employment-based immigration to the United States. They contend that removing the per-country ceiling would advantage Indian and Chinese prospective immigrants who would move more quickly to the head of the queue at the expense of those from all other countries. Arguments against lifting the per-country ceiling often point to the H-1B visa for temporary "professional specialty workers," an employment category generally associated with STEM fields. The H-1B visa represents a frequently used pathway for skilled nonimmigrant (temporary) workers to become employment-based immigrants. Some observers criticize the H-1B visa as exploitative of foreign workers, mostly from India, because once sponsored for employment-based LPR status, workers are unable to change employers, leaving them vulnerable to exploitative practices. They note that Indian nationals dominate H-1B visa recipients with almost three fourths of the total. Many observers are interested in how revising the per-country ceiling would affect future flows of employment-based immigrants. Estimating such impacts are challenging for a number of reasons, including the complex accounting among the six pools of petitions and applications. If Congress eliminated the per-country ceiling for employment-based immigrants, many expect that Indian and Chinese nationals would dominate the flow of new employment-based LPRs for as many years as needed to clear out the accumulated queue of prospective immigrants from those countries. This queue would include those with approved employment-based immigrant petitions who are waiting to file either a visa application with DOS or an adjustment of status application with USCIS (i.e., the third and fourth pools discussed above in " Pools of Prospective Employment-Based LPRs .") As noted above, the "Yoder Amendment," which was introduced during the 115 th Congress and would eliminate the per-country ceiling for all employment-based preference categories, illustrates what kind of impacts might be expected. The amendment would phase out the ceiling over four years. In the first year, a single country could use 85% of all visa numbers in a preference category with the remaining 15% still subject to the 7% per-country ceiling. Thus for the 1 st , 2 nd , and 3 rd preference categories, each of which account for 40,040 visa numbers under the current system, this would amount to 34,034 visa numbers (40,040 x 0.85) for each of the first three preference categories in the first year after enactment. That percentage would increase to 90% for the second and third years (36,036 visa numbers), and reach 100% in the fourth and subsequent years. To illustrate this further, consider the 3 rd employment-based preference category. Data presented above for the third and fourth pools in " Pools of Prospective Employment-Based LPRs " yield an estimated 170,000 principal and derivative immigrants from India, China, and the Philippines who were waiting for LPR status in 2018. Given the parameters of the Yoder Amendment, one could estimate that roughly four to five years would be required to eliminate this queue of prospective 3 rd preference employment-based immigrants. Other outcomes may also result from eliminating the per-country ceiling, apart from reducing certain queues of prospective immigrants more quickly, and removing the perceived employer incentive to choose nationals from these countries over other countries. For example, shorter wait times for LPR status might actually incentivize greater numbers of nationals from India, China, and the Philippines to seek employment-based LPR status. If that were to occur, the reduction in the number of approved petitions pending might be short-lived. In addition, absent a per-country ceiling, a handful of countries could conceivably dominate employment-based immigration, possibly benefitting certain industries that employ foreign workers from those countries, at the expense of foreign workers from other countries and other industries that might employ them. In addition, because the INA grants LPRs the ability to sponsor family members through its family-sponsorship provisions, removing the per-country ceiling would alter, to an unknown extent, the country-of-origin composition of subsequent family-based immigrants acquiring LPR status each year. | The Immigration and Nationality Act (INA) specifies a complex set of categories and numerical limits for admitting lawful permanent residents (LPRs) to the United States that includes economic priorities among the admission criteria. These priorities are addressed primarily through the employment-based immigration system, which consists of five preference categories. Each preference category has specific eligibility criteria; numerical limits; and, in some cases, distinct application processes. The INA allocates 140,000 visas annually for all five employment-based LPR categories, roughly 12% of the 1.1 million LPRs admitted in FY2017. The INA further limits each immigrant-sending country to an annual maximum of 7% of all employment-based LPR admissions, known as the per-country ceiling, or "cap." Prospective employment-based immigrants follow two administrative processing trajectories depending on whether they apply from overseas as "new arrivals" seeking LPR status or from within the United States seeking to adjust to LPR status from a temporary status that they currently possess. While some prospective employment-based immigrants can self-petition, most require U.S. employers to petition on their behalf. In both cases, the Department of State (DOS) is responsible for allocating the correct number of employment-based immigrant "visa numbers" or slots, according to numerical limits and the per-country ceiling specified in the INA. This report reviews the employment-based immigration process by examining six pools of pending petitions and applications, representing prospective employment-based immigrants and any accompanying family members at different stages of the LPR process. While four of these pools represent administrative processing queues, two result from the INA's numerical limitations on employment-based immigration and the per-country ceiling. These latter two pools of foreign nationals, who have been approved as employment-based immigrants but must wait for statutorily limited visa numbers, totaled in excess of 900,000 as of mid-2018. Most originate from India, followed by China and the Philippines. Some employers maintain that they continue to need skilled foreign workers to remain internationally competitive and to keep their firms in the United States. Proponents of increasing employment-based immigration levels argue that it is vital for economic growth. Opponents cite the lack of compelling evidence of labor shortages and argue that the presence of foreign workers can negatively impact wages and working conditions in the United States. With this statutory and economic backdrop, the policy option of revising or eliminating the per-country ceiling on employment-based LPRs has been proposed repeatedly in Congress. Some argue that eliminating the per-country ceiling would increase the flow of high-skilled immigrants from countries such as India and China, who are often employed in the U.S. technology sector, without increasing the total annual admission of employment-based LPRs. Currently, nationals from India in particular, and to a lesser extent China and the Philippines, face lengthy queues and inordinately long waits to receive LPR status. Many of those waiting for employment-based LPR status are already employed in the United States on temporary visas, a potentially exploitative situation that some argue incentivizes immigrant-sponsoring employers to continue to recruit foreign nationals primarily from these countries for temporary employment. Others counter that the statutory per-country ceiling restrains the dominance of a handful of employment-based immigrant-sending countries and preserves the diversity of immigrant flows. |
The pricing of prescription drugs remains a significant concern for many U.S. consumers. As spending on health care has risen in recent years, so too has consumer interest in purchasing more affordable medications. Overseas markets provide one possible source of less costly prescription drugs. Some comparative studies of prescription drug prices in the United States and foreign nations have concluded that prices for specific drugs may be significantly lower abroad. In order to take advantage of these price disparities, at least six bills have been introduced in the 114 th Congress that would allow individuals to import lower-cost prescription drugs from foreign jurisdictions. The bills differ on the jurisdictions from which imports would be permissible. Some bills restrict the sources of prescription drugs to Canadian pharmacies; some to a set of specifically named jurisdictions; while others potentially apply to any foreign country. None of these bills has been enacted. None of the bills introduced in the 114 th Congress addresses the intellectual property implications of this so-called "parallel importation" or "re-importation." Although debate surrounding the parallel importation of prescription pharmaceuticals has largely addressed the safety and efficacy of the imported medications, this practice may also raise significant intellectual property concerns. Many prescription drugs are subject to patent rights in the United States. Among the rights granted by an issued patent is the ability to exclude others from importing the patented product into the United States. As a result, even if a foreign drug is judged safe and effective for domestic use, brand-name firms may nonetheless be able to block the unauthorized importation of prescription drugs through use of their patent rights. The parallel trade of patented pharmaceuticals involves a fundamental trade-off within the intellectual property law: encouraging the labors that led to technological innovation, on one hand, and promoting access to the fruits of those labors, on the other. The patent system is built upon the premise that patents provide individuals with an incentive to innovate by awarding inventors exclusive rights in their inventions for a limited period of time. Some observers believe that a diminishment of patent rights will decrease incentives to develop new pharmaceuticals in the future. Yet there is growing concern that drug prices are too high in the United States as compared to other nations. Some commentators believe that the patent system should not be used to regulate the movement of legitimate, lawfully purchased products through the global marketplace. This report explores the intellectual property laws and policies concerning the parallel importation of patented pharmaceuticals into the United States. It begins with a review of patent policy and procedures. The report then discusses the current legal framework for analyzing the permissibility of the parallel importation of patented pharmaceuticals, including both the domestic and international exhaustion doctrines. This report closes with a review of legislative issues and alternatives as they relate to intellectual property issues and parallel importation. The patent system is animated by a number of policy objectives designed to promote the production and dissemination of technological information. Many commentators have argued that the patent system is necessary to encourage individuals to engage in inventive activity. Proponents of this view reason that, absent a patent system, inventions could easily be duplicated by free riders, who would have incurred no cost to develop and perfect the technology involved, and who could thus undersell the original inventor. The resulting inability of inventors to capitalize on their inventions would lead to an environment where too few inventions are made. By providing individuals with exclusive rights in their inventions for a limited time, the patent system allows inventors to realize the profits from their inventions. The courts have also suggested that absent a patent law, individuals would favor maintaining their inventions as trade secrets so that competitors could not exploit them. Trade secrets do not enrich the collective knowledge of society, however, nor do they discourage others from engaging in duplicative research. The patent system attempts to avoid these inefficiencies by requiring inventors to consent to the disclosure of their inventions in issued patent instruments. There are still other explanations for the patent laws. For instance, the Patent Act of 1952 is thought by supporters to stimulate technological advancement by inducing individuals to "invent around" patented technology. Issued patent instruments may point the way for others to develop improvements, exploit new markets or discover new applications for the patented technology. The patent system may encourage patentees to exploit their proprietary technologies during the term of the patent. The current patent system has attracted a number of critics. Some assert that the patent system is unnecessary due to market forces that already suffice to create an optimal level of invention. The desire to gain a lead time advantage over competitors, as well as the recognition that technologically backward firms lose out to their rivals, may well provide sufficient inducement to invent without the need for further incentives. Some commentators observe that successful inventors are sometimes transformed into complacent, established enterprises that use patents to suppress the innovations of others. Others assert that the inventions that have fueled some of our most dynamic industries, such as early biotechnologies and computer software, arose at a time when patent rights were unavailable or uncertain. While these various justifications and criticisms have differing degrees of intuitive appeal, none of them has been empirically validated. No conclusive study broadly demonstrates that we get more useful inventive activity with patents than we would without them. The justifications and criticisms of the patent system therefore remain open to challenge by those who are unpersuaded by their internal logic. As mandated by the Patent Act of 1952, U.S. patent rights do not arise automatically. Inventors must prepare and submit applications to the U.S. Patent and Trademark Office ("USPTO") if they wish to obtain patent protection. USPTO officials, known as examiners, then assess whether the application merits the award of a patent. The patent acquisition process is commonly known as "prosecution." In deciding whether to approve a patent application, a USPTO examiner will consider whether the submitted application fully discloses and clearly claims the invention. The examiner will also determine whether the invention itself fulfills certain substantive standards set by the patent statute. To be patentable, an invention must be useful, novel and nonobvious. The requirement of usefulness, or utility, is satisfied if the invention is operable and provides a tangible benefit. To be judged novel, the invention must not be fully anticipated by a prior patent, publication or other knowledge within the public domain. A nonobvious invention must not have been readily within the ordinary skills of a competent artisan at the time the invention was made. If the USPTO allows the patent to issue, the patent proprietor obtains the right to exclude others from making, using, selling, offering to sell or importing into the United States the patented invention. The term of the patent is ordinarily set at twenty years from the date the patent application was filed. Patent title therefore provides inventors with limited periods of exclusivity in which they may practice their inventions, or license others to do so. The grant of a patent permits the inventor to receive a return on the expenditure of resources leading to the discovery, often by charging a higher price than would prevail in a competitive market. Patent rights are not self-enforcing. A patentee bears responsibility for monitoring others to determine whether they are using the patented invention or not. Patent owners who wish to compel others to observe their intellectual property rights must usually commence litigation in the federal district courts. The U.S. Court of Appeals for the Federal Circuit ("Federal Circuit") possesses exclusive national jurisdiction over all patent appeals from the district courts, while the U.S. Supreme Court possesses discretionary authority to review cases decided by the Federal Circuit. Pharmaceutical patents are subject to special provisions created by the Drug Price Competition and Patent Restoration Act of 1984. This legislation, which was subject to significant legislative revisions in 2003, is commonly known as the Hatch-Waxman Act. This statute establishes special rules for enforcement of certain patents on certain drugs and medical devices by brand-name firms against generic competitors. The Hatch-Waxman Act includes provisions extending the term of a patent to reflect regulatory delays encountered in obtaining marketing approval by the Food and Drug Administration (FDA); exempting from patent infringement certain activities associated with regulatory marketing approval; establishing mechanisms to challenge the validity of a pharmaceutical patent; and creating a reward for disputing the validity, enforceability, or infringement of a patented and approved drug. The 1984 Act also provides the FDA with certain authorities to offer periods of marketing exclusivity for a pharmaceutical independent of the rights conferred by patents. Patent rights are subject to a significant restriction that is termed the "exhaustion" doctrine. Under the exhaustion doctrine, an authorized, unrestricted sale of a patented product depletes the patent right with respect to that physical object. As a result of this doctrine, the purchaser of a patented good ordinarily may use, charge others to use, or resell the good without further regard to the patentee. The courts have reasoned that when a patentee sells a product without restriction, it impliedly promises its customer that it will not interfere with the full enjoyment of that product. The result is that the lawful purchasers of patented goods may use or resell these goods free of the patent. Because it is the first sale of a patented product that extinguishes patent rights with respect to the item that is sold, some authorities refer to the exhaustion doctrine as the "first sale rule." For example, suppose that a consumer purchases an appliance at a hardware store. The appliance is subject to a patent that is owned by the manufacturer. Later, the consumer sells the appliance to a neighbor at a garage sale. Ordinarily, the patent laws provide the manufacturer with the ability to prevent others from selling an appliance that uses its patented design. In this case, however, the patent right in that particular appliance was exhausted when the manufacturer made its first sale to the consumer. That consumer, as well as any subsequent purchasers of that individual appliance, may freely sell it without concern for the manufacturer's patent. U.S. patents provide their owners with rights only within the United States. The grant of a U.S. patent provides its owner with no legal rights in any foreign nation. If inventors desire intellectual property protection in another country, they must specifically procure a patent in that jurisdiction. Ordinarily the foreign patent acquisition process begins with the submission of a patent application to a foreign patent office. As a practical matter, multinational corporations often obtain a set of corresponding national patents for each of their significant inventions. Although these patents concern the same invention—for example, the same chemical compound that possesses pharmacological properties—they often do not have precisely the same legal effect in each jurisdiction. Divergent wordings of the patents' claims, translations into various languages, and distinctions between national patent laws and practice are among the factors that lead to these differences. Under an important international agreement concerning patents, the Convention of Paris for the Protection of Industrial Property ("Paris Convention"), each issued national patent is an independent legal instrument. One significant consequence of the independence of national patents is that they must be enforced individually. For example, suppose that an inventor owns patents directed towards the same invention in both the United States and Canada. Following litigation in Canada, a court rules that the Canadian patent is invalid. Even though the Canadian patent may be similar or identical to the U.S. patent, the U.S. patent may still be freely enforced. Although a U.S. court may find the reasoning of the Canadian court persuasive as it reaches its own judgment regarding the validity of the U.S. patent, the Canadian court decision has no direct effect upon the validity or enforceability of the U.S. patent. In some circumstances, widely divergent drug prices between the United States and other nations have encouraged parallel importation. Price disparities between the United States and other nations create incentives for individuals to purchase medications from abroad, and import them into the United States, in order to lower health care costs or undercut the U.S. distributor. In this context, the term "parallel imports" refers to patented products that are legitimately distributed abroad, and then sold to consumers in the United States without the permission of the authorized U.S. dealer. Although these "grey market goods" are authentic products that were sold under the authorization of the brand-name drug company, they entered the U.S. market outside the usual distribution channels for that drug. Two competing positions have arisen with respect to the use of patent rights to block parallel importation. One is that the exhaustion doctrine is not limited to domestic sales by the patentee or its representative, but to all sales regardless of their location. This position is commonly referred to as "international exhaustion." Under this view, because the importer lawfully purchased authentic goods from the patent holder or its representative, the U.S. patent right is subject to "international exhaustion" due to the sale, despite the fact that the sale technically took place under a foreign patent. The other position, more favorable to patent proprietors, is that the U.S. patent is fully enforceable against imports despite the exhaustion doctrine. The Federal Circuit has, since at least 2001, adopted this view of "national exhaustion." Under this line of reasoning, a "patentee's authorization of an international foreign sale does not affect exhaustion of the patentee's rights in the United States." This principle relies on the fact that U.S. patents exist independently of foreign patents, and that U.S. patents are effective only within the United States. As a result, this reasoning continues, a foreign sale cannot result in exhaustion of a U.S. patent. This legal doctrine—which restricts the exhaustion doctrine to domestic sales only—allows the U.S. patent to be used to block unauthorized imports of a patented pharmaceutical. The position of the Federal Circuit became subject to question in view of the Supreme Court's 2013 ruling in Kirtsaeng v. John Wiley & Sons. In Kirtsaeng , the Supreme Court held that sales of books that were purchased overseas, imported in the United States, and sold here did not infringe copyrights on the books. The Court's adoption of an "international exhaustion" principle with respect to copyright created a distinct rule from the "national exhaustion" principle that the Federal Circuit has applied to patents. The Supreme Court decision centered upon the activities of Supap Kirtsaeng, a Thai national who came to the United States to study at Cornell University. He discovered that textbooks sold by John Wiley & Sons were more expensive in the United States than in Thailand. Kirtsaeng asked his relatives to buy Wiley books in Thailand and ship them to him. Kirtsaeng then sold the books at a profit. When Wiley sued Kirtseang for copyright infringement, the Supreme Court applied the "international exhaustion" principle. Under the Court's ruling, works of authorship lawfully purchased abroad, and then imported into the United States, were protected from charges of copyright infringement via the first sale doctrine. The Court based its decision on two principal grounds. First, the Court construed several provisions of the copyright statute to determine that the international exhaustion was the appropriate rule. Second, the Court believed that sound intellectual property policy supported international exhaustion. To restrict copyright exhaustion to domestic sales, the Court concluded, would establish intolerable burdens for booksellers, museums, and retailers who would have to determine whether particular copies of works of authorship were fabricated overseas. In this respect, the Court observed: Technology companies tell us that "automobiles, microwaves, calculators, mobile phones, tablets, and personal computers" contain copyrightable software programs or packaging.... Many of these items are made abroad with the American copyright holder's permission and then sold and imported (with that permission) to the United States.... A [domestic exhaustion rule] would prevent the resale of, say, a car, without the permission of the holder of each copyright on each piece of copyrighted automobile software. Yet there is no reason to believe that foreign auto manufacturers regularly obtain this kind of permission from their software component suppliers, and Wiley did not indicate to the contrary when asked.... Without that permission a foreign car owner could not sell his or her used car. In view of the Supreme Court decision in Kirtsaeng, the Federal Circuit decided to take a fresh look at its stance on the international exhaustion of patented products. The result was the 2016 decision in Lexmark International, Inc. v. Impression Products, Inc . , which confirmed the appeals court's earlier position rejecting the doctrine of "international exhaustion." Following Lexmark, in contrast to the international exhaustion principle of copyright law, the patent exhaustion doctrine is limited to sales that occur within the United States. Writing for the majority, Judge Taranto reasoned that the Supreme Court had based the Kirtsaeng ruling upon its interpretation of specific provisions of the Copyright Act. The Patent Act does not include analogous provisions—indeed, it does not expressly address exhaustion at all. He also concluded that, unlike copyright, patent rights may vary significantly from country to country. Under this view, patents should not be so easily equated with copyrights with respect to international exhaustion. Judge Taranto also observed, with respect to patented pharmaceuticals: There seems to be no dispute that U.S.-patented medicines are often sold outside the United States at substantially lower prices than those charged here and, also, that the practice could be disrupted by the increased arbitrage opportunities that would come from deeming U.S. rights eliminated by a foreign sale made or authorized by the U.S. patentee. Judge Dyk authored a dissenting opinion asserting that many of the policy arguments that the Kirtsaeng opinion advanced in favor of the international exhaustion rule apply with equal force to patents. He observed that, as with copyrights, U.S. retailers deal with high-technology, patented products that may or may not have been manufactured in this country. Unless an international exhaustion rule were to be adopted, Judge Dyk asserted, sorting through applicable patent rights may prove extremely burdensome. Unless the Supreme Court decides to intervene, the Federal Circuit's ruling in Lexmark v. Impression Products remains the law of the land. Under this holding, patent exhaustion applies only to sales that occurred in the United States. This rule squarely rejects the principle of "international exhaustion." As a result, brand-name drug companies may potentially block imports of patented medications into the United States even if the imported good is the patent owner's own product, legitimately sold to a customer in a foreign jurisdiction. In addition to the issue of patent infringement, the parallel importation of patented pharmaceuticals potentially raises other issues. This report next considers three of them: the status of state and local governments that have either themselves imported, or have encouraged others to import, patented medications from foreign jurisdictions; the potential use of label licenses on patented drugs; and the implications of international trade rules established by World Trade Organization (WTO). Several state and local governments have considered or implemented plans to import or facilitate the importation of prescription drugs. A patentee's ability to obtain relief against a state or local government presents some complexities in view of the Eleventh Amendment to the Constitution. The Eleventh Amendment provides that a federal court is without power to entertain a suit by a private person against a state, except under certain limited circumstances. Because the federal courts possess exclusive jurisdiction over patent infringement litigation, this situation creates a dilemma for patentees—the only statutorily authorized forum is constitutionally unavailable, and the only constitutional forum is statutorily unavailable, at least for the assertion of a conventional patent infringement claim. This issue appears to have been altered by recent judicial developments. In Ouellette v. Mills , the U.S. District Court for the District of Maine held that a 2013 Maine statute allowing importation of drugs from foreign pharmacies was unconstitutional. According to Judge Torresen, the U.S. Congress intended to "occupy the field" of prescription drug importation. As a result, the court found that the Maine legislation was preempted by federal law and invalid. Although Ouellette v. Mills dealt only with the Maine legislation, its logic would appear to invalidate analogous legislation in other jurisdictions. As a result, issues regarding patent enforcement against state and local governments for prescription drug importation may be avoided. As noted previously, the theory behind the exhaustion doctrine is that when a patent proprietor makes an unrestricted sale of a product to a consumer, the proprietor impliedly promises its customer that it will not use its patent rights to interfere with the full enjoyment of that product. As a result, lawful purchasers of patented goods should be able to use or resell these goods free of the patent. In some circumstances, however, the patent owner may attempt to restrict a customer's use of a good. Sales contracts are the typical mechanism for imposing such limitations. Contractual provisions that are placed on the product or its packaging are sometimes termed "label licenses" or "bag tags." A commonly observed label license is "Single Use Only," as applied to printer cartridges or other goods that the manufacturer does not intend for consumers to reuse. Other patent proprietors have attempted to impose geographical limitations upon the use of their products. A label stating "For Use in Canada Only" is representative of such a restriction. Whether such label licenses are enforceable, or are instead nullified by the exhaustion principle, is a complex legal issue. However, the prevailing view of the Court of Appeals for the Federal Circuit is that absent exceptional circumstances—such as an antitrust violation or misuse of the patent by its proprietor—these restrictions will be upheld. The legal theory is that while the patent right gives proprietors the ability to exclude others from using the patented product, they may also impose lesser restrictions when they choose to sell the patented product. In addition, customers are presumed to have entered into binding sales contracts that are presumptively valid. As a result, under current law label licenses such as "Single Use Only" or "For Domestic Use Only" are ordinarily enforceable. A customer who violates a label license could be liable both for breach of contract and for patent infringement. The legal issues regarding pharmaceutical importation therefore potentially involve both contract and patent law. As a member of the World Trade Organization (WTO), the United States is a signatory to the so-called TRIPS Agreement, or Agreement on Trade-Related Aspects of Intellectual Property Rights. Under Part III of the TRIPS Agreement, all member countries agreed to enact patent statutes that include certain substantive provisions. In particular, Article 27 stipulates that "patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally prevented." Article 27 ordinarily requires that all classes of invention receive the same treatment under the patent laws, subject to certain minor exceptions. It would generally be impermissible under Article 27, for example, for a country to accord patents on pharmaceuticals a lesser set of proprietary rights than is available for patents on automobile engines, computers, or other kinds of inventions. The TRIPS Agreement places lesser obligations upon signatory states with regard to the exhaustion doctrine, however. Article 6 of the TRIPS Agreement states: For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 above nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights. The referenced Articles 3 and 4 of the TRIPS Agreement impose obligations of national treatment and most-favored-nation status respectively. As a result, a TRIPS Agreement signatory may not permissibly establish more favorable exhaustion rules for its own citizens than for citizens of other WTO countries. In addition, if a TRIPS Agreement signatory provides for favorable treatment with respect to the exhaustion doctrine to one WTO member state, then the same treatment must be extended to all WTO member states. Other than these basic national treatment and most-favored-nation obligations, the TRIPS Agreement does not impose other restrictions regarding the exhaustion doctrine. In particular, the TRIPS Agreement does not appear to require that all types of inventions be treated equally with regard to the exhaustion doctrine. As a result, a rule allowing the "re-importation" of certain sorts of patented inventions (such as pharmaceuticals), but not others, would not appear to violate the TRIPS Agreement. The United States has entered into numerous bilateral "free trade agreements," or FTAs, with certain other nations. Many of the FTAs deal extensively with intellectual property rights, including numerous provisions relating to patents in general and pharmaceutical patents in particular. Consider, for example, Article 15.9, paragraph 4 of the United States–Morocco FTA, which provides: Each Party shall provide that the exclusive right of the patent owner to prevent importation of a patented product, or a product that results from a patented process, without the consent of the patent owner shall not be limited by the sale or distribution of that product outside its territory. [Footnote 10: A Party may limit application of this paragraph to cases where the patent owner has placed restrictions on importation by contract or other means.] Article 17:9, paragraph 4 of the United States–Australia FTA has a similar effect, stipulating: Each Party shall provide that the exclusive right of the patent owner to prevent importation of a patented product, or a product that results from a patented process, without the consent of the patent owner shall not be limited by the sale or distribution of that product outside its territory, at least where the patentee has placed restrictions on importation by contract or other means. The United States–Singapore FTA is worded rather differently, but appears to have similar substantive effect as the Moroccan and Australian agreements, at least with respect to pharmaceuticals. As Article 16:7, paragraph 2 of that international agreement provides: Each Party shall provide a cause of action to prevent or redress the procurement of a patented pharmaceutical product, without the authorization of the patent owner, by a party who knows or has reason to know that such product is or has been distributed in breach of a contract between the right holder and a licensee, regardless of whether such breach occurs in or outside its territory. [Footnote 16–10: A Party may limit such cause of action to cases where the product has been sold or distributed only outside the Party's territory before its procurement inside the Party's territory.] Each Party shall provide that in such a cause of action, notice shall constitute constructive knowledge. Under these agreements, the United States is obliged to allow pharmaceutical patent holders to use their intellectual property rights to block parallel imports, at least where the patentee has placed restrictions upon importation through contract or some other mechanism. Should congressional interest continue in this area, a variety of options are available. If the possibility of an infringement action against unauthorized importers of patented pharmaceuticals is deemed sound, then no action need be taken. Alternatively, Congress could confirm the Federal Circuit's decision in Lexmark v. Impression Products , which rejects the doctrine of international exhaustion and confines the patent exhaustion principle to sales that occurred within the United States. If legislative activity is deemed appropriate, however, another possibility is the introduction of some form of international exhaustion doctrine into U.S. patent law. The TRIPS Agreement does not seem to require that a country adopt the international exhaustion doctrine as an all-or-nothing proposition, applying either to all patented products or to none. As a result, if Congress chose to limit application of the international exhaustion doctrine to patented pharmaceuticals, or some other specific type of invention, then no ramifications appear to arise with respect to the TRIPS Agreement obligations of the United States. At least two statutory mechanisms exist for implementing the international exhaustion doctrine into U.S. patent law. One possible approach would be to declare that importation into the United States of goods sold abroad by a patent proprietor or its representative is not a patent infringement. For example, in the 108 th Congress, the Pharmaceutical Market Access and Drug Safety Act of 2004 ( S. 2328 ), would have taken this approach with respect to patented pharmaceuticals, specifying that It shall not be an act of infringement to use, offer to sell, or sell within the United States or to import into the United States any patented invention under section 804 of the Federal Food, Drug, and Cosmetic Act that was first sold abroad by or under authority of the owner or licensee of such patent. S. 2328 further stipulated that this amendment shall not be construed "to affect the ability of a patent owner or licensee to enforce their patent, subject to such amendment." This language suggests a congressional intention to leave intact other rights established by the Patent Act of 1952. No subsequent bills, including those before the 114 th Congress, took this approach. In addition to codifying the international exhaustion doctrine with respect to pharmaceuticals, such an amendment may conversely lead to the implication that the international exhaustion doctrine does not apply to patented inventions other than pharmaceuticals. This provision could potentially fortify the ruling in Lexmark v. Impression Products for inventions outside of the pharmaceutical field. Another statutory mechanism for promoting the importation of patented drugs is to immunize specific individuals from infringement liability. The Patent Act of 1952, as amended, takes this approach in the area of patented medical methods, exempting licensed medical practitioners and certain health care entities from patent infringement in certain circumstances. In the case of drug importation, potential patent infringers include importers, distributors, wholesalers, pharmacies, and individual consumers. Should Congress wish to promote parallel trade in patented pharmaceuticals, an explicit statutory infringement exemption could encourage individuals to engage in drug importation. In considering these or other legal changes to the patent laws, the possibility of label licenses should be kept in mind. Even if Congress exempted drug importation practices or practitioners from patent infringement liability, firms may still be able to stipulate through the contract law that a drug sold in a foreign jurisdiction is for use exclusively within that jurisdiction. If a purchaser instead imported that medication into the United States, then the seller may have a cause of action for breach of contract. As a result, any legal changes may need to account for the ability of firms to use contractual provisions as something of a substitute for patent protection in the area of prescription drug importation. Controlling the costs of prescription drug spending, on one hand, and encouraging the development of new drugs, on the other, are both significant policy goals. These aspirations may potentially conflict, however. Although introducing international exhaustion into U.S. patent law may initially lower the price of patented drugs, it might also decrease the incentive of firms to engage in the research and development of new pharmaceuticals, as well as to shepherd new drugs through time-consuming and costly marketing approval procedures. Consideration of patent law reforms would likely be put into the larger context of drug costs, which may be influenced by the pricing policies of foreign nations, profits earned by wholesalers and other intermediaries, the physical costs of shipment into the United States, and other diverse factors. Striking a balance between increasing access to medications and ensuring the continued development of new drugs by our nation's pharmaceutical firms is a central concern of the current drug importation debate. | Prescription drugs often cost far more in the United States than in other countries. Some consumers have attempted to import medications from abroad in order to realize cost savings. The practice of importing prescription drugs outside the distribution channels established by the brand-name drug company is commonly termed "parallel importation" or "re-importation." Parallel imports are authentic products that are legitimately distributed abroad and then sold to consumers in the United States, without the permission of the authorized U.S. dealer. Numerous bills have been introduced in the 114th Congress that would ease the ability of individuals to import lower-cost prescription drugs from foreign jurisdictions. None of these bills has been enacted. Each bill would allow individuals to import drugs from foreign jurisdictions, although the bills differ on the jurisdictions from which imports would be permissible. Some bills are restricted to Canada; some to a set of specifically named jurisdictions; while others potentially apply to any foreign country. None of these bills addresses intellectual property issues that may arise through parallel importation. However, many prescription drugs are subject to patent rights in the United States. In its 2016 decision in Lexmark International v. Impression Products, Inc., the U.S. Court of Appeals for the Federal Circuit confirmed that the owner of a U.S. patent may prevent imports of patented goods, even in circumstances where the patent holder itself sold those goods outside the United States. The Lexmark opinion squarely declined to extend the "exhaustion" doctrine—under which patent rights in a product are spent upon the patent owner's first sale of the patented product—to sales that occurred in foreign countries. The court's ruling will in some cases allow brand-name pharmaceutical firms to block the unauthorized parallel importation of prescription drugs through use of their patent rights. In addition to any patent rights they possess, brand-name drug companies may place label licenses on their medications. A label license may be drafted in order to restrict use of a drug to the jurisdiction in which it was sold. As a result, in addition to a charge of patent infringement, an unauthorized parallel importer may potentially face liability for breach of contract. Introduction of an "international exhaustion" rule restricted to pharmaceuticals does not appear to be restricted by the provisions of the so-called TRIPS Agreement, which is the component of the World Trade Organization (WTO) agreements concerning intellectual property. Another possible legislative response is the immunization of specific individuals, such as pharmacies or importers, from patent infringement liability. Alternatively, no legislative action need be taken if the current possibility of an infringement action against unauthorized importers of patented pharmaceuticals is deemed satisfactory. |
This report, divided into three main sections, examines the political and economic situation in Venezuela and U.S.-Venezuelan relations. The first section surveys the political transformation of Venezuela under the populist rule of President Hugo Chávez (1999-2013) and the first two years of the government of President Nicolás Maduro, including the government's severe crackdown on opposition protests in 2014. The second section analyzes Venezuela's political and economic environment in 2015 and 2016, including the opposition's December 2015 legislative victory and the Maduro government's attempts to thwart the powers of the legislature; efforts to remove President Maduro through a recall referendum; deteriorating economic and social conditions in the country; and the government's foreign policy orientation. The third section examines U.S. relations with Venezuela, including the imposition of sanctions on Venezuelan officials, and selected issues in U.S. relations—democracy and human rights, energy, counternarcotics, and terrorism concerns. Appendix A provides information on legislative initiatives in the 113 th and 114 th Congresses, and Appendix B provides links to selected U.S. government reports on Venezuela. Significant recent developments include the following: On January 4, 2017, President Maduro appointed former Interior Minister and Governor of Aragua state Tareck El Aissami as vice president, replacing Aristóbulo Istúriz, who served in the position for one year. The action was significant since El Aissami would serve out the remainder of President Maduro's term if the President were recalled or stepped down from office. On December 7, 2016, the Senate Foreign Relations Committee reported S.Res. 537 (Cardin), amended, expressing profound concern about the ongoing political, economic, social, and humanitarian crisis in Venezuela; urging the release of political prisoners; and calling for respect of constitutional and democratic processes, including free and fair elections. On November 18, 2016, a U.S. federal court in New York convicted two nephews of Venezuelan First Lady Cilia Flores for conspiring to transport cocaine into the United States. (See " Counternarcotics Issues ," below.) On November 16, 2016, the Organization of American States (OAS) Permanent Council adopted a declaration supporting the national dialogue in Venezuela, encouraging the government and the 10-party opposition coalition known as the Democratic Unity Roundtable ( Mesa de la Unidad Democrática , or MUD) "to achieve concrete results within a reasonable timeframe," and asserting the need for the constitutional authorities and all political and social actors to act with prudence and avoid any action of violence or threats to the ongoing process." (See " OAS Efforts on Venezuela ," below.) On November 12, 2016, the Venezuelan government and opposition completed a second round of talks and issued a declaration expressing firm commitment to a peaceful, respectful, and constructive coexistence. They also issued a statement that included agreement to improve the supply of food and medicine, to resolve the situation of three National Assembly representatives who the Maduro government blocked from taking office, and to work together in naming two National Electoral Council (CNE) members whose terms expire in December. Some opposition activists have strongly criticized the dialogue as a way for the government to avoid taking any real actions, such as releasing all political prisoners. (See " Vatican Prompts Renewed Efforts at Dialogue ," below.) From October 31, 2016, to November 2, 2016, Under Secretary of State Thomas Shannon traveled to Venezuela to demonstrate support for the Vatican-facilitated dialogue. (See " Pressing for Respect for Human Rights, Democracy, and Dialogue in 2016 ," below). On October 30, 2016, the government and representatives of most of the opposition (with the exception of Leopoldo López's Popular Will party) held talks mediated by the Vatican along with the former presidents of the Dominican Republic, Spain, and Panama and the head of the Union of South American Nations (UNASUR.) (See " Vatican Prompts Renewed Efforts at Dialogue ," below.) On October 20, 2016, Venezuela's CNE indefinitely suspended the recall referendum process after five state-level courts issued rulings alleging fraud in a signature collection drive held in June. (See " Efforts to Recall President Maduro ," below.) On September 27, 2016, the House approved H.Res. 851 (Wasserman Schultz) expressing profound concern about the humanitarian situation, urging the release of political prisoners, and calling for the Venezuelan government to hold the recall referendum this year. (See " Pressing for Respect for Human Rights, Democracy, and Dialogue in 2016 " and Appendix A , below.) On September 21, 2016, Venezuela's CNE announced that the signature drive for the recall referendum process would be held over a three-day period from October 26, 2016, to October 28, 2016. The CNE also said that that if a recall referendum were held, it likely would take place in the middle of the first quarter of 2017. (See " Efforts to Recall President Maduro ," below.) On September 12, 2016, President Obama determined for the 12 th consecutive year that Venezuela is not adhering to its international antidrug obligations. (See " Counternarcotics Issues ," below.) On August 11, 2016, the United States joined 14 other members of the Organization of American States (OAS), in issuing a joint statement urging the Venezuelan government and opposition "to hold as soon as possible a frank and effective dialogue" and calling on Venezuelan authorities to realize the remaining steps of the presidential recall referendum "without delay." Previously, the 15 countries had issued a statement on June 15, 2016, that, among other measures, expressed support for a "timely, national, inclusive, and effective political dialogue" and for "the fair and timely implementation of constitutional mechanisms." (See " OAS Efforts on Venezuela ," below.) On August 1, 2016, the U.S. Federal Court for the Eastern District of New York unsealed a 2015 indictment against two Venezuelan military officials for cocaine trafficking to the United States. One of those indicted, General Néstor Luis Reverol Torres, had been the former head of Venezuela's National Anti-Narcotics Office. President Maduro responded by appointing General Reverol as Minister of Interior and Justice in charge of the country's police forces. (See " Counternarcotics Issues ," below.) For 14 years, Venezuela experienced enormous political and economic changes under the leftist populist rule of President Hugo Chávez. Under Chávez, Venezuela adopted a new constitution and a new unicameral legislature and even a new name for the country, the Bolivarian Republic of Venezuela, named after the 19 th century South American liberator Simon Bolivar, whom Chávez often invoked. Buoyed by windfall profits from increases in the price of oil, the Chávez government expanded the state's role in the economy by asserting majority state control over foreign investments in the oil sector and nationalizing numerous enterprises. The government also funded numerous social programs with oil proceeds that helped reduce poverty. At the same time, democratic institutions deteriorated, threats to freedom of expression increased, and political polarization in the country also grew between Chávez supporters and opponents. Relations with the United States also deteriorated considerably as the Chávez government often resorted to strong anti-American rhetoric. In his first election as president in December 1998, Chávez received 56% of the vote (16% more than his closest rival), an illustration of Venezuelans' rejection of the country's two traditional parties, Democratic Action (AD) and the Social Christian party (COPEI), which had dominated Venezuelan politics for much of the previous 40 years. Elected to a five-year term, Chávez was the candidate of the Patriotic Pole, a left-leaning coalition of 15 parties, with Chávez's own Fifth Republic Movement (MVR) the main party in the coalition. Most observers attribute Chávez's rise to power to Venezuelans' disillusionment with politicians whom they judge to have squandered the country's oil wealth through poor management and endemic corruption. A central theme of his campaign was constitutional reform; Chávez asserted that the system in place allowed a small elite class to dominate Congress and that revenues from the state-run oil company, Petró leos de Venezuela , S.A. (PdVSA), had been wasted. Although Venezuela had one of the most stable political systems in Latin America from 1958 until 1989, after that period numerous economic and political challenges plagued the country and the power of the two traditional parties began to erode. Former President Carlos Andres Perez, inaugurated to a five-year term in February 1989, initiated an austerity program that fueled riots and street violence in which several hundred people were killed. In 1992, two attempted military coups threatened the Perez presidency, one led by Chávez himself, who at the time was a lieutenant colonel railing against corruption and poverty. Ultimately the legislature dismissed President Perez from office in May 1993 on charges of misusing public funds, although some observers assert that the president's unpopular economic reform program was the real reason for his ouster. The election of elder statesman and former President Rafael Caldera as president in December 1993 brought a measure of political stability to the country, but the Caldera government soon faced a severe banking crisis that cost the government more than $10 billion. While the economy began to improve in 1997, a rapid decline in the price of oil brought about a deep recession beginning in 1998, which contributed to Chávez's landslide election. In the first several years of President Chávez's rule, Venezuela underwent huge political changes. In 1999, Venezuelans went to the polls on three occasions—to establish a constituent assembly that would draft a new constitution, to elect the membership of the 165-member constituent assembly, and to approve the new constitution—and each time delivered victory to President Chávez. The new constitution revamped political institutions, including the elimination of the Senate and establishment of a unicameral National Assembly, and expanded the presidential term of office from five to six years, with the possibility of immediate reelection for a second term. Under the new constitution, voters once again went to the polls in July 2000 for a so-called mega-election, in which the president, national legislators, and state and municipal officials were selected. President Chávez easily won election to a new six-year term, capturing about 60% of the vote. Chávez's Patriotic Pole coalition also captured 14 of 23 governorships and a majority of seats in the National Assembly. Temporary Ouster in 2002. Although President Chávez remained widely popular until mid-2001, his standing eroded after that amid growing concerns by some sectors that he was imposing a leftist agenda on the country and that his government was ineffective in improving living conditions in Venezuela. In April 2002, massive opposition protests and pressure by the military led to the ouster of Chávez from power for less than three days. He ultimately was restored to power by the military after an interim president alienated the military and public by taking hardline measures, including the suspension of the constitution. In the aftermath of Chávez's brief ouster from power, the political opposition continued to press for his removal from office, first through a general strike that resulted in an economic downturn in 2002 and 2003, and then through a recall referendum that ultimately was held in August 2004 and which Chávez won by a substantial margin. In 2004, the Chávez government moved to purge and pack the Supreme Court with its own supporters in a move that dealt a blow to judicial independence. The political opposition boycotted legislative elections in December 2005, which led to domination of the National Assembly by Chávez supporters. Ree lection in 2006. A rise in world oil prices that began in 2004 fueled the rebound of the Venezuelan economy and helped President Chávez establish an array of social programs and services known as "missions" that helped reduce poverty by some 20%. In large part because of the economic rebound and attention to social programs, Chávez was reelected to another six-year term in December 2006 in a landslide, with almost 63% of the vote compared to almost 37% for opposition candidate Manuel Rosales. The election was characterized as free and fair by international observers with some irregularities. After he was reelected in 2006, however, even many Chávez supporters became concerned that the government was becoming too radicalized. Chávez's May 2007 closure of a popular Venezuelan television station that was critical of the government, Radio Caracas Television (RCTV), sparked significant protests and worldwide condemnation. Chávez also proposed a far-reaching constitutional amendment package that would have moved Venezuela toward a new model of development known as "21 st century socialism," but this was defeated by a close margin in a December 2007 national referendum. University students took the lead in demonstrations against the closure of RCTV and also played a major role in defeating the constitutional reform. The Venezuelan government also moved forward with nationalizations in key industries, including food companies, cement companies, and the country's largest steel maker; these followed the previous nationalization of electricity companies and the country's largest telecommunications company and the conversion of operating agreements and strategic associations with foreign companies in the oil sector to majority Venezuelan government control. 2008 State and Municipal Elections. State and local elections held in November 2008 revealed a mixed picture of support for the government and the opposition. Earlier in the year, President Chávez united his supporters into a single political party—the United Socialist Party of Venezuela (PSUV). In the elections, pro-Chávez candidates won 17 of the 22 governors' races, while opposition parties won five governorships, including in three of the country's most populous states, Zulia, Miranda, and Carabobo. At the municipal level, pro-Chávez candidates won over 80% of the more than 300 mayoral races, with the opposition winning the balance, including Caracas and the country's second-largest city, Maracaibo. One of the major problems for the opposition was that the Venezuelan government's comptroller general disqualified almost 300 individuals from running for office, including several high-profile opposition candidates, purportedly for cases involving the misuse of government funds. 2009 Lifting of Term Limits. In 2009, President Chávez moved ahead with plans for a constitutional change that would lift the two-term limit for the office of the presidency and allow him to run for reelection in 2012 and beyond. In a February 2009 referendum, Venezuelans approved the constitutional change with almost 55% support. President Chávez proclaimed that the vote was a victory for the Bolivarian Revolution, and virtually promised that he would run for reelection. Chávez had campaigned vigorously for the amendment and spent hours on state-run television in support of it. The president's support among many poor Venezuelans who had benefited from increased social spending and programs was an important factor in the vote. 2010 Legislative Elections. In Venezuela's September 2010 elections for the 165-member National Assembly, pro-Chávez supporters won 98 seats, including 94 for the PSUV, while opposition parties won 67 seats, including 65 for the MUD. Even though pro-Chávez supporters won a majority of seats, the result was viewed as a significant defeat for the president because it denied his government the three-fifths majority (99 seats) needed to enact enabling laws granting him decree powers. It also denied the government the two-thirds majority (110 seats) needed for a variety of actions to ensure the enactment of its agenda, such as introducing or amending organic laws, approving constitutional reforms, and making certain government appointments. In December 2010, Venezuela's outgoing National Assembly approved several laws that were criticized by the United States and human rights organizations as threats to free speech, civil society, and democratic governance. The laws were approved ahead of the inauguration of Venezuela's new National Assembly to a five-year term in early January 2011, in which opposition deputies would have had enough representation to deny the government the two-thirds and three-fifths needed for certain actions. Most significantly, the outgoing Assembly approved an "enabling law" that provided President Chávez with far-reaching decree powers for 18 months. Until its expiration in June 2012, the enabling law was used by President Chávez more than 50 times, including decrees to change labor laws and the criminal code, along with a nationalization of the gold industry. 2012 Presidential Election. With a record turnout of 80.7% of voters, President Chávez won his fourth presidential race (and his third six-year term) in the October 7, 2012, presidential election, capturing about 55% of the vote, compared to 44% for opposition candidate Henrique Capriles. Chávez won all but 2 of Venezuela's 23 states (with the exception of Táchira and Mérida states), including a narrow win in Miranda, Capriles's home state. Unlike the last presidential election in 2006, Venezuela did not host international observer missions. Instead, two domestic Venezuelan observer groups monitored the vote. Most reports indicate that election day was peaceful with only minor irregularities. Venezuela's opposition had held a unified primary in February 2012, under the banner of the opposition MUD, and chose Capriles in a landslide with about 62% of the vote in a five-candidate race. A member of the Justice First ( Primero Justicia , PJ) party, Capriles had been governor of Miranda, Venezuela's second-most populous state, since 2008. During the primary election, Capriles promoted reconciliation and national unity. He pledged not to dismantle Chávez's social programs, but rather to improve them. Capriles ran an energetic campaign traveling throughout the country with multiple campaign rallies each day, while the Chávez campaign reportedly was somewhat disorganized and limited in terms of campaign rallies because of Chávez's health. Capriles's campaign also increased the strength of a unified opposition. The opposition received about 2.2 million more votes than in the last presidential election in 2006, and its share of the vote grew from almost 37% in 2006 to 44%. Nevertheless, Chávez had several distinct advantages in the election. The Venezuelan economy was growing strongly in 2012 (over 5%), fueled by government spending made possible by high oil prices. Numerous social programs or "missions" of the government helped forge an emotional loyalty among Chávez supporters. This included a well-publicized public housing program. In another significant advantage, the Chávez campaign used state resources and state-controlled media for campaign purposes. This included the use of broadcast networks, which were required to air the president's frequent and lengthy political speeches. Observers maintain that the government's predominance in television media was overwhelming. There were several areas of vulnerability for Chávez, including high crime rates (including murder and kidnapping) and an economic situation characterized by high inflation and economic mismanagement that had led to periodic shortages of some food and consumer products and electricity outages. Earlier in 2012, a wildcard in the presidential race was Chávez's health, but in July 2012 Chávez claimed to have bounced back from his second bout of an undisclosed form of cancer since mid-2011. For President Chávez, the election affirmed his long-standing popular support, as well as support for his government's array of social programs that have helped raise living standards for many Venezuelans. In his victory speech, President Chávez congratulated the opposition for their participation and civic spirit and pledged to work with them. At the same time, however, the president vowed that Venezuela would "continue its march toward the democratic socialism of the 21 st century." December 2012 State Elections. Voters delivered a resounding victory to President Chávez and the PSUV in Venezuela's December 16, 2012, state elections by winning 20 out of 23 governorships that were at stake. Prior to the elections, the PSUV had held 15 state governorships with the balance held by opposition parties or former Chávez supporters. The state elections took place with political uncertainty at the national level as President Chávez was in Cuba recuperating from his fourth cancer surgery (see below). The opposition won just three states: Amazonas; Lara; and Miranda, where former MUD presidential candidate Henrique Capriles Radonski was reelected, defeating former Vice President Eliás Jaua. While the opposition suffered a significant defeat, Capriles's win solidified his status as the country's major opposition figure. Chávez ' s Declining Health and Death. Dating back to mid-2011, President Chávez's precarious health raised questions about Venezuela's political future. Chávez had been battling an undisclosed form of cancer since June 2011, when he underwent emergency surgery in Cuba for a "pelvic abscess" followed by a second operation to remove a cancerous tumor. After several rounds of chemotherapy, Chávez declared in October 2011 that he had beaten cancer. In February 2012, however, Chávez traveled to Cuba for surgery to treat a new lesion and confirmed in early March that his cancer had returned. After multiple rounds of radiation treatment, Chávez once again announced in July 2012 that he was "cancer free." After winning reelection to another six-year term in October 2012, Chávez returned to Cuba the following month for medical treatment. Once back in Venezuela, Chávez announced on December 8, 2012, that his cancer had returned and that he would undergo a fourth cancer surgery in Cuba. Most significantly, Chávez announced at the same time his support for Vice President Nicolás Maduro if anything were to happen to him. Maduro had been sworn into office on October 13, 2012. Under Venezuela's Constitution, the president has the power to appoint and remove the vice president; it is not an elected position. According to Chávez: "If something happens that sidelines me, which under the Constitution requires a new presidential election, you should elect Nicolás Maduro." Chávez faced complications during and after his December 11, 2012, surgery, and while there were some indications of improvement by Christmas 2012, the president faced new respiratory complications by year's end. After considerable public speculation about the presidential inauguration scheduled for January 10, 2013, Vice President Maduro announced on January 8 that Chávez would not be sworn in on that day. Instead, the vice president invoked Article 231 of the Constitution, maintaining that the provision allows the president to take the oath of office before the Supreme Court at a later date. A day later, Venezuela's Supreme Court upheld this interpretation of the Constitution, maintaining that Chávez did not need to take the oath of office to remain president. According to the court's president, Chávez could take the oath of office before the Supreme Court at a later date, when his health improved. Some opposition leaders, as well as some Venezuelan legal scholars, had argued that the January 10 inauguration date was fixed by Article 231 and that, since Chávez could not be sworn in on that date, then the president of the National Assembly, Diosdado Cabello, should have been sworn in as interim or caretaker president until either a new election was held or Chávez recovered pursuant to Article 234 of the Constitution. President Chávez ultimately returned to Venezuela from Cuba on February 18, 2013, but was never seen publicly because of his poor health. A Venezuelan government official announced on March 4 that the president had taken a turn for the worse as he was battling a new lung infection. He died the following day. The political empowerment of the poor under President Chávez will likely be an enduring aspect of his legacy in Venezuelan politics for years to come. Any future successful presidential candidate will likely need to take into account how his or her policies would affect working class and poor Venezuelans. On the other hand, President Chávez also left a large negative legacy, including the deterioration of democratic institutions and practices, threats to freedom of expression, high rates of crime and murder (the highest in South America), and an economic situation characterized by high inflation, crumbling infrastructure, and shortages of consumer goods. Ironically, while Chávez championed the poor, his government's economic mismanagement wasted billions that potentially could have established a more sustainable social welfare system benefiting poor Venezuelans. When the gravity of President Chávez's health status became apparent in early 2013, many analysts had posed the question as to whether the leftist populism of "Chavismo" would endure without Chávez. In the aftermath of the April 2013 presidential election won by acting president Nicolás Maduro and the December 2013 municipal elections, it appeared that "Chavismo" would survive, at least in the medium term. Chávez supporters not only control the presidency and a majority of municipalities, but also control the Supreme Court, the National Assembly, the military leadership, and the state oil company—PdVSA. Moreover, in November 2013, President Maduro secured a needed vote of three-fifths of the National Assembly to approve an enabling law giving him decree powers over the next year. Chávez had been granted such powers for several extended periods and used them to enact far-reaching laws without the approval of Congress. In 2014, deteriorating economic conditions, high rates of crime, and street protests that were met with violence by the Venezuelan state posed enormous challenges to the Maduro government. Human rights abuses increased as the government violently suppressed the opposition. Efforts toward dialogue at the Organization of American States were thwarted by Venezuela, and a dialogue facilitated by the Union of South American Nations (UNASUR) ultimately was unsuccessful. During the second half of the year, the rapid decline in the price of oil exacerbated Venezuela's already poor economic conditions. In the aftermath of President Chávez's death, Vice President Maduro became interim or acting president and took the oath of office on March 8, 2013. A new presidential election, required by Venezuela's Constitution (Article 233), was held on April 14 in which Maduro, the PSUV candidate, narrowly defeated opposition candidate Henrique Capriles by 1.49% of the vote. In the lead-up to the elections, polling consistently showed Maduro to be a strong favorite to win the election by a significant margin, so the close race took many observers by surprise. Before the election campaign began, many observers had stressed the importance of leveling the playing field in terms of fairness. However, just as in the 2012 presidential race between Chávez and Capriles, the 2013 presidential election was characterized by the PSUV's abundant use of state resources and state-controlled media. In particular, the mandate for broadcast networks to cover the president's speeches was a boon to Maduro. In the aftermath of the election, polarization increased with street violence (nine people were killed in riots), and there were calls for an audit of the results. The National Electoral Council (CNE) announced that they would conduct an audit of the remaining 46% of ballot boxes that had not been audited on election day, while the opposition called for a complete recount and for reviewing the electoral registry. In June, the CNE announced that it had completed its audit of the remaining 46% of votes and maintained that it found no evidence of fraud and that audited votes were 99.98% accurate compared with the original registered totals. Maduro received 50.61% of the vote to 49.12% of the vote for Capriles—just 223,599 votes separated the two candidates out of almost 15 million votes. There were six domestic Venezuelan observer groups in the April election. This included the Venezuelan Electoral Observatory (OVE), which issued an extensive report in May 2013 that, among other issues, expressed concern over the incumbent president's advantages in the use of public funds and resources. The OVE also made recommendations for improving future elections, which included changing the composition of the CNE to guarantee and demonstrate neutrality and making improvements in legal norms related to incumbency advantage and the use of public resources, among other measures. Venezuela does not allow official international electoral monitoring groups, but the CNE invited several international groups to provide "accompaniment" to the electoral process. These included delegations from the Union of South American Nations (UNASUR); the Institute for Higher European Studies (IAEE, Instituto de Altos Estudios Europeos ), a Spanish nongovernmental organization; and the Carter Center. The UNASUR electoral mission supported the CNE's decision to conduct a full audit, and UNASUR heads of state subsequently met on April 19 to voice their support for Maduro's election. The IAEE report issued a critical report in June 2013 calling for the elections to be voided. The Carter Center issued a preliminary report on the election in July 2013, and maintained that the close election results caused an electoral and political conflict not seen since Venezuela's 2004 recall election. The group also concluded that confidence in the electoral system diminished in the election, with concerns about voting conditions, including inequities in access to financial resources and the media. In May 2014, the Carter Center issued its final report on the 2013 election, which included recommendations to improve the process. These included more effective enforcement of rules regulating the use of state resources for political purposes and the participation of public officials and civil servants in campaign activities; campaign equity with regard to free and equal access to public and private media; curbs on the use of obligatory radio and television broadcasts and the inauguration of public works during the election period; and limitations on the participation of public officials of members of his or her own party or coalition. In May 2013, the opposition filed two legal challenges before the Supreme Court, alleging irregularities in the elections, including the intimidation of voters by government officials and problems with the electoral registry being inflated because it had not been purged of deceased people. The first challenge, filed May 2 by Henrique Capriles, called for nullifying the entire election, while the second challenge, filed May 7 by the MUD, requested nullification of certain election tables and tally sheets. The Supreme Court rejected the opposition challenges on August 7 and criticized them for being "insulting" and "disrespectful" of the court and other institutions. While the Supreme Court action was not unexpected, it contributed to increased political tensions in the country in the lead-up to the December 2013 municipal elections. Venezuela's December 8, 2013, municipal elections were slated to be an important test of support for the ruling PSUV and the opposition MUD, but ultimately the results of the elections were mixed and reflect a polarized country. Some 335 mayoral offices and hundreds of other local legislative councilor seats were at stake in the elections. The PSUV and its allies won 242 municipalities, compared to 75 for the MUD, and 18 won by independents. The opposition won 18 more municipalities than in the previous 2008 elections; nine state capitals, including the large cites of Maracaibo and Valencia and the capital of Barinas state (Hugo Chávez's home state); and four out of the five municipalities that make up Caracas. On the other hand, the total vote breakdown was 49% for the PSUV and its allies compared to about 42% for the MUD, not as close as the presidential election in April. Some observers emphasize that the PSUV did as well as it did because of President Maduro's orders to cut prices for consumer goods in the lead-up to the elections. For many observers, the elections reflect the continuing polarization in the country and a rural/urban divide, with the MUD receiving the majority of its support from urban areas and the PSUV and its allies receiving more support from rural areas. In 2014, the Maduro government faced significant challenges, including high rates of crime and violence and deteriorating economic conditions, with high inflation, shortages of consumer goods, and in the second half of the year, a rapid decline in oil prices. In February, student-led street protests erupted into violence with protestors harshly suppressed by Venezuelan security forces and militant pro-government civilian groups. While the protests largely had dissipated by June, at least 43 people were killed on both sides of the conflict, more than 800 were injured, and more than 3,000 were arrested. The government imprisoned a major opposition figure, Leopoldo López, in February, and two opposition mayors in March. Diplomatic efforts to deal with the crisis at the Organization of American States were frustrated in March. In April, an initiative by the Union of South American Nations (UNASUR)—led by the foreign ministers of Brazil, Colombia, and Ecuador—was successful in getting the government and a segment of the opposition to begin talks, but the dialogue broke down in May because of a lack of progress. With the significant drop in oil prices, the oil-dependent Venezuelan economy contracted by an estimated 3.9% by the end of the year, and inflation had risen to 62%, the highest in Latin America. (See Figure 2 and Figure 3 , below.) Concern about crime prompted student demonstrations during the first week of February 2014 in western Venezuela in the city of San Cristóbal, the capital of Táchira state. Students were protesting the attempted rape and robbery of a student, but the harsh police response to the student protests led to follow-up demonstrations that expanded to other cities and intensified with the participation of non-students. There also was a broadening of the protests to include overall concerns about crime and the deteriorating economy. On February 12, 2014, students planned a large rally in Caracas that ultimately erupted into violence when protestors were reportedly attacked by Venezuelan security forces and militant pro-government groups known as " colectivos ." Three people were killed in the violence—two student demonstrators and a well-known leader of a colectivo . The protests were openly supported by opposition leaders Leopoldo López of the Popular Will party (part of the opposition alliance known as the MUD) and Maria Corina Machado, an opposition member of the National Assembly. President Maduro accused the protestors of wanting "to topple the government through violence" and to recreate the situation that occurred in 2002 when Chávez was briefly ousted from power. Within Venezuela's political opposition, there were two contrasting views of the movement's appropriate political strategy vis-à-vis the government. Leopoldo López and María Corina Machado advocated a tactic of occupying the streets that they dubbed " la salida " (exit or solution). This conjured up the image of Maduro being forced from power. In explaining what is meant by the term, a spokesman for López's Popular Will party maintained that Maduro had many means to resolve the crisis, such as opening a real dialogue with the opposition and making policy changes, or resigning and letting new elections occur. (Under Venezuela's Constitution [Article 233], if Maduro were to resign, then elections would be held within 30 consecutive days.) In contrast to the strategy of street protests, former MUD presidential candidate Henrique Capriles, who serves as governor of Miranda state, advocated a strategy of building up support for the opposition, working within the existing system, and focusing on efforts to resolve the nation's problems. He did not see the message of pressing for Maduro's resignation appealing to low-income or poor Venezuelans. Protests continued in Venezuela in Caracas and other cities around the country, although by June 2014 they had largely dissipated because of the government's harsh efforts of suppression and perhaps to some extent because of protest fatigue. Protestors had resorted to building roadblocks or barricades in order to counter government security and armed colectivos . Overall, at least 43 people on both sides of the conflict were killed (including protestors, government supporters, members of the security forces, and civilians not participating in the protests), more than 800 were injured, and more than 3,000 were arrested. Among the detained was opposition leader Leopoldo López. A Venezuelan court had issued an arrest warrant for López on February 13 for his alleged role in inciting riots that led to the killings. López participated in a February 18 protest march and then turned himself in. While initially López was accused of murder and terrorism, Venezuelan authorities ended up charging him with lesser counts of arson, damage to property, and criminal incitement. After several postponed court hearings, a Venezuelan judge ruled in early June 2014 that the case would go forward and that López would remain in prison while awaiting trial. López's trial began on July 23, 2014, but there were multiple delays. The Venezuelan court in the case ruled against the admissibility of much of the evidence submitted by López's defense, including more than 60 witnesses, but it accepted more than 100 witnesses for the prosecution. López's defense, human rights organizations, and the U.S. Department of State expressed concern about the lack of due process in the case, and President Obama called for his release. In addition to López, two opposition mayors, Daniel Ceballos of San Cristóbal in Táchira state and Enzo Scarano of San Diego in Carabobo state, were jailed in March 2014—Ceballos was sentenced to a year in prison on charges of "civil rebellion" and "conspiracy," and Scarano was sentenced to 10 months in prison for not complying with Supreme Court orders to remove street barricades. (Scarano was released in January 2015, and Ceballos was released to house arrest in August 2015.) Notably, the wives of both mayors won May 2014 special elections by a landslide to replace their husbands. International human groups criticized the Venezuelan government for its heavy-handed approach in suppressing the protests. Amnesty International (AI) released a report in April 2014 documenting allegations of human rights violations in the context of the protests. Human Rights Watch issued an extensive report in May 2014 that documented 45 cases involving more than 150 victims in which Venezuelan security forces allegedly abused the rights of protestors and other people in the vicinity of demonstrations and also allowed armed pro-government gangs to attack unarmed civilians. The International Commission of Jurists, an international nongovernmental human rights organization with headquarters in Switzerland, issued a report in June 2014 highlighting key deficiencies in Venezuela's legal system that threaten the rule of law, democracy, and human rights in the country. For additional background on the human rights situation, see " Democracy and Human Rights Concerns ," below. Table 1 also provides links to human rights organizations and other sources that report on the human rights situation in Venezuela. The outbreak of violence, especially the government's harsh response to the protests, prompted calls for dialogue from many quarters worldwide, including from the Obama Administration and some Members of Congress. Organization of American States (OAS) Secretary General José Miguel Insulza, U.N. Secretary General Ban Ki-moon, and Pope Francis called on efforts to end the violence and engage in dialogue. Secretary General Insulza repeatedly condemned the violence and maintained that only a broad dialogue between the government and the opposition can resolve the situation. Many Latin American nations had a restrained response to the situation in Venezuela. While they lamented the deaths of protestors and called for dialogue, most did not criticize the Maduro government for its harsh response to the protests. OAS. Panama had called for a special meeting of the OAS Permanent Council in February, but the meeting was postponed on a technicality raised by Venezuela. (Venezuela subsequently broke relations with Panama in March 2014, accusing Panama of meddling in Venezuela's affairs, but relations ultimately were restored in July 2014.) The OAS Permanent Council subsequently met on the issue of Venezuela on March 7, 2014, but only approved a lukewarm resolution expressing condolences for the violence, noting its respect for nonintervention and support for the efforts of the Venezuelan government and all political, economic, and social sectors to move forward with dialogue toward reconciliation. The United States, Canada, and Panama opposed the resolution, while all 29 other countries supported the resolution. In its dissent on the OAS vote, the United States maintained that it supports a peaceful resolution of the situation based on dialogue, but a genuine dialogue encompassing all parties and with a third party that all sides can trust. In a subsequent meeting on March 21, 2014, the OAS Permanent Council rejected Panama's attempt to raise the issue of the situation in Venezuela and voted (22 to 11, with 1 abstention) to close the session to the press. Panama had made Venezuelan opposition leader Maria Corina Machado a temporary member of Panama's delegation with the intention of speaking about the situation in Venezuela, but this was rejected (22 to 3, with 9 abstentions). (Machado subsequently was stripped of her seat in the National Assembly in late March 2014 because she joined Panama's delegation to the OAS.) UNASUR-Sponsored Dialogue. With diplomatic efforts to help resolve the crisis frustrated in the OAS, attention turned to the work of the 12-member Union of South American Nations (UNASUR). In response to the political unrest in Venezuela, UNASUR foreign ministers had approved a resolution on March 12, 2014, expressing support for dialogue between the Venezuelan government and all political forces and social sectors and agreeing to create a commission, requested by Venezuela, to accompany, support, and advise a broad and constructive political dialogue aimed at restoring peace. By early April, UNASUR foreign ministers had helped to bring about an agreement for government-opposition talks to be monitored by the foreign ministers from Brazil, Colombia, and Ecuador and a representative from the Vatican as an observer. The talks began on the evening of April 10 in a nearly six-hour public session. The opposition called for an amnesty law to free political prisoners and a disarming of the colectivos responsible for some of the violence. Before the talks, the MUD also set forth two other goals: an independent national truth commission to examine the recent unrest and a government commitment to fill senior vacancies in such institutions as the National Electoral Council and the Supreme Court with appointments that demonstrate impartiality. Two additional rounds of private talks between the opposition and the government were held in April, with limited progress. On May 13, the MUD announced that the talks were in crisis and that the opposition was suspending its participation until the government took actions to demonstrate its commitment to the process. The government's continued suppression of protests since the talks began, along with lack of concrete progress at the talks, were the key factors in the MUD's decision to suspend the dialogue. Despite attempts by the foreign ministers of Brazil, Colombia, and Ecuador, the talks were not revived. UNASUR issued a statement May 23 reiterating that dialogue between the government and opposition sectors is necessary for resolving the conflict. In the statement, UNASUR also rejected the imposition of unilateral sanctions on Venezuelan officials, maintaining that the action would violate the principle of nonintervention and negatively affect the prospects for dialogue. When the UNASUR-sponsored dialogue began, there was disagreement within the MUD coalition over whether to participate in the talks. To some extent, this harkened back to disagreement over the opposition's overall political strategy noted above. More moderate opposition parties supported the decision to participate in the talks, while more hardline parties refused to participate as long as protestors and opposition leaders remain jailed. Leopoldo López's Popular Will party maintained that the government was "only offering a political show" and stated that it would not "endorse any dialogue with the regime while repression, imprisonment and persecution of our people continues." Other opposition activists refusing to participate included Maria Corina Machado and Antonio Ledezma, the metropolitan mayor of Caracas. In the aftermath of the 2014 protests and the collapse of dialogue, Venezuela's opposition appeared to have become more divided, with some wanting to continue a confrontational approach of challenging the government through protests and calling for the president's resignation and others advocating a more moderate approach of focusing on the 2015 legislative elections and advancing solutions that appeal to a majority of Venezuelans. Former MUD presidential candidate Henrique Capriles maintained that the strategy of " la salida " (the exit) was "an absolute failure" that "gave oxygen to the government" and "distracted the country." He maintained that divisions within the opposition prevented it from taking advantage of the government's inability to improve the economy. The political and economic situation in Venezuela continued to deteriorate in 2015 and 2016, with the Maduro government continuing its repression of the political opposition, the economy entering deeper into recession, with a growing humanitarian crisis. In February 2015, Venezuela's intelligence service detained the opposition metropolitan mayor of Caracas, Antonio Ledezma, who was subsequently charged with conspiracy in an alleged plot to overthrow the government. (He was released from jail in April 2015 for surgery and has been under house arrest since June 2015.) Ledezma, along with Leopoldo López (imprisoned since 2014) had signed a communiqué entitled the "National Agreement for Transition" to take measures to overcome the country's political and economic crisis, including free and transparent presidential elections. The Maduro government viewed the document as tantamount to calling for the government's overthrow and similar to the " la salida " (exit or solution) strategy adopted by López in 2014 that tried to force Maduro from power through street protests. Venezuela's opposition coalition, known as the MUD, triumphed in the country's December 6, 2015, legislative elections over the ruling PSUV. In the official vote count, the MUD won 109 seats, which, combined with the support of 3 elected indigenous representatives, gave it a total of 112 seats in the 167-member unicameral National Assembly, a two-thirds majority, compared to 55 seats for the PSUV. The election was a major defeat for Chavismo but, as noted below, the Maduro government took actions to deny the opposition its supermajority. The opposition had faced significant disadvantages in the legislative elections. OAS Secretary General Luis Almagro made public a letter to the head of Venezuela's National Electoral Council that expressed strong criticism about the level of transparency and electoral justice ahead of the elections. Almagro asserted that the opposition operated on an uneven playing field that included the government's use of state resources for campaign purposes; the disqualification of seven opposition candidates; the judiciary's investigation of opposition political parties; and government actions that diminished freedom of the press and expression. In a disturbing development before the elections, Luis Manuel Díaz, an opposition leader with Democratic Action (AD), was assassinated at a public meeting in the state of Guárico on November 25, 2015. Venezuela rejected any international election observation missions, including from the OAS and the European Union. Instead, it agreed to a delegation from the UNASUR that arrived just before the elections. In the absence of international observers, electoral observation by Venezuelan domestic groups , such as the Observatorio Electoral Venezolano, became all the more important. Ahead of the legislative elections, the MUD was far ahead in the polls, with a lead ranging from almost 19 percentage points to 30 percentage points. It campaigned on an agenda to release political prisoners and efforts to stimulate the ailing economy. The coalition includes some two dozen parties across the political spectrum. The largest of these include Justice First (PJ), the party of the MUD's 2012 and 2013 presidential candidate, Henrique Capriles; Popular Will (VP), whose party founder, Leopoldo López, was imprisoned in February 2014 and sentenced in September 2015 to almost 14 years in prison for allegedly inciting violence and other charges (a conviction that was criticized worldwide); A New Era (UNT); and AD. In the aftermath of the MUD's electoral victory, the Maduro government thwarted the power of the incoming opposition legislature. To secure control of the 32-member Supreme Court, the outgoing PSUV-controlled National Assembly confirmed 13 new magistrates whose terms were not up until the end of 2016. In doing so, the outgoing National Assembly prevented the new opposition-controlled National Assembly from confirming the judges. The Supreme Court subsequently blocked three newly elected National Assembly representatives (all from the state of Amazonas) from the MUD from taking office, which deprived the opposition of its two-thirds majority. A two-thirds majority would have provided the opposition with extensive powers, including the abilities to submit bills directly to national referendum, approve and amend organic laws, remove Supreme Court Justices in cases of serious misconduct, and convene a Constituent Assembly to rewrite the constitution. Nevertheless, a simple and a three-fifths majority are supposed to convey significant power to the opposition, including providing it with a major role in the government's budget, the ability to remove ministers and the vice president from office, and powers to overturn enabling laws that give the president decree powers. Since the National Assembly took office in January 2016, the Supreme Court has blocked several laws and actions approved by the legislature. In February, the Supreme Court upheld President Maduro's emergency economic decree, which the National Assembly had rejected in January; the measure provides the president with broad enabling powers circumventing the powers of the legislature. In March, the Supreme Court ruled that the legislature had no right to examine the Maduro government's rushing through of 13 magistrates in late 2015. In April, the court declared an amnesty law unconstitutional on grounds that it would have granted impunity for common crimes; the measure would have pardoned opposition leader Leopoldo López and other political prisoners—about 120 in all. In April, the court also struck down a constitutional amendment that would have reduced the presidential term of office from six years to four years, maintaining that any constitutional change could not be retroactive. In July 2016, Venezuela's National Assembly swore in the three opposition legislators that the Supreme Court had blocked from taking office, which led the Supreme Court to rule in early September that the National Assembly's bills would be "null and void." In November 2016, the three legislators stepped down as a concession to ease tension between the government and the opposition. With the power of the National Assembly stymied by the Maduro government, opposition efforts for much of 2016 focused on attempts to recall President Maduro in a national referendum. The government, however, resorted to delaying tactics that slowed down the process considerably, and on October 20, 2016, Venezuela's National Electoral Council (CNE) indefinitely suspended the process after five state-level courts issued rulings alleging fraud in a signature collection drive held in June. The opposition had been working for a recall referendum to be held before January 10, 2017, the four-year point of the six-year presidential term. Under Venezuela's constitution, if the recall were approved after January 10, 2017, the appointed vice president would become president for the remainder of the presidential term. (On January 4, 2017, President Maduro appointed former Interior Minister and Governor of Aragua state Tareck El Aissami as vice president, replacing Aristóbulo Istúriz, a former governor of Anzoátegui state who served in the position for one year.) If the recall had been held before January 10, 2017, a new presidential election would have been called within 30 days, giving the opposition an opportunity to compete for the presidency before the next regularly scheduled election in late 2018. Multiple steps are required for the referendum to go forward. The recall process began in April 2016; Venezuela's CNE released forms needed to begin the procedure of seeking a recall referendum, but it did so only after several opposition National Assembly legislators had chained themselves to the CNE's office to protest the body's refusal to provide the paperwork. The opposition then needed to collect signatures from 1% of Venezuela's electorate in each state—almost 198,000 signatures nationwide. On May 2, 2016, the opposition delivered more than 1.95 million signatures to the CNE. On June 10, the CNE announced that it had disqualified 605,727 of the signatures but that the remaining 1.35 million signatures were ready to be validated. The validation process began June 20 and was not completed until August 1, 2016, when the CNE announced that the opposition had successfully collected the signatures. The next step was for the opposition to gather the signatures of at least 20% of registered voters—about 3.9 million signatures. Initially, the CNE announced in August 2016 that the collection of 20% of signatures would possibly take place at the end of October. Then, on September 21, 2016, the CNE announced that the signature drive would be held over a three-day period from October 26, 2016, to October 28, 2016. As part of the process, the CNE approved 5,392 voting machines (in 1,356 voting centers) for more than 19 million registered voters and is requiring the signatures of 20% of registered voters in each state. (In contrast, the opposition wanted some 19,500 voting machines to be made available and for the requirement of 20% of signatures collected to be at the national level instead of required for each state.) As noted above, the CNE suspended the recall referendum process on October 20, 2016, and the signature collection did not take place. If the signature collection had taken place, the next step would have been for the CNE to verify that enough signatures were received. If so, the referendum would have taken place within 90 days. For the recall of the president to occur, the referendum would have needed to be approved by more than the number of votes that Maduro received when elected—almost 7.6 million. Major opposition protests occurred at several junctures over the government's delays with the recall referendum process. In May 2016, opposition protests erupted over the CNE's slowness in verifying the signatures collected. On May 13, 2016, President Maduro decreed a 60-day national emergency, maintaining that there were plots supported by the United States to topple his government. Protests continued despite the state of emergency, and a number of protesters were arrested. On June 9, several opposition National Assembly members, including majority leader Julio Borges, were physically attacked by armed PSUV supporters after they were turned away from the CNE by police. On September 1, 2016, hundreds of thousands of Venezuelans protested peacefully in Caracas to press for the recall referendum to be held this year. The CNE's suspension of the recall referendum process prompted massive protests in cities nationwide on October 26, 2016. OAS Secretary General Luis Almagro has spoken out strongly about the situation in Venezuela. On May 18, 2016, the Secretary General published a public letter to President Maduro, partly in response to Maduro's accusations that Almagro was an agent of the U.S. Central Intelligence Agency (CIA). Almagro called for Maduro to "return the riches of those who have governed with you to your country ... to return political prisoners to their families ... [and] ... to give the National Assembly back its legitimate power." He expressed hope that no one should commit the folly of carrying out a coup against Maduro and that Maduro himself would not do so (Maduro threatened to make the National Assembly disappear). With regard to the recall referendum, Almagro said, "You have an obligation to public decency to hold the recall referendum in 2016, because when politics are polarized the decision must go back to the people. To deny the people that vote, to deny them the possibility of deciding, would make you just another petty dictator, like so many this Hemisphere has had." On May 31, 2016, Secretary General Almagro invoked the Inter-American Democratic Charter when he called (pursuant to Article 20) on the OAS Permanent Council to convene an urgent session on Venezuela to decide whether "to undertake the necessary diplomatic efforts to promote the normalization of the situation and restore democratic institutions." The Secretary General issued an extensive report on the political and economic situation in Venezuela concluding that there are "serious disruptions of the democratic order" in the country. The report made several recommendations, including the holding of a recall referendum in 2016, the immediate release of all those imprisoned for political reasons, and a halt to the executive branch's permanent blocking of laws adopted by the National Assembly. According to the Secretary General's report, the situation requires that the hemispheric community assume its responsibility for moving forward with the procedure outlined in Article 20 in a progressive and gradual manner. Prior to the Secretary General's action, the leadership of Venezuela's National Assembly had asked Almagro to invoke the charter, contending that the Venezuelan government had acted in an unconstitutional and antidemocratic fashion that had severely undermined and impaired the democratic order. They maintained that "there exists a grave crisis of democracy, of the rule of law, and of human rights ... a clear impairment of the essential elements of representative democracy" set forth in the charter. Human Rights Watch also called for the OAS to invoke the charter "to press Venezuela to restore judicial independence and the protection of fundamental rights." The Maduro government has strongly opposed OAS involvement in Venezuela's political situation, arguing that the Secretary General is a pawn of the United States. Separate from considering the Secretary General's report, the OAS Permanent Council met on June 1, 2016, to consider a draft declaration on the situation in Venezuela submitted by Argentina and co-sponsored by Barbados, Honduras, Mexico, Peru, and the United States. Before its adoption by consensus, the resolution was amended at the behest of Venezuela to add language noting respect for the "principle of non-intervention" and "full respect for … [Venezuela's] sovereignty," but it kept key provisions of the original resolution. As approved, the declaration offered Venezuela support to identify a course of action to search for solutions through open and inclusive dialogue, supported the initiative of the former leaders of Spain (José Luis Rodríguez Zapatero), the Dominican Republic (Leonel Fernández), and Panama (Martin Torrijos) to reopen an effective dialogue between the government and the opposition, and supported other dialogue efforts that could lead to the resolution of differences and the consolidation of representative democracy. At Venezuela's request, the Permanent Council held a special meeting on June 21 to hear from former President Rodríguez Zapatero about the status of the dialogue initiative. With regard to the Secretary General's request invoking Article 20, the Permanent Council held a special session on June 23, 2016, to receive the presentation of the Secretary General's report. Venezuela had argued that the meeting itself should not be held, but a majority of countries voted to proceed with the agenda for the session. Nevertheless, the Permanent Council did not take any action on the Secretary General's report. When the Secretary General originally called the meeting, he wanted the Permanent Council to decide (by majority vote of 18 of 34 members) if it agreed with his report concluding that an alteration of the constitutional regime had taken place and, if so, what diplomatic initiatives may be taken, such as the offering of "good offices" (e.g., serving as a mediator or facilitating dialogue) to resolve the situation. On June 15, 2016, at the OAS General Assembly held in the Dominican Republic, 15 of 34 OAS member states—including the United States, along with Argentina, Belize, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Honduras, Mexico, Panama, Paraguay, Peru and Uruguay—issued a statement on the situation in Venezuela that reaffirmed the Permanent Council resolution adopted on June 1, 2016. In the statement, the 15 member states expressed support for a "timely, national, inclusive, and effective political dialogue"; encouraged respect for the Venezuelan constitution, which enshrines "the separation of powers, respect for the rule of law and democratic institutions"; expressed support "for the fair and timely implementation of constitutional mechanisms"; condemned "violence regardless of its origin"; and called on the "responsible authorities to guarantee due process and human rights, including the right to peaceful assembly and free expression of ideas." On August 11, 2016, the same 15 OAS members, including the United States, issued a joint statement urging the Venezuelan government and the opposition "to hold as soon as possible a frank and effective dialogue" and calling "on Venezuelan authorities to guarantee the exercise of the constitutional rights of the Venezuelan people." The statement also called for the remaining steps of the presidential recall referendum to be "pursued clearly, concretely, and without delay" to contribute to a resolution of the current political, economic, and social difficulties facing the country. On November 16, 2016, the OAS Permanent Council adopted a declaration supporting the national dialogue in Venezuela, encouraging the government and the MUD "to achieve concrete results within a reasonable timeframe," and asserting the need for the constitutional authorities and all political and social actors to act with prudence and avoid any action of violence or threats to the ongoing process." The declaration supported the new role of the Vatican in the process as well as the former presidents of Spain, the Dominican Republic, and Panama. OAS Secretary General Almagro conveyed his gratitude for the adoption of the declaration and stated that the "prompt liberation of all political prisoners is imperative, as is the expediting of electoral processes." The Venezuelan Mission to the OAS rejected the actions of the Permanent Council as interventionist. In late October 2016, after an appeal by Pope Francis, the Venezuelan government and most of the opposition (with the exception of Leopoldo López's Popular Will party) agreed to talks mediated by the Vatican along with the former presidents of the Dominican Republic, Spain, and Panama, and the head of UNASUR. The two sides issued a declaration on November 12 expressing firm commitment to a peaceful, respectful, and constructive coexistence. They also issued a statement that included agreement to improve the supply of food and medicine, resolve the situation of the three National Assembly representatives blocked from taking office, and work together in naming two CNE members whose terms expire in December. As a result of the accord, the three MUD National Assembly members from the state of Amazons who had been sworn into office in July 2016 over the objections of the Supreme Court resigned on November 15, 2016. Some opposition activists strongly criticized the dialogue as a way for the government to avoid taking any real actions, such as releasing all political prisoners. Many objected to the dialogue's lack of progress on either the recall referendum or the possibility of early presidential elections instead of waiting until late 2018. The next round of talks, scheduled for December 6, 2016, was suspended until January 2017, but many observers are pessimistic about the dialogue's future. In late December, opposition leaders said that they would not return to talks if the government continued to stall on actions to allow humanitarian aid, reform the CNE, free jailed activists, and recognize the powers of the National Assembly. On January 19, 2017, Venezuela's papal nuncio announced that the Vatican representative would not be attending the next meetings of the dialogue. During the third week of January, the head of UNASUR and the former presidents of the Dominican Republic, Spain, and Panama visited Venezuela in an attempt to reactivate the dialogue. During the Chávez era, the spike in oil prices fueled high rate rates of economic growth, especially between 2004 and 2008. The economic boom allowed President Chávez to move ahead with economic goals that fit into his "Bolivarian revolution." These included the expansion of a state-led development model, renegotiation of contracts with large foreign investors (especially in the petroleum sector) for majority government control, the restructuring of operations at the state oil company, and the nationalization of numerous private companies. The boom also allowed President Chávez to increase expenditures on social programs associated with his populist agenda. The government began implementing an array of social programs known as misiones or missions offering services in the fields of education, health, nutrition, the environment, sports, culture, and housing, as well as targeted programs for indigenous rights and services for street children and adolescents. As a result of the flourishing economy and increased social spending, poverty rates in Venezuela declined from 48.6% in 2002 to 25.4% in 2012, with extreme poverty or indigence falling from 22.2% to 7.1% over the same period. Since mid-2014, however, the rapid decline in the price of oil, which accounts for 96% of Venezuelan exports, has hit Venezuela hard, with a contracting economy, rising inflation, declining international reserves, and increasing poverty—all exacerbated by what most observers see as the Maduro government's economic mismanagement. The economic situation has also resulted in increasing shortages of food and medicines and high rates of violent crime. The country's economic outlook over the next several years is poor, with the economy expected to remain mired in recession. According to the World Bank, the Venezuelan government neglected to accumulate savings when the price of oil was high so that it could use its resources to ease a reversal in the terms of trade or to cushion necessary macroeconomic adjustments. As a result, the economy has contracted significantly since oil prices began to decline in 2014. Venezuela's gross domestic product (GDP) declined 3.9% in 2014 and 6.2% in 2015, and it is projected to decline 10% in 2016, according to the International Monetary Fund (IMF; see Figure 2 ). (The Economist Intelligence Unit estimates that GDP contracted 13.7% in 2016 and projects a 5.6% decline in 2017. ) Economic mismanagement has exacerbated the poor economic situation, and tight currency and price controls have led to shortages of some products and discouraged investment. As the economy has contracted, inflation has increased significantly, with the government resorting to monetizing its public deficit, which was estimated at 20% of GDP at the end of 2015. Average annual consumer inflation increased to 62% in 2014 and 122% in 2015, and it is projected to average 476% in 2016 (see Figure 3 ). Year-end inflation increased to 180% in 2015 and is projected to reach 720% in 2016, according to the IMF. Venezuela's international reserves also have fallen in recent years, from almost $30 billion in 2011 to some $10.6 billion at the end of 2016. Venezuela's educational and health systems have been severely affected by budget cuts, with shortages of medicines. Some hospitals face critical shortages of antibiotics, intravenous solutions, and even food. Pharmacies are facing shortages, with more than 85% of drugs reported to be unavailable or difficult to find, according to the Pharmaceutical Federation of Venezuela. In July 2016, almost 50 human rights organizations in Venezuela urged United Nations agencies in Venezuela, especially those dealing with health and nutrition, to speak out about the humanitarian situation in the country. During a trip to Argentina in early August 2016, UN Secretary General Ban Ki-moon expressed concern about the "humanitarian crisis" in Venezuela where "basic needs such as food, water, healthcare, and clothing cannot be met," but the Venezuela government rejected the characterization. IMF officials have also expressed concern about the humanitarian situation in Venezuela in terms of health conditions, and they contend that the shortages of food and medicine could trigger a wave of migration to neighboring countries. Venezuela temporarily opened a border crossing with Colombia in July 2016 (closed by Venezuela in 2015) to allow Venezuelans to buy food, medicines, and other consumer products in Colombia. In August 2016, Venezuela agreed to open pedestrian crossings at six border checkpoints that led tens of thousands of Venezuelans to travel to Colombia for food and other basic goods. The opening of the border with Colombia helped to some to relieve shortages of food and other basic goods in border areas of Venezuela. The shortages had led to riots, protests, and looting around the country, and they have resulted in the deaths of several people shot by police and security officials. Some analysts have said that discontent over food and other shortages increases the risk of a social explosion in Venezuela. Poverty rates began to increase in 2013 with Venezuela's economic slowdown under the Maduro government. In 2013, poverty increased to 32.1% (from 25.4% in 2012) and extreme poverty increased to 9.8% (from 7.1% in 2012). With the economy mired in recession since 2014 and inflation reaching exorbitant levels, poverty likely has increased even further. Under President Chávez, Venezuela often utilized its foreign relations as means of countering U.S. interests and influence. Particularly in the aftermath of his temporary ouster from power in 2002, in which Venezuela was convinced that the United States had a hand, President Chávez moved Venezuela's foreign and economic relations away from the United States, which he often referred to as "the empire," through intense engagement abroad. Under his presidency, Chávez developed closer relations with China, highlighted by increased oil trade and Chinese investment in Venezuela's energy sector; Russia, characterized by billions of dollars of military purchases, including fighter jets; and Iran, where Chávez developed a personal relationship with then President Mahmoud Ahmadinejad and both leaders reveled in spouting anti-American rhetoric and opposing U.S. foreign policy. In Latin America, Chávez—buoyed by windfall oil profits because of rising oil prices—moved to export his brand of populism and state-based economic development to other Latin American countries. He strongly supported Bolivia's President Evo Morales and offered assistance to help Bolivia rewrite its constitution and implement radical reforms to the economy. Under Chávez, Venezuela had close relations with Nicaragua under the presidency of Daniel Ortega, providing substantial assistance, and with Ecuador under the presidency of populist President Rafael Correa, first elected in 2006. Chávez also developed a strong bond with Fidel Castro. As a result, Venezuela became one of Cuba's main sources of outside support by providing it with a majority of its oil needs while in return receiving thousands of Cuban medical personnel and other advisers. Venezuela also established a program for Caribbean and Central American nations dubbed PetroCaribe that provides oil at low interest rates (see " Energy Issues ," below). Chávez launched the Bolivarian Alliance of the Americas (ALBA, originally established as the Bolivarian Alternative for the Americas) in 2004 with the goals of promoting regional integration, socioeconomic reform, and poverty alleviation. In addition to Venezuela, this 11-member group includes Bolivia, Cuba, Ecuador, and Nicaragua as well as the Caribbean island nations of Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines. Many observers maintain, however, that ALBA began to lose its vigor as oil prices fluctuated and Venezuela's domestic economic problems began to mount. In the aftermath of President Chávez's death in 2013, some observers questioned the future of the Venezuelan-founded alliance. ALBA countries, however, have continued to express support for the Maduro government and in 2015 expressed their opposition to U.S. sanctions imposed against some Venezuelan officials. Beyond ALBA, Venezuela played an important role in the December 2011 establishment of the Community of Latin American and Caribbean States (CELAC), a hemispheric forum that excludes the United States and Canada with the goal of boosting regional integration and cooperation. Venezuela was also one of the founding members of the Union of South American Nations (UNASUR), established in 2008, and in 2012, it became a member of the Brazil-led Common Market of the South (Mercosur). While Venezuela remains an active member of the Organization of American States, on September 10, 2013, it withdrew from the Inter-American Court of Human Rights one year after it had denounced the American Convention on Human Rights. (See " OAS Efforts on Venezuela ," above, regarding the political and economic situation in Venezuela.) Venezuela had difficult relations with Colombia during the administration of Colombian President Álvaro Uribe (2002-2010), with tensions over Venezuela's support for leftist Colombian guerrilla groups. Relations improved markedly, however, under the Colombian government of President Juan Manuel Santos (2010-present). President Chávez played an important role in encouraging the Revolutionary Armed Forces of Colombia (FARC) to participate in peace talks with the Colombian government to resolve the conflict. In summer 2015, tensions with Colombia increased again when the Maduro government resorted to closing the border to crack down on smuggling into Colombia, which President Maduro blamed on shortages in Venezuela, but pedestrian border crossings reopened during summer 2016, ironically, to help ameliorate shortages in Venezuela. Under President Maduro, there has been significant continuity in Venezuela's foreign policy, especially since Maduro had served as foreign minister under President Chávez from 2006 until early 2013. Some analysts, however, contend that the activism of Venezuela's foreign policy under Maduro has diminished because of the country's ailing economy as well as its internal political challenges. Nevertheless, President Maduro has maintained close relations with like-minded leftist populist governments in Latin America and continued engagement with other Latin American countries through such organizations as CELAC and UNASUR. Changes of government in Argentina and Brazil, however, are altering South American regional dynamics, which is leading to increased scrutiny of Venezuela. In Argentina, President Mauricio Macri, inaugurated in December 2015, has been critical of the Maduro government's repression of its political opponents. In a sign of concern that it lost another ally in the region, the Maduro government strongly criticized the suspension of Brazilian President Dilma Rousseff pending an impeachment trial, labeling the act a parliamentary coup. Tensions over Venezuela also erupted within Mercosur (Common Market of the South), founded in 1991 by Argentina, Brazil, Paraguay, and Uruguay, to promote economic integration in South America. Venezuela became a full member of the group in 2012 and was supposed to assume the organization's rotating presidency in July. In late July 2016, Venezuela claimed that it had assumed the rotating presidency from Uruguay, but the automatic transfer of the presidency was opposed by Argentina, Brazil, and Paraguay, with Uruguay initially supporting Venezuela. In September, all four founding members of Mercosur announced that Mercosur would give Venezuela until December 1, 2016, to meet its membership requirements (an estimated 300 rules and regulations) or be suspended as a full member. Venezuela ultimately was suspended from Mercosur in December 2016, and the rotating presidency of the group passed to Argentina. Close relations with China and Russia have continued as Venezuela seeks continued trade and investment. From 2007 through 2015, China provided some $65 billion in financing to Venezuela. The money typically has been for funding infrastructure and other economic development projects, and Venezuela reportedly has committed significant amounts of oil to repay its loans to China. One high-profile infrastructure funded by China, a high-speed railway project, was abandoned in 2015. While China officially has expressed support for continued engagement with Venezuela, reportedly concern in China about the economic crisis in Venezuela is leading to a more cautious approach toward Venezuela. Venezuela was elected to the U.N. Security Council (UNSC) for a two-year term in October 2014. Venezuela had received the endorsement of Latin American and Caribbean nations for the seat at a United Nations meeting in July 2014. There are 10 non-permanent members of the UNSC, with 5 elected each year for two-year terms. While the Latin America and Caribbean region does not formally have designated seats, by tradition two nations from the region are selected by the United Nations General Assembly to sit on the UNSC representing the Group of Latin American and Caribbean States in the U.N. After a contentious race for a UNSC between Venezuela and Guatemala in 2006 (with Panama ultimately successful as a compromise candidate), Latin American nations reportedly agreed privately to alternate representation in a particular order, with Venezuela's turn in 2014. Some observers criticized the decision of Latin American and Caribbean nations to support Venezuela for the seat because of its human rights record, while others maintained that Venezuela's election would not alter the balance of voting and that its influence in the region overall is waning. While the United States traditionally has had close relations with Venezuela, a major oil supplier to the United States, there was significant friction with the Chávez government, and this has continued under the Maduro government. Over the course of Chávez's tenure, U.S. officials expressed concerns about human rights, Venezuela's military arms purchases (largely from Russia), its relations with Cuba and Iran, its efforts to export its brand of populism to other Latin American countries, and the use of Venezuelan territory by Colombian guerrilla and paramilitary forces. Declining Venezuelan cooperation on antidrug and antiterrorism efforts also became a major U.S. concern. Since 2005, Venezuela has been designated annually (by President George W. Bush and President Obama, as part of the annual narcotics certification process) as a country that has failed to adhere to its international antidrug obligations. Since 2006, the Department of State has made an annual determination that Venezuela has not been cooperating fully with U.S. antiterrorism efforts, and as a result has imposed an embargo on arms sales to Venezuela. The United States has also imposed financial sanctions on several current or former Venezuelan officials for providing support to the FARC; on several Venezuelan companies for their support of Iran; and on several Venezuelan individuals and companies for their support of the radical Lebanon-based Islamic Shiite group Hezbollah. Tensions in bilateral relations with Venezuela under the Bush Administration turned especially sour in the aftermath of President Chávez's brief ouster from power in April 2002. Venezuela alleged U.S. involvement in the ouster, while U.S. officials repeatedly rejected charges that the United States was involved. Nevertheless, strong U.S. statements critical of Chávez upon his return to power set the stages for continued deterioration in U.S.-Venezuelan relations and strong rhetoric on both sides. In 2006, however, the tenor of U.S. political rhetoric changed in the second half of the year with U.S. officials refraining from responding to Venezuela's rhetorical attacks. By 2008, U.S. policy had shifted to focusing on advancing a positive U.S. agenda for the hemisphere and refraining from getting into any unneeded conflicts or spats with President Chávez. Nevertheless, U.S. relations took a turn for the worse in September 2008 when Venezuela expelled the U.S. Ambassador in solidarity with Bolivian President Evo Morales, who had expelled the U.S. Ambassador in La Paz after accusing him of fomenting unrest; the United States responded in kind with the expulsion of the Venezuelan Ambassador to the United States. Under the Obama Administration, tensions in bilateral relations have continued. In 2009, hopes were raised for an improvement in relations when the United States and Venezuela announced that they had agreed to the return of respective ambassadors, but such an improvement did not occur. U.S. officials continued to speak out about the deterioration of democratic institutions and threats to freedom of expression in Venezuela and other concerns. In 2010, the Chávez government revoked an agreement for U.S. Ambassador-designate Larry Palmer to be posted to Venezuela, and the United States responded by revoking the visa of the Venezuelan Ambassador. In 2012, the Department of State declared as persona non grata the Venezuelan Consul General in Miami, after a television documentary had alleged that the official had, when based in Mexico, participated in discussions with Mexican students in plotting potential cyberattacks against the United States. Despite the poor state of bilateral relations, the State Department maintained on numerous occasions that the United States was open to constructive engagement with Venezuela, focusing on such areas as antidrug and counterterrorism efforts. There was some hope in June 2013, in the aftermath of Chávez's death, that bilateral relations were on track to improve after a meeting between Secretary of State John Kerry and Venezuela's Foreign Minister, but efforts to improve relations were thwarted by the Maduro government's strong rhetoric and actions. In September 2013, Venezuela expelled three U.S. diplomats in Venezuela, including the U.S. Embassy's chargé d'affaires, and accused the diplomats of attempting to destabilize the country. The State Department, which rejected the allegations of any type of conspiracy to destabilize the Venezuelan government, responded by expelling three Venezuelan diplomats in early October, including the chargé d'affaires of the Venezuelan Embassy in Washington, DC. In 2014, the year began with positive statements from both countries about resuming a positive relationship, but Venezuela's heavy-handed crackdown on protesters beginning in February 2014 led to strong U.S. criticism of the Venezuelan government and calls for the government to engage in dialogue with the opposition. Venezuela expelled three U.S. diplomats in February, accusing them of organizing and financing the protests, while the United States rejected the allegations and responded by expelling three Venezuelan diplomats. U.S. officials pressed for Latin American countries to help resolve the situation in Venezuela, and encouraged UNASUR's efforts to initiate talks between the government and the opposition in April. While the UNASUR-sponsored dialogue was going on, the Obama Administration maintained that the imposition of sanctions would be counterproductive but noted that sanctions would be considered as an option if there was no movement. Subsequently, in July 2014, in the aftermath of the failure of the UNASUR dialogue, the State Department imposed restrictions on travel to the United States by a number of Venezuelan government officials responsible for, or complicit in, human rights abuses. In February 2015, the State Department announced additional visa restrictions on Venezuelan government officials believed to be responsible for human rights abuses and on persons considered to be involved in acts of public corruption. U.S. officials noted that as of early March 2015, the State Department had imposed visa restrictions on a total of 56 Venezuelans on both human rights and public corruption grounds. U.S.-Venezuelan relations continued to spiral downward in the aftermath of the announcement of the additional visa restrictions in February 2015. The Venezuelan government once again alleged that the United States was involved in coup plotting and destabilization. In response, the State Department issued a public response calling the allegations "baseless and false" and stating that "the United States does not support political transitions by non-constitutional means." On February 28, President Maduro announced that his government would limit the number of U.S. diplomats working in the country. On March 2, he called for the U.S. Embassy to come up with a plan within 15 days to reduce staff to 17 from about 100 to match the number of Venezuelans at their Embassy in Washington, DC. The State Department, which responded to the request via diplomatic channels, maintained that Venezuela dramatically understated the number of Venezuelan diplomats in the United States because, in addition to their embassy, they have eight consulates. In March 2015, President Obama issued Executive Order (EO) 13692 implementing the Venezuela Defense of Human Rights and Civil Society Act of 2014 ( P.L. 113-278 ) that was enacted in December 2014 (see text box above) and going beyond the requirements of that law. (The Department of the Treasury issued regulations ( 31 C . F . R . Part 591 ) implementing P.L. 113-278 and EO 13692 in July 2015.) The EO authorizes targeted sanctions (asset blocking and visa restrictions) against those involved in the following: actions or policies that undermine democratic processes or institutions; significant acts of violence or conduct that constitute a serious abuse or violation of human rights, including against persons involved in antigovernment protests in Venezuela in or since February 2014 (noted in P.L. 113-278 ); actions that prohibit, limit, or penalize the exercise of freedom of expression or peaceful assembly (noted in P.L. 113-278 ); or public corruption by senior officials within the government of Venezuela. The EO also authorizes targeted sanctions against any person determined to be a current or former leader of any entity that has, or whose members have, engaged in any of activity described above, or to be a current or former official of the government of Venezuela. In an annex to the EO, President Obama froze the assets of seven Venezuelans: six members of Venezuela's security forces (Antonio José Benavides Torres, Gustavo Enrique González López, Justo José Noguera Pietri, Manuel Eduardo Pérez Urdaneta, Manuel Gregorio Bernal Martínez, and Miguel Alcides Vivas Landino) and one prosecutor (Katherine Nayarith Haringhton), who charged opposition leaders Ledezma and Corina Machado with conspiracy in politically motivated cases. When President Obama issued the EO on Venezuela, he followed the method set forth in U.S. sanctions laws—the International Emergency Economic Powers Act and the National Emergencies Act. Using the standard required language, the President declared a "national emergency" to deal with the "unusual and extraordinary threat to the national security and foreign policy of the United States." As expected, President Maduro lashed out at the United States for the sanctions and warned Venezuela's National Assembly that the United States was poised to attack Venezuela, including a naval blockade. Some analysts maintain that the imposition of the sanctions played into Maduro's narrative of Venezuela once again being bullied by U.S. aggression. The opposition MUD voiced disapproval of the characterization of Venezuela as a threat and the imposition of unilateral sanctions. U.S. officials explained that the EO employed standard sanctions language. They also emphasized that the sanctions do not target the people or the economy of Venezuela and that the United States was using sanctions against those individuals involved in human rights abuses. In the run-up to Venezuela's legislative elections in December 2015, the Obama Administration continued to speak out about the poor human rights situation and efforts by the Venezuelan government to disadvantage the opposition. In August 2015, the State Department expressed concern regarding actions taken by the Venezuela's CNE and Comptroller General banning certain opposition members from holding public office. In September 2015, Secretary of State Kerry spoke out strongly about the conviction of Leopoldo López and called for his release. The Secretary also called on the government of Venezuela to respect the rights of all political prisoners and to guarantee fair and transparent public trials. In November 2015, the State Department condemned the killing of an opposition member, called for the government to protect all candidates, and noted "that campaigns of fear, violence, and intimidation have no place in democracy." Secretary of State Kerry congratulated the people of Venezuela in the aftermath of the legislative elections, maintaining that "Venezuelan voters expressed their overwhelming desire for a change in the direction of their country." The Obama Administration continued to speak out about the poor human rights situation and setback to democracy in Venezuela in 2016. In January 2016, the State Department expressed concern about the Venezuelan government's efforts to interfere with the newly elected National Assembly. In February 2016, the State Department expressed concern about Venezuelan government actions "to silence its opponents, which have led to a climate of intimidation and repression," and about actions by the Supreme Court that limited the authority of the National Assembly. The State Department noted that "dozens of leaders from Venezuelan society have been imprisoned for their political beliefs," specifically mentioning Leopoldo López, Caracas mayor Antonio Ledezma (under house arrest), former mayor Daniel Ceballos, and numerous students. The State Department called for dialogue among of branches of government in Venezuela to address the country's social and economic challenges. In March 2016, President Obama renewed the national emergency declared in EO 13692 for another year, a standard procedure with economic sanctions. Venezuela responded by recalling its top diplomat in the United States, the chargé d'affaires at its embassy. In April, the State Department reiterated a call for the release of those imprisoned for their political beliefs, noting that hearings held by the Inter-American Commission on Human Rights "painted a distressing picture of the conditions for prisoners of conscience in Venezuela." Secretary of State Kerry stated in a press interview that the United States was "prepared to engage in a full dialogue" with Venezuela and "prepared to help Venezuela get back on its feet economically," but he also indicated that "we've got to have an executive authority in Venezuela which is ready to respect the people and respect the rule of law." In May 2016, U.S. intelligence officials reportedly briefed several U.S. reporters and said that a crisis was unfolding in Venezuela as the country faces shortages of basic goods, a looming foreign debt payment, high levels of crime, and political intransigence. The officials reportedly predicted that President Maduro was not likely to finish his term. Potential scenarios, according to the press reports, include Maduro's removal through a recall referendum; his ouster by some members of his government, with help from some segment of the military; or a move by the military, potentially led by lower-ranking officers and enlisted members. The intelligence officials reportedly appeared to acknowledge that the United States has little leverage in the situation, maintaining that U.S. pressure alone is not going to resolve the issue. The Obama Administration has stressed regional efforts to help resolve the situation. In response to violence perpetrated against opposition members of Venezuela's National Assembly on June 9, 2016, the State Department condemned "acts of violence designed to intimidate citizens exercising their democratic rights." It also called on "Venezuelan government security forces to maintain order in a manner consistent with international law and international commitments regarding human and civil rights." Speaking at the OAS General Assembly meeting in the Dominican Republic on June 14, 2016, Secretary of State John Kerry expressed support for the OAS Secretary General's invocation of Article 20 of the Inter-American Democratic Charter, maintaining that it would open a much-needed discussion within the Permanent Council on the situation in Venezuela. He vowed that the United States stands ready to participate in the discussion and, along with OAS partners, to help facilitate the national dialogue that will address the political, economic, social, and humanitarian dimensions of Venezuela's crisis. Kerry also asserted that the United States joins with Secretary General Almagro and others in the international community in calling on the Venezuelan government "to release political prisoners, to respect freedom of expression and assembly, to alleviate shortages of food and medicine, and to honor its own constitutional mechanisms, including a fair and timely recall referendum that is part of that constitutional process." During a press briefing at the OAS meeting, Secretary of State Kerry maintained that the United States at this juncture was not looking to suspend Venezuela from the OAS, saying that such an action would not be constructive. According to Kerry, "I think it's more constructive to have the dialogue than to isolate at this point." A two-thirds majority vote is needed to suspend an OAS member's participation, which appears to be a high hurdle in the case of Venezuela considering the country's past support from Caribbean nations that are beneficiaries of PetroCaribe. Secretary Kerry also met with his Venezuelan counterpart, Foreign Minister Delcy Rodriguez, on the sidelines of the OAS General Assembly meeting. According to the State Department, Secretary Kerry expressed support for the dialogue facilitated by the former leaders of Spain, the Dominican Republic, and Panama, and he also underscored the importance of upholding democratic and constitutional processes. The two officials reportedly had constructive discussions about the challenges facing Venezuela and agreed "to continue discussions on establishing a positive path forward in the bilateral relationship." (Because of tensions in bilateral relations, the United States and Venezuela have not had ambassadors in place since 2010. ) After the meeting, Kerry announced that as the next step in moving bilateral relations forward, State Department Under Secretary for Political Affairs Tom Shannon would visit Venezuela for talks. Shannon visited Venezuela from June 21 to June 23, 2016, meeting with government officials, including President Maduro, as well as leaders of the National Assembly opposition and members of the opposition and civil society. The visit, however, did not appear to have any discernible effect on improving bilateral relations. At a June 22, 2016, hearing of the House Western Hemisphere Affairs Subcommittee, U.S. officials from the Departments of State, Treasury, and Commerce testified on the situation in Venezuela and U.S. policy. Deputy Assistant Secretary of State for Democracy, Human Rights, and Labor Michael Kozak stated that "the United States has consistently called for all sides within Venezuela to peacefully respect democratic norms and values, while U.S. officials at all levels have pressed the government of Venezuela to live up to its international human rights commitments and respect Venezuela's own constitution." Acting Deputy Assistant Secretary of State for Western Hemisphere Affairs Annie Pforzheimer expressed deep U.S. concern about the worsening political, economic, and social situation in Venezuela, reiterated U.S. calls for the Venezuelan government to release political prisoners and the need for dialogue in Venezuela, and stressed the importance of the region working together to address the erosion of democratic institutions and respect for human rights. She said that, "given rising social and political tensions, it is urgent that the recall effort advance without delay." In terms of sanctions, Deputy Assistant Secretary Pforzheimer noted that the State Department has taken steps to impose "visa restrictions on more than 60 individuals believed to be responsible for or complicit in undermining democratic governance, including corruption, and human rights abuses." Acting Director of the Treasury Department's Office of Foreign Assets Control (OFAC) John Smith noted that President Obama had ordered asset-blocking sanctions against seven Venezuelan officials in 2015. Smith maintained that targeted sanctions against individuals demonstrates that the United States is working to see democracy and human rights protected and preserved in Venezuela but also shows that the United States has no desire to target the Venezuelan people nor their government as a whole or to exacerbate the poor economic situation. As noted above, the United States joined with 14 other OAS members in a statement issued on June 15, 2016, expressing support for dialogue, respect for the separation of powers, and respect for the rule of law and democratic institutions and calling for the timely implementation of constitutional mechanisms. At the June 23, 2016, OAS Permanent Council meeting on Venezuela, Michael Fitzpatrick, then-U.S. interim permanent representative to the OAS, asserted that the Secretary General's report on Venezuela provides a factual and legal basis for the Permanent Council to analyze and decide whether there has been an "unconstitutional alteration of the constitutional regime that seriously impairs the democratic order" and, if so, what additional steps might help to foster democratic strengthening and national reconciliation in Venezuela. He maintained that pursing an Article 20 remedy is not premised on the exhaustion of other diplomatic initiatives and cautioned that although dialogue is important, it cannot be "an excuse to delay action." He reiterated that the United States joins with the Secretary General in calling for the Venezuelan government to release all political prisoners, respect freedom of expression and assembly, and honor its own constitutional mechanisms, including a fair and timely recall referendum. On August 11, 2016, the United States again joined with 14 other OAS members in a statement urging dialogue as soon as possible and calling for the remaining steps of the presidential recall referendum to be "pursued clearly, concretely, and without delay." In September 2016, after Venezuela's CNE issued a timeline for the presidential recall referendum indicating that the process might not be completed until 2017, the State Department released a statement of concern, maintaining that the CNE's decision, along with "continuing media restrictions and other actions to weaken the authority of the National Assembly, deprive Venezuelan citizens the opportunity to shape the course of their country." The State Department maintained that the CNE's unexplained delays in announcing the next phase of the recall process, its decisions to establish a very limited number of polling stations for the October 26-28 signature collection, to distribute those polling stations in a partisan manner, and to impose an irregular state-by-state requirement for those signatures are all part of a package of actions that reinforce U.S. concerns about the impartiality of the process. The State Department reiterated its call for the Venezuelan executive branch "to engage in a serious dialogue with both the opposition and Venezuelans from across the political spectrum." Secretary of State Kerry met with President Maduro in Cartagena, Colombia, on September 26, 2016, on the margins of a ceremony commemorating the signing of a peace agreement between the Colombian government and the FARC. According to the State Department, Kerry discussed U.S. concerns "about the economic and political challenges that are affecting millions of Venezuelans," and "he urged President Maduro to work constructively with opposition leaders to address these challenges." Kerry also stressed U.S. "support for democratic solutions through dialogue and compromise" and agreed to continue bilateral discussion begun in recent months. Under Secretary of State Shannon traveled again to Venezuela from October 31, 2016, to November 2, 2016, to demonstrate support for the Vatican-facilitated dialogue. Shannon characterized the new dialogue as a continuation of the effort led by the three former presidents that was begun again when the Vatican agreed to join the mediation effort. He emphasized the importance of the Vatican's role in the dialogue. According to Shannon, the dialogue "represents the best opportunity" for "a peaceful way out of a political impasse—and it's worthy of our support and it's worthy of the support of the international community." Human rights organizations and U.S. officials have expressed concerns for more than a decade about the deterioration of democratic institutions and threats to freedom of speech and press in Venezuela. According to Human Rights Watch, Chávez's presidency was "characterized by a dramatic concentration of power and open disregard for basic human rights guarantees." The human rights group maintains that in the aftermath of his short-lived ouster from power in 2002, "Chávez and his followers seized control of the Supreme Court and undercut the ability of journalists, human rights defenders, and other Venezuelans to exercise fundamental rights." By Chávez's second full term in office (2007-2012), Human Rights Watch maintains that "the concentration of power and erosion of human rights protections had given the government free reign to intimidate, censor, and prosecute Venezuelans who criticized the president or thwarted his political agenda." Under the Maduro government, the human rights situation has continued to deteriorate. As described above, the government cracked down severely on protests in 2014, leading to more than 3,000 detentions and 43 people killed. In its 2015 human rights report, the State Department states that Venezuela's principal human rights abuses during the year included use of the judiciary to intimidate and prosecute government critics; indiscriminate police action against civilians leading to widespread arbitrary detentions and unlawful killings; and government actions to impede freedom of expression and freedom of the press. In April 2016, Human Rights Watch and the Venezuelan human rights group PROVEA released a report documenting the Venezuelan government's crackdown since mid-2015 against low-income and immigrant communities with the stated purpose of combatting criminal gangs, which have contributed to high rates of violence in the country. The report alleged that security forces have committed serious human rights abuses during those raids, including extrajudicial killings, arbitrary detentions, forced evictions, the destruction of homes, and the arbitrary deportation of Colombian nationals. In July 2106, Human Rights Watch issued a report documenting 21 cases of people detained since May 2016 by the Bolivarian National Intelligence Service (SEBIN) and National Guard on allegations that these people were planning, were fomenting, or had participated in violent antigovernment actions; most of the 21 detainees allege that they were tortured or otherwise abused while in custody. The report also maintains that the Venezuelan government allegedly fired dozens of workers in retaliation for supporting the recall referendum. The Venezuelan human rights group Foro Penal Ven e zolano lists 96 political prisoners as of January 20, 2017, with some cases dating back to 2003 but the majority detained since 2014. The list includes Leopoldo López, imprisoned since February 2014 and sentenced to almost 14 years in September 2015 (he lost an appeal in August 2016); Mayor Daniel Ceballos of San Cristóbal, imprisoned in March 2014, moved to house arrest in August 2015, and returned to prison in August 2016; and metropolitan Caracas Mayor Antonio Ledezma, arrested and imprisoned in February 2015 and moved to house arrest in April 2015. Several political prisoners were released toward the end of 2016, including former governor of Zulia state and former presidential candidate Manuel Rosales, who was detained in October 2015 after returning from exile, and dual Venezuelan-U.S. citizen Francisco Márquez, who was arrested in June 2016 as he was traveling to assist in a signature-validation process for the presidential recall referendum. U.S. officials have expressed concern about imprisoned U.S. citizen Joshua Holt, who was arrested in June 2016 on suspicion of weapon charges after traveling to Venezuela to marry a woman he met online. Table 1 , below, provides links to current reporting on the human rights situation in Venezuela by several human rights groups and the U.S. Department of State. In a prominent human rights case that captured worldwide attention, Judge María Lourdes Afiuni was imprisoned on charges of corruption in December 2009 after she ordered the release of a businessman who had been imprisoned without trial on charges of corruption. Afiuni reportedly was held in deplorable conditions and received inadequate health treatment until she was released from prison and placed under house arrest in February 2011. She subsequently said that she had been raped in prison and had an abortion after becoming pregnant. International human rights groups continued to call for the charges to be dropped and the United Nations Working Group on Arbitrary Detention asked Venezuela to release Afiuni from house arrest. In June 2013, a Venezuelan court ordered Afiuni to be freed—although, according to the State Department's human rights report, she is prohibited from leaving the country, talking to the media, or using social media. Afiuni was cited in a Senate resolution introduced in September 2015, S.Res. 262 (Ayotte), that called for the release of 20 female prisoners around the world. Threats to Freedom of Expression. The Venezuelan government has taken actions over the past decade that have undermined the right to free expression. While vibrant political debate in Venezuela is still reflected in some print media and radio stations, the government has discriminated against media that offer views of political opponents. It has used laws and regulations regarding libel and media content as well as legal harassment and physical intimidation that, according to human rights groups, have effectively limited freedom of speech and the press. According to Human Rights Watch, fear of government reprisal has made self-censorship a serious problem. Under President Chávez, the Venezuelan government expanded state-owned media, including radio and television stations, newspapers, and websites, in order to counter what it viewed as imbalance in the media environment. In 2012, the Committee to Protect Journalists issued a special report documenting the Chávez government's attacks on private media and its establishment of a large state media that disseminates government propaganda and often is used to launch smear campaigns against critics. With regard to television broadcasting, the government of Venezuela targeted two prominent stations—RCTV and Globovisión —that had been strongly critical of the government and its policies. RCTV. In 2007, the government closed RCTV, sparking protests and worldwide condemnation. The government maintained that it did not renew the station's broadcast license because of the station's actions in support of the 2002 coup that temporarily removed Chávez from power. The 2007 closure shut down RCTV's general broadcast station available nationwide, but allowed RCTV to operate with a more limited cable station known as RCTV-Internacional . In 2010, however, the Venezuelan government took the cable station off the air. In 2015, the Inter-American Court of Human Rights criticized the government's refusal to grant a broadcasting license to RCTV and ordered the government to reinstate the license. Venezuela's Supreme Court ruled that the court's action was nonbinding. Globovisión . In 2009, the Venezuelan government targeted Globovisión , a Caracas-area television news station that was often critical of the government in a combative style. In March 2010, the president of Globovisión , Guillermo Zuloaga, was arrested for making remarks deemed offensive to President Chávez. After strong domestic and international criticism, Zuloaga was released, but in June 2010, he fled the country after another arrest warrant. Mounting fines and harassment by the government ultimately led Globovisión 's owners to sell the station in 2013. The station immediately took a new editorial line and promised "impartial coverage." A number of high-profile journalists and shows critical of the government were taken off the air, leading media rights observers to lament the loss of independent critical television media in the country. In the aftermath of Venezuela's December 2015 legislative elections, however, CPJ maintained that Globovisión had dropped its pro-government stance, reportedly covering the National Assembly, interviewing both opposition and pro-government supporters, and conducting more in-depth reporting on such issues as food shortages, inflation, and allegations of government mismanagement. In March 2016, human rights organizations condemned the four-year prison sentence of Venezuelan newspaper editor David Natera Febres, who was convicted for criminal defamation, and maintained that the conviction would have significant negative effects on press freedom and investigative journalism. Natera Febres was the editor of the Correo del Caroní in the southeastern state of Bolívar, which had been covering alleged corruption involving a state-owned company. Trafficking in Persons. Another human rights issue in U.S. relations with Venezuela has been concerns about Venezuela's efforts to combat trafficking in persons. For 2012 and 2013, the State Department placed Venezuela on its Tier 2 Watch List in its annual mandated report on trafficking in persons pursuant to the Trafficking Victims Protection Act (TVPA, P.L. 106-386 ). A country on the Tier 2 Watch List may only remain on it for two consecutive years unless its government has a written plan to bring itself into compliance with the minimum standards to combat trafficking in persons. Venezuela does not have such a written plan, and as a result, the State Department downgraded the country to Tier 3 in its annual Trafficking in Persons Report for 2014, 2015, and 2016. Countries on Tier 3 are those whose governments do not fully comply with the TVPA's minimum standards and are not making significant efforts to do so. According to the 2016 State Department report, Venezuela is a source, transit, and destination country for men, women, and children subjected to sex trafficking and forced labor. The report noted that the Venezuelan government released minimal information on its anti-trafficking efforts. Authorities investigated at least one sex trafficking cased and indicted at least on trafficker but reported no prosecutions or convictions. U.S. Funding to Support Democracy and Human Rights. For more than a decade, the United States has provided democracy-related assistance to Venezuela through the U.S. Agency for International Development (USAID) and the National Endowment for Democracy (NED). From 2002 through 2010, USAID supported democracy projects in Venezuela through its Office of Transition Initiatives (OTI) to provide assistance to monitor democratic stability and strengthen the county's democratic institutions. More than 600 small-grant and technical assistance activities were funded by OTI from 2002 through 2010. The objectives of the assistance, according to USAID, were to enhance access to objective information and peaceful debate on key issues, and to promote citizen participation and democratic leadership. At the end of 2010, USAID's support for such activities for Venezuela was transferred from OTI to USAID's Latin America and Caribbean Bureau. In recent years, U.S. democracy assistance to Venezuela implemented by USAID amounted to $5 million in FY2011, $6 million in FY2012, $5.8 million in FY2013, and $4.3 million in each of FY2014 and FY2015, provided through the Economic Support Fund (ESF) foreign aid funding account. For FY2016, the Administration requested $5.5 million, but Congress appropriated $6.5 million (as noted in the explanatory state to the FY2016 omnibus measure, P.L. 114-113 ). For FY2017, the Administration requested $5.5 million in ESF to "defend democratic practices, institutions, and values that support human rights, freedom of information, and Venezuelan civic engagement." According to the request, the assistance "will support diverse civil society actors who promote constitutionally-mandated democratic checks and balances." In terms of congressional action, the House Appropriations Committee's report to the FY2017 foreign operations appropriations measure, H.Rept. 114-693 to H.R. 5912 , would have provided $8 million for democracy and human rights programs in Venezuela. The report to the Senate Appropriations Committee's version of the bill, S.Rept. 114-290 to S. 3117 , would have fully funded the Administration's request but noted that additional funds could be made available if further programmatic opportunities in Venezuela arise. As noted above, the 114 th Congress did not complete action on FY2017 appropriation, but in December 2016, it approved a continuing resolution providing ( P.L. 114-254 ) FY2017 funding for most programs at the FY2016 level, minus an across-the-board reduction of almost 0.2%, through April 28, 2017. NED has funded democracy projects in Venezuela since 1992. U.S. funding for NED is provided in the annual State Department and Foreign Operations appropriation measure. Generally, funds for Venezuela have not been earmarked in annual appropriations measures that provide funding for the NED. According to information on NED's website, its funding for Venezuela for FY2015 amounted to $1.9 million and included 43 projects. Venezuela had proven reserves of 300 billion barrels of oil in 2016, the largest in the world, according to the Oil and Gas Journal . This was up from previously reported figures of 211 billion barrels in proven reserves in 2012, and 99.4 billion barrels in 2009. The increase resulted from including the extra-heavy oil in Venezuela's Orinoco belt region. Venezuela's proven natural gas reserves were estimated to be 198 trillion cubic feet (the second largest in the hemisphere after the United States). Most of Venezuela's proven natural gas reserves are associated gas linked to its oil production. Moreover, the petroleum industry consumes a significant portion of Venezuela's natural gas production to aid crude oil extraction. As a result, Venezuela actually imports gas to meets its demand. Under President Chávez, the Venezuelan government asserted greater control over the country's oil reserves. By 2006, it had completed the conversion of its 32 operating agreements with foreign oil companies to joint ventures, with the Venezuelan government now holding a majority share of between 60% and 80% in the ventures. In 2007, the government completed the conversion of four strategic associations involving extra-heavy oil Orinoco River Basin projects. Subsequent bilateral agreements for the development of additional Orinoco Belt resources have involved Venezuelan state oil company PdVSA partnering with a number of foreign oil companies, including U.S.-based Chevron. Despite its vast oil reserves, production in Venezuela has declined from its peaks in the late 1990s and early 2000s. According to the U.S. Energy Information Administration (EIA), Venezuela's total oil production fell from 3.46 million barrels per day (b/d) in 2000 to 2.58 million b/d in 2003. The decline was caused by a 2002-2003 strike when PdVSA fired some 18,000 workers. According to the EIA, PdVSA still has not recovered from the loss of human capital, which has continued to affect the company's overall production levels and contributed to its lack of reinvestment because PdVSA is diverting revenues to social investment. The EIA reported that in 2014, Venezuela's total oil production was 2.69 million b/d. Venezuela remains a major oil supplier to the United States, even though the amounts and share of U.S. oil imports from the country have declined due to Venezuela's decreased production, the overall decline in U.S. oil imports worldwide, and the increased amount of U.S. oil imports from Canada. In 2015, Venezuela provided the United States with about 830,000 b/d of total crude oil and products, accounting for about 8.8% of such U.S. imports worldwide and making Venezuela the third-largest foreign supplier of crude oil and products to the United States in 2015 (after Canada and Saudi Arabia). This figure is down from 2005, when the United States imported 1.53 million b/d of total crude oil and products from Venezuela, accounting for 11% of such U.S. imports. According to U.S. trade statistics, Venezuela's oil exports to the United States were valued at $14.8 billion in 2015, accounting for 95% of Venezuela's exports to the United States. This figure is down from $29 billion in 2014, reflecting the steep decline in the price of oil. U.S. Gulf coast refineries are specifically designed to handle heavy Venezuelan crude oil. PdVSA owns CITGO, which operates three crude oil refineries in the United States (Louisiana, Texas, and Illinois); 48 petroleum product terminals; and three pipelines. CITGO also jointly owns another six pipelines. While Venezuela exports a significant portion of its petroleum products to the United States, the country also has diversified its oil export markets. One of the fastest-growing destinations for Venezuelan crude oil exports has been Asia, especially India and China. In 2014, the EIA estimates that Venezuela exported more than 300,000 b/d of oil to India and more than 218,000 b/d of oil to China. For more than a decade, the Venezuelan government has provided oil under favorable terms to Cuba and other Caribbean Basin nations. Venezuela signed an agreement with Cuba in 2000 that provided the island nation with some 90,000 barrels of oil per day. In payment for the oil, Cuba has provided extensive services to Venezuela, including thousands of medical personnel and advisers in a number of areas. A cutoff of Venezuelan oil to Cuba would have significant economic consequences for Cuba. Since 2005, Venezuela has provided oil to other Caribbean Basin nations with preferential financing terms in a program known as PetroCaribe. Most Caribbean nations are members of PetroCaribe, with the exception of Barbados and Trinidad and Tobago, and several Central American countries participate in the program. In recent years, analysts have expressed concern about the increasing debt owed to Venezuela by Caribbean nations, many of which were already saddled with high levels of public debt. In 2015, however, the Dominican Republic and Jamaica reached agreements to pay back their PetroCaribe debt to Venezuela at a steep discount. Venezuela provided the debt relief because it was facing declining international reserves and needed the cash. Some reports indicate that the amount of Venezuelan oil provided to PetroCaribe beneficiaries already has declined as oil prices have dropped and U.S. shale oil and gas development has led to increased U.S. energy exports to PetroCaribe countries. In 2014, Venezuelan oil exports to PetroCaribe countries reportedly fell 12% from the previous year to almost 99,000 b/d per day. Until recently, a domestic subsidy made gasoline virtually free for Venezuelans, a practice that has been costly for the Venezuelan government, reportedly some $12 billion annually. The subsidy increased consumption, spurred smuggling operations at the border with Colombia, and reduced government revenue that could be used toward building infrastructure or providing services. In February 2016, however, the government raised the price of gas for the first time since 1994, to approximately 15 cents a gallon (still the cheapest gasoline in the world). President Maduro said that the price increase would save some $2 billion a year, which would be applied to importing more food. Raising the price of gasoline, however, is sensitive politically in Venezuela; in 1989, austerity measures that included gas price increases led to riots in which several hundred people were killed. Because of Venezuela's extensive 1,370-mile border with Colombia, it is a major transit route for cocaine destined for the United States. Venezuela suspended its cooperation with the U.S. Drug Enforcement Administration (DEA) in 2005 because it alleged that DEA agents were spying on the Venezuelan government. U.S. officials maintained that the charges were baseless. From 2005 to 2008, President Bush annually made a determination that Venezuela, pursuant to international drug control certification procedures set forth in the Foreign Relations Authorization Act, FY2003 ( P.L. 107-228 ), had failed demonstrably to adhere to its obligations under international narcotics agreements. At the same time, the President waived economic sanctions that would have curtailed U.S. assistance for democracy programs in Venezuela. President Obama has taken the same action annually, most recently in September 2016, marking the 12 th consecutive year for Venezuela's designation as a country not adhering to its antidrug obligations. The most recent memorandum of justification for the determination noted that "although the Venezuelan government, as a matter of government policy, neither encourages nor facilitates illicit drug production or distribution, and although it is not involved in laundering the proceeds of the sale of illicit drugs, public corruption is a major problem in Venezuela that makes it easier for drug-trafficking organizations to operate." Moreover, according to the justification, "the Venezuelan government has not taken action against government and military officials with known links to FARC members involved in drug trafficking." The United States and Venezuela were on the verge of signing an antidrug cooperation agreement in 2006 that had been negotiated in 2005 (an addendum to the 1978 Bilateral Counternarcotics Memorandum of Understanding, or MOU), but Venezuelan approval of the agreement has still not taken place. The issue has been repeatedly raised by the United States as a way to improve bilateral antidrug cooperation. In 2014, Aruban authorities detained retired General Hugo Carvajal at the request of the U.S. government on drug trafficking charges, but he was ultimately released after Dutch officials ruled that Carvajal was protected by diplomatic immunity. As noted below, the Department of the Treasury sanctioned Carvajal in 2008 for involvement in drug trafficking. Before his detainment in Aruba, Carvajal had been named as Venezuela's consul general but had not yet been confirmed. U.S. officials expressed deep disappointment with the decision of the government of the Netherlands to release Carvajal and concern about credible reports that the Venezuelan government threatened Aruba and the Netherlands to gain Carvajal's releases. Press reports alleged that Venezuela threatened Aruba economically and militarily. After Carvajal's arrest, federal indictments against him in Miami and New York were unsealed, detailing allegations of his involvement in cocaine trafficking with Colombian narcotics traffickers. The State Department reported in its 2016 International Narcotics Control Strategy Report (INCSR) that Venezuela was one of the preferred trafficking routes for the transit of illicit drugs out of South America, especially cocaine, because of the country's porous western border with Colombia, weak judicial system, sporadic international counternarcotics cooperation, and permissive and corrupt environment. The report notes the following: Cocaine is trafficked via aerial, terrestrial, and maritime routes, with most drug flights departing from Venezuelan states bordering Colombia and maritime trafficking that includes the use of large cargo containers, fishing vessels, and "go-fast" boats. The vast majority of drugs transiting Venezuela in 2015 were destined for the Eastern Caribbean, Central America, United States, West Africa, and Europe. Colombian drug trafficking organizations—including multiple criminal bands (BACRIM), the Revolutionary Armed Forces of Colombia (FARC), and the National Liberation Army (ELN)—facilitate drug transshipment through Venezuela. Media reports indicate that Mexican drug-trafficking organizations, including the Sinaloa Cartel and Los Zetas, operate in the country. "Venezuelan authorities do not effectively prosecute drug traffickers, in part due to political corruption," but Venezuelan law enforcement officers also "lack the equipment, training, and resources required to impede the operations of major drug trafficking organizations." Counternarcotics cooperation between the United States and Venezuela has been limited and inconsistent since 2005. Venezuela and the United States continue to use a 1991 bilateral maritime agreement. In 2015, Venezuela cooperated with the U.S. Coast Guard in 10 maritime drug interdictions cases (up from 2 cases in 2014). As noted in prior years, "the United States remains committed to cooperating with Venezuela to counter the flow of cocaine and other illegal drugs transiting Venezuelan territory." Cooperation could be advanced by Venezuela's signing of the outstanding addendum to the 1978 Bilateral Counternarcotics MOU that was negotiated in 2005. As in past years, the report concluded that "enhanced cooperation could increase the exchange of information and ultimately lead to more drug-related arrests, help dismantle organized criminal networks, aid in the prosecution of criminals engaged in narcotics trafficking, and stem the flow of illicit drugs transiting Venezuela." On August 1, 2016, the U.S. Federal Court for the Eastern District of New York unsealed an indictment from January 2015 against two Venezuelans for cocaine trafficking to the United States. The indictment alleged that General Néstor Luis Reverol Torres, the former general director of Venezuela's National Anti-Narcotics Office (ONA) and former commander of Venezuela's National Guard, and Edylberto José Molina Molina, the former sub-director of ONA and currently Venezuela's military attaché to Germany, participated in drug trafficking activities from 2008 through 2010, when they were top ONA officials. President Maduro responded by appointing General Reverol as Minister of Interior and Justice in charge of the country's police forces. In November 2016, two nephews of Venezuelan First Lady Cilia Flores—Franqui Francisco Flores de Freitas and Efrain Antonio Campo Flores—were convicted in U.S. federal court in New York for conspiring to transport cocaine into the United States. The two nephews had been arrested in Haiti in November 2015 and brought to the United States to face the drug trafficking charges. President Maduro asserted that the conviction was an attempt by the United States to weaken his government. The trial and conviction reportedly shed light on the role of Venezuelan government and military officials in drug trafficking. U.S. officials have expressed concerns over the past decade about Venezuela's lack of cooperation on antiterrorism efforts, President Hugo Chávez's past sympathetic statements for Colombian terrorist groups, and Venezuela's relations with Iran. Since 2006, the Secretary of State has made an annual determination that Venezuela has not been "cooperating fully with United States antiterrorism efforts" pursuant to Section 40A of the Arms Export Control Act (AECA). The most recent determination was made in May 2016. As a result, the United States imposed an arms embargo on Venezuela in 2006, which ended all U.S. commercial arms sales and retransfers to Venezuela. (Other countries currently on the Section 40A list include Eritrea, Iran, North Korea, and Syria.) The United States also has imposed various sanctions on Venezuelan individuals and companies for supporting the FARC, Iran, and Hezbollah. The State Department's Country Reports on Terrorism 201 5 , issued in June 2016 (hereinafter referred to as the "terrorism report"), stated that "there were credible reports that Venezuela maintained a permissive environment that allowed for support of activities that benefited known terrorist groups." The report stated that individuals linked to the FARC, ELN, and Basque Fatherland and Liberty (ETA; a Basque terrorist organization), as well as Hezbollah supporters and sympathizers, were present in Venezuela. Colombian Terrorist Groups. Two leftist Colombian guerrilla groups—the FARC and ELN—have long been reported to have a presence in Venezuelan territory. In 2010, then-Colombian president Álvaro Uribe publicly accused the Venezuelan government of harboring members of the FARC and ELN in its territory. The government presented evidence at the OAS of FARC training camps in Venezuela. In response, Venezuela suspended diplomatic relations in July 2010. However, less than three weeks later, new Colombian President Juan Manuel Santos met with President Chávez, and the two leaders agreed to reestablish diplomatic relations and improve military patrols along their common border. Venezuelan-Colombian relations on border security improved after that agreement but flared up again in summer 2015, when President Maduro resorted to closing the border with Colombia. Maduro said that the closure was aimed at cracking down on smuggling, which he blamed on shortages in Venezuela, and at "paramilitaries" from Venezuela intent on destabilizing his government. As noted above, border crossings were reopened in summer 2016. The United States has imposed sanctions on several current and former Venezuelan government and military officials for providing support to the FARC with weapons and drug trafficking (see " Counternarcotics Issues ," above). As noted in the State Department's 2015 terrorism report, the FARC and ELN use Venezuela for incursions into Colombia and use Venezuelan territory for safe haven. Venezuela has captured and returned to Colombia several members of the FARC and ELN. Colombian peace talks with the FARC officially began in 2012 and culminated with the signing of a peace agreement in 2016. Both President Chávez and President Maduro were highly supportive of the peace talks. (For more, see CRS Report R42982, Colombia's Peace Process Through 2016 .) Relations with Iran. For a number of years, policymakers have been concerned about Iran's growing interest and activities in Latin America, particularly its relations with Venezuela, although there has been disagreement over the extent and significance of Iran's relations with the region. The 112 th Congress approved the Countering Iran in the Western Hemisphere Act of 2012 ( P.L. 112-220 ) in December 2012 that required the Secretary of State to conduct an assessment within 180 days of the "threats posed to the United States by Iran's growing presence and activity in the Western Hemisphere" and a strategy to address these threats. In June 2013, the State Department submitted its required report to Congress pursuant to P.L. 112-220 . The State Department maintained in the unclassified portion of the report that "Iranian influence in Latin America and the Caribbean is waning" because of U.S. diplomatic outreach, the strengthening of allies' capacity to disrupt illicit Iranian activity, international nonproliferation efforts, a strong sanctions policy, and Iran's poor management of its foreign relations. The report also stated that U.S., European Union, and U.N. Security Council sanctions had limited the economic relationship between the region and Iran. The personal relationship between Chávez and Iranian President Mahmoud Ahmadinejad (2005-2013) drove the strengthening of bilateral ties. In that period, Venezuela and Iran signed numerous accords, including agreements on construction projects (such as for housing, agricultural and food plants, and corn processing plants), car and tractor factories, energy initiatives (including petrochemicals and oil exploration in the Orinoco region of Venezuela), banking programs, and nanotechnology. A major rationale for this increased focus on Latin America was Iran's efforts to overcome its international isolation and to circumvent international sanctions. Venezuela also played a key role in the development of Iran's expanding relations with other countries in the region. This outreach has largely focused on leftist governments—Bolivia, Ecuador, and Nicaragua—that share the goal of reducing U.S. influence in the region. While Iran promised significant assistance and investment to these countries, observers maintain that there is little evidence that such promises have been fulfilled. In the aftermath of the departure of Ahmadinejad from office and the death of Chávez in 2013, many analysts contend that Iranian relations with the region have diminished. Current Iranian President Hassan Rouhani, who took office in August 2013, campaigned on a platform of reducing Iran's international isolation and has not placed a priority on relations with Latin America. Venezuela remains in the midst of a multifaceted political and economic crisis. The popularity of President Maduro has plummeted—less than 20% of Venezuelans viewed him positively in late 2016. Yet the Maduro government has used the Supreme Court to cling to power by thwarting the authority of the opposition-dominated National Assembly. The opposition focused much of 2016 on efforts to recall President Maduro through a national referendum, but the government resorted to delaying tactics to impede and slow the process. The CNE announced in October that it was suspending the process indefinitely. If such a recall had been approved before January 10, 2017, the next step would have been for a new presidential election to be held within 30 days. If a recall were to be held later this year, Maduro's appointed vice president would serve as president for the remainder of Maduro's term, through 2018. Beginning in late October 2016, efforts were focused on a government-opposition dialogue that was facilitated by the Vatican, but a round of talks planned for early December 2016 was suspended. Some opposition leaders and activists are skeptical of the dialogue and view it as a way for the government to stall on taking any concrete actions and remain in power. The Venezuelan government's popularity is undoubtedly affected by the profound economic and social crisis that Venezuela is experiencing. The rapid decline in the price of oil has been a major factor prompting the economic crisis, but economic mismanagement has also played a significant role. Many observers contend that the road to economic recovery will take several years, no matter who is in power. Some analysts believe that the risk of a social explosion is rising because of food shortages, which have led to looting and riots, and a growing humanitarian crisis. The Obama Administration spoke out strongly against the undemocratic practices of the Maduro government and called for the release of those individuals imprisoned for their political beliefs, including Leopoldo López. It imposed visa restrictions on more than 60 current and former Venezuelan officials responsible for or complicit in human rights violations and imposed asset-blocking sanctions on 7 Venezuelans for human rights violations. It also supported the efforts of OAS Secretary General Almagro invoking the Inter-American Democratic Charter and urging efforts to promote the normalization of the situation in Venezuela and restore democratic institutions. U.S. relations with Venezuela under the Maduro government are likely to remain strained if the Venezuelan government does not take action to improve the human rights, political, and humanitarian situation and to engage in legitimate dialogue leading to concrete changes. The political and economic crisis in Venezuela will likely continue to sustain congressional interest in the country during the 115 th Congress, including an examination of potential options for U.S. policy under the Trump Administration. Appendix A. Legislation Initiatives 113 th Congress P.L. 113-76 ( H.R. 3547 ) : Consolidated Appropriations Act, 2014 . Signed into law January 17, 2014. The Administration requested $5 million in Economic Support Funds for Venezuela democracy and human rights projects, and ultimately an estimated $4.3 million in appropriations is being provided. P.L. 113-235 ( H.R. 83 ) : Consolidated and Further Continuing Appropriations Act, 2015 . Signed into law December 16, 2014. Division J provides funding for democracy and human rights programs in Venezuela. The Administration requested $5 million in Economic Support Funds to support such programs, although the funding measure did not specify how much to be appropriated. P.L. 113-278 ( S. 2142 ) : Venezuela Defense of Human Rights and Civil Society Act of 2014 . Introduced March 13, 2014; referred to the Committee on Foreign Relations. The Senate Foreign Relations considered and ordered the bill reported, amended, on May 20, 2014, by voice vote, although Senators Corker and Udall asked to be recorded as voting no ( S.Rept. 113-175 ). Senate passed, amended, by voice vote December 8, 2014; House passed by voice vote December 10, 2014. President signed into law December 18, 2014. As signed into law: Section 5 (a) imposes sanctions (asset blocking and visa restrictions) against any foreign person, including a current or former Venezuelan government official or a person acting on behalf of that government, that the President determines (1) has perpetrated or is responsible for ordering, controlling, or otherwise directing, significant acts of violence or serious human rights abuses in Venezuela associated with antigovernment protests that began on February 4, 2014; (2) has ordered or otherwise directed the arrest or prosecution of a person because of the person's exercise of freedom of expression or assembly; or (3) has materially assisted, sponsored, or provided significant financial, material, or technological support for, or goods or services in support of, the actions just described in (1) and (2). Section 5(c) provides a presidential waiver of the sanctions if the President determines that it is in the national interests of the United States and, when or before the waiver takes effect, submits a notice and justification to four congressional committees. Section 5(e) terminates the requirement to impose sanctions on December 31, 2016. Section 6 requires a report to Congress from the Broadcasting Board of Governors including an evaluation of the obstacles to the Venezuelan people obtaining accurate, objective, and comprehensive news and information about domestic and international affairs; an assessment of current efforts relating to broadcasting, information distribution, and circumvention technology distribution in Venezuela by the U.S. government and otherwise; and a strategy for expanding such efforts in Venezuela, including recommendations for additional measures to expand upon current efforts. S.Res. 213 (Menendez) . Introduced August 1, 2013; marked up and reported favorably by the Senate Committee on Foreign Relations September 30, 2013; Senate approved and amended October 4, 2013, by unanimous consent. Expresses support for the free and peaceful exercise of representative democracy in Venezuela, condemns violence and intimidation against the country's political opposition, and calls for dialogue between all political actors in the country. H.Res. 488 (Ros-Lehtinen) . Introduced and referred to the House Committee on Foreign Affairs on February 25, 2014; marked up by the Subcommittee on the Western Hemisphere February 28, 2014. House approved (393-1) March 4, 2014. As passed by the House, the resolution (1) supports the people of Venezuela in their pursuit of freedom of expression and freedom of assembly to promote democratic principles in Venezuela; (2) deplores acts that constitute a disregard for the rule of law, the inexcusable violence perpetrated against opposition leaders and protestors, and the growing efforts to use politically motivated criminal charges to intimidate the country political opposition; (3) urges responsible nations throughout the international community to stand in solidarity with the people of Venezuela and to actively encourage a process of dialogue between the Venezuelan government and the political opposition to end the violence; (4) urges the Department of State to work in concert with other countries in the Americas to take meaningful steps to ensure that basic fundamental freedoms in Venezuela are in accordance with the Inter-American Democratic Charter and to strengthen the ability of the OAS to respond to the erosion of democratic norms and institutions in Venezuela; (5) urges the OAS and its Inter-American Commission on Human Rights to utilize its good offices and all mechanisms at its disposal to seek the most effective way to expeditiously end the violence in Venezuela in accordance with the Inter-American Democratic Charter; and (6) supports efforts by international and multilateral organizations to urge the Venezuelan government to adopt measures to guarantee the rights to life, humane treatment, and security, and the political freedoms of assembly, association, and expression to all of the people of Venezuela. S.Res. 365 (Menendez) . Introduced February 27, 2014; reported by the Committee on Foreign Relations March 11, 2014, without a written report. Senate approved by unanimous consent March 12, 2014. As approved, the resolution (1) reaffirms U.S. support for the people of Venezuela in their pursuit of the free exercise of representative democracy as guaranteed by the Venezuelan constitution and defined under the Inter-American Democratic Charter of the OAS; (2) deplores the use of excessive and unlawful force against peaceful protestors and the use of violence and politically motivated criminal charges to intimidate the country's political opposition; (3) calls on the Venezuelan government to disarm the " colectivos " and any other government-affiliated or supported militias or vigilante groups; (4) calls on the Venezuela government to allow an impartial, third-party investigation into the excessive and unlawful force against peaceful demonstrations on multiple occasions since February 4, 2014; (5) urges the President to immediately impose targeted sanctions, including visa bans and asset freezes, against individuals planning, facilitating, or perpetrating gross human rights violations against peaceful demonstrators, journalists, and other members of civil society in Venezuela; and (6) calls for the U.S. government to work with other countries in the hemisphere to actively encourage a process of dialogue between the Venezuelan government and the political opposition through the good offices of the OAS so that the voices of all Venezuelans can be taken into account through their country's constitutional institutions as well as free and fair elections. 114 th Congress P.L. 114-113 ( H.R. 2029 ): Consolidated Appropriations Act, 2016 . Initially, H.R. 2029 was the FY2016 military construction appropriations measure, but in December 2015 it became the vehicle for the FY2016 omnibus appropriations measure. The President signed it into law on December 18, 2015. The Administration had requested $5.5 million for Venezuela democracy and human rights funding, whereas the explanatory statement to the omnibus bill provided $6.5 million. P.L. 114-194 ( S. 2845 ) : Venezuela Defense of Human Rights and Civil Society Extension Act of 2016 . Introduced and reported by the Senate Committee on Foreign Relations on April 28, 2016, without written report. Senate passed, amended, by unanimous consent April 29, 2016. House passed by unanimous consent July 6, 2016. President signed into law July 15, 2016. The law extended the termination of sanctions under the Venezuela Defense of Human Rights and Civil Society Act of 2014 through December 31, 2019. P.L. 114-254 ( H.R. 2028 ): Further Continuing and Security Assistance Appropriations Act, 2017. In April 2015, the bill was originally introduced as the Energy and Water Development and Related Agency Appropriations Act, 2016, but in December 2016, the measure became the legislative vehicle for a FY2017 continuing resolution funding most programs, including foreign aid appropriations, at the FY2016 level minus an across-the-board reduction of almost 0.2%, through April 28, 2017. P.L. 114-323 ( S. 1635 ) : Department of State Authorities Act, Fiscal Year 2017. Originally introduced and reported by the Senate Foreign Relations Committee on June 18, 2015, without written report, as the Department of State Operations Authorization and Embassy Security Act, Fiscal Year 2016. Senate passed, amended, by unanimous consent on April 29, 2016. As approved, Section 118 would have required a report to Congress on political freedom in Venezuela assessing U.S. democracy support for Venezuela and listing sanctioned Venezuelan government and security officials involved in the use of force against antigovernment protests. House passed, amended, on December 5, 2016, without the Venezuela report provision. Senate agreed to the House amendment on December 10, 2016, by Unanimous Consent. Signed into law December 16, 2016. H.Res. 851 (Wasserman Schultz). Introduced September 8, 2016; referred to House Committee on Foreign Affairs. On September 27, 2016, the House discharged the committee from further consideration and then amended and approved the resolution without objection. As passed, the resolution (1) expresses profound concern about widespread shortages of essential medicines and basic food products and urges President Maduro to permit the delivery of humanitarian assistance; (2) calls on the Venezuelan government to release all political prisoners, including U.S. citizens, to provide protections for freedom of expression and assembly, and to respect internationally recognized human rights; (3) supports meaningful efforts toward dialogue that leads to respect for Venezuelan's constitutional mechanisms and resolves the country's political, economic, social, and humanitarian crisis; (4) affirms support for OAS Secretary General Almagro's invocation of Article 20 of the Inter-American Democratic Charter and urges the OAS Permanent Council to undertake a collective assessment of the constitutional and democratic order in Venezuela; (5) expresses great concern over the Venezuelan executive's lack of respect for the principle of separation of powers, its overreliance on emergency decree powers, and its threat to judicial independence; (6) calls on the Venezuelan government and security forces to respect the Venezuelan constitution, including provisions that provide citizens with the right to peacefully purse a fair and timely recall referendum for their president this year; (7) stresses the urgency of strengthening the rule of law and increasing efforts to combat impunity and public corruption in Venezuela; (8) urges the U.S. President to provide full support for OAS efforts in favor of constitutional and democratic solutions to the political impasse and to instruct appropriate federal agencies to hold Venezuelan government officials accountable for violations of U.S. law and abuses of internationally recognized human rights; and (9) urges the U.S. President to continue to stand in solidarity with the Venezuelan people by urging the Maduro government to hold a fair and free recall referendum by the end of 2016; release all political prisoners, including U.S. citizens; adhere to democratic principles; and permit the delivery of emergency food and medicine. H.R. 5912 (Granger)/ S. 3117 (Graham) : State Department, Foreign Operations , and Related Programs Appropriations, 2017 . H.R. 5912 introduced and reported ( H.Rept. 114-693 ) by the House Appropriations Committee July 15, 2016. S. 3117 introduced and reported ( S.Rept. 114-290 ) by the Senate Appropriations Committee on June 29, 2016. The report to the House bill would have provided $8 million for democracy and human rights programs in Venezuela. The report to the Senate version would have fully funded the Administration's request of $5.5 million but noted that additional funds could be made available if further programmatic opportunities in Venezuela arise. The 114 th Congress did not complete action on FY2017 appropriations, but it approved a continuing resolution funding most programs through April 28, 2017. See P.L. 114-254 noted above. S.Res. 262 (Ayotte) . Introduced September 22, 2015; referred to the Committee on Foreign Relations. The resolution would have supported the empowerment of women and urge countries to #FreeThe20, including Judge Maria Lourdes Afiuni Mora of Venezuela. S.Res. 537 (Cardin) . Introduced July 14, 2016; reported, amended, by Committee on Foreign Relations December 7, 2016. As reported, the resolution would have (1) expressed profound concern about widespread shortages of essential medicines and basic food products and urged President Maduro to permit the delivery of humanitarian assistance; (2) called on the Venezuelan government to release all political prisoners, to provide protections for freedom of expression and assembly, and to respect internationally recognized human rights; (3) supported meaningful efforts toward a dialogue that leads to respect for Venezuela's constitutional mechanisms and resolves the country's political, economic, social, and humanitarian crisis; (4) affirmed support for the OAS Secretary General's invocation of Article 20 of the Inter-American Democratic Charter and urged the OAS Permanent Council to undertake a collective assessment of the constitutional and democratic order in Venezuela; (5) called on the Venezuelan government to ensure the neutrality and professionalism of all security forces and respect the Venezuelan people's rights to freedom of expression and assembly; (6) called on the Venezuelan government to halt efforts to undermine the principle of separation of powers, its circumvention of the democratically elected legislature, and its subjugation of judicial independence; (7) stressed the urgency of strengthening the rule of law and increasing efforts to combat impunity and public corruption in Venezuela; and (8) urged the U.S. President to provide full support for OAS efforts in favor of constitutional and democratic solutions to the political impasse and instruct appropriate Federal agencies to hold Venezuelan government officials accountable for violations of U.S. law and abuses of internationally recognized human rights. Appendix B. Links to U.S. Government Reports U.S. Relations with Venezuela, Fact Sheet, State Department Date: August 31, 2016 Full Text : http://www.state.gov/r/pa/ei/bgn/35766.htm Congressional Budget Justificati on for Foreign Operations FY2017 , Annex 3, pp. 489-490 , State Department Date: February 26, 2016 Full Text : http://www.state.gov/documents/organization/252734.pdf Country Reports on Human Rights Practices 2015 , Venezuela , State Department Date: April 13, 2016 Full Text: http://www.state.gov/documents/organization/253261.pdf Country Reports on Terrorism 2015 (Western Hemisphere Overview) , State Department Date: June 2, 2016 Full Text : http://www.state.gov/j/ct/rls/crt/2015/257519.htm Department of State, Venezuela Country Page Link: http://www.state.gov/p/wha/ci/ve/ International Religious Freedom Report for 2015 , Venezuela , State Department Date: August 2016 Full Text: http://www.state.gov/documents/organization/256603.pdf International Narcotics Control Strategy Report 201 6 , Vol. I, State Department Date: March 2016 Full Text: http://www.state.gov/j/inl/rls/nrcrpt/2016/vol1/253323.htm International Narcotics Control Strategy Report 2016 , Vol. II, State Department Date: March 2016 Full Text: http://www.state.gov/j/inl/rls/nrcrpt/2016/vol2/253440.htm Investment Cl imate Statement, 2016 , Venezuela, State Department Date: July 2016 Full Text: http://www.state.gov/e/eb/rls/othr/ics/investmentclimatestatements/index.htm?year=2016&dlid=254565 National Trade Estimate Repor t on Foreign Trade Barriers 2016 , pp. 443-449, Office of the United States Trade Representative Date: March 2016 Full Text: https://ustr.gov/sites/default/files/2016-NTE-Report-FINAL.pdf Tr affick ing in Persons Report 2016 , State Department Date: June 2016 Full Text: http://www.state.gov/j/tip/rls/tiprpt/countries/2016/258891.htm | Although historically the United States had close relations with Venezuela, a major oil supplier, friction in bilateral relations increased under the leftist, populist government of President Hugo Chávez (1999-2013), who died in 2013 after battling cancer. After Chávez's death, Venezuela held presidential elections in which acting President Nicolás Maduro narrowly defeated Henrique Capriles of the opposition Democratic Unity Roundtable (MUD), with the opposition alleging significant irregularities. In 2014, the Maduro government violently suppressed protests and imprisoned a major opposition figure, Leopoldo López, along with others. In December 2015, the MUD initially won a two-thirds supermajority in National Assembly elections, a major defeat for the ruling United Socialist Party of Venezuela (PSUV). The Maduro government subsequently thwarted the legislature's power by preventing three MUD representatives from taking office (denying the opposition a supermajority) and using the Supreme Court to block bills approved by the legislature. For much of 2016, opposition efforts were focused on recalling President Maduro through a national referendum, but the government slowed down the referendum process and suspended it indefinitely in October. After an appeal by Pope Francis, the government and most of the opposition (with the exception of Leopoldo López's Popular Will party) agreed to talks mediated by the Vatican along with the former presidents of the Dominican Republic, Spain, and Panama and the head of the Union of South American Nations. The two sides issued a declaration in November expressing firm commitment to a peaceful, respectful, and constructive coexistence. They also issued a statement that included an agreement to improve the supply of food and medicine and to resolve the situation of the three National Assembly representatives. Some opposition activists strongly criticized the dialogue as a way for the government to avoid taking any real actions, such as releasing all political prisoners. The next round of talks was scheduled for December but was suspended until January 2017, and many observers are skeptical that the dialogue will resume. The rapid decline in the price of oil since 2014 hit Venezuela hard, with a contracting economy (projected -10% in 2016), high inflation (projected 720% at the end of 2016), declining international reserves, and increasing poverty—all exacerbated by the government's economic mismanagement. The situation has increased poverty, with severe shortages of food and medicines and high crime rates. U.S. Policy U.S. policymakers and Members of Congress have had concerns for more than a decade about the deterioration of human rights and democratic conditions in Venezuela and the government's lack of cooperation on antidrug and counterterrorism efforts. After a 2014 government-opposition dialogue failed, the Administration imposed visa restrictions and asset-blocking sanctions on Venezuelan officials involved in human rights abuses. The Obama Administration continued to speak out about the democratic setback and poor human rights situation, called repeatedly for the release of political prisoners, expressed deep concern about the humanitarian situation, and strongly supported dialogue. The Administration also supported the efforts Organization of American States Secretary General Luis Almagro to focus attention on Venezuela's democratic setback. Congressional Action Congress enacted legislation in 2014—the Venezuela Defense of Human Rights and Civil Society Act of 2014 (P.L. 113-278)—to impose targeted sanctions on those responsible for certain human rights abuses (with a termination date of December 2016 for the requirement to impose sanctions). In July 2016, Congress enacted legislation (P.L. 114-194) extending the termination date of the requirement to impose sanctions set forth in P.L. 113-278 through 2019. In September 2016, the House approved H.Res. 851 (Wasserman Schulz), which expressed profound concern about the humanitarian situation, urged the release of political prisoners, and called for the Venezuelan government to hold the recall referendum this year. In the Senate, a similar but not identical resolution, S.Res. 537 (Cardin), was reported, amended, by the Senate Foreign Relations Committee in December 2016. For more than a decade, Congress has appropriated funding for democracy and human rights programs in Venezuela. An estimated $6.5 million is being provided in FY2016, and the Administration requested $5.5 million for FY2017. The House version of the FY2017 foreign operations appropriations bill (H.R. 5912, H.Rept. 114-693) would have provided $8 million, whereas the Senate version (S. 3117, S.Rept. 114-290) would have fully funded the request. The 114th Congress did not complete action on FY2017 appropriations, although it approved a continuing resolution in December 2016 (P.L. 114-254) appropriating foreign aid funding through April 28, 2017, at the FY2016 level, minus an across-the board reduction of almost 0.2%. Note: This report provides background on political and economic developments in Venezuela, U.S. policy, and U.S. legislative action and initiatives from 2013 to 2016 covering the 113th and 114th Congresses. It will not be updated. For additional information, see CRS In Focus IF10230, Venezuela: Political Situation and U.S. Policy Overview. |
China has made clear advances in space capabilities over the past decade. The country has launched over 100 orbital missions since 1970, including a string of 50 consecutive successful Long March rocket launches from 1996 to 2006, after overcoming technical problems with the help of U.S. companies in the mid-1990s. China sent humans into space in 2003 and 2005, and orbited a lunar explorer in October 2007 that is paving the way for additional moon exploration. China is now a world leader in yearly space launches, yet remains notably less active than Russia or the United States, as shown in Table 1 . China's space program was initially institutionalized under the People's Liberation Army (PLA). In a series of government reforms in the 1990s, the China National Space Administration (CNSA)—roughly equivalent to the U.S. National Aeronautics and Space Administration (NASA)—was created under the civilian Commission of Science, Technology and Industry for National Defense. The PLA continues to play a role in China's overall space activities, managing both manned civilian and military efforts, while CNSA handles unmanned scientific projects and international collaboration. China's space activities and intentions are not transparent; the dual-use nature of most space technology compounds the uncertainties of interpreting Chinese decision making. China's Space White Paper of 2006 states that Chinese space activities are subservient to domestic social and economic development goals, which include national security. China has been a strong proponent of an arms control regime in space and has argued for the peaceful use of outer space in the United Nations' Conference on Disarmament and at the Prevention of an Arms Race in Outer Space dialogue. Some claim that China takes this stand in order to prevent further progress by the United States in space while allowing it to covertly catch up. China's spending on space is growing, although details are often not available. The CNSA reports to have a budget about one-tenth the size of NASA's. Western experts estimate Chinese space spending at $1.4-2.2 billion per year, on par with France and Japan. Chinese budget opacity, the dual-use nature of most space technology, and currency conversion difficulties make direct comparisons uncertain. China collaborates with other countries on civilian space activities, but it is not considered a key member of the international space community. Currently, China collaborates with Russia, the European Union (EU), Brazil, Canada, Nigeria, and others. The Russian partnership is probably the most active and has benefitted China's manned space effort significantly. A China-EU collaborative framework on space has been in place since 1998. This includes cooperation on the EU-led Galileo satellite positioning system, but progress on this has been slow and sometimes controversial. Competition in space also exists among China, India, Japan, and South Korea. Although there may be military implications to this competition, each country seems more focused on building national pride by displaying technology prowess. China's program to launch humans into space began earnestly in 1992 and is designated as "Project 921." China has apparently chosen the more expensive route of sending humans into space, over machines, for the wider attention it attracts both domestically and internationally. A manned program builds greater national prestige—an increasingly important political benefit in China—and by drawing international attention to the country's technical capabilities. China has made steady, although unremarkable progress in its human space schedule. Compared to the U.S. Apollo and Soviet Soyez programs of the 1960s and 1970s, China's Shenzhou effort is far more modest. Project 921 is divided into three phases. Phase I included the first five Shenzhou flights, culminating in China's first human spaceflight on October 15, 2003. Phase II began with Shenzhou 6, which flew two Chinese taikonauts on a five-day mission starting on October 12, 2005. Shenzhou 7 was a three-day mission starting on September 24, 2008, and built experience with extra-vehicular activities. Shenzhou 8, 9, and 10 are scheduled for 2009-2010 and will attempt to establish a space laboratory module with docking capability. Shenzhou 9 will test docking procedures with the module delivered by Shenzhou 8, and Shenzhou 10 will carry a crew to the module. Phase III is less well developed, but includes establishing a permanent space station. China claims that it has not set a date for development of the station. The Shenzhou modules have been designed to dock at the International Space Station if that becomes politically feasible in the future. On October 24, 2007, China successfully launched Chang-e 1, the country's first lunar probe. Approximately 14 days later, the probe entered final orbit around the moon. China became the fourth country to orbit a satellite around the moon; Japan became the third only weeks before China. Orbiting 200 kilometers (124 miles) above the surface, China's explorer uses stereo cameras and X-ray spectrometers to map three dimensional images of the lunar surface. One goal of the mission is to begin mapping potential lunar resources that could some day be used by Chinese industry. China plans to send Chang-e 2, equipped with a robotic lunar rover, to the moon around 2012. Approximately five years later, Chang-e 3 is scheduled to send another rover to collect samples that will be returned to Earth. After this third phase, an effort to send humans to the moon will commence, but China denies that it has a timetable for this effort. China also has plans to explore Mars and the outer solar system and is discussing collaboration with Russia to do so. These plans are more vague and uncertain than Program 921 and the lunar exploration. China and the United States have a limited history of both civilian and military collaboration in space. China has publicly pushed for more dialogue and joint activities. Mistrust of Chinese space intentions grew in the mid-1990s when U.S. companies were accused of transferring potentially sensitive military information to China. Since then, cooperation has stagnated, often roiled by larger economic, political, and security frictions in the U.S.-China relationship. In September 2006, NASA Administrator Michael Griffin visited his Chinese counterpart, Laiyan Sun, in China. He couched the visit as a "get acquainted" opportunity rather than the start of any serious cooperation in order to keep expectations low. No follow-on activities were announced after the trip, although the Chinese issued a four-point proposal for ongoing dialogue between the two organizations that stressed annual exchanges and confidence building measures. On January 11, 2007, China conducted its first successful anti-satellite (ASAT) weapons test, destroying one of its inactive weather satellites. No advance notice of the test was given, nor has China yet explained convincingly the intentions of the test. The international community condemned the test as an irresponsible act because it polluted that orbital slot with thousands of pieces of debris that will threaten the space assets of more than two dozen countries, including China's, for years. Understanding the nuances of China's intent in conducting the test is important, but remains open to interpretation. How was the decision made to conduct a test that would contradict Beijing's publicly-held position on the peaceful use of outer space, and that would almost certainly incur international condemnation? Some speculate that the United States' unilateral positions encouraged China to conduct the test to demonstrate that it could not be ignored. In particular, the U.S. National Space Policy issued in September 2006 declares that the United States would "deny, if necessary, adversaries the use of space capabilities hostile to U.S. national interests." Given China's apparent commitment to space, the growing U.S. dependence on space for security and military use, and Chinese concerns over Taiwan, the ASAT test may have been a demonstration of strategic Chinese deterrence. Others saw a more nefarious display of China's space capabilities, and a sign that China has more ambitious objectives in space. Still others speculate that the engineers running China's ASAT program simply wanted to verify the technology that they had spent decades developing and significantly underestimated the international outrage the test provoked. The Chinese ASAT test seemed to derail any movement to build on the meeting between NASA and CNSA. Some believe that China's ASAT test will continue to dampen momentum that might have been building for the two countries to expand cooperation, while others argue that it is a pressing reason to boost dialogue. Some of the most important challenges of expanding cooperation in space with China include: Inadvertent technology transfer. From this perspective, increased space cooperation with China should be avoided until Chinese intentions are clearer. Joint space activities could lead to more rapid (dual-use) technology transfer to China, and in a worst-case scenario, result in a "space Pearl Harbor," as postulated by a congressionally appointed commission led by Donald Rumsfeld in 2001. Moral compromise. China is widely criticized for its record on human rights and non-democratic governance. Any collaboration that improves the standing of authoritarian Chinese leaders might thus be viewed as unacceptable. Ineffectiveness. Some argue that increased collaboration will not produce tangible benefits for the United States, especially without a new bilateral political climate. The potential benefits of expanded cooperation and dialogue with China include: Improved transparency. Regular meetings could help the two nations understand each others' intentions more clearly. Currently, there is mutual uncertainty and mistrust over space goals, resulting in the need for worst-case planning. Offsetting the need for China's unilateral development. Collaborating with China—instead of isolating it—may keep the country dependent on U.S. technology rather than forcing it to develop technologies alone. This can give the United States leverage in other areas of the relationship. Cost savings. China now has the economic standing to support joint space cooperation. Cost-sharing of joint projects could help NASA achieve its challenging work load in the near future. Some have argued that U.S. space commerce has suffered from the attempt to isolate China while doing little to keep sensitive technology out of China. Information and data sharing. Confidence building measures (CBMs) such as information exchange on debris management, environmental and meteorological conditions, and navigation, are widely considered an effective first step in building trust in a sensitive relationship. NASA has done some of this with CNSA in the past, but more is possible. Space policy dialogue. Another area of potential exchange could begin with "strategic communication," an attempt for each side to more accurately understand the other's views, concerns, and intentions. Dialogue on "rules of the road," a "code of conduct," or even select military issues could be included. Joint activities. This type of cooperation is more complex and would probably require strong political commitments and confidence building measures in advance. Bi-and multi-lateral partnerships on the international space station, lunar missions, environmental observation, or solar system exploration are potential options. A joint U.S.-Soviet space docking exercise in 1975 achieved important technical and political breakthroughs during the Cold War. | China has a determined, yet still modest, program of civilian space activities planned for the next decade. The potential for U.S.-China cooperation in space—an issue of interest to Congress—has become more controversial since the January 2007 Chinese anti-satellite test. The test reinforced concerns about Chinese intentions in outer space and jeopardized space assets of more than two dozen countries by creating a large cloud of orbital space debris. Some argue that Chinese capabilities now threaten U.S. space assets in low earth orbit. Others stress the need to expand dialogue with China. This report outlines recent activities and future plans in China's civilian space sector. It also discusses benefits and trade-offs of possible U.S.-China collaboration in space, as well as several options to improve space relations, including information exchange, policy dialogue, and joint activities. For more information, see CRS Report RS21641, China's Space Program: An Overview, by [author name scrubbed]. |
A victims' rights amendment to the United States Constitution has been introduced in threeessentially identically worded resolutions in the 108th Congress: S.J.Res. 1 , H.J.Res. 48 , and H.J.Res. 10 . (1) TheAmendment is one which the Presidenthas endorsed both in this Congress and the 107th Congress. (2) Comparable provisions different inword if not in spirit were offered in earlier Congresses. (3) This is a brief discussion of the content ofthe Amendment and of some of the issues it raises. (4) Resolved by the Senate and House of Representatives of the United States of America inCongress assembled, (two-thirds of each House concurring therein) , That the following article isproposed as an amendment to the Constitution of the United States, which shall be valid to all intentsand purposes as part of the Constitution when ratified by the legislatures of three-fourths of theseveral States , and which shall take effect on the 180th day after ratification of thisarticle : (5) Article - SECTION 1. The rights of victims of violent crime, being capable of protection without denying the constitutional rights of those accused of victimizing them, are hereby establishedand shall not be denied by any State or the United States and may be restricted only as providedin this article. SECTION 2. A victim of violent crime shall have the right to reasonable and timely notice of any public proceeding involving the crime and of any release or escape of the accused; therights not to be excluded from such public proceeding and reasonably to be heard at publicrelease, plea, sentencing, reprieve, and pardon proceedings; and the right to adjudicativedecisions that duly consider the victim's safety, interest in avoiding unreasonable delay, and justand timely claims to restitution from the offender. These rights shall not be restricted exceptwhen and to the degree dictated by a substantial interest in public safety or the administrationof criminal justice, or by compelling necessity. SECTION 3. Nothing in this article shall be construed to provide grounds for a new trial or to authorize any claim for damages. Only the victim or the victim's lawful representative may assertthe rights established by this article, and no person accused of the crime may obtain any form ofrelief hereunder. SECTION 4. The Congress shall have the power to enforce by appropriate legislation this article. Nothing in this article shall affect the President's authority to grant reprieves or pardons. SECTION 5. This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by the legislatures of three-fourths of the several States within seven yearsfrom the date of its submission to the States by the Congress. This article shall take effect onthe 180th day after the date of its ratification. (6) Proponents of the Amendment have articulated five reasons for passage of the Amendment: a constitutional amendment will balance the scales of justice; a constitutional amendment will fix the patchwork of victims' rights laws; a constitutional amendment will restore rights that existed when the Constitution was written; a constitutional amendment is necessary because state law is insufficient; and a constitutional amendment is necessary because federal statutory law is insufficient, 149 Cong.Rec. S82-4 (daily ed. Jan. 7, 2003). The Need for Greater Balance. "The scales of Justice are imbalanced. The U.S.Constitution, mainly through amendments, grants those accused of crime many constitutional rights,such as a speedy trial, a jury trial, counsel, the right against self-incrimination, the right to be freefrom unreasonable searches and seizures, the right to subpoena witnesses, the right to confrontwitnesses, and the right to due process under law. "The Constitution, however, guarantees no rights tocrime victims. For example, victims have no right to be present, no right to be informed of hearings,no right to be heard at sentencing or at a parole hearing, no right to insist on reasonable conditionsof release to protect the victim, no right to restitution, no right to challenge unending delays in thedisposition of their case, and no right to be told if they might be in danger from release or escape oftheir attacker. This lack of rights for crime victims has caused many victims and their families tosuffer twice, once at the hands of the criminal, and again at the hands of the justice system that failsto protect them. The Crime Victims' Rights Amendment would bring balance to the judicial systemby giving victims of violent crime the rights to be informed, present, and heard at critical stagesthroughout their ordeal," 149 Cong.Rec. S82 (remarks of Sen. Kyl)(daily ed. Jan. 7,2003). (7) The balance argument is hardly new. Close to three quarters of a century ago, the Supreme Court observed that "[t]he law, as we have seen, is sedulous in maintaining for a defendant chargedwith crime whatever forms of procedure are of the essence of an opportunity to defend. . . . Butjustice, though due to the accused, is due to the accuser also. The concept of fairness must not bestrained till it is narrowed to a filament. We are to keep the balance true." (8) The due process clauses and other defendants' rights components of the Constitution supplied the foundation for the defendant-focused jurisprudence of the 1950's and 1960's. It has also servedas one of the early catalysts for the victims' rights movement. A call for greater constitutionalprotection of victims' rights seems a predictable feature of the belief that the criminal justice systemmust involve a greater balance between the rights of victim and those of the defendant. (9) Some might suggest that victims already enjoy equal constitutional rights with the accused. (10) The victim who repels an unlawful assault with excessive force may find himself criminally charged. In that case, he is entitled to exactly the same constitutional rights as his attacker. (11) Moreover, many of the constitutional rights afforded the accused benefit the victim as well. They are designed to ensure that the guilty are convicted and that the innocent are not. The accusedbenefits when the innocent are not convicted; the victim benefits when the guilty are. (12) The more common response to the balance argument, however, has been that the balance argument "represents a fundamental misunderstanding of the nature and purpose of individualconstitutional rights." (13) In the same vein, one ofthe motives critics attribute to victims' rightsadvocates is a rejection of a basic premise of the American criminal justice system. They suggestvictims believe the criminal justice process constitutes an unjustifiable waste of time in a procedurethat should be reduced to identifying and then punishing suspects; they consider "suspect","accused", "defendant", and "guilty" synonymous terms. No process is too quick; no punishmentsufficiently severe; acquittals are an injustice. (14) The Need for Uniformity. "Eighteen states lack state constitutional victims' rights amendments. And the 32 existing state victims' rights amendments differ from each other. Alsovirtually every state has statutory protections for victims, but these vary considerably across thecountry. Only a federal constitutional amendment can ensure a uniform national floor for victims'rights." 149 Cong.Rec. S83 (remarks of Sen. Feinstein)(daily ed. Jan. 7, 2003). (15) Although seldom expressed, the concern is that the presence of many individual standards contributes to the failure of existing provisions. Diversity breeds uncertainty that leads to a failureto comply and a failure to claim. Critics respond that a victims' rights amendment would essentially federalize the state criminal justice process, denying the people of a particular state and their elected officials the right to decidethe range of victim rights and services that should be a part of their state criminal justice systems. (16) Uniformity obviously requires compliance to a single standard imposed by an amendment to the United States Constitution. Some victims' advocates, however, see the Amendment as providinga constitutional minimum beyond which Congress and the states would remain free to establish moreexacting victims' rights, hence the reference to a "uniform national floor." (17) Skeptics may find thatthis does not eliminate the patchwork; it simply changes it. (18) Restoration of Victims' Historic Rights. "It is a little know[n] fact that at the time the Constitution was drafted, it was standard practice for victims-not public prosecutors-to prosecutecriminal cases. Because victims were parties to most criminal cases, they enjoyed the basic rightsto notice, to be present, and be heard. Hence, it is not surprising that the Constitution does notmention victims. "Now, of course, it is extremely rare for a victim toundertake a criminal prosecution. Thus, victims have none of the basic procedural rights they usedto enjoy. Victims should receive some of the modest notice and participation rights they enjoyed atthe time that the Constitution was drafted," 149 Cong.Rec. S83 (remarks of Sen. Feinstein)(daily ed.Jan. 7, 2003). Opponents suggest that the notice and participation rights enjoyed at the time the Constitution was drafted were modest indeed, a far cry from those of the proposal. In its infancy English criminallaw incorporated many of the features of private justice: outlawry, blood feuds, privatecompensation, (19) and trial by battle, (20) to mention a few. Several of these had disappearedbeforecolonization of the New World; others never really took hold here; still others, private criminalprosecutions among them, disappeared over time. Although the laws of the several Americancolonies were not nearly as homogenous regardless of time or place as we may often believe, itseems clear that well before the founding of the Republic criminal prosecutions were almost alwaysconducted by a public official. (21) United StatesAttorneys or their predecessors, United States DistrictAttorneys, have prosecuted federal crimes from the beginning, 1 Stat. 92 (1789). Privateprosecutions were permitted in some states, but even in such places they appear to have beenunusual. (22) Moreover, private prosecution brought with it but a meager portion of the rights today associated with victims' rights. A victim might hire a private prosecutor and might expect noticeof the proceedings and their outcome as well as presentation of his views. Yet there has been nosuggestion that the practice gave the victim an enforceable right to be present or to be heard otherthan through his or her attorney. Inadequacy of State Law Alternatives. "These state [victims' rights] measures have helped protect crime victims; but they are inadequate for two reasons. First, each amendment is different,and not all states have provided protection to victims. . . . Second, statutory and state constitutionalprovisions are always subservient to the federal constitution; so, in cases of conflict, the defendants'rights, which are already in the U.S. Constitution will always prevail." 149 Cong.Rec. S82 (remarksof Sen. Kyl) (daily ed. Jan. 7, 2003). (23) The adequacy of alternatives, now and in the future, lies at the heart of the dispute. Proponents find present law wanting. (24) Opponents findpresent law workable and fear an amendment wouldmake matters worse. (25) The specifics of theproposal provide the specifics for much of the debate. The more robust the amendment, the more civil libertarians and the states are likely to object; themore restrained the amendment, the more victims' rights advocates are likely to question itssufficiency. Inadequacy of Federal Statutory Alternatives. "The leading statutory alternative to the Victims' Rights Amendment would only directly cover certain violent crimes prosecuted in Federal court. Thus, it would slight more than 99 percent of victims of violent crime. We should acknowledge thatFederal statutes have been tried and found wanting. It is time for us to amend the U.S.Constitution. "The Oklahoma City bombing case offers anotherreason why we need a constitutional amendment. This case shows how even the strongest Federalstatute is too weak to protect victims in the face of a defendant's constitutional rights. In that case,two Federal victims' statutes were not enough to give victims of the bombing a clear right to watchthe trial and still testify at the sentencing-even though one of the statutes was passed with thespecific purpose of allowing the victims to do just that," 149 Cong.Rec. S84 (remarks of Sen.Feinstein)(daily ed. Jan. 7, 2003). (26) Existing federal law enjoins federal officials to make "their best efforts" to ensure that crime victims are accorded: (1) The right to be treated with fairness and with respect for the victim's dignity and privacy. (2) The right to be reasonably protected from the accused offender. (3) The right to be notified of court proceedings. (4) The right to be present at all public court proceedings related to the offense, unless thecourt determines that testimony by the victim would be materially affected if the victim heardother testimony at trial. (5) The right to confer with attorney for the Government in the case. (6) The right to restitution. (7) The right to information about the conviction, sentencing, imprisonment, and releaseof the offender. 42 U.S.C. 10606(b). Section 10606, however, "does not create a cause of action or defense in favor of any person arising out of the failure to accord to a victim [these] rights," 42 U.S.C. 10606(c). In other victim related provisions, federal law establishes public safety and the safety of any individual (including victims) as required considerations before bail is granted, 18 U.S.C. 3142(b). It no longer bars victims from federal criminal proceedings simply because they are potentialwitnesses, 18 U.S.C. 3510, but their attendance may bar them from testifying at any subsequentsentencing proceedings as witnesses. (27) It entitlesvictims of federal property crimes and crimes ofviolence to restitution, 18 U.S.C. 3663A, and to present a statement to the court before sentence isimposed, F.R.Crim.P. 32(c)(3)(E). The Amendment is more succinct by design than its predecessors. (28) As a consequence it offersa wider range of interpretative choices. In general terms, it defines the participation of crime victimsin state and federal official proceedings generated by the crimes committed against them. It givesthem qualified notification, attendance, articulation, and consideration rights. Official decisionsmust take victims' safety and their interests in avoiding delay and in restitution into account. Victims have a right to be heard on questions of bail, plea agreements, sentencing, and pardons. They have a right to be informed of, and not excluded from, crime-related public proceedings andto be notified of escapes and releases. Congress enjoys legislative authority to enforce theAmendment, but may restrict victims' rights only in the name of public safety, the administrationof criminal justice, or compelling necessity. The United States Constitution is the supreme law of the land, U.S.Const. Art. VI, cl.2. When it is said that nothing in victims' rights edicts created by statute or state constitution imperilsdefendants' rights under the United States Constitution, that is correct; nothing could. But anamendment to the United States Constitution stands on different footing. It amends the Constitution. Its very purpose is to make constitutional that which would otherwise not have been. (29) It maysubordinate defendants' rights to victims' rights or subordinate victims' to defendants' rights. It maysubordinate either, both, or neither to prosecutorial discretion. It may require any conflicting lawor constitutional precept, state or federal, to yield. Even in the absence of a conflict, it may preemptthe field, sweeping away all laws, ordinances, precedents, and decisions - compatible andincompatible alike - on any matter touching upon the same subject. Whether it does so or to whatextent it does so is a matter of interpretation. That is, what is its intent? What does it say? Whatis its purpose? What does its history tell us? The questions are most perplexing when an apparent conflict exists between state and federal law or among the rights and prerogatives of victims, defendants and prosecutors. The interpretativeprinciples of preemption triggered by an apparent conflict between state and federal law are fairlywell developed. "[P]reemption of state law [may occur] either by express provision, by implication,or by a conflict between federal and state law. And yet, despite the variety of these opportunities forfederal preeminence, [the Court has] never assumed lightly that Congress has derogated stateregulation, but instead [has] addressed claims of preemption with the starting presumption thatCongress does not intend to supplant state law. Indeed, in cases . . . where federal law is said to barstate action in fields of traditional state regulation, [the Court has] worked on the assumption thatthe historic police powers of the states were not to be superseded by the Federal Act unless that wasthe clear and manifest purpose of Congress." (30) Conversely, by virtue of the Supremacy Clause,where the subject matter is one which the Constitution relegates to the federal domain, the vitalityof state law is dependent upon the largess of Congress and the Constitution. (31) A victims' rights amendment to the United States Constitution that relegates the area to the federal domain, confines state authority to that which the amendment permits or allows Congressto permit. Few advocates have explicitly called for a "king-of-the-hill" victims' rights amendment,but the thought seems imbedded in the complaint that existing law lacks uniformity. How else canuniversal symmetry be accomplished but by implementation of a single standard that fills in wherepre-existing law comes up short and shaves off where its generosity exceeds the standard? Yet therecent history of the Amendment and proposals indicate that advocates intended to establish aminimum rather than a uniform standard. (32) Questions of the Amendment's impact on the rights afforded the accused may be even more difficult to discern. The principles of construction called into play in the case of a conflict betweena victims' rights amendment and rights established elsewhere in the Constitution are similar to thoseused to resolve federal-state conflicts. Intent of the drafters is considered paramount, but the courts will make every effort to reconcile apparent conflicts between constitutional provisions. (33) In the case of unavoidable conflict betweenprovisions of equal dignity, the latest in time prevails. (34) If there is an unavoidable conflict betweena right granted by an adopted victims' rights amendment and some other portion of the Constitution,the most recently adopted provision will prevail. As discussed below, proposals in the 106th Congresscame to naught over the issue of defendants' versus victims' rights. (35) Defendants' rights and prosecutors' prerogatives have been the twin Achilles' heels (36) of pastvictims' rights proposals. The challenge has been to strike a balance between the rights of victimsand defendants without impinging on defendants' rights or hamstring law enforcement efforts; todeny defendants' rights trump status without denying the defendants their rights or jeopardizingprosecutorial prerogatives. Contemporary Practices. The victims' rights amendments in a few state constitutions concede that they may not be construed to diminish the rights of the accused. (37) Most rights that the United States Constitutionguarantees the accused are binding on the states (38) and thus beyond limitation by state constitutionalamendment in any event. Past Practices. Until the Amendment in its present form first appeared in the 107th Congress, none of the proposals addressed the resolution of conflicts between the constitutional rights of defendants andthe rights created in the Amendment. During Senate Judiciary Committee consideration of aproposal in the 108th and 106th Congresses, a modification was offered and defeated thatwould haveprovided that, "Nothing in this article shall limit any right of the accused which may be provided bythis Constitution," S.Rept. 108-191 , at 44; S.Rept. 106-254 at 43. Amendment in the 108th Congress. Section 1: The rights of victims of violent crime, being capable of protection without denyingthe constitutional rights of those accused of victimizing them, are hereby established and shallnot be denied by any State or the United States and may be restricted only as provided in thisarticle. Past proposals contained no mention of the rights of the accused. Consistent with the past, this preamble may represent no more than the announcement of an article of faith. If so, in cases ofunavoidable conflict the rights of the victim being later in time would always trump the rights of theaccused. Alternatively, it may limit the rights protected by the Amendment to those that do notintrude upon the rights of the accused, that is, in cases of unavoidable conflict the rights of theaccused would always trump the rights of the victim. Which reading, if either, is correct? TheAmendment's remaining text offers few clues. The style is reminiscent of the Second Amendment, (39) but the similarities are not instructive. The Supreme Court has rarely construed the Second Amendment. Moreover the relationshipbetween preambletory clause and the substance of the section are not the same. The SecondAmendment states that the right to bear arms may not be infringed because a well regulated militiais necessary to the security of a free state. The Amendment states that victims' rights are establishedand may not be denied because they need not conflict with the rights of the accused. The SecondAmendment speaks of a rationale; the Amendment of an assurance of compatibility. The statement of Professor Tribe, who helped draft the Amendment, seems to favor an accused-rights-or-prosecutor's-discretion-trumps-victims-rights solution: "How best to protect thatright [of victims] without compromising either the fundamental rights of the accused or theimportant prerogatives of the prosecution is not always a simple matter, but I think your finalworking draft of April 13, 2002 resolves that problem in a thoughtful and sensitive way . . . That youachieved such conciseness while fully protecting defendant's rights and accommodating thelegitimate concerns that have been voiced about prosecutorial power and presidential authority is nomean feat," 149 Cong.Rec. S85 (daily ed. Jan. 7, 2003)(letter from Laurence H. Tribe to SenatorsDianne Feinstein and Jon Kyl). Victims' rights appear to come in third, if the object was to protectvictims' rights without compromising prosecutorial prerogatives or the rights of the accused. Butthis is the status quo from the perspective of the Amendment's sponsors; it is what the Amendmentseeks to change. It is a construction seemingly at odds with the purpose for the Amendment. On the other hand, hearing witnesses offered explanations echoed in the Committee report under which prosecutorial prerogatives appear to come in a distant third: This preamble, authored by Professor Tribe, establishes two important principles about the rights established in the amendment: First, they are not intendedto deny the constitutional rights of the accused, and second, they do not. The task of balancingrights, in the case of alleged conflict, will fall, as it always does, to the courts, guided by theconstitutional admonition not to deny constitutional rights to either the victim or the accused. SenateHearing V ; House Hearing V at 26 (statement of Steven T. Twist)(emphasis in the original). (40) This may be why the restriction clause in section 2 of the Amendment (41) is said to imposes a lessdemanding standard for law enforcement exceptions than for defendants' rights exceptions. (42) The Amendment creates rights for the victims of violent crime. Its scope turns on the definition of victim, on the definition of violent crime, and on the jurisdiction whose proceedings and decisionsthe Amendment governs. The Amendment's authors apparently contemplate basic coverage ofindividuals and legal entities victimized by any crime that in its nature or the circumstances of itscommission involves the use or threatened use of physical force against the person or property ofanother, S.Rept. 108-191 , at 30-2. In addition, they seem to anticipate that Congress and the statesmay directly expand this basic coverage for the benefit of victims of certain nonviolent crimes andindirectly expand it by the conduct they subsequent decide to outlaw or legalize, id. TheAmendment in section 2 seems to concede continuing legislative authority - at least for Congressand perhaps for the states - to curtail this basic coverage "where and to the degree dictated by asubstantial interest in public safety or the administration of criminal justice, or by compellingnecessity." On its face the Amendment would appear to apply with respect to proceedings involving a crime - federal, state, territorial or tribal; civilian or military - but probably not with respect tojuvenile proceedings under any of those authorities. Contemporary Practices. Who is a Victim. In common parlance, the concept of victim is fairly broad. It encompasses the sympathetic and not so sympathetic victim - the rape victim and the "ripped off" drug dealer; the casualties of gangwarfare, both bystander and participant; the middleman in a pyramid scheme; (43) the defendant whois acquitted or whose conviction is overturned; (44) and the elderly person defrauded the savings of alifetime. The term often contemplates parents and other members of the family of a deceased, incapacitated, or juvenile victim. In the case of property crimes, it may include anyone with aninterest in the property, e.g , an owner, a tenant, a mortgage holder, or an insurer. In a commercialsetting, it embodies those who are economically disadvantaged by a crime even if they suffered nodirect injury to an identifiable property interest. In the case of civil rights violations, hate crimes,and terrorism, any member of the group targeted for intimidation may correctly be counted a victim. In the case of public solicitation for prostitution, public drug trafficking, and other crimes withelements of environmental nuisance, anyone who lives in, does business in, or has occasion to visitany affected geographical area might be listed among the victims. (45) The various "Megan's Law"efforts seem to suggest that at least in the public mind, the concept of victim also may encompasspotential victims under some circumstances. (46) The governmental entities that must bear the cost ofinvestigating and prosecuting crime could legitimately be considered its victims. Finally, the conceptof criminal law is based upon the premise that a criminal act is a transgression against the socialorder, against the commonweal, the body politic; a crime is a wrong committed against all of us. Most state constitutional amendments do not define the classes of crime victims for whom they establish rights. (47) Statutory definitions are diverseand more than a few jurisdictions recognizedifferent definitions for different purposes. The corporate victim of a crime, for example, may beentitled to restitution but not to notice of the release of an offender. (48) Under some victims' rightsstatutes, "victims" may be limited to the victims of felonies or of specific violent crimes. (49) In severalinstances, states have modified their definitions of "victim" to exclude certain classes of victims, e.g. , prisoners, codefendants, and the like. (50) Rights in What System. The question of what constitutes a "crime" for purposes of victims' rights is one of several parts. What type of crimes does it cover? Does the Amendment cover state as well as federalcrimes? Does it cover crimes proscribed by the laws of the District of Columbia, or of Puerto Rico,or of any of the other territories or possessions of the United States? (51) Does the Amendment exemptcertain victims either because of the character of the victim (e.g., corporate entity, criminallyaccused) or the status of the accused (e.g., a juvenile, a Native American, or a member of the armedforces)? In most jurisdictions, conduct that would be considered criminal in an adult is considereddelinquency (not criminal conduct) in a juvenile unless the juvenile is tried as an adult. The statesare divided over whether the victims of acts of juvenile delinquency are entitled to the same levelof rights as the victims of the same misconduct when committed by an adult. (52) Past Proposals. Who is a Victim. The drafters of past victims' rights proposals have opted for one of three alternatives: (1) crimes of violence; (53) (2) felonies and crimes ofviolence; (54) (3) crimes of violence and such othercrimes aswere legislatively designated. (55) The vast majorityhave created rights for the victims of both stateand federal crimes: (56) A victim of a crime of violence, as these terms may be defined by law, shall have the rights to . . . S.J.Res. 3 (106th Cong.) Each individual who is a victim of a crime for which the defendant can be imprisoned for a period longer than one year or any other crime that involves violence shall the rights to . .. H.J.Res. 64 (106th Cong.). Section 3 of some of the older proposals declared that "no person accused of the crime may obtain any form of relief hereunder." This obviously referred to those who victimize, but it mighthave disqualify victims who were also accused of a crime. For example, if both parties to a domesticaltercation were charged, neither might be considered qualified. Alternatively, they might each beconsidered the victim of the other's crime, and thus both be entitled to the Amendment's benefits. The language (" the crime") probably could not be reasonably construed to bar claims by those underindictment or other form of criminal charge for other crimes. Thus, for instance, inmates who arethe victims of criminal assaults while incarcerated would appear to qualify as victims under theproposal. (57) Rights in What System. All but one of the early proposals included juvenile proceedings; (58) some covered militaryprosecutions without reservation; (59) somecontained explicit reference to habeas proceedings; (60) several lacked any explicit reference to the territorial courts; (61) and one applied only to federalproceedings. (62) In the 106th Congress, the proposals reached state, federal, and territorial proceedings; juvenile proceedings; and, to the extent permitted by Congress, military proceedings. In doing so, the SenateJudiciary Committee explained, the proposals endorsed the Justice Department's belief that "therights of victims of juvenile offenders should mirror the rights of victims of adult offenders." (63) Theyalso embodied an exception for military proceedings under the view that "[b]ecause of thecomplicated nature of military justice proceedings, including proceedings held in times of war, theextension of victims' rights to the military was left to Congress. The Committee intends to protectvictims' rights in military justice proceedings while not adversely affecting military operations." (65) The proposal in the 106th Congress stated that: The rights and immunities established by this article shall apply in Federal and State proceedings, including military proceedings to the extent that the Congress may provide bylaw, juvenile justice proceedings, and proceedings in the District of Columbia and anycommonwealth, territory, or possession of the United States. S.J.Res. 3 (106th Cong.);H.J.Res. 64 (106th Cong.). Amendment in the 108th Congress. SECTION 1: The rights of victims of violent crime . . . shall not be denied by any State or the United States and may be restricted only as provided in this article. SECTION 2: A victim of violent crime shall have the right to . . . . Who is a Victim. The Amendment defines neither "victim" nor "violent crime." Nor does it explicitly authorize a legislative definition, although such authority is probably contemplated in Congress' authority toenact appropriate enforcement legislation and perhaps in the reservation for restrictions "dictated bya substantial interest in public safety or the administration of criminal justice, or by compellingnecessity." In the absence of any such implementing statutory illumination, the courts would likelyconstrue the terms in light of the remaining text of the Amendment, the ordinary meaning of thewords, the meaning given the same words elsewhere in the law, implications of Congress' rejectionof proposed alternatives, and explanations within the Amendment's legislative history. Section 3 continues to carry the language found in previous proposals that denies the Amendment's benefits to those accused of the crime. As noted earlier, this would seem disqualifyneither of the participants in a mutual assault nor inmates victimized during their incarceration. The courts may also consider the word "victim" limited by the insistence in Section 3 that onlythe victim or the victim's lawful representative may claim the Amendment's benefits. The conceptof "representative" is rather clearly stated in singular terms, as one who speaks in the interest of thevictim rather than in his own interest; (66) parentsand other relatives of a deceased or child victimmight not themselves be considered victims simply by virtue of the relationship and and as discussedbelow perhaps only one of them could be selected as the victim's representative. (67) The Amendment uses the word "crime" rather than the less inclusive word, favored in many of the earlier proposals and often in existing federal law, "felony." Thus, it seems the Amendmentprotects the rights of victims of violent crimes other than felonies, e.g., misdemeanors. (68) Of course,crimes which are indisputably nonviolent clearly cannot provide the foundation for a claim of rightunder the Amendment, a result which some may find unsatisfactory in some cases. (69) Looking elsewhere in federal law for guidance, the courts might observe that the term "victim" has been assigned definitions which vary according to the context in which they are used, althoughthe existing federal victims' rights statute might be thought to supply the most instructivedescription: i.e ., "'victim' means a person that has suffered direct physical, emotional, or pecuniaryharm as a result of the commission of a crime, including-(A) in the case of a victim that is aninstitutional entity, an authorized representative of the entity; and (B) in the case of a victim who isunder 18 years of age, incompetent, incapacitated, or deceased, one of the following (in order ofpreference): (i) a spouse; (ii) a legal guardian; (iii) a parent; (iv) a child; (v) a sibling; (vi) anotherfamily member; or (vii) another person designated by the court," 42 U.S.C. 10607(e)(2). (70) Of course the definition of "violent crime" plays a large role in determining who may be considered a victim for purposes of the Amendment. The definition from the legal dictionaries isvery narrow: " violent offenses . Crimes characterized by extreme physical force such as murder,forcible rape, and assault and battery by means of a dangerous weapon," Black's Law Dictionary1564 (7th ed. 1999). It is a description drawn perhaps from the Federal Bureau ofInvestigation's Uniform Crime Reports which since 1960's have categorized only murder,nonnegligent manslaughter, forcible rape, robbery, and aggravated assault as"violent crimes." (71) These are crimes against theperson. The list includes neither crimesof violence against property nor those that portend violence. It encompasses neitherarson, nor burglary, nor kidnaping. Elsewhere in federal law, "violent crime" is sometimes thought of as synonymous with a "crime of violence," a concept ordinarily described in more sweeping terms, e.g., "(a) an offense that has as an element of the use, attempted use, or threatened use ofphysical force against the person or property of another, or (b) any other offense thatis a felony and that, by its nature, involves a substantial risk that physical forceagainst the person or property of another may be used in the course of committing theoffense," 18 U.S.C. 16 (emphasis added). Unfortunately, the various definitions of"violent crime" found in federal law are too diverse to yield a single standard. (72) Moreover, many of the earlier proposed victims' rights amendments spoke of "crimes ofviolence as defined by law." The present proposal is the first to speak of "violentcrimes" and does not closely append a "defined by law" reference. The difference mightbe seen as a rejection of the definitions and definitional diversity of the term "crimesof violence" and perhaps of earlier interpretations of the "crimes of violence" phrase. The issue of how the courts will construe the terms "victim" and "violent crime" becomes less problematic if they can be defined legislatively. A witness at the Househearings in the 107th Congress and again in the 108th Congress suggested that theAmendment comes with an implicit understanding that both Congress and statelegislatures have complete latitude to define both "victim" and "violent crime" as longas they do not violate the Amendment: It should be noted that States, and the Federal Government, within their respective jurisdictions, retain authority todefine, in the first instance, conduct that is criminal. The power to define "victim" issimply a corollary of the power to define the elements of criminal offenses and, forState crimes, the power would remain with the StateLegislatures. It is intended that both the word "victim" and the phrase "victim's lawful representative" will be the subject ofstatutory definition by the state legislatures and the Congress, within their respectivejurisdictions. No single rule will govern these definitions, as no single rule governswhat conduct must be criminal. In the absence of a statutory definition the courtswould be free to look to the elements of an offense to determine who the victim is, andto use its power to appoint appropriate lawful representatives, Senate Hearing IV at 181,200; House Hearing IV at 19, 29 (statement of Steven T. Twist, General Counsel, NationalVictims Constitutional Amendment Network); Senate Hearing V ; House Hearing V at 30,48 (statement of Steven T. Twist, General Counsel, National Victims ConstitutionalAmendment Network). The Senate Judiciary Committee's analysis of the Congress' enforcement authority under similar language in an earlier version of the Amendment made the similar point: This provision is similar to existing language found in section 5 of the 14th Amendment to the Constitution. This provisionwill be interpreted in similar fashion to allow Congress to 'enforce' the rights, thatis, to ensure that the rights conveyed by the amendment are in fact respected. At thesame time, consistent with the plain language of the provision, the Federal Governmentand the States will retain their power to implement the amendment. For example, theStates will, subject to Supreme Court review, flesh out the contours of the amendmentby providing definitions of 'victims' of crime and 'crimes of violence,'" S.Rept. 106-254 at 41. Does this mean that either Congress or the states are free to negate the Amendment by definition? May they define victims of violent crimes to include onlythose victims entitled to victims' rights under state law and only to the extent thatstate law permits? May they define victims of violent crimes so narrowly as toextinguish victims' rights under the Amendment? No, asserts the Senate JudiciaryCommittee report on the 108th Congress Amendment. Congress and the states are freeto expand the Amendment's coverage to embrace victims of nonviolent crimes, but theCommittee intends the term "victim of violent crime" to be understood broadly and tobe so interpreted by the courts: The amendment extends broadly to all victims of a "violent crime." The phrase "violent crime" should be considered in the context of an amendment extendingrights to crime victims, not in other possible narrower contexts. The mostanalogous federal definition is Federal Rule of Criminal Procedure 32(f), whichextends a right of allocution to victims of a "crime of violence" and defines thephrase as one that " involved the use or attempted use of physical force against theperson or property of another. * * * (emphasis added). The Committee anticipatesthat the phrase "violent crime" will be defined in these terms of "involving"violence, not a narrower "elements of the offense" approach employed in othersettings. See, e.g., 18 U.S.C. 16. Only this broad construction will serve to protectfully the interests of all those affected by criminal violence. Of course, not all crimes will be "violent" crimes covered by the amendment. For example, the amendment does not confer rights on victims of larceny, fraud,and other similar offenses. At the same time, many States have already extendedrights to victims of such offenses and the amendment in no way restricts suchrights. In other words, the amendment sets a national "floor" for the protectingof victims rights, not any sort of "ceiling," S.Rept. 108-191 , at 31, 32. The Committee's reference to crimes of "physical force against the . . . property of another" as qualifying "violent crimes" seems to support the argument that a victimcovered by the Amendment includes anyone whose property interest might unlawfullybe made the subject of the use of physical force, i.e ., victims may include not onlyindividuals but any legal entity capable of holding an interest in property. Thisreference and other remarks indicate the Committee understands the term "crime ofviolence" to describe crime violent or potentially violent in either its nature or itscircumstances. (73) Rights in What System. The Amendment makes little mention of the systems it reaches. It clearly applies to both federal and state criminal justice systems ("The rights of victims of violentcrime . . . are hereby established and shall not be denied by any State or the UnitedStates . . ."). The elimination of the provision found in earlier proposals that addressits coverage elsewhere might be construed as an indication that the Amendment on itsface is inapplicable to juvenile proceedings, to proceedings before military tribunals,or to criminal proceedings in territorial or tribal courts. On the other hand, theomission may be seen as the elimination of redundancy, since each of the systemsfunctions ultimately under the authority of either a state or the United States. (74) Notice in the world of victims' rights takes three forms, notice to the victim: (1) of his or her rights, (2) of the status of the criminal investigation and prosecution, as wellas the time, place, and outcome of related judicial proceedings, and (3) of the releaseor escape of the accused or convicted offender. Notice allows victims to assert theirrights, facilitates their participation, assures them that justice is being done, andaffords them the opportunity to take protective measures. The Amendment does notinclude a right to notification of the Amendment's benefits. Its provision fornotification of release or escape applies only prior to conviction, i.e., only with respectto the release or escape of the accused. It does, however, entitle victims to reasonableand timely notice of all public proceedings involving the crime. Contemporary Practices. A general right to notice of available rights and services is found in more than a few state codes and constitutions, either in the form of a victims' right or of agovernmental obligation. (75) Existing federal lawimposes the obligation on federalofficials, 42 U.S.C. 10607. Nevertheless, its presence in the Amendment would representa departure from the cast of most U.S. constitutional rights and in past proposals hasgiven at least one member of the Senate Judiciary Committee pause. (76) Most states give victims the option of being notified when an offender is to be released or has escaped from custody. (77) Existingfederal law, extends the notificationoption only to the release of offenders, 42 U.S.C. 10605(b)(7). State constitutionalamendments ordinarily require notification of court proceedings; (78) several, byconstitution or statute or both, require notification of the arrest of an accused orother information concerning the status of the investigation or prosecution. (79) Past Proposals. The resolutions introduced in the 104th Congress offered crime victims the right to notification of related proceedings, of the release or escape, (80) and came with a rightto be informed of the amendment's benefits. (81) The pattern continued in successiveCongresses with some alterations. The resolutions thereafter spoke of notice ofrelated "public proceedings," struggled with the issue of notification of closed parolehearings, (82) and maintained a right to be informedof the amendments' benefits: (83) A victim . . . shall have the right . . . to reasonable notice of, and not to be excluded from, any public proceedings relating to the crime. . . to the foregoingrights at a parole proceeding that is not public, to the extent those rights areafforded to the convicted offender . . . to reasonable notice of a release or escapefrom custody relating to the crime . . . and to reasonable notice of the rightsestablished by this article. S.J.Res. 3 (106th Cong.); H.J.Res. 64(106th Cong.). Amendment in the 108th Congress. SECTION 2. A victim of violent crime shall have the right to reasonable and timely notice of any public proceeding involving the crime and of any release or escape of theaccused; The Amendment differs from its antecedents in five respects. First, it demands that notice be timely as well as reasonable. Second, it drops all references to paroleproceedings. Third, it extends to proceedings "involving the crime" rather than toproceedings "related to the crime." Fourth, the Amendment promises notice of therelease or escape of "the accused." Fifth, there is no longer any declaration that avictim is entitled to notification of his or her rights under the Amendment. The Amendment's grant of rights is subject to obvious facial limitations: - the notice rights apply only with respect to public proceedings ; - the rights attach to those proceedings involving the crime not those related to the crime; - victims are only entitled to reasonable and timely notice; and - victims are only entitled to notice of the release or escape of the accused. Public Proceedings. The "public proceedings" feature is not new. Yet there has always been some question whether courts and legislative bodies might by closing otherwise publicproceedings curtail victims' notification and other rights that would otherwise bebeyond judicial or legislative reach. The history of past proposals indicates that thismay be the case: Victims' rights under this provision are also limited to 'public proceedings.' Some proceedings, such as grand juryinvestigations, are not open to the public and accordingly would not be open to thevictim. Other proceedings, while generally open, may be closed in some circumstances. For example, while plea proceedings are generally open to the public, a court mightdecide to close a proceeding in which an organized crime underling would plead guiltyand agree to testify against his bosses. See 28 C.F.R. 50.9. Another example is providedby certain national security cases in which access to some proceedings can berestricted. See 'The Classified Information Procedures Act' 18 U.S.C. App.3. A victimwould have no special right to attend. The amendment works no change in thestandards for closing hearings, but rather simply recognizes that such nonpublichearings take place. S.Rept. 108-191 at 34; see also, S.Rept. 106-254 at 30, S.Rept. 105-409 at 25. (84) Involving the Crime. The breadth of the phrase " involving the crime" used to described the public proceedings covered by the notification right may raise questions too. The phraseclearly contemplates more than trial. Pre-trial and post-trial hearings involvingmotions to dismiss, to suppress evidence, to change venue, to grant a new trial, and anyof the host of similar proceedings that flow to or from a criminal trial seem to comewithin the meaning of the term. The Senate reports' discussion of proceedings " relatedto the crime" in earlier versions, for instance, specifically mention appellateproceedings, S.Rept. 106-254 at 31, S.Rept.105-409 at 26. The same reports indicate that at least at one time covered release proceedings were understood to include those involving "a release [from custody] of a defendantfound not guilty of a crime by reason of insanity and then hospitalized in custody forfurther treatment," Id . at 36 and 30. Crime relatedness, understood in such terms,would presumably carry victim notice rights to a fairly wide range of civil andquasi-civil proceedings, e.g. , habeas and civil forfeiture proceedings, deportation andextradition hearings, and administrative disciplinary reviews (if conducted publiclybefore a tribunal) to name but a few. It may be for this reason that the phrase was changed to "involving the crime," a phrase that arguably imposes greater limits on the class of proceedings than might beconsidered "related," although not clearly sufficient to excuse notice of the habeas,forfeiture, deportation, or the extradition proceedings. (85) Historical proposals werethought to perhaps embody notice rights for the victims of a defendant's past crimes,and victims of charges that have been dropped or dismissed, as well as victims ofcharges that had resulted in acquittal. (86) Thechange might be considered a repudiationof that construction as well. The Senate Judiciary Committee, however, indicates that no such repudiation was intended and states simply that the "public proceedings are those 'relating to thecrime,'" S.Rept. 108-191 at 34. In doing so, it might be thought to have embraced earlierdescriptions of proceedings related to the crime, even though the Committee's examplesin the 108th Congress are much more modest in some places, id. ("the right applies notonly to initial hearings on a case, but also rehearings, hearing at an appellate level,and any case on a subsequent remand"). (87) Reasonable and Timely Notice. The addition of "timely" unquestionably seems significant, because it would appear to greatly reduce the prospect of "reasonable" but ineffective notice. Yet theCommittee report issued after the change makes no note of it and continues to describethe obligation in the same terms used prior to the change. (88) Under past proposals it wasunclear whether reasonableness was to be judged by the level of official effort or bythe effectiveness of the effort. The Senate reports noted and continue to note thatheroic efforts were not expected but due diligence was, S.Rept. 108-191 at 34; S.Rept.106-254 at 30, S.Rept. 105-409 at 25. Yet the obvious purpose for the right to notice wasto provide a gateway to the Amendment's other rights. Even without the addition ofthe clarifying "timely" requirement, what was reasonable might have been judged bywhether the efforts were calculated to permit meaningful exercise of the Amendment'sother rights. (89) The Senate reports, however, explain that in rare circumstances notice by publication might be reasonable, (90) although ifjudged by existing due process standardssuch notice might not be adequate in ordinary circumstances. (91) Notice given after aproceeding was conducted might have seemed unreasonable because the want of timelynotice might constitute an effective exclusion from the proceedings or might defeatthe right to make a victim impact statement. (92) The addition of a timeliness requirementseems to reduce the possibility of "reasonable" but untimely notification. (93) In the context of release notifications, the most vexing reasonableness questions may not involve individual circumstances but general conditions. In some jurisdictions,the Amendment may require notification of a host of victims who would not previouslyhave been entitled to notification and whose identity and location is thereforeunknown to custodial authorities. (94) Wouldpublication notice be consideredreasonable in such cases? Would the existence of an online or other automated systemavailable to the general public and containing release and escape dates retrievableby prisoner name, without more, constitute reasonable notice? Application may be particularly challenging in the area of bail. The Amendment grants both a right to consideration of the victim's safety and a right to reasonablenotice and attendance. Under normal circumstances it might not be unusual for anaccused to be released on recognizance or bail before authorities could reasonablybe expected to provide victims with timely notice. It may be that the Amendmentcontemplates postponement of the accused's initial judicial appearance until aftervictims can be notified and can be given a reasonable period of time to prepare andpresent their views. At one time, amendment proposals seem to explicitly anticipatethat a failure of timely notice in a bail context could be rectified by recourse to theprovision in the Amendment that permitted the bail decision to be revisited at thebehest of a victim. (95) The Amendment no longercontains that explicit provision, butnothing in the Amendment precludes revisitation - other than abandonment of theearlier explicit provision perhaps. Release or Escape of the Accused. For the first time, the Amendment refers to notice of the release or escape of the accused . The implication is that there is no right to notice of a release or escapefollowing conviction, since at that point the defendant is "convicted" rather than"accused." If this is the Amendment's meaning, the consequences of the change areconsiderable. The administrative burdens associated with notifying victims every timean inmate is released from custody are not insignificant, particularly in thosejurisdictions without any comparable requirement of their own. This is especially trueif the Amendment is construed to apply to the future release or escape of prisonersconvicted of crimes committed prior to the effective date of the Amendment. Nevertheless, the Committee report in the 108th Congress suggests that the Senate Judiciary Committee considers the terms "accused" and "convicted" interchangeableand intended no change from earlier more generously worded proposals: The release [which triggers a notification requirement] must be one "relating to the crime." This includes not only a release after a criminal conviction butalso, for example, a release of a defendant found not guilty of a crime by reasonof insanity and then hospitalized in custody for further treatment, or a releasepursuant to a habitual sex offender statute, S.Rept. 108-191 at 35. No Rights Warnings. Notice of rights had been a feature of the past proposals from the beginning. It followed the lead of several state constitutions and statutes. It was perhaps seen asa victim's counterpart to the Miranda warnings enjoyed by an accused and as aprerequisite if the Amendment were to function effectively. (96) There were objections,however, that the warnings were out of character with the other rights conveyed bythe Constitution and might pose implementation problems - objections that ultimatelyprevailed apparently. (97) The Constitution promises the accused a public trial by an impartial jury (98) andaffords him the right to be present at all critical stages of the proceedings againsthim. (99) It offers victims no such prerogatives. Their status is at best that of any othermember of the general public and, in fact, the Constitution screens the accused's rightto an impartial jury trial from the over exuberance of the public. (100) Moreover, victims are even more likely to be barred from the courtroom during trial than members of the general public. Ironically, the victim's status as a witness,the avenue of most likely access to pre-trial proceedings, is the very attribute mostlikely to result in exclusion from the trial. Sequestration, or the practice of separating witnesses and holding outside the courtroom all but the witness on the stand, is of ancient origins and "consists merelyin preventing one prospective witness from being taught by hearing another'stestimony." (101) The principle has beenembodied in Rule 615 of the Federal Rules ofEvidence and in state rules that adopt the federal practice. (102) Victims' advocates contend that it should be fundamental that individuals may attend the entire trial involving the crime visited upon them. Yet an absolute right toattend all proceedings may sometimes be unfair, and in some instances even a violationof due process or the right to trial by an impartial jury. The Amendment assures victims of the right not to be excluded from any public proceedings involving the crime. It is one area where balancing the interests of victim,defendant, and government may be most challenging. The right brings with it noauxiliary right to transportation to such proceedings, a companion that mightaccompany a right to attend. It applies to only those functions that qualify as official"proceedings." It operates only with respect those proceedings that are "public." Contemporary Practices. In response to the debate, about a third of the states now permit victims to attend all court proceedings regardless of whether the victim is scheduled to testify; (103) another group allows witnesses who are victims to attend subject to a showing as towhy they should be excluded; (104) a few leavethe matter in the discretion of the trialcourt; (105) and some have maintained thetraditional rule - witnesses are sequesteredwhether they are victims or not. (106) Subject to Rule 615 of the Federal Rules of Evidence which permits exclusion of victim/witnesses, the federal statutory victims' bill of rights recognizes the right ofvictims "to be present at all public court proceedings related to the offense, unless thecourt determines that testimony by the victim would be materially affected if thevictim heard other testimony at trial," 42 U.S.C. 10606(b)(4). In federal capital cases, victims who attend a trial are not disqualified from appearing as witnesses at subsequent sentencing hearings absent a danger of unfairprejudice, jury confusion, of the jury being misled, or as constitutionally required. (107) In other federal criminal cases, victims may be excluded from trial only asconstitutionally required, 18 U.S.C. 3510(a). Past Proposals. Almost from the beginning virtually every proposed amendment granted crime victims the right "not to be excluded" from related public proceedings: (108) A victim . . . shall have the right[] . . . not to be excluded from, any public proceedings relating to the crime. S.J.Res. 3 (106th Cong.); H.J.Res.64 (106th Cong.). Amendment in the 108th Congress. SECTION 2. A victim of violent crime shall have the right . . . not to be excluded from such public proceeding . . . . It has been suggested that the phrase "not to be excluded" in the Amendment was originally used to avoid the claims that the Amendment entitled victims totransportation to relevant proceedings or to have proceedings scheduled for theirconvenience or to free them from imprisonment, S.Rept. 108-191 at 35-6; S.Rept. 106-254 at 31, S.Rept. 105-409 at 26. (109) In this it wouldbe unlike a defendant's right to attend. Yet like a defendant's right to attend, the use of the phrase has been thought to permitexclusion of the victim for disruptive behavior, excessive displays of emotion, and otherforms of impropriety for which a defendant might be excluded, Id. Under existing law, the usual rationale for exclusion is to prevent victim/ witnesses from having their testimony colored by the testimony of other earlierwitnesses. (110) Victim exclusion is one of thefeatures of existing law that the Amendmentseeks to overcome. How its command may be implemented is less apparent. In singlevictim cases, both constitutional policies (victim's rights and defendant's due processrights) could be honored simply by having the victim testify first. The two policiesmight also be reconciled by refusing to allow attending victims to testify, since theright not to be excluded does not include the right to testify and the right to be hearddoes not extend to trial testimony. The issue might be resolved alternatively onvictim-defendant equality grounds. The defendant is constitutionally entitled toattend the entire trial even if he is ultimately to be a witness. The Amendment may beseen as an equalizer. If so, it may not preclude defense counsel from commenting upona victim's opportunity to color his or her testimony. (111) The application of the "public proceeding" limitation may be as uncertain here as in the case of victim notification. There may be some question as to what standardsshould be used to determine whether proceedings should be considered "public" forpurposes of the Amendment and whether the public or confidential character ofproceedings is subject to judicial, legislative or administrative adjustments. A courtmight seek instruction from the law governing the rights of the public to attendjudicial proceedings. A public trial is among the rights the Sixth Amendment promises the criminally accused. Even where the accused agrees to closed proceedings, First Amendment freepress interests may require open proceedings. When asked whether particularproceedings may be closed to the press, the courts have considered "whether the placeand process have historically been open to the press and general public . . . [and]whether public access plays a significant positive role in the functioning of theparticular process in question," Press-Enterprise Co. v. Superior Court (Press-EnterpriseII) , 478 U.S. 1, 8 (1986). When asked to close particular proceedings over the objectionsof the accused, the courts, using the standards developed in press access cases, havedemanded that "the party seeking to close the hearing must advance an overridinginterest that is likely to be prejudiced, the closure must be no broader than necessaryto protect that interest, the trial court must consider reasonable alternatives toclosing the proceeding, and it must make findings adequate to support the closure." (112) There may be some related uncertainty over whether the Amendment's attendance right applies to historically public events that are now ordinarily held privately. Forexample, does the Amendment empower immediate family members of a murder victim tobe notified of and attend the execution of the defendant? Historically, capitalpunishment and other types of corporal punishment were publicly administered. (113) Victims and anyone else so inclined might attend. (114) Most state laws now call forexecutions to occur in the presence of official witnesses, rather than being conductedpublicly. Those who attend are either identified by statute (115) or their selection is leftto the discretion of prison authorities. (116) Ahandful permit two or three members of thevictim's immediate family to be present. (117) And in several, although the number ofofficial witnesses may be limited, prison officials enjoy relatively unlimited discretionwhich they would appear free to exercise to the benefit of victims or theirrepresentatives. (118) In cases involving hundredsor thousands of victims, conflicts mayarise should a defendant's privacy right to a dignified death by execution conflict withvictims' rights to attend. Committee commentary indicates that the Amendment plays no role in what public proceedings can be closed even though that action denies victims notice, attendanceand allocution rights. It suggests that a victim has no ground to object if a decisionis made to close a traditionally public proceeding, "The amendment works no changein the standards for closing hearings, but rather simply recognizes that nonpublichearings take place," S.Rept. 108-191 at 34; S.Rept. 106-254 at 30; S.Rept. 105-409 at 25. Unlike the rights to notice and not to be excluded, the right to be heard is a right to participate. Proceedings at which it may be invoked are described with greaterparticularity in the Amendment. Although victim impact statements are a commonsentencing feature, victim participation elsewhere varies considerably fromjurisdiction to jurisdiction and according to the stage of the process at issue. The Amendment affords victims the right "to be heard at public release, plea, sentencing, reprieve, and pardon proceedings" subject to a rule of reason. It does noton its face give them the right to be heard in closed proceedings or to be heard on otherpre-trial motions, at trial, perhaps on appeal, or with respect to related forfeiture orhabeas proceedings. The history of past, more narrowly drawn provisions indicatesthat the right may embrace all of these and more. Contemporary Practices. Public release (bail et al.). At one time, the victim was not considered a legitimate participant in the bail hearing. In fact, neither the safety nor any other interest of the victim was thoughtto be a relevant consideration. Bail was a guarantee against suspect flight. That wasall. The amount of security required and the conditions imposed for pre-trial releasewere calculated solely to insure the courtroom presence of the accused at theappointed hour. (119) Most states had, and stillhave, right to bail clauses for noncapitaloffenses in their state constitutions. (120) Thosejurisdictions that did not have a right tobail clause had and have a prohibition against excessive bail, (121) like that found in theUnited States Constitution, that some read to include or herald a constitutional rightto bail even where none was explicitly granted. (122) In many jurisdictions, the defendant-exclusive view slowly gave way to a recognition that public and individual safety are legitimate concerns for a judicialofficer to consider when deciding whether an accused should be released on bail, ormore often, the conditions placed upon the release of the accused. In some instances,the right to bail clause has been amended; (123) in some, the state courts have interpretedthe right to bail to include a witness protection and judicial integrity exception; (124) courts in still other states have held that the right to bail clauses permit imposingvictim or public safety conditions (125) and allowrevocation of bail if the conditions havebeen broken. (126) Finally, the United States Supreme Court removed the cloud formed by the contention that a refusal to grant pretrial bail, because of the threat to public orindividual safety posed by the accused, might violate either the United StatesConstitution's excessive bail clause or its due process clauses or both. The Courtdeclared that neither clause bars legislative creation of a system that conditionspretrial release upon public safety as well as preventing flight. (127) Only a few states expressly grant the victim the right to be heard at the defendant's bail hearing either specifically or under a general right to be heard at allproceedings. (128) A few more permitconsultation with the prosecutor prior to the bailhearing. (129) Most allow victims to attend. (130) And virtually all provide either thatvictims should be notified of bail hearings or that victims should be notified of thedefendant's release on bail. (131) Under federal law, victims of alleged acts of interstate domestic violence or interstate violations of a protective order have a right to be heard at federal bailproceedings concerning any danger posed by the defendant. (132) In other federal cases,victims' prerogatives seem to be limited to the right to confer with the prosecutor, andnotification of, and attendance at, all public court proceedings. (133) Plea Bargains. Negotiated guilty pleas account for over ninety percent of the criminal convictions obtained. (134) Plea bargaining offersthe government convictions withoutthe time, cost, or risk of a trial, and in some cases a defendant turned cooperativewitness; it offers a defendant conviction but on less serious charges, and/or with theexpectation of a less severe sentence than if he or she were convicted following acriminal trial, (135) and/or the prospect of otheradvantages controlled, at leastinitially by the prosecutor - agreements not to prosecute family members or friends,or to prosecute them on less serious charges than might otherwise be filed; (136) forfeiture concessions; (137) testimonialimmunity; (138) entry into a witness protectionprogram; (139) and informant's rewards, (140) to mention a few. For the victim, a plea bargain may come as an unpleasant surprise, one that may jeopardize the victim's prospects for restitution, one that may result in a sentence thevictim finds insufficient, (141) and/or one thatchanges the legal playing field so that thevictim has become the principal target of prosecution. (142) Some state victims' rights provisions are limited to notification of the court'sacceptance of a plea bargain. (143) More often,however, the states permit the victim toaddress the court prior to the acceptance of a negotiated guilty plea (144) or to conferwith the prosecutor concerning a plea bargain. (145) Sentencing. At common law, victims had no right to address the court before sentence was imposed upon a convicted defendant. The victim's right to bring the impact of the crimeupon him to the attention of the court was one of the early goals of the victims' rightsefforts. The Supreme Court has struggled with the propriety of victim impactstatements in the context of capital punishment cases, ultimately concluding thatthey pose no necessary infringement upon the rights of the accused. (146) It is said thatpermitting victim impact statements serves several beneficial purposes: (1) to protectthe victim's interest in having the court order the defendant to make restitution, (147) (2)to increase the possibility that the sentence imposed will reflect the damage done andtherefore the seriousness of the crime, (148) (3)to balance the pleas for the defendantthat have traditionally been heard at that point, (149) and (4) to restore some level ofdignity and respect for the victim. (150) Critics counter that the use of victim impact statements introduces irrelevancies into the sentencing process, (151) distorts therationale for sentencing thereby leadingto disparate results, (152) leads to putting thevictim on trial, (153) and in cases where thejury determines or recommends the sentence to be imposed, may be unfairlyinflammatory. (154) Nevertheless, one of the most prevalent of victims' rights among the states is the right to have victim impact information presented to sentencing authorities. There is,however, tremendous diversity of method among the states and federal government. Many call for inclusion in a presentencing report prepared for the court in one way oranother, (155) often supplemented by a right tomake some kind of subsequent presentationas federal law permits. (156) Some are specificas to the information that may beincluded; (157) some permit the victim to addressthe court directly; others do not. (158) Reprieves and Pardons. The Constitution vests the President with "the power to grant reprieves and pardons for offences against the United States," U.S.Const. Art.II, �2, cl.1. (159) As amatter of administrative practice he is assisted by the Pardon Attorney in theDepartment of Justice. (160) Ordinarily, there isno hearing, public or otherwise, held todetermine whether the exercise of the federal pardoning power is appropriate. Suchhearings, however, are more common in the states where executive clemency is oftenmore narrowly defined. In a few, the power is vested in a pardon board. (161) More often,the Governor receives clemency recommendations from a pardon board. (162) Frequently,crime victims are entitled to be heard by the pardon board, (163) usually although notalways as a matter of right. (164) Past Proposals. In one form or another, past proposals gave victims the right to be heard before the accused was released on bail, before the court accepted a plea agreement, andbefore the court sentenced a convicted offender, and there were varying efforts topermit victim statements in parole hearings. (165) In the 106th Congress, pardonallocution appeared along with the other rights to be heard when the Senate JudiciaryCommittee reported out the resolution in the proposals. The Justice Departmentobjected on the grounds that it constituted "an unprecedented incursion on thePresident's power to grant executive clemency requests" and in some states uponsimilar powers vested in the governor. (166) Withthe pardon component, the allocutionrights in the 106th Congress proposals declared: A victim . . . shall have the rights . . . to be heard, if present, and to submit a statement at all such proceedings to determinea conditional release from custody, an acceptance of a negotiated plea, or a sentence;. . . to the foregoing rights at a parole proceeding that is not public, to the extentthose rights are afford to the convicted offender. H.J.Res. 64 (106thCong.); S.J.Res. 3 (106th Cong.). to . . . an opportunity to submit a statement concerning any proposed pardon orcommutation of a sentence. S.J.Res. 3 (106th Cong.) (asreported). Amendment in the 108th Congress. SECTION 2. A victim of violent crime shall have the right to . . . reasonably to be heard at public release, plea, sentencing, reprieve, and pardon proceedings SECTION 4. . . .Nothing in this article shall affect the President's authority togrant reprieves or pardons Section 2 has been substantially rewritten. The differences are apparent. The reasonableness element which attached to the pardon rights has been added to theothers. References to parole proceedings and convict-equivalent rights havedisappeared, and a reference to reprieves has surfaced in their place. The right to beheard and make a statement on conditional release, plea and sentence has beenreplaced with the simple right to be heard on release, plea and sentence. The right tomake a statement concerning any proposed pardon or commutation of a sentence hasbecome the right to be heard at public reprieve and pardon proceedings. Past offerings spoke of a reasonableness element in the right to be heard only with respect to matters of pardon and commutation ("to reasonable notice of and anopportunity to submit a statement concerning"). The explanation of reasonablenessin that context was brief: The President, Governors, and clemency boards are also free to determine the appropriate way in [which] a victim'sstatement will be considered as part of the process. The fact that a victim objects to(or supports) a clemency application is not dispositive. Instead, the informationprovided by the victim will be considered along with other relevant information to aidthe decisionmaker in making the difficult clemency decision. S.Rept. 106-254 at35. Written large across every stage of the criminal justice process, the reasonableness element seems to make the victim's views relevant but not dispositive. The same message may be found in the distillation of the right to be heard and submita statement down to the right to be heard. (167) This reasonableness element may alsogive the courts and administrators greater discretion over the circumstances underwhich the right is accommodated than would be possible in the form of a restrictionpermitted by the last sentence in section 2 of the Amendment ("These rights shall notbe restricted except when and to the degree dictated by a substantial interest in publicsafety or the administration of criminal justice, or by compelling necessity"). The reasonableness element may play a role in another matter. The right to be notified is limited to public proceedings "involving the crime." The right not to beexcluded is likewise limited to "such public proceedings [involving the crime]." Theright to be heard suffers no such limitation, at least not facially. Once avictim-offender nexus exists, a court might conclude that it was reasonable for avictim to be heard with regard to the release, plea bargain, sentence, or pardon issuesinvolving the offender, or even a potential witness, on charges otherwise totallyunrelated to the victim. One hearing witness, however, foresaw the prospect of an opposite, more narrow, interpretation as a result of the changes. In his view, elimination of the reference tothe right to make a statement in favor of a simple right to be heard runs the risk thatthe courts will understand this as a right to make an oral statement before thetribunal. (168) Even under a standard ofreasonableness, this might lead to substantialadministrative inconvenience. (169) At its most literal construction, the Amendment is likely to convey greater rights than victims enjoy in many, if not most, jurisdictions. Public Release Proceedings. Proposals once conveyed a right to be heard at public proceedings relating to a conditional release from custody and, to the extent the inmate enjoyed a right to beheard, at closed parole hearings. The Amendment simply conveys a right to be heardat public release proceedings. The clear implication is that under the Amendmentvictims have no right to be heard at closed parole hearings, regardless of whether theinmate has a right to be heard. (170) On the other hand, the new formulation may open a wider range of proceedings to victim allocution. There was always some ambiguity over whether conditional releaseproceedings meant proceedings where release might be granted if certain conditionswere met before release or proceedings where release bound the accused or convictedoffender to honor certain conditions after release, or both. In any event, in bygoneproposals the Senate Judiciary Committee read "conditional" in the phrase " conditional release from custody ," as a word of limitation: The amendment extends the right to be heard to proceedings determining a ' conditional release' from custody. This phraseencompasses, for example, hearings to determine any pretrial or posttrial release(including comparable releases during or after an appeal) on bail, personalrecognizance, to the custody of a third person, or under any other conditions,including pretrial diversion programs. Other examples of conditional release includework release and home detention. Its also includes parole hearings or their functionalequivalent, both because parole hearings have some discretion in releasing offendersand because releases from prison are typically subject to various conditions such ascontinued good behavior. It would also include a release from a secure mental facilityfor a criminal defendant or one acquitted on the grounds of insanity. A victim wouldnot have a right to speak, by virtue of this amendment, at a hearing to determine"unconditional" release. For example, a victim could not claim a right to be heard ata hearing to determine the jurisdiction of the court or compliance with the governingstatute of limitations, even though a finding in favor of the defendant on these pointsmight indirectly and ultimately lead to the 'release' of the defendant. Similarly,there is no right to be heard when a prisoner is released after serving the statutorymaximum penalty, or the full term of his sentence. There would be proceeding to"determine"a release in such situations and the release would also be withoutcondition if the court's authority over the prisoner had expired. S.Rept.106-254 at 32; S.Rept. 105-409 at 27. Thus by removing the words "conditional" and "from custody," the Amendment perhaps should be understood to allow victims the right to be heard on most pre-trialmotions as well as most post-trial appeals and petitions, or at least any that mightresult in a release of the accused or the convicted offender from jeopardy. Forexample, it might support an argument that the Amendment gives victims the right beheard at trial by the trier of fact (judge or jury) on whether the defendant should orshould not be convicted on any of the charges at issue, i.e ., at least limited trialparticipation. The Amendment affords the right only to a reasonable extent ("A victim . . . shall have the right to . . . reasonably to be heard at public release, plea, sentencing, reprieve,and pardon proceedings . . ."). In other contexts, the Amendment's reasonablenessdemands are standards of circumstance. What is reasonable is likely to depend uponthe circumstances of individual cases, a limitation of unknown implications. The Amendment even if conservatively read represents an expansion of victims' rights in most jurisdictions. Its promise of the right to be heard in release proceedings inparticular is more generous than most, although victims' rights to have their interestsconsidered, to be notified, to attend, and in some instances to make presentations atbail proceedings appear more frequently in state statutes and court rules than wasonce the case. Plea Bargains. The Amendment assures crime victims of the right to reasonably be heard at proceedings where a plea bargain is accepted. The right only attaches to theacceptance of plea bargains in open court ( i.e. , at public proceedings). (171) The rightclearly does not vest a victim with the right to participate in plea negotiationsbetween the defendant and the prosecutor, which are neither public nor proceedings. By the same token, the right to be heard is not the right to decide; victims must beheard, but their views are not necessarily controlling. (172) It remains to be seen whetherthe existence of the right in open court will lead to more proceedings being closed toavoid the complications of recognizing the right. Sentencing. The Amendment guarantees crime victims the right to reasonably be heard at public sentencing proceedings. The language of the Amendment does not specify whatform may or must be used nor does it speak to permissible restrictions on length,content or other limitations that may come within the rule of reason. Neither does itexpressly identify any limitation activated by a conflict with rights of the defendant. Drafters may envision a legislative definition of these limitations, but the Amendmentmay confine such efforts to those marked by "a substantial interest in public safety orthe administration of criminal justice, or by compelling necessity." The right toreasonably be heard may come to be understood to mean the right to be heard underconditions and circumstances where the right is weighed against judicial andadministrative convenience or conflicting defendant interests. The Senate Judiciary Committee, however, has continuous described this and similar language as somewhat more "victim-friendly." It has noted the language's dualfunction of giving sentencing authorities more complete information and of providingvictims with "a powerful catharsis," S.Rept. 108-191 at 37; S.Rept. 106-254 at 33; S.Rept.105-409 at 28. In light of this second purpose, "a victim will have the right to be heardeven when the judge has no discretion in imposing a mandatory prison sentence," Id . Inprevious reports, the Senate Judiciary Committee added immediately thereafter thatCongress and the states would nevertheless have the prerogative to limit victimstatements to relevant testimony, to define relevancy as they chose, and to otherwiselimit the length and content of victims' statements. (173) The Committee's description ofthe clause in the 108th Congress is much more restrained, more reminiscent of existinglaw: State and Federal statutes already frequently provide allocution rights to victims. The Federal amendment wold help toinsure that these rights are fully protected. The result is to enshrine and perhapsextend the Supreme Court's decision in Payne v. Tennessee , 502 U.S. 808 (1991), recognizingthe propriety of victim allocution in capital proceedings. Victim impact statementsconcerning the character of the victim and the impact of the crime remainconstitutional. The Committee does not intend to alter or comment on laws existingin some States allowing for victim opinion as to the proper sentence . . . . The victim'sright is to be "heard." The right to make an oral statement is conditioned on thevictim's presence in the courtroom. As discussed above, it does not confer on victims aright to have the government transport them to the relevant proceeding. Nor does itgive victims any right to "filibuster" any hearing,. As with defendants' existing rightsto be heard, a court may set reasonable limits on the length of statements, but shouldnot require the victim to submit a statement for approval before it is offered. No suchrequirement is put on the defendant and none should b imposed on the victim. The DueProcess clause requires that the victim's statement not be "unduly prejudicial." At thesame time, victims should always be given the power to determine the form of thestatement. . . . Even if not present, the victim isentitled to submit a statement at the specified hearing for the consideration of thecourt. The Committee does not intend that the right to be heard be limited to "written"statements, because the victim may wish to communicate in other appropriate ways. S.Rept. 108-191 at 38 (most internal citationsomitted). Reprieves and Pardons. Section 4 seems to limit the Amendment's impact on federal pardons ("Nothing in this article shall affect the President's authority to grant reprieves or pardons"). TheAmendment is likely to have little impact on federal practice, in any event since thefederal pardon process does not involve "public proceedings," and therefore victimswill continue to have no right to be heard with respect to a requested or contemplatedfederal pardon. On the other hand, its impact on the states would vary according tothe extent to which public proceedings are part of the pardon process. The Amendment identifies three victims' interests that adjudicative decision makers must take into consideration: victim safety, avoiding unreasonable delay, andjust restitution pursued in a timely manner. The legislative history to date may be readto indicate that the drafters understood the right to attach to decisions made byjudicial and administrative authorities in any adversarial setting. Victims' interestsmust be considered, but are not necessarily controlling. In the case of victim safety, the decision whether to release an accused on bail and the conditions to be imposed upon release represent perhaps the obvious example ofdecisions where victims' safety must be considered. The right does not attach if thedecision to release the offender is simply a matter of administrative discretionexercised without the necessity of an adversarial proceeding. Thus, the right onlyattaches - with respect to release of an offender following full service of his or hersentence, or on furlough, or work release, or assignment to a half-way house, orfollowing civil commitment - if the jurisdiction provides for release pursuant to anadversarial proceeding. The right does not attach, for instance, to release pursuantto a presidential pardon that features no such proceedings. The range of proceedingswhere the right applies may be broader than past proposals envisioned since they werelimited to decisions concerning "conditional release." Contemporary Practices. Victim safety is generally recognized as a valid, and in some jurisdictions a required, pre-trial release consideration. (174) Itis mentioned far less frequently as aconsideration in post-conviction (probation, work release, parole, pardon) ornon-criminal release (release from civil commitment or juvenile custody)determinations, although public safety may be a factor in many of these instances. (175) Past Proposals. Three of the proposals in the 104th Congress assured victims of the right to "receive reasonable protection from physical harm or intimidation relating to theproceedings." (176) Each of the others prior tothe 107th Congress assured victims thattheir safety would be considered before conditionally releasing an accused fromcustody: (177) A victim . . . shall have the right[] . . . to consideration for the safety of the victim in determining any conditional release from custody relating to the crime . H.J.Res.64 (106th Cong.); S.J.Res. 3 (106th Cong.). Amendment in the 108th Congress. SECTION 2. A victim of violent crime shall have . . . the right to adjudicative decisions that duly consider the victim's safety. The language here is new but many of the concepts are not. The change of the context within which victim safety must be considered - from "determinations" of"conditional release" to "adjudicative decisions" - seems to reflect both expansion andcontraction. The term "adjudicative decisions" conveys the sense of judicialdeterminations, of decisions made by a tribunal following an adversarial process. Definitely more confined than "determinations." On the other hand, removal of thequalifying "conditional release" phrase, seems to extend the right far beyond thepre-trial release context which that phrase might at first imply. The testimony of witnesses at congressional hearings may confirm that the term "adjudicative decisions" is understood to mean "both court decisions and decisionsreached by adjudicative bodies, such as parole boards. Any decision reached after aproceeding in which different sides of an issue would be presented would be anadjudicative decision." (178) Thus, determinationslike federal pardon decisions that fellwithin the reach of the proposals in earlier Congresses appear beyond the reach of theAmendment, as long as they involve administrative and executive determinationsrather than adjudications. The Senate Judiciary Committee meant the right in earlier proposals to apply broadly not only to pre-trial release determinations in criminal cases but todeterminations relating to civil commitment and post-conviction determinations aswell. (179) Thus, the elimination of the"conditional release" qualifications of pastproposals may be less significant than might appear simply on the face of the proposalsand the Amendment. Nevertheless, it does represent the elimination of a restriction. Victim safety, for example, may come to play a role in the permissible constraintsplaced upon the accused during the course of a trial. What of the relative weight to be given victim safety? The phrase, "duly considered" or "due consideration" is probably less generous than "considered" or"consideration." Black's defines "due consideration" as the "degree of attentionproperly paid to something, as the circumstances merit ." (180) The courts have construedthe phrase "duly consider" in the context of various local federal court rules ofcriminal procedure. There the court's obligation to "duly consider" a request for aredacted docket in proceedings ancillary to a grand jury investigation demandsconsideration and an explanation if the request is denied. (181) Even before the additionof the "duly" limitation, victim safety was not thought to constitute either adispositive or necessarily a weighty factor, it was simply a factor. (182) And so itpresumably remains. The second of the victims' interests that must be considered by at least some decision makers is consideration of the victim's interest in avoiding unreasonabledelay. Some have expressed the concern that this vests victims with the right to beheard on scheduling decisions and consequently the right to notification andappearance at proceedings where such matters are raised. The concern may beunfounded in light of the Amendment's specific references to points of attachment fora victim's right to notice, not to be excluded, and to be heard. The legislative historysuggests that perhaps the standards used to judge the defendant's constitutionalright to a speedy trial govern here as well. Contemporary Practices. The United States Constitution guarantees those accused of a federal crime a speedy trial; (183) the due process clause of theFourteenth Amendment makes the rightbinding upon the states, (184) whose constitutionsoften have a companion provision. (185) Theconstitutional right is reenforced by statute and rule in the form of speedy trial lawsin both the state and federal realms. (186) "Ironically, however, the defendant is often the only person involved in a criminal proceeding without an interest in a prompt trial. Delay often works to the defendant'sadvantage. Witnesses may become unavailable, their memories may fade, evidence maybe lost, changes in the law may be beneficial, or the case may simply receive a lowerpriority with the passage of time." (187) Until recently, victims had no comparable rights, although their advocates contended they had a very real interest in prompt disposition. Some victims sought toput a traumatic episode behind them; some wanted to see justice done quickly; somehoped simply to end the trail of inconveniences and hardship that all too often fell totheir lot as witnesses. (188) A few states have since enacted statutory or constitutional provisions establishing a victim's right to "prompt" or "timely" disposition of the case in one formor another. (189) The federal statutory victims'bill of rights, 42 U.S.C. 10606, does notinclude a speedy trial provision, but Congress has encouraged the states to include aright to a reasonably expeditious trial among the rights they afford victims. (190) Past Proposals. In the beginning, proposals sometimes spoke of a victims' speedy trial right, (191) andin other instances preferred to describe it as the right to have " proceedings resolvedin a prompt and timely manner." (192) Proposalsin the 105th Congress continued the split,some focused on the beginning and completion of trial; others on a finality of theproceedings. (193) In the following Congress, theproposals all called for "considerationof the victim's interest in a trial free from unreasonable delay." (194) In this form, theright was one relevant only in a trial and pre-trial context. The proposals seemed tocarry the implication that the right could only be claimed in conjunction with otherproceedings ( e.g., "considered" in the context of a defense or government motion for acontinuance but not a defendant's motion for a new trial), but not necessarilyproviding grounds for a free standing victim's motion when the question of timing wasnot otherwise before the court: A victim . . . shall have the right[] . . . to consideration of the interest of the victim that any trial be free from unreasonable delay. S.J.Res. 3 (106th Cong.);H.J.Res. 64 (106th Cong.). Amendment in the 108th Congress. SECTION 2. A victim of violent crime shall have . . . the right to adjudicative decisions that duly consider the victim's . . . interest in avoiding unreasonable delay Some of the words are new. The phrase "adjudicative decisions" has replaced "trials" and "proceedings"; "duly consider" appears instead of "consideration;" and"avoiding unreasonable delay" stands where "free from unreasonable delay" once was. Yet at least some of the concepts seem to have remanded constant. Reasonable delaysmust be countenanced; unreasonable delays tolerated only if they are outweighed byother interests. On the other hand, the term "adjudicative decisions" appears clearlymore inclusive than "trials" and although it carries judicial coloring perhaps it is notmuch different than "proceedings" except that there is no literal requirement that theadjudications be public. However, since only victims may assert their rights, section 3,and since victims are entitled to heard only at public proceedings, section 2, theAmendment's authors may have intended the adjudications at which victims' interestsmust be considered to be limited to public proceedings. At least one Congressional witness has concluded that "[a]s used in this clause, 'adjudicative decisions' includes both court decisions and decisions reached byadjudicative bodies, such as parole boards. Any decision reached after a proceeding inwhich different sides of an issue would be presented would be an adjudicative decision," House Hearing V at 42 (statement of Steven J. Twist); see also, Senate Hearing IV at 193; House Hearing IV at 25. So the decisions of state and federal tribunals must involve consideration of the interests that victims have in avoiding unreasonable delay. That still leaves severalquestions unanswered. Does it mean that victims have a right to be heard prior to anydecision that might either cause or reduce delay? Another hearing witness expressedconcern that the right to consideration of the interest might include the right to voicethe interest: "Does a crime victim have the right to object to the admission of evidenceon the ground that it might lengthen the trial?" House Hearing V at 81 (statement ofJames Orenstein). The Amendment's language does not necessarily create a right toassert the interest. This interest triggers a right to consideration. Other intereststrigger a right to be heard. Courts might conclude the difference is significant. Or they may conclude that the victim has a right to be heard on the admissibility of evidence, not because of his or her interest in avoiding unreasonable delay butbecause of his or her right to be heard at "public release proceedings," as noted earlier. It may be considered significant that neither the government nor the defendant maybe allowed to bring the victim's interest to the attention of the tribunal, since in thewords of the Amendment elsewhere, "[o]nly the victim or the victim's lawfulrepresentative may assert the right established by this article." Does a victim always have a recognizable interest in avoiding all unreasonable delay or only in those unreasonable delays that do more than simply offend thevictim? Does a victim only have an interest entitled to due consideration when thevictim suffers some disadvantage because of the unreasonable delay? The answers maylie in what the courts consider unreasonable delay. In earlier versions, it has beensuggested that the test for reasonableness rests in the Supreme Court's speedy trialjurisprudence which weighs the "length of delay, reasons for the delay, defendant'sassertion of his right, and prejudice to the defendant." (195) The Senate JudiciaryCommittee continued to endorse that view in the 108th Congress, "In determining whatdelay is 'unreasonable,' the court can look to the precedents that exist interpretinga defendant's right to a speedy trial, S.Rept. 108-191 at 40. The third victim interest entitled to consideration under some circumstances involves consideration of restitution claims. The Amendment is very different frompast proposals. It does not establish a right to restitution in so many words. It doesnot explicit convey a right to have proceedings reopened for failure to accommodatea victim's right to restitution. Instead for the first time it speaks of just and timelyclaims to restitution, two concepts which could be subject to several interpretations. Contemporary Practices. Every jurisdiction authorizes its courts to order convicted defendants to pay victim restitution. (196) Each jurisdiction,however, addresses distinctly questions ofwhen if ever restitution is mandatory; the extent to which restitution orders areproperly subject to plea agreements; whether restitution is available for injuriescaused by acts of juvenile delinquency; which victims are entitled to restitution; whatpriority, if any, restitution takes over forfeiture of the defendant's assets or hispayment of criminal fines; and more. (197) Past Proposals. The first victims' rights proposals promised either a right "to an order of restitution from the convicted offender," (198) ora right "to full restitution from theconvicted offender." (199) Subsequent proposalsopted for the right to an order version. (200) The proposals appeared to make restitution orders mandatory as a matter of right. Thescope of the right was unstated. Although the proposals applied to juvenileproceedings, the use of the term "convicted offender" might have been construed tolimit their restitution command to criminal convictions and therefore not reachfindings of delinquency. (201) Restitution orders in a nominal amount or subject to priorities for criminal fines or forfeiture or other claims against the defendant's assets might have seemedinconsistent with the decision to elevate mandatory victim restitution to aconstitutional right. Yet the Senate reports concluded that the proposal did "notconfer on victims any rights to a specific amount of restitution, leaving the court freeto order nominal restitution . . . . The right conferred on victims [was] one to an 'order'of restitution. With the order in hand, questions of enforcement of the order and itspriority as against other judgments [were] left to the applicable Federal and Statelaw," S.Rept. 106-254 at 37; S.Rept. 105-409 at 31. The Senate reports, however, have continuously suggested that the right might include the right to a pre-trial restraining order to prevent an accused fromdissipating assets that might be used to satisfy a restitution order, S.Rept. 108-191 at41; S.Rept. 106-254 at 37; S.Rept. 105-409 at 32. The right also might have extended toprevent dissipation in the form of payment of attorneys' fees for the accused, since theaccused has only a qualified right to the assistance of counsel of his choice. (202) Proposals in the 106th Congress provided: A victim . . . shall have the right[] . . . to an order of restitution from the convicted offender. S.J.Res. 3 (106th Cong.); H.J.Res. 64(106th Cong.). Amendment in the 108th Congress. SECTION 2. A victim of violent crime shall have . . . the right to adjudicative decisions that duly consider the victim's . . . interest in . . . just and timely claims torestitution from the offender This appears to be a fairly dramatic withdrawal from the position taken in the proposals of other Congresses. What was a right to a restitution order has become theright to consideration of just and timely victims' claims, appropriate to thecircumstances, weighed against the interests of others, and perhaps only applicableduring proceedings on other matters. As long as the victim's interest in just restitutionwhen asserted in a timely manner is recognized, the Amendment might appear to leavethe law of restitution unchanged. In those jurisdictions where restitution isdiscretionary rather than a matter of right, a victim's interest in restitution appearsto be a factor that must be considered - not a controlling factor, simply a factor. Others see the language differently. Speaking of this portion of the Amendment, one commentator offered an example to illustrate its reach: Jane Doe was beaten and raped in a remote wooded area of Vermont. . . . Her injuries were extensive. . . . When her case wasresolved by way of a plea bargain she was not given the right to speak before the court. Incredibly, the sentence imposed did not order the criminal to pay restitution. Todayhe earns $7.50 an hour making furniture inside the prison walls - and none of it goes toher for her damages and injuries because it was not part of the criminal sentence. If thisprovision had been the law, Jane would today be receiving restitution payments eachmonth. House Hearing IV at 27 (statement of Steven J.Twist). The implication is that in horrific cases, victims have a right to restitution without reference to any other factors. Yet insertion of the word "just" for the first time inthe restitution component of the Amendment presumably calls for consideration ofsuch factors when appropriate. Moreover, it probably precludes restitution claims bythe "ripped-off" drug dealer or others victimized in the course of their own illegalconduct at least in some circumstances. (203) Past proposals explicitly allowed victims to reopen final proceedings in vindication of their right to restitution. That language is gone and in its place is areference to "timely" claims to restitution. The implications are obvious, but thestatement quoted above seems to suggest that "timeliness" may be judged by the dateof the injury, the date of sentencing, or the date on which the offender has theresources to begin paying restitution ("Today [the offender] earns $7.50 an hour makingfurniture inside the prison walls - and none of it goes to her for her damages andinjuries because it was not part of the criminal sentence. If this provision had been thelaw, Jane would today be receiving restitution payments each month"). Section 4 vests Congress with the power to enforce the Amendment through appropriate legislation. In addition, the legislative history points out that, subject toCongress' pre-emptive legislative prerogatives, the state legislatures share withCongress the authority within their own domains to restrict victims' rights in the nameof a substantial interest in public safety or the administration of criminal justice orin response to a compelling necessity. They also continue to enjoy fundamentalauthority to outlaw new forms of misconduct. It is somewhat unclear whether theymay legalize conduct which they had outlawed when the Amendment went into effect. For example, does the Amendment permit a state that outlaws solicitation of variousviolent crimes to reduce the extent of its basic victims' rights coverage by repealingits proscription on solicitation - other than for purposes of public safety, theadministration of criminal justice or compelling necessity? Neither the language ofthe Amendment nor its legislative history seem to provide any clear answer. Contemporary Practices. The grant of legislative implementing authority may shield against the appearance of the unexpected and undesirable consequences discovered after ratification of aconstitutional amendment. The difficulty of amending the Constitution argues for alegislative safety valve. Of course, this argument loses considerable force when oneof the principal reasons for enacting a constitutional amendment rather than merelyenacting a statute is to ensure that the rights it grants are not easily denied ordiluted. One of the perils implicit in opting for extensive legislative powers is the prospect of unfulfilled promises. It is certainly possible to draft a generally wordedconstitutional amendment in anticipation of future legislative refinements. And thesemay be forthcoming. But it may also happen that the refinements must be laboriouslycrafted through the courts because legislative resolution proves either unattainableor less than universally appealing. Past Proposals. Early proposals granted Congress and the state legislatures the power to enact implementing legislation within their respective jurisdictions. (204) Over time, some of theproposals began to expand the explicit legislative authority of Congress (205) and thento constrict the explicit legislative authority of the states. (206) The Senate report in the 105th Congress explained, however, that the loss of state legislative authority was less sweeping than it might have appeared. It asserts that thepower to define the class of victims to whom the proposal would apply was byimplication to be shared by Congress and the states. (207) Subject to preemptive federallegislation, the states were to be permitted to paint the scope of the amendment asbroadly and perhaps as narrowly as they chose. (208) Some Committee members weretroubled by this resolution; (209) some skepticalthat it could hold sway. (210) Proposals further described legislative authority by limiting the power to curtailthe rights they explicitly established: Exceptions to the rights established by this article may be created only when necessary to achieve a compelling interest. This intriguing sentence has appeared in one form or another in several proposed amendments in the past. (211) In the evolutionof the permissible restrictions, the firstproposals granted the Congress and the states authority to "implement" in someinstances, (212) "to enforce" in others, (213) and "to enforce" and create exceptions "forcompelling reasons of public safety" in still others. (214) The diversity continued in the105th Congress, when some of the proposed amendments vested the states and Congress(or simply the Congress) with authority to implement and enforce and some simply withthe power to enforce; in either case, attendant authority to createexceptions-whether in the "public interest" or for "public safety or judicial efficiency"or in the name of a "compelling interest"-became more common. (215) Proposals in the 106th brought uniformity. There were no references to state authority, gone was any express Congressional authority to "implement," onlyCongress' enforcement authority survived. Exceptions could be made but only forreasons of compelling interests. (216) Departurefrom the requirement of earlier versionsthat exceptions be "enacted," implied that exceptions might be crafted eitherlegislatively or judicially. The use of the term "compelling interest," on the other hand, suggested that the authority to create exceptions might be fairly limited. The Senate report on theversion of S.J.Res. 44 where the language first appeared seemed to confirmboth suggestions. (217) Although the reportidentified one unusual (courtroomattendance rights in a case with hundreds of victims) (218) and two commonplacesituations (right to release notification in domestic and gang violence cases) (219) underwhich exceptions might be warranted, several Committee members found the"compelling interest" standard too restrictive. (220) The Justice Department raised thesame objection. (221) Others might havequestioned whether the standard's amorphousnature made it unsuitable. (222) The relevant portions of the proposals in the 106th Congress declared: A victim of a crime of violence, as those terms may be defined by law, shall have the rights . . . . S.J.Res. 3 (106th Cong.). The Congress shall have the power to enforce this article by appropriate legislation. Exceptions to the rights established by this article may be created onlywhen necessary to achieve a compelling interest. H.J.Res. 64 (106th Cong.);S.J.Res. 3 (106th Cong.). Amendment in the 108th Congress. SECTION 4. Congress shall have the power to enforce by appropriate legislation this article. . . . SECTION 2. . . . These rights shall not be restricted except when and to the degree dictated by a substantial interest in public safety or the administration of criminaljustice, or by compelling necessity. In the 108th, some uniformity continues, the states are not mentioned, Congress enjoys explicit legislative authority to enact enforcement mechanisms (but not tomake implementing fixes), but the number of exceptions has grown to include publicsafety, the administration of criminal justice, and compelling necessity. Although, thephrases "substantial interest", "public safety", "administration of criminal justice",and "compelling necessity" probably cannot be considered terms of art, they appearwith varying degrees of regularity in statute and case law. "Substantial interest" surfaces perhaps most frequently in the application of the Central Hudson test. The regulation of commercial speech is subject to an intermediatelevel of First Amendment scrutiny under a four part standard initially articulatedin Central Hudson Gas & Electric Corp. v. Public Service Comm'n , 447 U.S. 557, 566, 569(1980)(emphasis added): "At the outset, we must determine whether the expression isprotected by the First Amendment. . . . Next, we ask whether the asserted governmentalinterest is substantial . If both inquiries yield positive answers, we must determinewhether the regulation directly advances the governmental interest asserted, andwhether it is not more extensive than is necessary to serve that interest." (223) OneCongressional witness has asserted that "substantial interest" as used in theAmendment is intended to incorporate the third and fourth prongs of the CentralHudson test, i.e. , that the government must not only demonstrate a substantialinterest but show how its action furthers that interest and that its action is no moreintrusive than necessary to protect the interest: The 'substantial interest' standard is known in constitutional jurisprudence [ E.g., Central Hudson Gas & Ele.Corp. v. PublicService Comm'n of New York , 447 U.S. 557 (1980). ('The state must assert a substantialinterest to be achieved by commercial speech. Moreover, the regulatory techniquemust be in proportion to that interest.' Id. At 564. The interest must be clearlyarticulated and then closely examined to determine whether it is substantial. TheCourt's analysis at 569 is instructive on this point)] and is intended to be high enoughso that only 'essential' [Webster's New Collegiate Dictionary, 1161 (1977)('Substantial. . . 1 a: consisting of or relating to substance b: not imaginary or illusory: REAL, TRUEc: IMPORTANT, ESSENTIAL. . . .'] interests in public safety and the administration ofjustice will qualify as justifications for restrictions of the enumerated rights. SenateHearing V ; House Hearing V at 46 (statement of Steven T. Twist)(capitalization in theoriginal; footnotes of the original in brackets); see also, Senate Hearing IV at 197; House Hearing IV at 28. The concept of "public safety" may be a bit more amorphous. The Constitution itself refers to public safety in the suspension clause ("The privilege of the writ ofhabeas corpus shall not be suspended, unless when in cases of rebellion or invasion the public safety may require it," U.S.Const. Art.I, �9, cl.2 (emphasis added)). In a broadersense, the phrase may refer to the basis under which the states may validly exercisetheir police powers, (224) or to "the welfare andprotection of the general public." (225) TheSupreme Court has recognized a "public safety exception" to the Miranda rule whichpermits admissibility of the statements of defendant in custody notwithstanding theabsence of Miranda warnings when the statements were elicited in the interest of publicsafety. (226) A more recent observation declaredthat "[w]here publication of privateinformation constitutes a wrongful act, the law recognizes a privilege allowing thereporting of threats to public safety ." (227) There may be some question whether exceptions may be drawn to protect a single individual when no one else in threatened or to render safe areas from which thegeneral public is ordinarily excluded ( e.g. , prisons). One congressional witness hasespoused such a broad application: In discussing the compelling interest standard of S.J.Res. 3, the Senate Judiciary Report noted, 'In cases ofdomestic violence, the dynamics of victim-offender relationships may require somemodification of otherwise typical victims' rights provisions. This [provision] offers theability to do just that . . . . [Moreover] situations may arise involving intergangviolence, where notifying the member of a rival gang of an offender's impending releasemay spawn retaliatory violence. Again, this provision provides a basis for dealing withsuch situations.' 'Public safety' as used here includesthe safety of the public generally, as well as the safety of identified individuals. [See Bartnicki v. Vopper , 532 U.S 514 (2001)(where a 'public safety' threat was to identifiedschool board members]. Senate Hearing V; House Hearing V at 46 (statement of StevenT. Twist); see also, Senate Hearing IV at 198; House Hearing IV at28. The outer limits of the term "administration of criminal justice" seem even more uncertain. The Supreme Court apparently understands the "administration of criminaljustice" to describe judicial proceedings associated with the trial of criminal offenses,whether the phrase contemplates official activities ancillary to those proceedings isless clear. (228) One witness in the hearingstranslated the term to mean "the proceduralfunctioning of the [criminal trial] proceeding." (229) Another voiced concern over theimpact on prison administration of such a narrow reading. (230) The Court has used the term "compelling necessity" in two environments: (1) todescribe the burden a party must bear when seeking disclosure of grand juryinformation, i.e. , "particularized need;" (231) and (2) to describe the burden the governmentmust bear to justify regulatory intrusion upon a fundamental constitutional right, i.e., "compelling interest." (232) Ineither case, the "compelling necessity" standard maybe less burdensome than the "substantial interest" standard that attaches to publicsafety restrictions and perhaps to restrictions in the name of the administration ofcriminal justice ("These rights shall not be restricted except when and to the degreedictated by a substantial interest in public safety or the administration of criminaljustice, or by compelling necessity"). (233) When interpreting the Amendment, courts might favor the compelling interest option because it alludes to a governmental burden while particularized need is aburden ordinarily shouldered by a private party. On the other hand, the frequent useof "compelling interest" in earlier proposed amendments may indicate that the draftersswitched to "compelling necessity" with a different standard in mind. House witnessesfelt "compelling necessity" called for a demanding "strict scrutiny" standard. (234) The Senate Judiciary Committee report in the 108th Congress briefly explains its understanding of the restrictions clause. It expects recourse to the clause will occuronly rarely and supplies three examples of when the clause might be called upon - inthe case of crimes with catastrophic consequences ("mass victim cases"); in domesticviolence cases; and in cases of "inter-gang violence," S.Rept. 108-191 at 41. Many of the Amendment's rights are subject to a rule of reasonableness that seems to afford flexibility in mass victim cases. There is, however, no such explicitlimitation upon the right not to be excluded, and it is here that the Committee believesthe restriction clause might come into play. (235) The Committee is comparably precise inits observation that the clause might be invoked "where notifying the member of a rivalgang of an offenders' impeding release may spawn retaliatory violence," id. The gangexample may serve the added purpose of clarifying the scope of the Amendment's rightto reasonable and timely notice of the release or escape of an accused. When theCommittee identifies gang retaliation as an example of where the restriction clausemay prove beneficial, it suggests that otherwise concern for offender safety may notbe considered in formulating and implementing reasonable victim notificationprocedures. This has obvious implications in a domestic violence situation and may be what the Committee had in mind when it offered the domestic violence example. Yet, the reportis cryptic as to when the use of the restrictions clause might be appropriate ornecessary in a domestic violence case. It simply declares that, "in some cases ofdomestic violence, the dynamics of victim-offender relationships may require somemodification of otherwise typical victims' rights provisions," id. The report doesconfirm the Committee's understanding of the clause's use of the terms "substantialinterest" and "compelling necessity," refers to the standards developed by the SupremeCourt, with the added observation "that defendants' constitutional rights may wellmeet this standard in many cases," S.Rept. 108-191 at 41-2. The restriction clause mentions neither Congress nor the states. Earlier versions spoke of state authority in the area. The omission might be considered telling, or it maybe that such a construction is too wildly impractical to have been intended. It may bethat the restrictions clause may only be activated by Congress acting pursuant to theenforcement authority the Amendment confers in section 4. Perhaps, in the absence ofa statute no restriction may be found. On the other hand, the Committee report beginsits discussion of the restrictions clause by noting that the First Amendment notabsolute and that "[c]ourts interpreting the Crime Victims' Rights Amendment will nodoubt give a similar common sense construction to its provisions," S.Rept. 108-191 at 41. The implication is that the courts, in most instances at least initially the state courts,will be the ones to determine whether the circumstances in a particular case warrantthe application of the restrictions clause. Section 4 of the Amendment empowers Congress to enact legislation to facilitate its enforcement. Section 3 insists that only victims and their representatives may seekto enforce rights under the Amendment; those accused of the crime may not. The reliefavailable may not include a claim for damages or the right to have completed trialsreopened to vindicate victims' rights. Other sections color the relief available bycircumscribing the Amendment's right to notice and to be heard with a rule of reasonand by allowing federal - and possibly state - executive, legislative and judicialbranches to restrict victim's rights in the face of substantial interests in public safetyor the administration of criminal justice or when faced with compelling necessity. Thehistory of the Amendment raises some question of the extent to which indigent victimswould be entitled to the assistance of appointed counsel to assert their rights. Contemporary Practices. Most victims' rights statutes and state constitutional amendments limit the means available to enforce them. No jurisdiction seems to have outlawed the failure toafford victims' rights. The denial of a victim's rights does not appear to expose anyofficial to criminal liability. (236) Moreover,officials commonly enjoy immunity fromcivil liability, either directly or by provisions that deny that the victim's rights giverise to a cause of action for their enforcement. (237) Even without theseno-cause-of-action clauses, many victims' rights edicts expressly preclude revisitingdecisions in the criminal justice system in order to correct a denial of victims' rightsor have other provisions designed to prevent offenders from claiming the benefits ofvictims' rights. (238) In contrast, federal law exposes those who violate rights guaranteed by the United States Constitution to both criminal and civil liability. (239) Past Proposals. Historically the enforcement sections of proposals to amend the Constitution have had at least four features. First, they grant victims standing to assert theirrights. Second, they deny defendant's prerogative of claiming the rights of victims. Third, as discussed above, they grant Congress and/or the state legislatures theauthority to enact enforcement legislation. Fourth, they have limited theenforcement options available to victims in the absence of legislation, and arguablylimited the legislative authority to craft enforcement mechanisms. They haveincluded no-cause-of-action clauses, clauses banning review of judicial decisions, andclauses limiting who might call for enforcement. (240) Proposals in the 106th Congresswere similar to predecessors, but opened the door for victims to revisit judicialdeterminations concerning restitution and bail or other forms of conditional release: Only the victim or the victim's lawful representative shall have standing to assert the rights established by this article. Nothing in this article shall providegrounds to stay or continue any trial, reopen any proceeding or invalidate anyruling, except with respect to conditional release or restitution or to providerights guaranteed by this article without staying or continuing a trial. Nothingin this article shall give rise to a claim for damages against the United States, aState, a political subdivision, or a public official. H.J.Res. 64 (106thCong.); S.J.Res. 3 (106th Cong.). The Senate Judiciary Committee anticipated that allowing victims to challenge decisions concerning bail, restitution, and future proceedings would pose nounacceptable threat to the finality of criminal proceedings (unlike the prerogative toan order to reopen, stay, or grant a continuance of a trial), S.Rept. 106-254 at 40. TheDepartment of Justice, however, objected to the prospect of a want of finality inrestitution cases, (241) and some members of theCommittee had earlier expressed concernover the provision's operation in bail cases. (242) The Committee likewise anticipated that the no-damages clause would "prevent the possibility that the proposal might be construed by courts as requiring theappointment of counsel at State expense to assist victims, Cf., Gideon v. Wainwright , 372U.S. 335 (1963)(requiring counsel for indigent criminal defendants)," S.Rept.106-254 at41. (243) The Committee's observation issignificant because without it the courts mighteasily reach the opposite conclusion. Without it, the evidence seems to bespeak anintent to supply indigents with a legal representative at public expense. TheCommittee's citation to Gideon appears designed to point out that without thelimitation victims, like the accused, would be entitled to the assistance of counselduring proceedings related to the crime. (244) Without the observation, the due processand equal protection clauses might seem to require the appointment of counsel forindigent victims. Even the presence of the damage claim limitation alone might havebeen considered insufficient, since attorneys' fees are not ordinarily considered anelement of damages. (245) Moreover, if anegalitarian right to representation wereembedded in the victims' rights amendment it could be enforced by invoking theinjunctive or other equitable powers of the courts. This would be so even though theprospect of damages (with or without attorneys' fees) had been foreclosed. On theother hand, only a few of the states have seen the necessity to explicitly announcethat their comparable victims' rights laws do not include the right to appointedcounsel. (246) Recall the proposals of the 106th Congress: Only the victim or the victim's lawful representative shall have standing to assert the rights established by this article. Nothing in this article shall providegrounds to stay or continue any trial, reopen any proceeding or invalidate anyruling, except with respect to conditional release or restitution or to providerights guaranteed by this article without staying or continuing a trial. Nothingin this article shall give rise to a claim for damages against the United States, aState, a political subdivision, or a public official. H.J.Res. 64 (106thCong.); S.J.Res. 3 (106th Cong.). Amendment in the 108th Congress. SECTION 3. Nothing in this article shall be construed to provide grounds for a new trial or to authorize any claim for damages. Only the victim or the victim'slawful representative may assert the rights established by this article, and noperson accused of the crime may obtain any form of relief hereunder. The Amendment is clearly not the same as its antecedent in the 106th Congress. It does continue to preclude new trials as an enforcement mechanism. It has replaced aban on causes of action for damages with a ban on claims for damages. Although any right to recover damages against the United States is often referred to as a claimrather than a cause of action, the courts seem unlikely to construe the change as onewhich exposes all but the United States to an action for damages without a moreexplicit indication of such an intent. (247) Thepreservation of the damage ban may beconsidered sufficient to bring with it the construction suggested for earlier bans tothe effect that they contained within them a proscription against requiring theappointment of counsel to assist victims to claim their rights. (248) Gone from the Amendment is the previous repudiation of "grounds to stay or continue any trial, reopen any proceeding or invalidate any ruling." The Amendmentprecludes new trials and damage claims, but on its face seems to allow the courts toentertain victims' petitions to enforce their rights in virtually any other context. (249) At least one witness expressed reservations on this very ground. (250) Other sections ofthe Amendment, however, may alleviate these concerns. Section 4 gives Congress the power to enact enforcement legislation. Comparable powers have been said in the past to reside in the states. (251) Section 2 may supply eitheran alternative or supplemental basis for limiting victim's remedies to retrospectiverelief. It bars legislation or judicial action in derogation of the rights that theAmendment creates " except when and to the degree dictated by a substantial interestin public safety or the administration of criminal justice, or by compelling necessity." Refusing to reopen completed judicial proceedings or to entertain disruptiveinterlocutory appeals may be precisely the kind of exception in the name of thesubstantial interests in the administration of criminal response that the sectionenvisions. Moreover, Section 2 is often more circumspect in the rights it grants than were some of the past proposals. Section 2 cabins the right to heard under a rule ofreasonableness ("the right[] . . . reasonably to be heard at . . . proceedings'), where onceno such express limitation could be found. Victims could once have anticipated thepromise of "right [] to an order of restitution" and of the opportunity to contest afterthe fact any failure to honor that right, H.J.Res. 64/S.J.Res. 3(106th Cong.). The authors of the Amendment's Section 2 decide instead to offer victims"adjudicative decisions that duly consider [their] . . . interest in just and timely claimsto restitution." The concern expressed by the Department of Justice in connection withproposals in the 106th seems have been addressed by the change. Section 3 of the Amendment has another modification of interest. It words negatively the clause that once granted victim standing: "Only the victim or thevictim's lawful representative may assert the rights established by this article." Thishas been characterized as a grant of victim standing, (252) but it seems to say more. Firstcoupled with the clause that follows ("no person accused of the crime may obtain anyform of relief hereunder"), it appears to bar defendants (unless they are also victims)from claiming the Amendment as either a sword or shield. Second, it makes it difficultfor the government to claim the Amendment on behalf of victims, or at least on behalfof individual victims. Third, it implies a right to have a lawful representative, andperhaps by operation of the equal protection clauses of the Fifth and FourteenthAmendments, for indigent victims to have a representative appointed. (253) The final clause in Section 3 declares that, "no person accused of the crime may obtain any form of relief hereunder." This seems to mean an individual may not claimthe rights of one whom he victimizes. The presence of the term "the crime," however,indicates that an individual may be entitled to the Amendment's benefits as victim ofone crime notwithstanding the fact that he or she has been accused or convicted of adifferent offense. References to "a person accused of the crime" rather than "the offender" raises the question of whether the ban (on an accused obtaining any form of relief under theAmendment) disappears upon conviction when the offender is no longer the accused. But a person accused of the crime and subsequently either convicted or acquitted may still accurately be described as "the accused," yet the individual may still accuratelybe described as "the person accused." The first is a statement of current status; thesecond a statement of historical fact. Later courts, however, may conclude that thedistinction was not intended. The Amendment goes into effect 180 days after ratification by the states. There is some question whether the Amendment applies to all proceedings and decisionsoccurring after the effective date or only to those involving crimes occurring afterthe effective date. Contemporary Practices. Constitutional amendments become effective upon ratification by three-fourths of the states, U.S.Const. Art. V. The Constitution does not mention any period of timewithin which three-fourths of the states must ratify, but most proposed amendmentsinsist upon ratification within seven years. Like any other provision, the constitutionalprovisions for ratification are subject to amendment. Proposed amendments notinfrequently include a delayed effective date in order to allow for the passage ofimplementing legislation. Past Proposals. The first victims' rights proposals called for ratification within seven years as part of their enacting clauses. (254) One madeit expressly applicable to all proceedingssubsequent to ratification rather than to proceedings relating to crimes committedafter ratification, S.J.Res. 65 (104th Cong.)("The rights established by thisarticle shall be applicable to all proceedings occurring after the ratification of thisarticle"). Each successive proposal brought these two elements with it (seven yearratification and application to proceedings rather than to crimes occurring afterratification). They each added a third element, a 180 day delayed effective date. (255) Resolved by the Senate and House of Representatives of the United States of America in Congress assembled (two-thirds of each House concurring therein), That thefollowing article is proposed as an amendment to the Constitution of the UnitedStates, which shall be valid to all intends and purposes as part of the constitutionwhen ratified by the legislatures of three-fourths of the several States, within sevenyears from the date of its submission by the Congress. SECTION 4. This article shall take effect on the 180th day after ratification of this article. The right to an order of restitution established by this article shall not applyto crimes committed before the effective date of this article. Amendment in the 108th Congress. Resolved by the Senate and House of Representatives of the United States of America in Congress assembled (two-thirds of each House concurring therein), That thefollowing article is proposed as an amendment to the Constitution of the UnitedStates, which shall be valid to all intends and purposes as part of the constitutionwhen ratified by the legislatures of three-fourths of the several States, and whichshall take effect on the 180th day after ratification of this article. (256) SECTION 5. This article shall be inoperative unless it shall have been ratified as an amendment to the Constitution by the legislatures of three-fourths of the severalStates within seven years from the date of its submission to the States by the Congress.This article shall take effect on the 180th day after thedate of its ratification . (257) The House and Senate revisions of the Amendment differ only in that the House includes its effective provision in the enacting clause and the Senate places it section5. It seems a distinction without a difference. Substantively, the 180 day effective dateno longer carries the restitution order exception found in some of the earlierproposals. The special exception may have been thought unnecessary after the timelessand unqualified right to a restitution order was abandoned in favor of a right to dueconsideration of timely and just restitution claims. On the other hand, past proposals and their accompanying legislative history made it clear that the Amendment applied to proceedings related to crimes occurring afterits effective date. (258) Courts may take specialnote of the Amendment's departure fromthat history, for the change seems to suggest that it is the date of the proceedings andnot the date of the victimizing crime that is critical now. The Senate JudiciaryCommittee apparently concurs for it goes out its way to document its agreement withthe courts that have found no ex post facto impediment to the retroactive applicationof restitution liability changes. (259) Thedifficulties associated with notification rightsof the victims of crimes committed decades ago could be considerable. | Thirty-three states have added a victims' rights amendment to their state constitutions. S.J.Res. 1 / H.J.Res. 48 / H.J.Res. 10 would add a victims'rights amendment to the United States Constitution. The amendment is identical to proposalsoffered in the 107th Congress ( S.J.Res. 35 / H.J.Res. 88 / H.J.Res. 91 ) and has been endorsed by the President. Similar proposals date backto the 104th Congress. The proposed amendment grants the victims of state and federal violent crimes the right: - to reasonable and timely notice of public proceedings relating to the crime; - to reasonable and timely notice of the release or escape of the accused; - not to be excluded from such public proceedings; - reasonably to be heard at public release, plea, sentencing, reprieve, and pardon proceedings;and - to adjudicative decisions that give due consideration to victims' interests in their safety, inavoiding unreasonable delay and to consideration of their just and timely claims for restitutionfrom the offender. The rights may not be restricted except to the extent dictated by a substantial interest in public safety or the administration of criminal justice or by compelling necessity. Only victims and theirrepresentatives may enforce the rights, but they may not do so through a claim for damages orrequest to reopen a completed trial. Congress is otherwise empowered to enact legislation for theamendment's enforcement. The proposed amendment is the product of efforts to reconcile victims' rights, the constitutional rights of defendants, and prosecutorial prerogatives. The hearings on current and past proposals andthree Senate Judiciary Committee reports ( S.Rept. 108-191 ; S.Rept. 105-409 ; S.Rept. 106-254 )provide insight as to the intent of language used and proposed language implicitly rejected. Proponents and their critics disagree over the need for the proposed Amendment, its meaning, its propriety, its costs, and its effect on federalism. This report appears in abridged form under the title Victims' Rights Amendment: A Sketch of a Proposal in the 108th Congress to Amend the United States Constitution , CRS Report RS21434 . |
An administrative agency may generally only exercise that authority which is provided to it by Congress. Often, however, congressional delegations of authority are imprecise, and, as a result, agencies must construe ambiguous terms and make interpretive decisions in order to implement Congress's delegation. The Supreme Court, in Chevron U.S.A., Inc. v. Natural Resources Defense Council , outlined a limited role for courts in reviewing these types of agency interpretations. The Chevron test, which has been cited and followed thousands of times by federal courts since 1984, requires courts to enforce the clearly expressed intent of Congress. In the absence of such clarity, Chevron instructs reviewing courts to defer to an agency's construction of an ambiguous statute if the agency's interpretation is reasonable. Under Chevron then, it is generally left to federal agencies, and not the courts, to resolve ambiguities necessary to interpret and implement authority provided to the agency by Congress. This report will discuss the Chevron decision; explain when Chevron deference applies; highlight common agency statutory interpretations that generally do not receive deference under Chevron ; and review the recent Supreme Court opinion in City of Arlington v. FCC which clarified the applicability of Chevron deference to circumstances in which an agency is interpreting the scope of its own jurisdiction. In 1970, amendments to the Clean Air Act (CAA) established a federal-state program to abate air pollution. The statute called for the Environmental Protection Agency (EPA) to promulgate national ambient air quality standards (NAAQS) for certain air pollutants, and required the states to establish state implementation plans (SIPs) that would allow them to attain the air quality requirements established by the NAAQS. In 1977, Congress amended the CAA in order to impose certain requirements on states that had failed to achieve the national air quality standards promulgated by the EPA. The amendments required states that had not attained the established air standards to implement a permit program that would regulate "new or modified major stationary sources" of air pollution. A permit could not be granted for any new or modified major stationary source unless certain strict conditions were satisfied. A permit would not be necessary, however, if a modification would not result in an increase in air pollutant emissions. Under regulations promulgated by the EPA, a "stationary source" was not defined as an individual piece of equipment (e.g., a smokestack), but rather as the entire plant where many pollutant-producing structures may be located. The EPA, therefore, treated numerous pollution-creating structures collectively as a single "stationary source," if those structures were part of the same larger facility or complex. This concept was commonly referred to as "bubbling." With this regulation in force, a facility could modify or construct new pollution-emitting structures as long as the stationary source—the facility as a whole—did not increase its pollution emissions. The Natural Resources Defense Council (NRDC), an environmental advocacy group, opposed the EPA's definition of "stationary source" and filed a legal challenge to the agency's regulations. The NRDC sued the Administrator of the EPA in the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit), seeking review of the EPA's interpretation of the Clean Air Act Amendments of 1977. The NRDC argued that the EPA's interpretation of "stationary source" was impermissible—that is, that the EPA had to treat all individual pieces of equipment (e.g., each smokestack) as a "stationary source." Chevron U.S.A., Inc., and other industry groups were granted leave to intervene and argue in support of the EPA's position. In an opinion written by then Circuit Judge Ruth Bader Ginsburg, the D.C. Circuit agreed with the NRDC and set aside the EPA regulations. The D.C. Circuit noted that the CAA "does not explicitly define what Congress envisioned as a 'stationary source,' to which the permit program ... should apply" and found that the issue was not clearly addressed in the legislative history. Without clear text or intent from Congress, the D.C. Circuit determined that "the purposes of the non-attainment program should guide" the court's decision. The court ruled that the purpose of the nonattainment program was to expeditiously improve air quality, and that the "bubbling" concept applied by the EPA merely promoted the maintenance of current air quality standards by allowing the industry to avoid the permit process with offsets when it creates new or modifies existing pollution-emitting equipment. Chevron U.S.A., Inc., an intervenor, petitioned the Supreme Court for certiorari. The Supreme Court, in an opinion by Justice John Paul Stevens, unanimously reversed the D.C. Circuit decision by a vote of 6-0. The Court noted that "[t]he basic legal error of the Court of Appeals was to adopt a static judicial definition of the term 'stationary source' when it had decided that Congress itself had not commanded that decision." In so ruling, the Court established that it is not the judiciary's place to establish a controlling interpretation of a statute delegating authority to an agency, but, rather, it is the agency's job to "fill any gap left, implicitly or explicitly, by Congress." The Court noted that because Congress has expressly delegated to the administrative agency the authority to interpret the statute through regulation, a judge must not substitute his own interpretation of the statute in question when the agency has provided a permissible construction of the statute. In reaching its decision, the Supreme Court established a two-part test, commonly referred to as the Chevron two-step, to be applied when a court is reviewing an agency's statutory interpretation. The Court announced: When a court reviews an agency's construction of the statute which it administers, it is confronted with two questions. First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute. The Court then proceeded to apply the test to the facts of the immediate case. First, the Court had to determine whether Congress had spoken clearly on the question at issue or if the statutory provisions were ambiguous. During the rulemaking process, the EPA explained that the definition of "source" was not fully addressed in the statute or the legislative history. The Court agreed, stating that "the language of [the statute] simply does not compel any given interpretation of the term 'source.'" Furthermore, the legislative history associated with the CAA amendments was "silent on the precise issue." The Court noted that the statutory language and the legislative history, instead of being clear, evinced the notion that the EPA should balance the objective of allowing continued economic growth in nonattainment areas with the objective of decreasing pollution emissions. Having concluded that the provision in question was sufficiently ambiguous, the Court moved on to step two, evaluating whether the statutory construction provided by the agency was "permissible." In its proposed and final rulemaking, the EPA noted that adopting an individualized equipment definition of "source" could disincentivize the modernization of plants, if industry had to go through the permitting process to create changes. Therefore, the EPA believed that adopting the plantwide definition of "source" could result in reduced pollution emissions. Considering the statute's competing objectives of permitting economic growth and reducing pollution emissions, the Court stated that "the plantwide definition is fully consistent with one of those concerns—the allowance of reasonable economic growth—and, whether or not we believe it most effectively implements the other, we must recognize that the EPA has advanced a reasonable explanation for its conclusion that the regulations serve the environmental objectives as well." The Court upheld the EPA's definition of the term "stationary source" and reversed the D.C. Circuit's judgment. It noted that "the Administrator's interpretation represents a reasonable accommodation of manifestly competing interests and is entitled to deference: the regulatory scheme is technical and complex, the agency considered the matter in a detailed and reasoned fashion, and the decision involves reconciling conflicting policies." The Supreme Court elucidated several reasons for favoring a restrained judicial role while granting deference to an agency interpretation of an ambiguous statute. First, the Court noted that when Congress enacts an ambiguous statutory delegation, it has, in effect, delegated to the agency it has empowered the authority to clarify the ambiguity. Congress made a conscious choice in selecting a specific agency to implement the statutory delegation, and the courts, the Supreme Court reasoned, should respect Congress's decision by granting the agency the ability to interpret the statute Congress has charged it with administering. Moreover, the Court noted that interpreting a statutory ambiguity is akin to making a policy decision on how to implement a statutory program. Agencies and legislators are best suited to balance applicable considerations and to resolve debates regarding competing, acceptable interpretations of an ambiguous delegation. Second, agencies have technical expertise in the field in which they are acting, and are therefore in a better position to make appropriate policy decisions as part of a large and complex regulatory scheme. Courts, on the other hand, lack such expertise. In Chevron , the Court specifically acknowledged that "judges are not experts in the field," and thus "may not substitute [their] own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency." Finally, administrative agencies are politically accountable—though not directly—through the democratic process. Although courts are called to reconcile political preferences in certain circumstances, they should not do so when the power to implement the statute has been delegated to an administrative agency. The Court noted that an Administration has the authority to implement its policy judgments through the permissible interpretation of a statute. If the agency's, and by extension the Administration's, permissible construction of a statute is undesirable, the electorate may have its voice heard through the democratic process. The Chevron two-step test can be summarized as follows: First, if Congress has spoken clearly on an issue, the express words of the statute must be followed—the agency cannot deviate from the statutory text. However, if the statute is ambiguous or silent, the Court must determine whether the agency's construction of the statute is "permissible." This test is a deferential standard for judicial review. A reviewing court shall not determine whether the agency's construction is the most obvious or the best interpretation of the statute in question, but, instead, must yield to the agency's construction if it is merely a "permissible" reading of the statute. Some scholars have noted that the significance of this decision cannot be underestimated, arguing that it created a "counter- Marbury for the administrative state" because " Chevron seemed to declare that in the face of ambiguity, it is emphatically the province and duty of the administrative department to say what the law is." In order to understand the broad implications of the Chevron test, the following sections take a closer look at the application of the test as it has evolved since the Chevron decision. As previously mentioned, the first step of the Chevron test requires a court to determine whether Congress has clearly spoken on the issue in question. How should courts review statutory language to determine whether Congress has been clear? The Supreme Court, in a footnote, established that courts should use the "traditional tools of statutory construction" in order to ascertain whether "Congress had an intention on the precise question at issue." Courts will use the structure of a statute to determine whether other sections of an act inform how the statutory provision in question should be evaluated. Courts routinely use dictionaries to help ascertain the meaning of statutory language. The purpose of the legislation (e.g., to reduce air pollution) can also be helpful in determining whether Congress has spoken clearly on an issue. However, it is worth noting that the use of legislative history as a means of statutory interpretation has been a controversial subject. The debate over the use of legislative history in Chevron step one stems from a much broader doctrinal debate between judges who believe legislative intent should be used to interpret statutes and judges who believe that the text of a statute is the only reliable means of determining a statute's meaning. However, it is common practice to consider legislative history during the first step of the Chevron test. Some commentators note that because step two of the Chevron test provides substantial deference to an agency's interpretation, successful challenges to an agency interpretation are typically won at step one of the Chevron test. If a court determines that the statutory language is ambiguous or silent on the particular issue in question, the court must then consider whether the agency's construction of the statute is a "permissible" one. If the court determines that it is, then it must give controlling effect to the agency's interpretation. In other words, the court must defer to the agency's interpretation unless that interpretation is unreasonable. This deference has led most courts to rule in favor of an agency's interpretation once the analysis of an agency interpretation reaches step two. It is important to note that a court must defer to the agency's interpretation even if it is not the meaning that the court would give to the statute. The court is not permitted to substitute its own judgment for that of the agency's if the agency's interpretation is allowed by the statute. The Court stated, in Chevron , that "the court need not conclude that the agency construction was the only one it permissibly could have adopted to uphold the construction, or even the reading the court would have reached if the question initially had arisen in a judicial proceeding." However, the Supreme Court has provided little guidance as to how a court should evaluate whether the agency's interpretation is "permissible" or "reasonable" under Chevron step two. Oftentimes, in order to discern whether the agency's interpretation is reasonable, a court will consider whether the agency's position comports with the overall purpose and goal of the statute in question. For example, in Chevron , the Supreme Court noted that the agency's interpretation "of the term 'source' is a permissible construction of the statute" in light of the statute's goals "to accommodate progress in reducing air pollution with economic growth." The Seventh Circuit has suggested that because the statute is necessarily ambiguous when a court reaches step two of the Chevron test, "about all the court can do is determine whether the agency's action is rationally related to the objectives of the statute containing the delegation." Many courts take this approach for evaluating whether the agency's interpretation is permissible under the statute. For example, in Natural Resources Defense Council, Inc. v. EPA , the D.C. Circuit noted that, under step two of Chevron , "the agency's interpretation must be sustained if it is reasonable in light of the language, legislative history, and policies of the statute." In that case, the D.C. Circuit upheld an EPA regulation concerning the Clean Water Act, noting that "[w]e are persuaded that EPA's reading of the statute, while not the only plausible one, is reasonable." First, the court noted that the language of the statute was "confusing." Then, at step two of the Chevron test, the court determined that, given the overarching goals of the Clean Water Act, the EPA's regulation "reasonably balances and resolves the competing Congressional goals reflected in the provision." At step two, the court looked at the agency interpretation and compared it with the overarching policy objectives of the statute to determine that the agency's construction was a permissible interpretation of the ambiguous statutory provision. Kennecott Utah Copper Corp. v. United States Department of the Interior provides another example of this approach to Chevron step two. The Department of the Interior promulgated regulations concerning when the statute of limitations for damages for certain oil spills would begin to run. The statute provided that the statute of limitations began on the date that the agency "promulgated" its rules. The court thus had to consider the point at which a rule is considered "promulgated." Does it occur when the agency announces the rule? Or does it occur after the rule has been finalized and all judicial proceedings regarding the rulemaking have been concluded? The agency interpreted the provision to mean the latter of the two competing possibilities, which would allow the agency to extend the time that businesses would be exposed to potential damages. In this case, the court determined at step one that the term "promulgated" was indeed ambiguous. However, at step two, the court determined that the agency's construction was "not a reasonable interpretation of the statute, viewed with an eye to its structure and purposes." The court determined that Congress did not intend to allow the agency to prolong the limitations period for damages because the limitation provision was included to ensure that industry did not have to worry about being brought to court for actions taken in the past. Although the Supreme Court has never specifically stated how the test should proceed, many lower courts and scholars note that the second step of Chevron tends to conflate with arbitrary and capricious review under the Administrative Procedure Act (APA). The D.C. Circuit, which hears a substantial number of administrative law cases, has noted on numerous occasions that the two tests "overlap at the margins." Indeed, under an arbitrary and capricious review, an agency must show that the agency's policy decision is rationally related to the statute's policy goals, and that the decision comports with the structure of the statute. As noted above, this approach seems helpful for determining whether the agency's interpretation is a reasonable construction of an ambiguous statutory provision. Some courts have thus held that an agency rule fails under Chevron step two if it would fail the Supreme Court's arbitrary and capricious test from Motor Vehicle Manufacturers Association v. State Farm Mutual Automobile Insurance Company ( State Farm ). Some scholars suggest that courts should universally treat Chevron step two as an analysis under the State Farm test. However, the two tests are not necessarily identical. Under State Farm and its progeny, an agency must show not only that its decision is rationally related to the statute's purpose and objective, but also that it developed a proper record, considered the necessary facts, and considered possible alternatives when reaching its policy decision. The agency must also show that the policy decision is rationally related to the facts established by the record. These portions of the arbitrary and capricious test examine the agency's decision-making process, rather than whether the final decision would be prohibited by the terms of the statute, which is the ultimate goal of the Chevron inquiry. The Supreme Court has imposed a number of important limitations on the types of agency interpretations that, as a threshold matter, qualify for Chevron deference. Two such limitations are discussed in detail below. First, the Chevron decision made clear that a court need only accord deference to an agency interpretation of a statute the agency "administers." This limitation was due in part to the fact that an agency develops greater expertise with respect to policy areas and statutes that it specifically administers and implements, and because Congress chose to delegate authority in the area to that specific agency. However, these underlying justifications for Chevron deference generally do not apply to statutes regarding the federal bureaucracy more broadly. Agency interpretations of statutes that apply to all, or many agencies, and are not administered by any one specific agency, will generally not be accorded deference under Chevron . This includes agency interpretations of statutes such as the APA, the Freedom of Information Act, the National Environmental Policy Act, and other widely applicable statutes. Second, the Court has also held that only interpretations arrived at through certain procedures qualify for Chevron deference. In Christensen v. Harris Count y , the Court held that interpretations reached through nonlegislative rules, such as opinion letters, guidance documents, policy statements, interpretive documents, and agency manuals, do not qualify for Chevron deference. The Court drew a distinction between interpretations reached in formal adjudications and notice-and-comment rulemaking, which warrant deference, and informal agency interpretations lacking the "force of law," which do not. Thus, the thoroughness of the procedures employed by the agency in reaching its interpretation may determine whether deference is accorded to the agency conclusion. The Court elaborated on the principle established in Christensen in United States v. Mead Corp . In Mead , the Court held that a U.S. Customs Service letter ruling was not entitled to Chevron deference. In reaching that conclusion, the Court held that "administrative implementation of a particular statutory provision qualifies for Chevron deference when it appears that Congress delegated authority to the agency generally to make rules carrying the force of law , and that the agency interpretation claiming deference was promulgated in the exercise of that authority ." Mead established that the applicability of Chevron deference would turn not only on the process through which the agency adopted its interpretation, but also the extent to which Congress had intended to delegate authority to the agency to reach definitive interpretations. Mead further suggested that an agency interpretation need not necessarily be reached by notice-and-comment rulemaking or formal adjudication in order to receive Chevron deference. An agency could show the necessary delegation of authority "in a variety of ways, as by an agency's power to engage in adjudication or notice-and-comment rulemaking, or by some other indication of a comparable congressional intent . " The "force of law" standard from Mead has not been clearly articulated. In Mead itself, the majority noted that the determination was not simply whether the interpretation was made via rulemaking, "for we have sometimes found reasons for Chevron deference even when no such administrative formality was required and none was afforded." To further obfuscate the threshold question, the Court has also identified a number of additional factors to be considered in determining whether a specific interpretive process is one that qualifies for Chevron deference. In Barnhart v. Walton , for example, the Court referenced the importance of "the interstitial nature of the legal question, the related expertise of the Agency, the importance of the question to administration of the statute, the complexity of that administration, and the careful consideration the agency has given the question over a long period of time." Given the confusion associated with the Mead standard, Justice Scalia, who has opposed the additional threshold layer imposed by Mead and its progeny, has argued in dissent that the Court will be "sorting out the consequence of the Mead doctrine ... for years to come." The Supreme Court recently clarified a long-running dispute over whether an agency's interpretation of the reach of its own jurisdiction (i.e., its power to act) is a type of interpretation that qualifies for Chevron deference. In City of Arlington v. FCC , the Court held that agency jurisdictional determinations, like other statutory interpretations, do indeed warrant deference under Chevron . At issue in the case was the Federal Communications Commission's (FCC's) declaratory ruling that clarified a provision from the Telecommunications Act of 1996 (TCA). Although the TCA establishes certain requirements and procedures for submitting applications for the siting of wireless service facilities, most of the authority over siting remains with state and local governments. However, the act provides that a state or local government must act on a siting application "within a reasonable period of time after the request is duly filed." In order to clarify this provision, the FCC, after notice and comment, promulgated a declaratory ruling that specified the number of days that is presumptively "reasonable" for a state or local government to make a determination on a siting application. The city of Arlington sued the FCC, challenging the agency's authority to establish a specific and binding interpretation of the TCA provision. The issue before the Supreme Court was not whether the established deadline is reasonable, but whether the agency has the authority under the statute to issue the declaratory ruling at all. The city of Arlington argued that Chevron should not apply when an agency is determining the scope of its authority to take an action under a statute, noting that this is a "pure legal issue" that "does not touch on the agency's specialized or technical expertise." For example, in Chevron , there was no question that the EPA had the authority to create rules pertaining to stationary sources; the only question was whether the agency's interpretation of what "source" meant was acceptable under the statute. In City of Arlington , the question was whether the FCC had the authority to interpret the phrase "reasonable period of time" at all, or whether this issue was supposed to be in the purview of the states that act on the siting permits. The city of Arlington called for the Court to review the question de novo , because providing an agency with deference for jurisdictional questions could invite an agency to assume more power than Congress intended to delegate. However, the Court did not agree. Justice Scalia, writing for five Justices, declared that the "distinction between 'jurisdictional' and 'nonjurisdictional' interpretations is a mirage." Instead, Justice Scalia noted that whenever a court faces a case concerning an agency's interpretation of a statute it administers, the question is "always, simply, whether the agency has stayed within the bounds of its statutory authority ." According to the Court, the appropriate way to answer this question is by applying the now famous " Chevron two-step" test. If the statute is ambiguous, and the agency's interpretation is permissible, the agency's interpretation must stand. Courts, according to Justice Scalia, "should not waste their time in the mental acrobatics needed to decide whether an agency's interpretation of a statutory provision is 'jurisdictional' or 'nonjurisdictional.'" The opinion also noted that all questions of agency interpretation could be framed as jurisdictional questions, and that allowing such a distinction would permit "[s]avvy challengers of agency action [to] play the jurisdictional card in every case" in order to avoid the application of Chevron . In sum, even if an agency is interpreting a statute with regard to its statutory jurisdiction to act on a particular matter, that agency shall receive Chevron deference. In a dissent, Chief Justice Roberts, joined by Justices Kennedy and Alito, argued that the courts should determine whether Congress gave an agency the authority to interpret the statute in question before Chevron could be applied. The dissent argued that Chevron should not be used when determining whether the agency had the authority to act in the first place, but only after a court is independently satisfied of the agency's statutory powers to interpret the statute in question. Even if an agency interpretation does not qualify for deference under Chevron , a reviewing court may still accord the agency construction of a statute significant weight pursuant to reasoning established in Skidmore v. Swift . Skidmore involved a claim by a group of employees for recovery of overtime pay under the Fair Labor Standards Act (FLSA). The case turned on whether "waiting time"—or time that an employee spends on the employer's premises in the case of an emergency—constituted "working time" for purposes of the FLSA. The Administrator of the Department of Labor Wage and Hour Division had determined, through an interpretive bulletin and a series of informal rulings, that whether periods of inactivity constituted working time depended on "the degree to which the employee is free to engage in personal activities ... and the number of consecutive hours that the employee is subject to call ..." Thus, the Court was left with the question of "what, if any deference courts should pay to the Administrator's conclusion?" The Supreme Court determined that these types of agency determinations had significant value. While acknowledging that the Administrator's determinations were neither conclusive nor binding, the Court also noted that respect was due to agency policies that are "made in pursuance of official duty, based upon more specialized experience and broader investigations and information than is likely to come to a judge in a particular case." The court explained its holding as follows: We consider that the rulings, interpretations and opinions of the Administrator under this Act, while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance. The weight of such a judgment in a particular case 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. The Skidmore holding was grounded in a respect for agency expertise. But Skidmore deference does not require that a court simply defer to an agency's interpretive choice. Rather, the degree of deference accorded by a reviewing court directly correlates to the strength of the agency's reasoning. Under Skidmore , evaluating the strength of an agency's interpretive choice involves an assessment of the "thoroughness," "validity," and "consistency" of the agency's decision making. Later in Mead , the Supreme Court suggested that courts may also consider factors such as the "agency's care" and "formality" in reaching the interpretation, "consistency" with past interpretations, and the agency's "relative expertness." Skidmore deference, then, represents a general acknowledgement by the courts that an agency's interpretive choice, due in large part to the agency's expertise, should be accorded respect by a reviewing court and may influence a court's review to the degree that the interpretation is well reasoned. The deference received under Skidmore , however, as opposed to that accorded under Chevron , is clearly of a lesser degree. | An administrative agency may generally only exercise that authority which is provided to it by Congress. Often, however, congressional delegations of authority are imprecise, and, as a result, agencies must construe ambiguous terms and make interpretive decisions in order to implement Congress's delegation. The Supreme Court, in Chevron U.S.A., Inc. v. Natural Resources Defense Council, outlined a limited role for courts in reviewing these types of agency interpretations. The now famous "Chevron two-step" test has been arguably the most important pillar of administrative law since the decision was handed down in 1984. When evaluating whether an agency's interpretation of a statute is valid a court must first look to the language of the statute. If the statutory language is clear, the test stops—the agency must follow, and the court must enforce, the clear and unambiguous commands that Congress provides through statute. However, if a court determines that the statutory language is "silent or ambiguous," then the court may proceed to step two of the Chevron test. Step two requires a reviewing court to determine whether the agency's interpretation "is based on a permissible construction of the statute." The Supreme Court noted that a reviewing court should not impose its own construction of a statute in place of a reasonable interpretation provided by the agency, but should grant the agency's interpretation deference under step two of the Chevron test. Recently the Supreme Court ruled on the scope of Chevron deference in City of Arlington v. FCC. The Court established that a court must provide an agency with Chevron deference even when the agency is determining the scope of its own jurisdiction to take regulatory action under a statute. This report will discuss the Chevron decision; explain when Chevron deference applies; highlight common agency statutory interpretations that generally do not receive deference under Chevron; and review the recent Supreme Court opinion in City of Arlington v. FCC which clarified the applicability of Chevron deference to circumstances in which an agency is interpreting the scope of its own jurisdiction. |
C hina's rise from a poor developing country to a major economic power in about four decades has been spectacular. From 1979 (when economic reforms began) to 2017, China's real gross domestic product (GDP) grew at an average annual rate of nearly 10%. According to the World Bank, China has "experienced the fastest sustained expansion by a major economy in history—and has lifted more th an 800 million people out of poverty." China has emerged as a major global economic power. For example, it ranks first in terms of economic size on a purchasing power parity (PPP) basis, value-added manufacturing, merchandise trade, and holder of foreign exchange reserves. China's rapid economic growth has led to a substantial increase in bilateral commercial ties with the United States. According to U.S. trade data, total trade between the two countries grew from $5 billion in 1980 to an estimated $634 billion in 2017. China is currently the United States' largest merchandise trading partner, its third-largest export market, and its largest source of imports. Many U.S. companies have extensive operations in China in order to sell their products in the booming Chinese market and to take advantage of lower-cost labor for export-oriented manufacturing. These operations have helped some U.S. firms to remain internationally competitive and have supplied U.S. consumers with a variety of low-cost goods. China's large-scale purchases of U.S. Treasury securities (which totaled $1.2 trillion as of November 2017) have enabled the federal government to fund its budget deficits, which help keep U.S. interest rates relatively low. However, the emergence of China as a major economic power has raised concern among many U.S. policymakers. Some claim that China uses unfair trade practices (such as an undervalued currency and subsidies given to domestic producers) to flood U.S. markets with low-cost goods, and that such practices threaten American jobs, wages, and living standards. Others contend that China's growing use of industrial policies to promote and protect certain domestic Chinese industries or firms favored by the government, and its failure to take effective action against widespread infringement and theft of U.S. intellectual property rights (IPR) in China, threaten to undermine the competitiveness of U.S. IP-intensive industries. In addition, while China has become a large and growing market for U.S. exports, critics contend that numerous trade and investment barriers limit opportunities for U.S. firms to sell in China, or force them to set up production facilities in China as the price of doing business there. The Chinese government views a growing economy as vital to maintaining social stability. However, China faces a number of major economic challenges which could dampen future growth, including distortive economic policies that have resulted in overreliance on fixed investment and exports for economic growth (rather than on consumer demand), government support for state-owned firms, a weak banking system, widening income gaps, growing pollution, and the relative lack of the rule of law in China. The Chinese government has acknowledged these problems and has pledged to address them by implementing policies to increase the role of the market in the economy, boost innovation, make consumer spending the driving force of the economy, expand social safety net coverage, encourage the development of less-polluting industries (such as services), and crack down on official government corruption. The ability of the Chinese government to implement such reforms will likely determine whether China can continue to maintain relatively rapid economic growth rates, or will instead begin to experience significantly lower growth rates. China's growing economic power has led it to become increasingly involved in global economic policies and projects, especially in regard to infrastructure development. China's Belt and Road initiative (BRI) represents a grand strategy by China to finance infrastructure throughout Asia, Europe, Africa, and beyond. If successful, China's economic initiatives could significantly expand export and investment markets for China and increase its "soft power" globally. China's growing global economic influence has raised a number of questions, and in some cases, concerns, as to how China's rise will affect U.S. economic interests and influence on global economic policies. China's economic rise has become a factor in congressional debate over various aspects of U.S. trade policy (even those that are not directly related to China), such as the renewal of trade promotion authority (TPA), which was reauthorized through legislation in June 2015, and the Trans-Pacific Partnership (TPP), which was signed by the United States and 11 other countries in February 2016. In January 2017, President Trump announced that the United States would withdraw from TPP, which, many contend, may diminish U.S. economic influence in Asia while expanding China's. This report provides background on China's economic rise; describes its current economic structure; identifies the challenges China faces to maintain economic growth; and discusses the challenges, opportunities, and implications of China's economic rise for the United States. Prior to 1979, China, under the leadership of Chairman Mao Zedong, maintained a centrally planned, or command, economy. A large share of the country's economic output was directed and controlled by the state, which set production goals, controlled prices, and allocated resources throughout most of the economy. During the 1950s, all of China's individual household farms were collectivized into large communes. To support rapid industrialization, the central government undertook large-scale investments in physical and human capital during the 1960s and 1970s. As a result, by 1978 nearly three-fourths of industrial production was produced by centrally controlled, state-owned enterprises (SOEs), according to centrally planned output targets. Private enterprises and foreign-invested firms were generally barred. A central goal of the Chinese government was to make China's economy relatively self-sufficient. Foreign trade was generally limited to obtaining those goods that could not be made or obtained in China. Such policies created distortions in the economy. Since most aspects of the economy were managed and run by the central government, there were no market mechanisms to efficiently allocate resources, and thus there were few incentives for firms, workers, and farmers to become more productive or be concerned with the quality of what they produced (since they were mainly focused on production goals set by the government). According to Chinese government statistics, China's real GDP grew at an average annual rate of 6.7% from 1953 to 1978, although the accuracy of these data has been questioned by many analysts, some of whom contend that during this period, Chinese government officials (especially at the subnational levels) often exaggerated production levels for a variety of political reasons. Economist Angus Maddison puts China's actual average annual real GDP growth during this period at about 4.4%. In addition, China's economy suffered significant economic downturns during the leadership of Chairman Mao Zedong, including during the Great Leap Forward from 1958 to 1962 (which led to a massive famine and reportedly the deaths of up to 45 million people) and the Cultural Revolution from 1966 to 1976 (which caused widespread political chaos and greatly disrupted the economy). From 1950 to 1978, China's per capita GDP on a purchasing power parity (PPP) basis, a common measurement of a country's living standards, doubled. However, from 1958 to 1962, Chinese living standards fell by 20.3%, and from 1966 to 1968, they dropped by 9.6% (see Figure 1 ). In addition, the growth in Chinese living standards paled in comparison to those in the West, such as Japan, as indicated in Figure 2 . In 1978, (shortly after the death of Chairman Mao in 1976), the Chinese government decided to break with its Soviet-style economic policies by gradually reforming the economy according to free market principles and opening up trade and investment with the West, in the hope that this would significantly increase economic growth and raise living standards. As Chinese leader Deng Xiaoping, the architect of China's economic reforms, put it: "Black cat, white cat, what does it matter what color the cat is as long as it catches mice?" Beginning in 1979, China launched several economic reforms. The central government initiated price and ownership incentives for farmers, which enabled them to sell a portion of their crops on the free market. In addition, the government established four special economic zones along the coast for the purpose of attracting foreign investment, boosting exports, and importing high technology products into China. Additional reforms, which followed in stages, sought to decentralize economic policymaking in several sectors, especially trade. Economic control of various enterprises was given to provincial and local governments, which were generally allowed to operate and compete on free market principles, rather than under the direction and guidance of state planning. In addition, citizens were encouraged to start their own businesses. Additional coastal regions and cities were designated as open cities and development zones, which allowed them to experiment with free-market reforms and to offer tax and trade incentives to attract foreign investment. In addition, state price controls on a wide range of products were gradually eliminated. Trade liberalization was also a major key to China's economic success. Removing trade barriers encouraged greater competition and attracted FDI inflows. China's gradual implementation of economic reforms sought to identify which policies produced favorable economic outcomes (and which did not) so that they could be implemented in other parts of the country, a process Deng Xiaoping reportedly referred to as "crossing the river by touching the stones." Since the introduction of economic reforms, China's economy has grown substantially faster than during the pre-reform period, and, for the most part, has avoided major economic disruptions. From 1979 to 2016, China's annual real GDP averaged 9.6% (see Figure 3 ). This has meant that on average China has been able to more than double the size of its economy in real terms every eight years. The global economic slowdown, which began in 2008, had a significant impact on the Chinese economy. China's media reported in early 2009 that 20 million migrant workers had returned home after losing their jobs because of the financial crisis and that real GDP growth in the fourth quarter of 2008 had fallen to 6.8% year-on-year. The Chinese government responded by implementing a $586 billion economic stimulus package (approved in November 2008), aimed largely at funding infrastructure and loosening monetary policies to increase bank lending. Such policies enabled China to effectively weather the effects of the sharp global fall in demand for Chinese products. From 2008 to 2010, China's real GDP growth averaged 9.7%. However, the rate of GDP growth slowed for the next six consecutive years, declining from 10.6% in 2010 to 6.7% in 2016 (although it rose to 6.8% in 2017). The IMF's October 2017 World Economic Outlook projected that China's real GDP would slow further in the years ahead, hitting 5.7% in 2022 ( Figure 4 ). Economists generally attribute much of China's rapid economic growth to two main factors: large-scale capital investment (financed by large domestic savings and foreign investment) and rapid productivity growth. These two factors appear to have gone together hand in hand. Economic reforms led to higher efficiency in the economy, which boosted output and increased resources for additional investment in the economy. China has historically maintained a high rate of savings. When reforms were initiated in 1979, domestic savings as a percentage of GDP stood at 32%. However, most Chinese savings during this period were generated by the profits of SOEs, which were used by the central government for domestic investment. Economic reforms, which included the decentralization of economic production, led to substantial growth in Chinese household savings as well as corporate savings. As a result, China's gross savings as a percentage of GDP is the highest among major economies. The large level of savings has enabled China to substantially boost domestic investment. In fact, China's gross domestic savings levels far exceed its domestic investment levels, which have made China a large net global lender. Several economists have concluded that productivity gains (i.e., increases in efficiency) have been another major factor in China's rapid economic growth. The improvements to productivity were caused largely by a reallocation of resources to more productive uses, especially in sectors that were formerly heavily controlled by the central government, such as agriculture, trade, and services. For example, agricultural reforms boosted production, freeing workers to pursue employment in the more productive manufacturing sector. China's decentralization of the economy led to the rise of nonstate enterprises (such as private firms), which tended to pursue more productive activities than the centrally controlled SOEs and were more market-oriented and more efficient. Additionally, a greater share of the economy (mainly the export sector) was exposed to competitive forces. Local and provincial governments were allowed to establish and operate various enterprises without interference from the government. In addition, FDI in China brought with it new technology and processes that boosted efficiency. However, as China's technological development begins to converge with major developed countries (i.e., through its adoption of foreign technology), its level of productivity gains, and thus, real GDP growth, could slow significantly from its historic levels unless China becomes a major center for new technology and innovation and/or implements new comprehensive economic reforms. Several developing economies (notably several in Asia and Latin America) experienced rapid economic development and growth during the 1960s and 1970s by implementing some of the same policies that China has utilized to date to develop its economy, such as measures to boost exports and to promote and protect certain industries. However, at some point in their development, some of these countries began to experience economic stagnation (or much slower growth compared to previous levels) over a sustained period of time, a phenomenon described by economists as the "middle-income trap." This means that several developing (low-income) economies were able to transition to a middle-income economy, but because they were unable to sustain high levels of productivity gains (in part because they could not address structural inefficiencies in the economy), they were unable to transition to a high-income economy. China may be at a similar crossroads now. The Economist Intelligence Unit (EIU) projects that China's real GDP growth will slow considerably in the years ahead, eventually converging on U.S. growth rates by the year 2036 (U.S. and Chinese real GDP growth are both projected at 1.6%); for some years thereafter, U.S. GDP growth is projected to be greater than China's ( Figure 5 ). The Chinese government has indicated its desire to move away from its current economic model of fast growth at any cost to more "smart" economic growth, which seeks to reduce reliance on energy-intensive and high-polluting industries and rely more on high technology, green energy, and services. China also has indicated it wants to obtain more balanced economic growth. (These issues are discussed in more detail later in the report.) The rapid growth of the Chinese economy has led many analysts to speculate if and when China will overtake the United States as the "world's largest economic power." The "actual" size of China's economy has been a subject of extensive debate among economists. Measured in U.S. dollars using nominal exchange rates, China's GDP in 2017 in nominal U.S. dollars was $11.9 trillion, about 62% of the size of the U.S. economy, according to estimates made by the IMF. China's 2017 per capita GDP in nominal dollars was $8,583, which was 14.4% of the U.S. level. Many economists contend that using nominal exchange rates to convert Chinese data (or those of other countries) into U.S. dollars fails to reflect the true size of China's economy and living standards relative to the United States. Nominal exchange rates simply reflect the prices of foreign currencies vis-à-vis the U.S. dollar, and such measurements exclude differences in the prices for goods and services across countries. To illustrate, one U.S. dollar exchanged for local currency in China would buy more goods and services there than it would in the United States. This is because prices for goods and services in China are generally lower than they are in the United States. Conversely, prices for goods and services in Japan are generally higher than they are in the United States (and China). Thus, one dollar exchanged for local Japanese currency would buy fewer goods and services there than it would in the United States. Economists attempt to develop estimates of exchange rates based on their actual purchasing power relative to the dollar in order to make more accurate comparisons of economic data across countries, usually referred to as purchasing power parity (PPP). The PPP exchange rate increases the (estimated) measurement of China's economy and its per capita GDP. According to the IMF (which uses price surveys conducted by the World Bank), prices for goods and services in China are about half the level they are in the United States. Adjusting for this price differential raises the value of China's 2017 GDP from $11.9 trillion (nominal dollars) to $23.1 trillion (on a PPP basis) (see Table 1 ). IMF data indicate that China overtook the United States as the world's largest economy in 2014 on a PPP basis. China's share of global GDP on a PPP basis rose from 2.3% in 1980 to an estimated 18.3% in 2017, while the U.S. share of global GDP on a PPP basis fell from 24.3% to an estimated 15.3%. This would not be the first time in history that China was the world's largest economy (see text box ). China's economic ascendency has been impressive, especially considering that in 1980, China's GDP on a PPP basis was only one-tenth that of the United States (see Figure 6 ). The IMF predicts that by 2022, China's economy will be 46.6% larger than the U.S. economy on a PPP basis. The PPP measurement also raises China's 2016 nominal per capita GDP (from $8,583) to $16,624, which was 27.9% of the U.S. level. Even with continued rapid economic growth, it would likely take many years for Chinese living standards to approach U.S. levels. For example, the EIU projects that, even by the year 2050, Chinese living standards would be half of U.S. levels. China has emerged as the world's largest manufacturer according to the United Nations. Figure 7 lists estimates of the gross value added of manufacturing in China, the United States, and Japan expressed in U.S. dollars from 2005 to 2014. Gross value added data reflect the actual value of manufacturing that occurred in the country (i.e., they subtract the value of intermediate inputs and raw materials used in production). These data indicate that China overtook Japan as the world's second-largest manufacturer on a gross value added basis in 2006 and the United States in 2010. In 2014, the value of China's manufacturing on a gross value added basis was 39.6% higher than the U.S. level. Manufacturing plays a considerably more important role in the Chinese economy than it does for the United States. In 2014, China's gross valued added manufacturing was equal to 27.7% of its GDP, compared to 12.1% for the United States. In its 2016 Global Manufacturing Competitiveness Index, Deloitte (an international consulting firm) ranked China as the world's most competitive manufacturer (out of 40 countries), based on a survey of global manufacturing executives, while the United States ranked second (it ranked fourth in 2010). The index found that global executives predicted that the United States would overtake China by 2020 to become the world's most competitive economy, largely because of its heavy investment in talent and technology (e.g., high levels of R&D spending and activities, the presence of top-notch universities, and large amounts of venture capital being invested in advanced technologies). On the other hand, while China was expected to remain a major manufacturing power because of its large R&D spending levels, movement toward higher-valued, advanced manufacturing, government policies to promote innovation, and a large pool of graduates in science, technology, engineering and mathematics, it was viewed as facing several challenges, including a slowing economy, a decline in value-added manufacturing and overcapacity in several industries, rising labor costs, and a rapidly aging population. As a result, China was projected to fall to the second-most competitive manufacturer by 2020. More broadly, the World Economic Forum produces an annual Global Competitive Report, which assesses and ranks (based on an index) the global competitiveness of a country's entire economy, based on factors that determine the level of productivity of an economy, which in turn sets the level of prosperity that the country can achieve. The World Economic Forum's 2016-2017 Global Competitive Index ranked China as the world's 28 th -most competitive economy (out of 138 countries), while the United States ranked third. China's huge population and relatively low wage rates gave it a significant competitive advantage when economic reforms and trade liberalization were first begun by the government in the late 1970s. However, this advantage appears to be eroding as wages in China have risen in recent years. As indicated in Figure 8 , China's average monthly wages (converted into U.S. dollars) in 1990 were $37, compared with $54 for Vietnam and $505 for Mexico. However, in 2016, China's average monthly wages (at $854) were 306.7% higher than Vietnam's wages ($210) and 122.3% higher than Mexico's ($384). From 2007 to 2016, China's average monthly wages rose by 213%. The American Chamber of Commerce in China (AmCham China) 2017 Business Climate survey listed rising labor costs as the second-biggest challenge facing U.S. firms in China (it was the largest concern in the 2015 AmCham China survey). Figure 9 shows a comparison of labor costs per unit of production for the countries listed in the previous figure, indexed relative to U.S levels. In 1990, China's unit labor production costs were 47% of U.S. levels and by 2016 they were 75% of U.S. levels. China's trade and investment reforms and incentives led to a surge in FDI beginning in the early 1990s. Such flows have been a major source of China's productivity gains and rapid economic and trade growth. There were reportedly 445,244 foreign-invested enterprises (FIEs) registered in China in 2010, employing 55.2 million workers or 15.9% of the urban workforce. As indicated in Figure 10 , FIEs account for a significant share of China's industrial output. That level rose from 2.3% in 1990 to a high of 35.9% in 2003, but fell to 25.9% in 2011. In addition, FIEs are responsible for a significant level of China's foreign trade. At their peak, FIEs accounted for 58.3% of Chinese exports in 2005 and 59.7% of imports, but these levels have subsequently fallen, reaching 43.2% and 46.8%, respectively, in 2017 (see Figure 11 ). T he United Nations Conference on Trade and Development (UNCTAD) reports that China has become a both a major recipient of global FDI as well as a major provider of FDI outflows (see Figure 12 ). China 's FDI inflows in 2016 were estimated at $1 34 billion , making it the world's third- largest recipient of FDI (after the United States and the U nited K ingdom ). China's FDI outflows in 2016 were $183 bill ion, making it the world 's second- largest source of FDI outflows (after the United States) . China's FDI outflows exceeded inflows for the first time in 2016 . The sharp increase in China's global FDI outflows in recent years appears to be largely driven by a number of factors, including Chinese government policies and initiatives to encourage firms to "go global." The government wants to use FDI to gain access to IPR, technology, know-how, famous brands, etc., in order to move Chinese firms up the value-added chain in manufacturing and services, boost domestic innovation and development of Chinese brands, and help Chinese firms (especially SOEs) to become major global competitors. China's slowing economy and rising labor costs have also encouraged greater Chinese overseas FDI in order to help firms diversify risk and expand business opportunities beyond the China market, and, in some cases, to relocate less competitive firms from China to low-cost countries. China's Ministry of Foreign Trade (MOFCOM) reports that in 2016, Chinese nonfinancial FDI in BRI countries totaled $14.5 billion, and that new contracts totaling $126 billion (or 52% of total new contracted Chinese overseas FDI in 2016) were signed with such countries. Additionally, increased FDI outflows may be the result of the Chinese government attempting to diversify its foreign exchange reserve holdings (which totaled $3.1 trillion as of December 2017—by far the world's largest holder). Until recently, it appears that a large share of China's reserves have gone to portfolio investments, especially U.S. Treasury securities, which are relatively safe and liquid, but earn relatively small returns. According to Chinese government data on nonfinancial FDI inflows, the largest sources of cumulative FDI in China for 1979-2016 were Hong Kong and Macau (by far the largest at 52.6% of total), the British Virgin Islands (BVI), Japan, Singapore, and the United States (see Table 2 ). The largest sources of nonfinancial FDI inflows into China in 2016 were Hong Kong/Macau (65.3% of total), BVI, Singapore, South Korea, the United States, and Taiwan. According to Chinese data, annual U.S. nonfinancial FDI flows to China peaked at $5.4 billion in 2002 (10.2% of total FDI in China). In 2016, they were $2.4 billion or 1.9% of total FDI flows to China (see Figure 13 ). China estimates the stock of U.S. nonfinancial FDI in China at $80 billion through 2016. A key aspect of China's economic modernization and growth strategy during the 1980s and 1990s was to attract FDI into China to help boost the development of domestic firms. Investment by Chinese firms abroad was sharply restricted. However, in 2000, China's leaders initiated a new "go global" strategy, which sought to encourage Chinese firms (primarily SOEs) to invest overseas. One key factor driving this investment is China's massive accumulation of foreign exchange reserves. Traditionally, a significant level of those reserves has been invested in relatively safe but low-yielding assets, such as U.S. Treasury securities. On September 29, 2007, the Chinese government officially launched the China Investment Corporation (CIC) in an effort to seek more profitable returns on its foreign exchange reserves and diversify away from its U.S. dollar holdings. The CIC was originally funded at $200 billion, making it one of the world's largest sovereign wealth funds. Another factor behind the government's drive to encourage more outward FDI flows has been to obtain natural resources, such as oil and minerals, deemed by the government as necessary to sustain China's rapid economic growth. Finally, the Chinese government has indicated its goal of developing globally competitive Chinese firms with their own brands. Investing in foreign firms, or acquiring them, is viewed as a method for Chinese firms to obtain technology, management skills, and often, internationally recognized brands, needed to help Chinese firms become more globally competitive. For example, in April 2005, Lenovo Group Limited, a Chinese computer company, purchased IBM Corporation's personal computer division for $1.75 billion. Similarly, overseas FDI in new plants and businesses is viewed as developing multinational Chinese firms with production facilities and R&D operations around the world. China's FDI outflows by destination for 2015 (as reported by the Chinese government) are listed in Table 3 . The largest destinations of cumulative Chinese FDI through 2015 were Hong Kong (59.8% of total), the Cayman Islands (5.7%), the BVI (4.7%), and the United States (3.7%). In terms of annual Chinese FDI outflows, the largest recipients of FDI flows in 2015 were Hong Kong (61.6%), Singapore (7.2%), the Cayman Islands (7.0%), and the United States (5.5%). A significant level of Chinese FDI that goes to Hong Kong, the BVI, and the Cayman Islands likely is redirected elsewhere. The American Enterprise Institute (AEI) and the Heritage Foundation jointly maintain the China Global Investment Tracker (CGIT), a database that has been developed to track the actual flows (from the parent company to the final destination) of Chinese investment globally. The CGIT database tracks FDI valued at $100 million or more (which it refers to as "China's outward nonbond investment"). These data differ significantly from official Chinese FDI outflow data. The CGIT data on the top destinations of total Chinese outward nonbond outward investment from 2005 to 2017 included the United States ($172.7 billion), Australia ($103.7 billion), the United Kingdom ($75 billion), Brazil ($61.2 billion), and Russia ($53.8) (see Figure 14 ). The CGIT also puts Chinese FDI in the United States in 2017 at $24.5 billion (compared to $54.6 billion in 2016), making the United States the largest destination of Chinese outward FDI. China's largest U.S. acquisition in 2017 was HNA's purchase of CIT Group's aircraft leasing business for $10.4 billion. Economic reforms and trade and investment liberalization have helped transform China into a major trading power. Chinese merchandise exports rose from $14 billion in 1979 to $2.3 trillion in 2017, while merchandise imports grew from $18 billion to $1.8 trillion (see Table 4 and Figure 15 ). China's rapidly growing trade flows have made it an increasingly important (and often the largest) trading partner for many countries. According to China, it was the largest trading partner for 130 countries in 2013. From 2000 to 2008, the annual growth of China's merchandise exports and imports averaged 25.1% and 24.2%, respectively. However, China's exports and imports fell by 15.9% and 11.2%, respectively, due to the impact of the global financial crisis. China's trade recovered in 2010 and 2011, with export growth averaging 25.8% and import growth averaging 31.9%. However, since that time, China's trade flows have slowed sharply. From 2012 to 2014, China's exports and imports grew at an average annual rate of 7.2% and 4.1%, respectively. From 2015 to 2016 exports and imports fell by an average rate of 4.7% and 11.6%, respectively (see Figure 16 ), reflecting a sluggish global economy and a decline in commodity prices (such as oil and ores). However, in 2017, China's exports and imports rose by 6.7% and 17.4%, respectively. China's merchandise trade surplus grew sharply from 2004 to 2008, rising from $32 billion to $297 billion. That surplus fell each year over the next three years, dropping to $158 billion in 2011. However, it rose in each of the next four years, reaching a record $679 billion in 2015 before falling to $611 billion in 2016 and to $489 billion in 2017. In 2009, China overtook Germany to become both the world's largest merchandise exporter and the second-largest merchandise importer (after the United States). In 2012, China overtook the United States as the world's largest merchandise trading economy (exports plus imports). As indicated in Figure 17 , China's share of global merchandise exports grew from 2.0% in 1990 to 14.1% in 2015, but fell to 13.4% in 2016 and to 13.2% in 2017. Table 5 lists official Chinese trade data on its seven largest trading partners in 2017 (based on total trade). These include the 28 countries that make up the European Union (EU28), the United States, the 10 nations that constitute the Association of Southeast Asian Nations (ASEAN), Japan, Hong Kong, South Korea, and Taiwan. China's top three export markets were the United States, the EU28, and Hong Kong, while its top sources for imports were the EU28, ASEAN, and South Korea. According to Chinese data, it maintained large trade surpluses with the United States ($282 billion), Hong Kong ($274 billion) and the EU28 ($129 billion), and reported large trade imbalances with Taiwan ($112 billion) and South Korea ($74 billion). China's trade data differ significantly from those of many of its trading partners. These differences appear to be largely caused by how China's trade via Hong Kong is counted in official Chinese trade data. China treats a large share of its exports through Hong Kong as Chinese exports to Hong Kong for statistical purposes, while many countries that import Chinese products through Hong Kong generally attribute their origin to China for statistical purposes, including the United States. China's abundance of low-cost labor has made it internationally competitive in many low-cost, labor-intensive manufactures. As a result, manufactured products constitute a significant share of China's trade. A substantial amount of China's imports is comprised of parts and components that are assembled into finished products, such as consumer electronic products and computers, and then exported. Often, the value-added to such products in China by Chinese workers is relatively small compared to the total value of the product when it is shipped abroad. China's top 10 imports and exports in 2017 are listed in Table 6 and Table 7 , respectively, using the harmonized tariff system (HTS) on a two-digit level. Major imports included electrical machinery and equipment; mineral fuels; nuclear reactors, boilers, and machinery (such as automatic data process machines and machines to make semiconductors); ores; and optical, photographic, medical, or surgical instruments. China's biggest exports were electrical machinery and equipment; nuclear reactors, boilers, and machinery; furniture and bedding; woven apparel; and knit apparel. China has undertaken several initiatives to develop trade and investment ties around the world, especially with Asian countries. To that end, China has entered into several regional and bilateral trade agreements, or is in the process of doing so. In 2017, China had free trade agreements (FTAs) with 22 partners, including with the 10 countries that make up the Association of Southeast Asian Nations (ASEAN), Australia, Chile, Costa Rica, Hong Kong, Macau, Iceland, New Zealand, Pakistan, Peru, Switzerland, Australia, and South Korea. China also has an "economic cooperation framework agreement" with Taiwan, which is the equivalent to an FTA. The combined GDP (on a PPP basis) and population of these countries in 2017 was $15.6 trillion and 1.0 billion, respectively; and China's total merchandise trade (exports plus imports) with these countries was $1.5 trillion (see Table 8 ). In comparison, the United States had FTAs in effect with 20 countries through 2017, which had combined GDP (PPP basis) of $10.9 trillion and population of 465 million. Total U.S. trade with these countries was $1.5 trillion. China signed FTA's with Georgia and Maldives in 2017 (which went into effect in 2018). China is currently in the process of negotiating FTAs with the Cooperation Council for the Arab States of the Gulf (which includes Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, and Bahrain), Sri Lanka, Israel, Norway, Moldova, and Mauritius, and a trilateral agreement with Japan and South Korea. China says it is also considering FTA negotiations with Canada, Colombia, Mongolia, Fiji, Nepal, Papua New Guinea, Palestine, and Panama. China has also negotiated (or is negotiating) several upgrades of existing FTAs. In December 2012, China joined with the 10 members of ASEAN, Japan, South Korea, Australia, India, and New Zealand to begin negotiations toward a Regional Comprehensive Economic Partnership (RCEP), which, if concluded, could constitute the world's largest free trade bloc (in terms of combined population and GDP). The 20 th round of RCEP negotiations was held in October 2017. In November 2014, during the Asia-Pacific Economic Cooperation (APEC) summit in Beijing, Chinese President Xi called for renewed efforts to achieve a Free Trade Area of the Asia-Pacific (FTAAP) agreement, an idea that was first proposed by the United States over a decade ago. China's economic rise and its growing impact on global trade have made it a key factor in debates among U.S. policymakers over various U.S. trade policy issues. U.S. commercial relations with China were an integral part of the congressional debate over the renewal of Trade Promotion Authority (TPA) and the Trans-Pacific Partnership (TPP), an FTA that was signed by the United States and 11 other Pacific Rim nations. Although China did not participate in TPP, its trade policies underpinned some U.S. motivation for the agreement. While some supporters of TPP viewed it as a vehicle to counteract China's growing economic and political power in the Asia-Pacific region, others saw it as a strategy to move China toward a more liberalized economy because, it was argued, not being part of the TPP could be costly to the Chinese economy, and thus TPP would give an upper hand to economic reformers in China. It has been further argued that getting China into the TPP would have helped address a number of long-standing economic differences between the United States and China, such as China's SOE preferences, lack of IPR protection and cyber-theft of U.S. trade secrets, and digital trade barriers, among others. Finally, many argued that because the TPP is a "high standard" agreement, it would become the blueprint or model for broader FTAs in the future. The Trump Administration's decision to terminate U.S. participation in the current TPP and instead pursue bilateral FTAs has raised questions over how this will impact the ability of the United States to continue to play a leading economic and political role in the Asia-Pacific region (and globally as well). Many analysts contend that pulling out of the TPP has damaged U.S. credibility with its major trading partners and has weakened the ability of the United States to pressure China to further liberalize its economy. For example, in January 2017, then USTR Michael Froman stated We heard a lot about the importance of being tough on China during this recent campaign. I agree. It's important to be tough with China on trade.... But here, I have to admit to being a little perplexed. There simply is no way to reconcile a get-tough-on-China policy with withdrawing from TPP. That would be the biggest gift any U.S. President could give China, one with broad and deep consequences, economic and strategic. It would be huge for China... From our friends and allies in the region to our own military commanders, we have heard clearly that failure by the U.S. to move forward would be a debilitating blow to U.S. leadership and credibility in the region, one that would create a void that China is all too happy to fill, and one that would leave our closest military allies and partners no choice but to line up behind China. Some analysts contend that China has already begun to assert itself as a major advocate of the current global trading system and free trade (despite the fact that many of China's economic and trade policies are protectionist in nature). They note, for example, that Chinese President Xi Jinping attended the annual World Economic Forum in Davos, Switzerland, in January 2017, the first Chinese head of state to do so. In a keynote speech delivered to the forum, Xi stated We must remain committed to developing global free trade and investment, promote trade and investment liberalization and facilitation through opening-up and say no to protectionism ... We will advance the building of the Free Trade Area of the Asia Pacific and negotiations of the Regional Comprehensive Economic Partnership to form a global network of free trade arrangements. China stands for concluding open, transparent and win-win regional free trade arrangements and opposes forming exclusive groups that are fragmented in nature. The remaining 11 TPP members concluded an agreement on January 23, 2018, that excludes the United States, called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). However, at the World Economic Forum on January 26, 2018, President Trump stated that the United States was prepared to negotiate mutually beneficial, bilateral trade agreements with all countries, including the countries within TPP, and would consider negotiating with them "as a group if it is in the interests of all." China is currently undergoing a major restructuring of its economic model. Policies that were employed in the past to essentially produce rapid economic growth at any cost were very successful. However, such policies have entailed a number of costs (such as heavy pollution, widening income inequality, overcapacity in many industries, an inefficient financial system, rising corporate debt, and numerous imbalances in the economy) and therefore the old growth model is viewed by many economists as no longer sustainable. China has sought to develop a new growth model ("the new normal") that promotes more sustainable (and less costly) economic growth that puts greater emphasis on private consumption and innovation as the new drivers of the Chinese economy. Implementing a new growth model that sustains healthy economic growth could prove challenging unless China is able to effectively implement new economic reforms. Many analysts warn that without such reforms, China could face a period of stagnant economic growth and living standards, a condition referred to by economists as the "middle-income trap" (see text box). Several of these challenges are discussed below. Despite China's three-decade history of widespread economic reforms, Chinese officials contend that China is a "socialist-market economy." This appears to indicate that the government accepts and allows the use of free market forces in a number of areas to help grow the economy, but the government still plays a major role in the country's economic development. According to the World Bank, "China has become one of the world's most active users of industrial policies and administrations." China's State Council has said that there are currently 150,000 SOEs at the central and local government level. China's SOEs may account for up of 50% of nonagriculture GDP. In addition, although the number of SOEs has declined sharply, they continue to dominate a number of sectors (such as petroleum and mining, telecommunications, utilities, transportation, and various industrial sectors); are shielded from competition; are the main sectors encouraged to invest overseas; and dominate the listings on China's stock indexes. One study found that SOEs constituted 50% of the 500 largest manufacturing companies in China and 61% of the top 500 service sector enterprises. Not only are SOEs dominant players in China's economy, many are quite large by global standards. Fortune's 2016 list of the world's 500 largest companies includes 103 Chinese firms (compared to 29 listed firms in 2007). Of the 103 Chinese firms listed, Fortune identified 75 companies (73% of total) where the government owned 50% or more of the company. Together, these 75 firms in 2016 generated $7.2 trillion in revenues, had assets valued at $20.7 trillion, and employed 16.2 million workers. Of the 28 other Chinese firms on the Fortune 500 list, several appear to have financial links to the Chinese government. China's banking system is largely dominated by state-owned or state-controlled banks. According to one analyst, the mangers of China's state banks are drawn from the ranks of the Chinese Communist Party cadre system, which "enables the party and government leaderships to exert influence over bank lending." In 2015, the top five largest banks in China in terms of assets were state-owned entities. The percentage share of assets held by state-owned commercial banks (including the five large state-owned banks), the three government policy banks, and joint-stock commercial banks (where government entities are a major stock holder), together accounted for 68.5% of total bank assets in China. Foreign participation in China's banking system is relatively small, accounting for 1.6% of total bank assets. SOEs are believed to receive preferential credit treatment by government banks, while private firms must often pay higher interest rates or obtain credit elsewhere. According to one estimate, SOEs accounted for 85% ($1.4 trillion) of all bank loans in 2009. It is believed that oftentimes SOEs do not repay their loans, which may have saddled the banks with an ever-increasing amount of nonperforming loans. Many analysts contend that one of the biggest weaknesses of the banking system is that it lacks the ability to ration and allocate credit according to market principles, such as risk assessment. The Chinese central government uses the banking system to boost credit in order to help meet its GDP growth objectives and to, when needed, offset the impact of global economic downturns, such as after the 9/11 terrorist attacks and the global financial crisis. From 2007 to 2016, China's domestic credit increased in dollar terms by 218% (see Figure 18 ), and as a share of GDP, the level rose from 125% to 212%. As indicated in Figure 19 , China's combined household, corporate, and government debt levels as a percentage of GDP as of mid-2016 are comparable to those of the United States and South Korea and lower than those of Japan and the European Union. However, China's debt levels (in both dollars and as a percentage of GDP) have risen sharply within a relatively short time, which, some have speculated, could spark an economic crisis in China in the future. From 2006 year-end to mid-2016, China's total nonfinancial sector debt as a percentage of GDP increased from 143% to 254% (up 111 percentage points). Much of the rise in that debt came from the corporate sector, which, as a percentage of GDP, rose from 107% in 2006 to 171% in mid-2016 (up 64 percentage points). In dollar terms, China's corporate debt rose from $3 trillion to $17.8 trillion (up $14.8 trillion) and currently greatly exceeds U.S. corporate debt levels (see Figure 20 ). Several observers have warned that China's credit growth may be too extensive and could undermine future growth by sharply boosting debt levels, causing overcapacity in many industrials (especially extending credit to firms that are unprofitable to keep them operating), contributing to bubbles (such as in real estate), and reducing productivity by proving preferential treatment to SOEs and other government-supported entities. Local government debt is viewed as a big problem in China, largely because of the potential impact it could have on the Chinese banking system. During the beginning of the global financial slowdown, many Chinese subnational government entities borrowed extensively to help stimulate local economies, especially by supporting infrastructure projects. In December 2013, the Chinese National Audit Office reported that from the end of 2010 to mid-year 2013, local government debt had increased by 67% to nearly $3 trillion. The Chinese government reported that local government debt rose to $4.3 trillion as of 2015. Efforts have been made over the past few years by the central government to restructure local government debt and restrict local government borrowing, with mixed success, according to some press reports, because of pressures on local governments to maintain rapid economic growth. Many economists blame China's closed capital account for much of China's debt problems. The Chinese government has maintained restrictions on capital inflows and outflows for many years, in part to control the exchange of its currency, the renminbi (RMB), against the dollar and other currencies in order to boost exports. Many argue the Chinese government's restrictions on capital flows have greatly distorted financial markets in China, preventing the most efficient use of capital, such as overinvestment in some sectors (such as real estate) and underinvestment in others (such as services). Many economists assert that China's economic model has produced large internal imbalances, characterized by high savings and fixed investment and relatively low private consumption, which may no longer be sustainable. As indicated in Figure 21 , from 1990 to 2014, Chinese gross savings as a percentage of GDP and gross fixed investment as a percentage of GDP both increased significantly, while private consumption as a percentage of GDP declined sharply. China's gross savings as a percentage of GDP and gross fixed investment as a percentage of GDP are the highest among any of the world's largest economies (see Figures Figure 22 and Figure 23 ), while China's private consumption as a share of GDP is among the lowest. These data would imply that Chinese households have not benefited as much from China's economic growth as other sectors of the economy. Many economists contend that the relatively small share of private consumption and disposable income relative to GDP is largely caused by two factors: China's banking policies and the lack of an adequate social safety net. The Chinese government places restrictions on the export of capital. As a result, Chinese households put a large share of their savings in domestic banks. The Chinese government sets the interest rate on deposits. Often this rate is below the rate of inflation, which lowers household income. Some economists consider this policy to constitute a transfer of wealth from Chinese households to Chinese firms, which benefit from low interest rates. This "tax" on household income negatively affects household consumption. Secondly, China's lack of an adequate social safety net (such as pensions, health care, unemployment insurance, and education) induces households to save a large portion of their income. According to one estimate, between 1982 and 2012, the average urban household saving rate rose from 12% to 32%. Corporations are also a major contributor to the high savings rate in China. Many Chinese firms, especially SOEs, do not pay out dividends and thus are able to retain most of their earnings. Many economists contend that requiring the SOEs to pay dividends could boost private consumption in China if the money were then used to help fund social welfare programs. Chinese economic policies have resulted in gross fixed investment being the main engine of the country's economic growth for every year from 2000 to 2014. (In 2011 gross fixed investment and private consumption each accounted for 3.0 percentage points; see Figure 21 .) A 2009 IMF report estimated that fixed investment related to tradable goods plus net exports together accounted for over 60% of China's GDP growth from 2001 to 2008 (up from 40% from 1990 to 2000), which was significantly higher than in the G-7 countries (16%), the euro area (30%), and the rest of Asia (35%). The global financial crisis led to a sharp fall in demand for Chinese exports, which helped sharply reduce China's trade surpluses. The Chinese government responded in part by sharply increasing spending on fixed investment. As a result, fixed investment as a share of GDP rose from 40.5% in 2008 to 45.9% in 2013. Some rebalancing of China's economy may have occurred in recent years. For the past several years, gross fixed investment (some of which is linked to tradable sectors) has generally been the largest contributor to China's real GDP growth. For example, from 2000 to 2014, fixed investment was the largest source of China's GDP growth 11 out of 14 years. However, in both 2015 and 2016, private consumption was the largest contributor to GDP growth (see Figure 25 ). In addition, from 2010 to 2016, China's gross savings as a percentage of GDP rate fell from 51.8% to 45.8%, private consumption as a share of GDP increased from 35.6% to 38.7%, and gross fixed investment as a percentage of GDP dropped from 45.2% to 42.4%. Another useful indicator is the broad sector composition of China's GDP (i.e., agriculture, industry, and services), referred to as gross value added at factor cost. The output of industry has surpassed that of services for many years. In 2012, services output overtook industrial output for the first time and has grown in importance through 2016. From 2010 to 2016, the output of services as a percentage of GDP grew from 44.1% to 51.6%, while the output of industry dropped from 46.4% to 39.8% (see Figure 26 ). In terms of trade, China has become much less reliant on exports than in the past. Its exports of goods and services as a percentage of GDP dropped from a peak of 38.3% in 2006 to 20.5% in 2016 (see Figure 27 ). In addition, China's trade surpluses as a percentage of GDP have fallen sharply in recent years. China has run current account (CA) surpluses every year since 1994. From 2001 to 2007, China's CA surpluses as a percentage of GDP rose from 1.3% to a historical high of 9.9%. Since then, China's CA surplus as a percentage of GDP has fallen sharply, reaching an estimated 2.4% in 2016 (see Figure 28 ). Much of that decline was likely caused by the effects of the global economic slowdown that began in 2008, which sharply reduced foreign demand for Chinese exports. However, some of the decline may also have been the result of increased Chinese private consumption. As indicated in Figure 29 , the growth of Chinese private consumption over the past 10 years was among the fastest of any major economy, averaging 8.9% annually compared with 1.6% for the United States. China's economic growth model has emphasized the growth of heavy industry in China, much of which is energy-intensive and high polluting. The level of pollution in China continues to worsen, posing serious health risks to the population. The Chinese government often disregards its own environmental laws in order to promote rapid economic growth. China's environmental challenges are illustrated by the following incidents and reports. A 2018 report by ExxonMobil estimated that China contributed about 60% of the growth in global CO2 emissions from 2000 to 2016, and that its emissions would surpass the combined CO2 levels of the United States and EU by 2025. A 2017 OECD report estimated the health costs of China's air pollution in 2015 at $1.4 trillion, equivalent to 7.8% of its GDP. A 2015 study by the Rand Corporation estimated that the costs (in terms of health impact and lost productivity) from China's air pollution were equal to 6.5% of GDP each year from 2000 to 2010. It further estimated the costs as a percentage of GDP of water pollution and soil degradation at an additional 2.1% and 1.1%, respectively. On August 12, 2015, a series of large explosions in several warehouses containing chemicals occurred in the Chinese port city of Tianjin, claiming the lives of at least 163 people. Some press reports have blamed poor government enforcement of environmental regulations for the disaster. For example, some in China have questioned why dangerous chemicals were warehoused so close to residential areas and have raised concerns over the extent of chemical contamination in the area that may have resulted from the explosions. The U.S. Embassy in Beijing, which monitors and reports air quality in China based on an air quality index of particulate matter (developed by the U.S. Environmental Protection Agency) considered to pose a health concern, reported that the air quality in Beijing for a majority of the days in January 2013 ranged from "unhealthy" to "hazardous" (based on 24-hour exposure) and, on a few days, it recorded high readings that were "beyond index." The level of poor air quality in Beijing was termed by some in China as "Airpocalypse," and reportedly forced the government to shut down some factories and reduce the level of official cars on the road. On December 9, 2013, China's media reported that half of China was blanketed by smog. The U.S. Consulate General in Shanghai reported that were a number of days in December 2013 where its measurement of the air quality in Shanghai was hazardous or very unhealthy, and during some time periods on December 5, 2013, its readings were "beyond index." According to the U.S. Embassy in Beijing, from 2008 to 2015, nearly two-thirds of the days in Beijing had air pollution considered to be unhealthy. In February 2013, China's Geological Survey reportedly estimated that 90% of all Chinese cities had polluted groundwater, with two-thirds having "severely polluted" water. According to a 2012 report by the Asian Development Bank, less than 1% of the 500 largest cities in China meet the air quality standards recommended by the World Health Organization, and 7 of these are ranked among the 10 most polluted cities in the world. The Chinese government has indicated that it is taking steps to reduce energy consumption, boost enforcement of environmental laws and regulations, reduce coal usage by expanding the use of cleaner fuels (such as natural gas) to general power, and relocate high-polluting factories away from large urban areas, although such efforts have had mixed results on the overall level of pollution in China. In addition, China has become a major global producer and user of clean and renewable energy technology. In January 2017, the Chinese government said it would spend $361 billion on renewable energy power generation by 2020. The relative lack of the rule of law in China has led to widespread government corruption, financial speculation, and misallocation of investment funds. In many cases, government "connections," not market forces, are the main determinant of successful firms in China. Many U.S. firms find it difficult to do business in China because rules and regulations are generally not consistent or transparent, contracts are not easily enforced, and intellectual property rights are not protected (due to the lack of an independent judicial system). The relative lack of the rule of law and widespread government corruption in China limit competition and undermine the efficient allocation of goods and services in the economy. A New York Times article reported that (former) Chinese Premier Wen Jiabao's family controlled assets worth at least $2.7 billion. One study estimates that between 2001 and 2010, China was the world's largest source of illicit capital outflows at $3.8 trillion. A 2012 survey by the Pew Research Center's Global Attitudes Project reported that 50% of respondents said that corrupt officials are a very big problem (up from 39% in 2008). Chinese officials often identify government corruption as the greatest threat to the Chinese Communist Party and the state. The Chinese government's anticorruption watchdog reported that 106,000 officials were found guilty of corruption in 2009. Since assuming power in 2012, Chinese Xi Jinping has carried out an extensive anticorruption drive. China has reportedly sought cooperation with the United States to obtain extradition of 150 alleged corrupt officials who have fled to the United States. However, many analysts contend that government anticorruption campaigns are mainly used to settle political scores with out-of-favor officials. Some analysts contend that President's Xi anticorruption drive is more about consolidating his own political than instituting reforms. In addition, there are some indicators that the current anticorruption campaign may be having a negative impact on the Chinese economy, due to hesitancy by some local officials to pursue projects they feel will lead to scrutiny from the central government. Many observers argue that meaningful progress against government corruption cannot occur without greater government transparency, a system of checks and balances, a free press, Internet freedom, and an independent judiciary. In October 2014, China held its fourth Plenum of the 18 th Party Conference. The meeting focused on the need to enhance the rule of law in China, but emphasized the leading role of the Communist Party in the legal system. China maintains a weak and relatively decentralized government structure to regulate economic activity in China. Laws and regulations often go unenforced or are ignored by local government officials. As a result, many firms cut corners in order to maximize profits. This has led to a proliferation of unsafe food and consumer products being sold in China or exported abroad. Lack of government enforcement of food safety laws led to a massive recall of melamine-tainted infant milk formula that reportedly killed at least four children and sickened 53,000 others in 2008. Transparency International's Corruption Perception Index for 2016 ranked China 79 th out of 176 countries and territories, up from 72 nd in 2007. Many economists contend that China's demographic policies, particularly its one-child policy (first implemented in 1979), are beginning to have a significant impact on the Chinese economy. For example, according to a McKinsey Global Institute study, China's fertility rate fell from about 5.8 births per woman in 1964 to 1.6 in 2012 . This is now affecting the size of the Chinese workforce. The existence of a large and underemployed labor force was a significant factor in China's rapid economic growth when economic reforms were first introduced. Such a large labor force meant that firms in China had access to a nearly endless supply of low-cost labor, which helped enable many firms to become more profitable, which in turn led them to boost investment and production. Some economists contend that China is beginning to lose this labor advantage. China's working population has reportedly fallen for three straight years (in 2014, it reportedly dropped by 3.7 million people). McKinsey Global Institute predicts that over the next 50 years, China's labor force could shrink by one-fifth. Some economists contend such factors will lead to much smaller rates of future economic growth. As the labor force shrinks, Chinese wages could begin to rise faster than productivity and profits growth, which could make Chinese firms less competitive, and result in a shift of labor-intensive manufacturing overseas. The one-child policy has also resulted in a rapidly aging society in China. According to the Brookings Institute, China already has 180 million people aged over 60, and this could reach 240 million by 2020 and 360 million by 2030. The population share of people aged over 60 could reach 20% by 2020, and 27% by 2030. With a declining working population and a rising elderly population, the Chinese government will face challenges trying to boost worker productivity (such as enhancing innovation and high-end technology development) and expanding spending on health care and elderly services. China's Hukou (household registration) system also poses challenges to the government. President Xi's report to the 19 th Party Congress in November 2017 stated that socialism with Chinese characteristics had entered a new era. He stated that China would work to become a "moderately prosperous society in all respects" by 2050. Major goals include boosting living standards for poor and rural people, addressing income disparities (e.g., rich-poor and urban-rural), making private consumption the driver of the economy, boosting services, reducing pollution, promoting innovation and economic modernization, and improving overall living standards. For example, the report states the following: We will work faster to build China into a manufacturer of quality and develop advanced manufacturing, promote further integration of the internet, big data, and artificial intelligence with the real economy, and foster new growth areas and drivers of growth in medium-high end consumption, innovation-driven development, the green and low-carbon economy, the sharing economy, modern supply chains, and human capital services. We will support traditional industries in upgrading themselves and accelerate development of modern service industries to elevate them to international standards. We will move Chinese industries up to the medium-high end of the global value chain, and foster a number of world-class advanced manufacturing clusters. The report indicated that China would continue to pursue trade and investment reforms, noting the following: We will adopt policies to promote high-standard liberalization and facilitation of trade and investment; we will implement the system of pre-establishment national treatment plus a negative list across the board, significantly ease market access, further open the service sector, and protect the legitimate rights and interests of foreign investors. All businesses registered in China will be treated equally. However, the report emphasized the continued importance of the state sector and the government's continued role in various economic sectors: We will improve the systems for managing different types of state assets, and reform the system of authorized operation of state capital. In the state-owned sector, we will step up improved distribution, structural adjustment, and strategic reorganization. We will work to see that state assets maintain and increase their value; we will support state capital in becoming stronger, doing better, and growing bigger, and take effective measures to prevent the loss of state assets. We will further reform of state-owned enterprises, develop mixed-ownership economic entities, and turn Chinese enterprises into world-class, globally competitive firms. China's Belt and Road initiative (BRI), also called "One Belt, One Road" (OBOR), was launched in 2013 to boost economic integration and connectivity (such as infrastructure, trade, and investment) with its neighbors and various trading partners in Asia, Africa, Europe, and beyond. At the APEC summit in November 2017, President Xi said the following: The Belt and Road Initiative calls for joint contribution and it has a clear focus, which is to promote infrastructure construction and connectivity, strengthen coordination on economic policies, enhance complementarity of development strategies and boost interconnected development to achieve common prosperity. This initiative is from China, but it belongs to the world. It is rooted in history, but it is oriented toward the future. It focuses on the Asian, European and African continents, but it is open to all partners. I am confident that the launch of the Belt and Road Initiative will create a broader and more dynamic platform for Asia-Pacific cooperation. Many U.S. analysts view the BRI differently than how Chinese leaders describe it. For example, Nadège Rolland, senior fellow with the National Bureau of Asian Research states the following: The Belt and Road Initiative (BRI) is generally understood as China's plan to finance and build infrastructure projects across Eurasia. Infrastructure development is in fact only one of BRI's five components which include strengthened regional political cooperation, unimpeded trade, financial integration and people-to-people exchanges. Taken together, BRI's different components serve Beijing's vision for regional integration under its helm. It is a top-level design for which the central government has mobilized the country's political, diplomatic, intellectual, economic and financial resources. It is mainly conceived as a response to the most pressing internal and external economic and strategic challenges faced by China, and as an instrument at the service of the PRC's vision for itself as the uncontested leading power in the region in the coming decades. As such, it is a grand strategy. Many aspects of the BRI initiative remain unclear, including which (and how many) countries will participate, how much China will spend to finance the initiative, and what projects will fall under the BRI. For example, the government's China Belt and Road Portal currently lists profiles of 70 countries on its website. However, China's official media in December 2017 stated that 86 countries and international organizations had signed 100 cooperation agreements with China under the BRI. Nadège Rolland said that China pledged it would spend $1 trillion to $1.3 trillion, T he Economist reports that China put the figure at $4 trillion, and the World Economic Forum estimates that China could ultimately spend $8 trillion on BRI. The initiative could provide a big boost to China's economy and soft power image. China hopes to gain a better return on its foreign exchange reserves, create new overseas business opportunities for Chinese firms, create new markets for industries currently experiencing overcapacity, and stimulate economic development in poorer regions of China. However, the initiative could pose financial risks if borrowers do not repay loans or if recipient countries do not view Belt and Road as benefiting them. U.S. Secretary of State Rex Tillerson criticized certain aspects of Belt and Road initiative in remarks made in October 2017: We have watched the activities and actions of others in the region, in particular China, and the financing mechanisms it brings to many of these countries which result in saddling them with enormous levels of debt. They don't often create the jobs, which infrastructure projects should be tremendous job creators in these economies, but too often, foreign workers are brought in to execute these infrastructure projects. Financing is structured in a way that makes it very difficult for them to obtain future financing, and oftentimes has very subtle triggers in the financing that results in financing default and the conversion of debt to equity. China has undertaken other major financial initiatives as well. In July 2014, China, along with Brazil, Russia, India, and South Africa, announced the creation of a $100 billion "New Development Bank," which is headquartered in Shanghai, China. The new bank aims to fund infrastructure projects in developing countries. In October 2014, China launched the creation of a new $100 billion Asian Infrastructure Development Bank (AIIB), aimed at funding infrastructure projects in Asia. Fifty-seven nations joined as founding members. The AIIB, headquartered in Beijing, announced it was open for business in January 2016. To date, the United States has chosen not to join the AIIB. The "Made in China 2025" initiative, announced in 2015, is one of several recently announced ambitious projects aimed at increasing the competitiveness of Chinese industries, fostering Chinese brands, boosting innovation, and reducing China's reliance on foreign technology by making China a major or dominant global manufacturer of various technologies. According to Chinese media, the initiative intends to "transform China from a manufacturing giant into a world manufacturing power" by 2049. For example, the plan states a goal of achieving 40% of domestically manufactured basic components and basic materials by 2020 and 70% by 2025. An updated version of the plan released in January 2018 said China aimed to become the world's leading manufacturer of telecommunication, railway, and electrical power equipment by 2025, and that China's robotics, high-end automation, and new energy vehicles industries would globally rank second or third by 2025. The methods the Chinese government plans to use to achieve its goals have raised concerns among U.S. firms and policymakers because they appear to involve large subsidies, protection of domestic industries, directed policies to purchase technology and IPR from abroad, increased pressure on foreign firms to transfer technology in order to do business in China, and what appears to be a goal of deliberately reducing foreign participation in China's markets. In an interview on November 3, 2017, U.S. Trade Representative Robert Lighthizer stated that China's Made in China 2025 initiative was "a very, very serious challenge, not just to us, but to Europe, Japan and the global trading system." The USTR's 2017 annual report on China's WTO compliance focused heavily on the initiative, stating that Made in China 2025 differed from industry support by other WTO members in the level of ambition and scale of resources dedicated to obtaining its goals, and the USTR report warned that "even if the Chinese government fails to achieve the industrial policy goals set forth in Made in China 2025, it is still likely to create or exacerbate market distortions and create severe excess capacity in many of the targeted industries." China's rapid economic growth and emergence as a major economic power have given China's leadership increased confidence in its economic model. Many believe the key challenges for the United States are to convince China that (1) it has a stake in maintaining the international trading system, which is largely responsible for its economic rise, and should take a more active leadership role in maintaining that system; and (2) further economic and trade reforms are the surest way for China to grow and modernize its economy. Lowering trade and investment barriers would boost competition in China, lower costs for consumers, increase economic efficiency, and spur innovation. However, many U.S. stakeholders are concerned that China's efforts to boost the development of indigenous innovation and technology could result in greater intervention by the state (such as subsidies, trade and investment barriers, and discriminatory policies), which could negatively affect U.S. IP-intensive firms. Opinions differ as to the most effective way to deal with China on major economic issues. Some support a policy of engagement with China using various forums, such as the newly created U.S.-China Comprehensive Economic Dialogue. Others support a somewhat mixed policy of using engagement when possible, coupled with a more aggressive use of the WTO dispute settlement procedures to address China's unfair trade policies. Still others, who see China as a growing threat to the U.S. economy and the global trading system, advocate a policy of trying to contain China's economic power and using punitive measures (such as trade sanctions) to either counter the negative impact of China's industrial policies on U.S. firms or push China to modify distortive and discriminatory policies (such as the Made in China 2025 initiative). Responding to China's BRI is viewed by some as a major challenge to U.S. global economic interests. While China's financial support of infrastructure projects in numerous countries could produce positive economic results, U.S. policymakers have expressed concerns that China will use BRI to mainly benefit its own firms, that the process of implementation of projects will not be transparent, that BRI participation could saddle countries with large debts, and that China will use the BRI to spread its economic system to other countries. | Prior to the initiation of economic reforms and trade liberalization nearly 40 years ago, China maintained policies that kept the economy very poor, stagnant, centrally controlled, vastly inefficient, and relatively isolated from the global economy. Since opening up to foreign trade and investment and implementing free-market reforms in 1979, China has been among the world's fastest-growing economies, with real annual gross domestic product (GDP) growth averaging 9.5% through 2017, a pace described by the World Bank as "the fastest sustained expansion by a major economy in history." Such growth has enabled China, on average, to double its GDP every eight years and helped raise an estimated 800 million people out of poverty. China has become the world's largest economy (on a purchasing power parity basis), manufacturer, merchandise trader, and holder of foreign exchange reserves. This in turn has made China a major commercial partner of the United States. China is the largest U.S. merchandise trading partner, biggest source of imports, and third-largest U.S. export market. China is also the largest foreign holder of U.S. Treasury securities, which help fund the federal debt and keep U.S. interest rates low. As China's economy has matured, its real GDP growth has slowed significantly, from 14.2% in 2007 to 6.9% in 2017, and that growth is projected by the International Monetary Fund (IMF) to fall to 5.8% by 2022. The Chinese government has embraced slower economic growth, referring to it as the "new normal" and acknowledging the need for China to embrace a new growth model that relies less on fixed investment and exporting, and more on private consumption, services, and innovation to drive economic growth. Such reforms are needed in order for China to avoid hitting the "middle-income trap," when countries achieve a certain economic level but begin to experience sharply diminishing economic growth rates because they are unable to adopt new sources of economic growth, such as innovation. The Chinese government has made innovation a top priority in its economic planning through a number of high-profile initiatives, such as "Made in China 2025," a plan announced in 2015 to upgrade and modernize China's manufacturing in 10 key sectors through extensive government assistance in order to make China a major global player in these sectors. However, such measures have increasingly raised concerns that China intends to use industrial policies to decrease the country's reliance on foreign technology (including by locking out foreign firms in China) and eventually dominate global markets. U.S. Trade Representative Robert Lighthizer has described the Made in China 2025 initiative as "a very, very serious challenge, not just to us, but to Europe, Japan and the global trading system." China's efforts to expand its economic influence globally are another area of concern to U.S. policymakers, including China's Belt and Road initiative (BRI) to finance and help build infrastructure projects in Asia, Africa, Europe, and elsewhere. Many analysts contend that China could use the initiative to boost its industries facing overcapacity (such as steel), gain new overseas markets, influence other countries to adopt China's economic model, and expand China's "soft power" in the numerous countries that may participate in the initiative. China's growing global economic influence and the economic and trade policies it maintains have significant implications for the United States and hence are of major interest to Congress. While China is a large and growing market for U.S. firms, its incomplete transition to a free-market economy has resulted in economic policies deemed harmful to U.S. economic interests, such as industrial policies and theft of U.S. intellectual property. This report provides background on China's economic rise; describes its current economic structure; identifies the challenges China faces to maintain economic growth; and discusses the challenges, opportunities, and implications of China's economic rise for the United States. |
A ccess to health care is, in part, determined by the supply of physicians available to provide treatment. Physician supply is a function of the number of physicians trained, how long they remain in practice, their productivity, and the hours they work. Policymakers have demonstrated a long-standing interest in access to care (in general and for specific populations). The federal government has identified certain health workforce concerns and creates programs that seek to address these concerns. Specifically, the Government Accountability Office (GAO) estimated that the Department of Health and Human Services (HHS) administers 72 health workforce programs. Among these programs are those that seek to increa se access to physician services, including programs that e ncourage people to enter primary care to address identified concerns that there are too few primary care physicians relative to the number of physician specialists. Federal programs also exist to recruit and retain physicians in rural areas because o f concerns that the populations that reside in these areas lack access to care. Specifically, the federal government designates some areas as medically underserved or as health professional shortage areas (HPSA) and provides benefits (e.g., higher Medicare payment rates) to providers who practice in these areas. In addition to these programs and policies, the federal government provides support for medical residency training (a.k.a., graduate medical education [GME]). Specifically, through payments that are generally made to hospitals, the federal government pays some of the costs that hospitals and other health providers incur when training residents. Such costs include, but are not limited to residents' and supervisors' salaries, and the costs of extra medical tests that residents may order as part of their training. The federal government makes a significant investment in GME—according to GAO, GME programs account for nearly three-quarters of HHS's health workforce expenditures —and GME may be a strong policy lever to impact access because the number of medical school graduates who obtain and complete a residency determines the size of the physician workforce, and the types of residencies they complete determine its specialty composition. Finally, where physicians complete their residencies often affects where they establish their practices. Given the influence of residency training on the physician population, policies that alter federal funding for GME may affect future physician supply and could be used to address identified workforce concerns. This report provides an overview of federal GME support; it discusses whether a particular source of federal GME support is actively used to further workforce goals such as altering the geographic or specialty distribution of residents trained. A number of GME critiques have raised concerns about the data that the federal government collects on these programs; for example, whether the data available are sufficient to determine program effectiveness. This report details programmatic data gaps where they have been identified. It does not summarize recent GME critiques in detail; for readers interested in such critiques, Appendix A provides some sources for further reading. Some federal programs use GME to support training for non-physician health providers; however, this report focuses only on the training of physicians. To be licensed to practice independently in a state, physicians in the United States must complete a minimum of three years of GME , with additional years required depending on their specialty. In Academic Year (AY) 2016-2017, approximately 124,000 individual residents were in training, including approximately 21,000 fellows —medical school graduates who have completed their initial residency training and are continuing their training in a fellowship in a subspecialty. (See text box for definitions.) GME generally takes place in hospitals that sponsor residency programs in specific specialties (e.g., pediatrics or surgery). Hospitals choose the number and specialties of the residents they train, but must meet accrediting body standards that attempt to assure that hospitals have the facilities, staffing, and patient load necessary to ensure that residents will receive adequate training in their chosen specialty (see text box). During their residency, residents rotate to outpatient facilities or other hospitals to gain experience treating different populations in different settings. Specific residency training requirements vary by specialty and are determined by the accrediting bodies . The federal government makes significant investments in GME funding through various programs. In FY2012, the last year of data available for all federal sources of GME payments, the federal government spent an estimated $15 billion on GME, which was the largest federal investment in the health care workforce. More recent data analyzed by GAO found that GME programs administered by the Department of Health and Human Services (HHS) and the Department of Veterans Affairs (VA) spent $14.5 billion on GME in 2015, but their work did not analyze Department of Defense GME spending. As such, 2012 remains the most recent year of a total federal GME estimate. Using their 2012 estimate, GAO found that 78% of government-wide health workforce funding was for GME; with Medicare payments accounting for 85% of this funding. Similarly, a GAO analysis of HHS programs in FY2014, found that HHS supported 72 health workforce programs, but that nearly three-quarters of all spending was from Medicare GME payments. The federal government supports GME through payments made by the Medicare and Medicaid programs, both administered by the Centers for Medicare & Medicaid Services (CMS) located in HHS; by training medical residents at Department of Veterans Affairs (VA) and Department of Defense (DOD) facilities; and by funding programs administered by HHS's Health Resources and Services Administration (HRSA) that support primary care training in outpatient facilities, rural GME program development, and training in children's hospitals. The federal government's primary role in GME has been as a payer. In this role, it has a significant influence on the physician workforce, but this role has generally been passive, because, with some exceptions, the federal government has little involvement through its support of GME in the content of training, the specialties it pays for, or training locations. In addition, the government's role in GME has generally not been linked to other federal health workforce investments, such as investments made to train non-physician providers whose work could complement or, where appropriate, replace that of physicians and who could be trained at a lower cost. These critiques have been raised particularly with regard to Medicare's GME support because it is the largest source of federal GME support, estimates of Medicare GME payments range from approximately $10.3 to $12.5 billion in FY2015. Medicare is also frequently discussed because, unlike other sources of GME support, it explicitly limits (i.e., caps) the number of residents it supports. Some argue that this limit makes increasing the number of residents and changing the locations where they train difficult. This argument generally does not take into account GME growth that occurred despite the Medicare cap. For example, recent work by GAO found that the number of residents in training grew by 22% over the 10-year period they examined (2005 to 2015), although the geographic areas where residents trained remained largely unchanged. Another analysis estimates that the number of residents in training grew by 27% during the 20-year period since the Medicare limit on GME support was enacted. This may be the case because the Medicare cap is not an absolute, and other sources—for example, other federal programs, state and local government funds, or hospital funds—can be used to expand or alter the number and types of residents in training. In addition, new hospitals can begin training residents and receive Medicare payment for doing so. Some argue that Medicare's residency limit should be partially or fully removed to address physician shortages in certain geographic areas and medical specialties. And Members of Congress have introduced legislation that would do so. Others argue that expanding Medicare support, unless done in a way that is directive; for example, by explicitly allocating positions to hospitals in specific geographic areas or requiring hospitals to fund residency positions in certain specialties, would not address identified workforce issues such as too few physicians in certain areas or practicing primary care. GAO also found that although there are incentives within Medicare and other programs to increase training in rural areas, hospitals frequently did not take advantage of them. The federal government supports workforce data collection and projections of future needs; in addition, researchers and advocates also collect and disseminate such data. Such data are necessary inputs for GME policy but are not sufficient. Determining the appropriate GME policy is inherently challenging because training a new physician is a long process; as such, attempting to change the physician workforce through changes to GME requires a long time horizon and good initial data to project the future need for physicians. This process of projection is particularly challenging because policy changes may occur in the interim that alter the assumptions used in the projections. Recent projections conducted by the National Center for Health Workforce Analysis, at HRSA, demonstrate the challenges of making projections concurrent with policy changes. In their 2013 projections, they projected that there would be a primary care physician shortage in 2020, but that the magnitude could vary greatly depending on assumptions about the role of non-physician providers. Specifically, they projected that the number of primary care physicians would grow by 8% between 2010 and 2020, but that the demand for their services would grow by 14%. They based this on the demand for services at the time of the study and assumptions about the future aging of the population, and the expected increase in insurance coverage driven by the Patient Protection and Affordable Care Act (ACA, P.L. 111-148 , as amended). These projections do not reflect more recent policy changes and stakeholder responses to the implementation of the ACA that may have affected insurance coverage and related demand for health services. The projections assumed that all states would expand Medicaid under the ACA, that full Medicaid expansion has not occurred, and that these projections also do not account for changes in federal policy related to the private insurance market. For example, beginning in 2019 individuals will no longer have to maintain insurance coverage or pay a penalty (i.e., the ACA's individual mandate), which experts predict will reduce insurance coverage. These policy changes may mean that HRSA's projected 2020 shortages may not occur or may be less than were estimated in 2013. Another source of uncertainty in physician projections is the size and role of non-physician providers. Specifically, the HRSA model that predicted the most extreme shortages projected that there would be a shortage of 20,400 primary care physicians in 2020, while other HRSA models that include full use of nurse practitioners and physician assistants project that the shortage would be 6,400. Estimates commissioned by the American Association of Medical Colleges (AAMC)—a private, nonprofit organization that represents U.S.-accredited medical schools and some teaching hospitals—vary depending on assumptions made about the ability of nurse practitioners and physician assistants to augment physician supply. Specifically, in projections to 2030, the shortage of primary care physicians ranged between 7,300 and 43,100. Others have suggested that increasing the role of these providers and the use of new care models may be sufficient to avert shortages. Experts also project geographic shortages both overall and of specific provider types and specialties. As noted, some areas are currently designated as being in shortage. GAO also found that there has been little change in the areas where GME training occurs, which may affect where physicians ultimately practice. As with general estimates of physician supply, the role of nurse practitioners and physician assistants may alter predicted geographic area shortages. It is also possible that targeted policy changes either already enacted or if enacted at the federal or state levels could alleviate geographic shortages in the areas they target. The uncertainty inherent in projecting supply and demand under changing policy conditions demonstrates the need to regularly update these projections to incorporate the latest data and policy conditions. The general uncertainty about the future need for physicians makes it challenging to develop and implement GME policy. However, it is relatively clear that good data are needed both to examine the overall health workforce and to determine how GME investments can be better aligned to achieve overall health workforce goals. The need for improved data collection has also been recommended in several of GAO's recent reports that examine GME spending. The federal government supports the health workforce generally , and the physician workforce specifically, through a number of programs, including those that provide loan repayment or scholarships to physicians. More than three-quarters of federal workforce support is through GME. The programs below are organized by relative size, as determined by the amount that the program spends annually. These programs are also briefly summarized in Appendix B . Medicare is by far the largest source of GME support. Medicare began supporting GME when the program was enacted in 1965. Congress stated that educational activities enhance the quality of care at a medical institution and therefore education costs should be borne by Medicare to an appropriate extent. Medicare provides funding for GME, paying "its share" of costs. Medicare provides GME payments based on a number of factors, including a teaching hospital's full-time equivalent (FTE) residents. However, Medicare GME funding is not tied to a specific resident. Instead, multiple residents may occupy one FTE because not all time is counted for Medicare purposes (e.g., time spent at facilities operated by the VA would not be paid by Medicare). In FY2015, estimates of what Medicare provided in overall GME payments r ange from approximately $10.3 to $12.5 billion. Medicare GME payments are made under two distinct methods: direct graduate medical education payments (DGME) and indirect medical education payments (IME). Under these two payment methods, the number of FTE residents that a hospital may receive payment for is limited, or "capped." CMS has not traditionally considered its role to be one of directing the physician workforce. Specifically, except for some statutory requirements related to the use of certain "redistributed" GME slots for primary care and for sparsely populated geographic areas, CMS generally does not direct hospitals to train certain types of residents, nor does it req uire training be in specific geographic areas, or dictate the content of training programs. Rather, CMS collects some GME related information from hospitals and uses it for payment calculation and auditing to ensure hospitals are paid according to GME statutes and regulations . CMS does not use this information to evaluate its GME investment or to otherwise direct the composition of the physician workforce . Medicare's GME support was initially open-ended, where Medicare would pay for additional FTE residents that hospitals trained. In 1997, graduate medical education stakeholders released a consensus statement arguing that the United States was on the verge of a serious oversupply of physicians and recommending limiting federal funding of GME positions to more align with the number of graduates of accredited U.S. medical schools. Congress enacted the Balanced Budget Act of 1997, ( P.L. 105-33 ), which limits Medicare's GME —most hospitals would receive DGME and IME support only for the number of allopathic and osteopathic FTE residents it had in training in 1996; in other words, each hospital was given a limit in terms of the number of positions or slots tha t Medicare would fund. S lots may be occupied by residents or fellows. Slots do not directly correspond to a specific resident or fellow because residents or fellows may spend periods of a given year at different facilities, or doing research. During these times, residents are not counted by the sponsoring hospital. Residents may not be counted simultaneously for payment by two government programs. This "cap" on the number of FTE residents Medicare will support is calculated for each hospital . However, the cap is not absolute— Medicare provides GME funding to new hospitals that previously did not have residency programs—either newly constructed hospitals or existing hospitals that develop new training programs—and the GME cap is not calculated and implemented until the new teaching programs' fifth year. Since the Medicare cap was enacted, hospitals have expanded the number of residents they are training by using non-Medicare sources of support (such as, hospital revenue or state and local funds). Specifically, in the 20 years since the cap was enacted, the number of residency slots has increased by 27%. Generally, these increases have been in subspecialties (i.e., for fellowship training); subspecialty services tend to generate higher revenue or impose lower cost burden on hospitals. In addition, Medicare GME slots have been redistributed since the cap was enacted; for example, the ACA included two redistribution programs—the first redistributed unused slots, and the second continually redistributes slots from closed hospitals. In FY2015, Medicare provided $3.68 billion in DGME payments to teaching hospitals, supporting approximately 85,700 FTE residents. Medicare DGME payments reimburse teaching hospitals for the Medicare portion of approved program costs directly incurred with residency programs, such as resident stipends, supervisory physician salaries, and administrative costs. However, Medicare does not reimburse the teaching hospital for the actual costs incurred by the residency program, but is instead the product of the total approved DGME costs and the hospital's Medicare patient load percentage (see Figure 1 ). Under this methodology, Medicare pays for its share of the approved program costs associated with the residency program, whereas non-Medicare payers (e.g., a private insurer) would theoretically cover the remaining costs of the residency program based on their patient share at the teaching hospital. In general, the total approved DGME cost is based on a teaching hospital's approved weighted FTE count, subject to a cap, and a prospectively determined per-resident amount. Residents in their initial residency period (IRP) are weighted as 1.0 for the FTE count, whereas residents past their IRP are weighted as 0.5 for the FTE count. The hospital's approved FTE count is a rolling average of the hospital's FTE count over the past three years. The per-resident amount is a dollar value based on the amount of costs of the hospital's residency program for each FTE resident in a base period (a hospital's cost reporting period beginning on or after October 1, 1983, but before October 1, 1984) and is updated each year. The product of these two figures represents Medicare's total approved DGME amount for a teaching hospital in a given year. The Medicare patient load is based on the teaching hospital's number of Medicare Part A inpatient days out of the total inpatient days plus 86% of Medicare Part C (Medicare Advantage) inpatient days out of the total inpatient days. In FY2015, Medicare provided $7.38 billion in IME payments to teaching hospitals, supporting approximately 85,600 FTE residents. Medicare IME payments support the indirect costs associated with residency programs, such as the higher patient care costs from additional testing that residents may order as part of their training. Because Medicare's inpatient payment method, the Inpatient Prospective Payment System (IPPS), does not typically provide separate payment for additional testing, teaching hospitals may be disadvantaged by training residents under this payment method. To adjust for this possibility, Medicare IME payments are provided as a percentage increase to Medicare's IPPS payment (a sum payment amount of separate operating and capital components) for each discharge based on a statutory payment formula. Medicare's formula for IME payment adjustment to the operating component of the IPPS payment is explicitly constructed in statute and is based primarily on an intern and resident-to-bed (IRB) ratio (see Figure 2 ). The IME operating adjustment is the percentage increase to Medicare's IPPS operating per-discharge payment. IPPS payments also include a relatively smaller component that reflects the capital costs of the hospital. CMS constructed the IME capital adjustment formula and uses a residents-to-average daily census ratio (RADC) (not to exceed 1.5) to increase the teaching hospital's capital payment component under the IPPS (see Figure 2 ). Residents are counted in the same manner as in the IME operating adjustment formula. The addition of the IME percentage increases to Medicare IPPS operating and capital per-discharge payments amounts reflects Medicare's IME payments. Medicaid provides the second-largest source of GME support. Medicaid is a joint federal-state program. States must follow broad federal rules to receive federal matching funds, but they have flexibility to design their own versions of Medicaid within the federal statute's basic framework. The federal statute does not require states to make Medicaid GME payments, but states are allowed to make Medicaid GME payments, and most states have historically made these payments. Unlike for Medicare or other federal GME payment systems, there is no federal guidance for Medicaid GME, so, states have significant flexibility in designing and administering their Medicaid GME payments. As a result, states' Medicaid GME payments vary substantially. States make Medicaid GME payments through the fee-for-service (FFS) delivery system, managed care delivery system, or both systems. Data for Medicaid GME payments are limited. CMS began collecting information about Medicaid GME payments made through the FFS delivery system in FY2010 through the CMS-64 data. Other information about Medicaid GME payments is available from the AAMC and GAO. AAMC conducts a 50-state survey about Medicaid GME payments every two to three years. GAO recently released a report on federal sources of GME payments that includes a survey of states regarding Medicaid GME payments. The information from these three sources varies and each source has limitations. Table 2 shows the information about Medicaid GME payments from the three sources for a similar timeframe (i.e., federal fiscal year 2015 and state fiscal year 2015). The CMS-64 data reported only FFS GME payments, while the AAMC and GAO data included total GME payments including both FFS and managed care payments. With respect to the number of states with Medicaid GME payments, Table 2 shows the AAMC and GAO surveys reported a similar number of states making Medicaid GME payments, with AAMC reporting 43 states for SFY2015 and GAO reporting 45 states for FY2015. The CMS-64 data differed from the AAMC and GAO data because it showed only 31 states with Medicaid GME payments. The CMS-64 data only included information about FFS GME payments, but the AAMC and GAO data reported 41 and 44 states, respectively, with FFS GME payments. The Medicaid GME payments (including both the FFS and managed care payments) from the AAMC and GAO surveys were similar, with AAMC reporting $4.3 billion in Medicaid GME payments for SFY2015 and GAO reporting $4.2 billion for SFY2015. The $1.6 billion in FFS Medicaid GME payments reported in the CMS-64 data for FY2015 is somewhat higher than the $1.4 billion in FFS Medicaid GME payments reported in the AAMC survey for SFY2015. However, the CMS-64 reports 31 states, and the AAMC data reports 41 states with FFS GME payments. AAMC and GAO provided additional information about Medicaid GME payments that is not included in the CMS-64 data. For instance, both sources have information about how the Medicaid GME payments were calculated. Some states used the Medicare methodology or a similar method, while other states used a per-resident payment based on the teaching site's share of total Medicaid revenues, costs, or patient volume. A few states paid a fixed amount per Medicaid discharge. AAMC and GAO reported information about the types of professions eligible for Medicaid GME payments. Most states supported training programs for physician residents, and some states supported training programs for other health professions, such as nurse practitioners, nurses, physician assistants, dentists, podiatrists, and allied health professionals. GAO collected information about the activities states intended the Medicaid GME payments to support, which include the salaries and benefits of residents and/or faculty, costs of administering the training program, and indirect medical education costs. Training health care professionals—including physicians—is part of the VA's statutory mission. It does so to provide an adequate supply of health professionals overall and for the VA's health system. In general, each year approximately 43,000 individual physician residents receive their clinical training by rotating through about 11,000 VA-funded physician FTE residency positions at VA medical facilities. In FY2017, the VA spent approximately $1.78 billion for GME, which was 80% of all VA stipend support for clinical training programs. The VA estimates it spent $0.89 billion in direct GME costs and the same amount ($0.89 billion) on indirect medical costs and an estimated $138,000 per FTE resident, which was higher than Medicare (and other programs) amount spent per resident. Generally, the VA does not operate its own GME programs because accrediting bodies require that medical residents see a diverse population in terms of age, sex, and medical conditions throughout their training, which the VA's patient population generally does not provide. Instead, the VA partners with teaching hospitals, and residents from those hospitals' training programs rotate to a VA medical facility for a period of time. About 99% of VA's GME programs are sponsored by academic affiliates. The VA estimates that it partners with over 2,000 ACGME accredited programs in 80 different specialties or subspecialties. When the VA partners with a teaching hospital that operates a residency program, it shares the costs of faculty and residents when the residents are training at the VA medical facility. During the time that residents are at a VA facility, they are not counted for the purposes of the Medicare GME cap (and are not paid using Medicare funds). This permits hospitals to train additional residents above their Medicare FTE cap to account for the time that residents are at VA facilities and therefore being paid by the VA. Unlike Medicare and Medicaid, the VA does control the type of residents it trains and where these residents are located. Each VA medical facility may determine its staffing needs and the types of programs it partners with academic affiliates to operate. As a result, the VA has data on the residents it trains and makes attempts to track whether its physician employees spent part of their residency training at the VA. The Veterans Access, Choice, and Accountability Act of 2014 ( P.L. 113-46 , as amended), among other things, included a requirement for the VA to expand the number of residents it trains by up to 1,500 positions in primary care, mental health, and other high-priority areas for the VA over a period of five years; however, subsequently the Jeff Miller and Richard Blumenthal Veterans Health Care and Benefits Improvement Act of 2016 ( P.L. 114-315 ) extended this time period to be 10-years (i.e., to 2024). The VA intends to allocate the new residency positions by 2023. This expansion began in academic year (AY) 2015, when the VA allocated 204.3 new VA positions; the largest number of positions were from primary care (73.8 positions) and mental health care (57.8 positions). Positions were allocated to 82 facilities in 38 states (positions were also allocated to facilities in the District of Columbia and Puerto Rico). As of July 1, 2015, about 162.9 of the 204.3 allocated positions were filled. To support residents training beginning in AY2016, the VA allocated 167.99 new VA positions and 175.2 positions to support residents beginning training in AY2017, for a cumulative three-year total of 547.41. The largest number of positions overall were from internal medicine (191.42) and psychiatry (117.17). Positions were allocated in 38 states. The recently enacted John S. McCain III, Daniel K. Akaka, and Samuel R. Johnson VA Maintaining Internal Systems and Strengthening Integrated Outside Networks Act of 2018, or the "VA MISSION Act of 2018" ( P.L. 115-182 ), included a provision to establish a new pilot program for GME in underserved areas. The program has not yet been implemented. The new pilot program will create the medical residency positions authorized under the Veterans Access, Choice, and Accountability Act (38 U.S.C.§ 7302 note) at facilities operated by the Indian Health Service, or by Indian Tribes, a federally qualified health center (FQHC), a DOD facility, or another facility that the VA Secretary deems appropriate. During the pilot program, the Secretary is required to place no fewer than 100 residents in these facility types or at facilities located in areas that are deemed underserved by criteria established in the VA MISSION Act of 2018. The pilot program authorizes the VA Secretary to pay resident stipends and benefits regardless of whether the resident has been assigned to a VA facility. For facilities that establish new residency programs, the VA will pay for the costs associated with doing so including curricula development, faculty salaries, faculty and resident recruitment, costs associated with the program becoming accredited, and resident educational expenses. This pilot program will terminate on August 7, 2024. The Health Resources and Services Administration (HRSA) supports GME primarily through two programs: Children's Hospital GME program (CHGME) and the teaching health center GME (THCGME). The CHGME program trains both general pediatricians and pediatric subspecialists, while the THCGME trains residents in outpatient settings in primary care and psychiatry. In addition to these ongoing programs, in FY2019, HRSA received appropriations to support two GME related programs. Under the first, the agency received $25 million to provide grants to public institutions of higher education in states with primary care provider shortages to expand or support GME. These grants will be for five years (as of this report's publication, no funding announcement has been released). Under the second program, HRSA received $10 million to support the Rural Residency Development program, which provides funds to award to entities, such as rural hospitals or FQHCs to develop "rural training tracks." This funding builds on an FY2018 appropriation of $15 million to support this program. Rural training tracks are residency programs where residents spent a portion of their early training at an urban hospital and then complete their training in a rural area. Programs meeting certain criteria may be exempt from the Medicare GME cap, but GAO noted that entities interested in starting these programs may not do so because Medicare funds are only available after residents begin training. This grant program provides start-up funds for entities to develop the GME programs. HRSA also supports residency training through several smaller programs that do not focus explicitly on residency training but permit residency support as one of the allowable uses of funds. Through these programs, in AY2016-2017, HRSA supported 2,098 primary care residents and 130 preventive medicine residents. In addition to these programs, some residents may receive training in community-based settings supported by the Area Health Education Center (AHEC) Program or may receive specialized training in geriatrics through the Geriatric Workforce Enhancement Program. Data on the number of medical or dental residents trained through the AHEC and geriatrics program are not available; rather, available data are on all post-graduate health professionals trained in these programs. The Children's Hospitals GME (CHGME) payment program is a discretionary program created in 1999 and most recently reauthorized through FY2023 in P.L. 115-241 . The program received an appropriation of $325 million in FY2019 to provide direct financial support to 58 free-standing children's hospitals to train pediatricians and pediatric subspecialists. CHGME was created because children's hospitals typically received little, if any, Medicare GME payments because Medicare's GME payments are made based on a hospital's Medicare patient volume, which is generally low at children's hospitals because Medicare beneficiaries are individuals aged 65 and over, individuals receiving Social Security Disability Insurance benefits, and individuals with end-stage renal disease (i.e., permanent kidney failure). At the time the CHGME program was created, advocates argued that the lack of direct federal support for GME in children's hospitals impeded the development of the pediatric workforce because children's hospitals, rather than general hospitals, are more likely to have the patient volume necessary to train pediatric subspecialists. Since the CHGME program's creation, the overall size of the pediatric and pediatric subspecialty workforce has increased, whereas it had been declining in the 1990s before the program began. Advocates argue that this reverse can be attributed to the CHGME program, because nearly half of all pediatric residents and nearly two-thirds of all pediatric subspecialty fellows train at children's hospitals. Others argue that children's hospitals do not need these subsidies because they have fewer uninsured patients than do general hospitals so they should be able to support training without these subsidies. The CHGME program makes both DGME and IME payments to children's hospitals for residents and fellows in training. It allocates one-third of its appropriation to DGME payments and the remaining two-thirds to IME payments. During academic year 2016-2017, the program supported 7,164 FTE residents. This includes support for 5,017 general pediatric residents, including residents from combined pediatrics programs (e.g., internal medicine/pediatrics). In addition, the program supported training 2,713 pediatric medical subspecialty residents, 285 pediatric surgical subspecialty residents, and 365 pediatric dentistry residents. The program's funds also supported 3,120 adult medical and surgical specialty residents, such as those training in family medicine residents who rotate through children's hospitals for pediatrics training. The program must make payments to all children's hospitals that meet the program's definition and have an eligible training program. Therefore, as the number of children's hospitals or eligible training programs increases, the program will provide lower payment levels per resident, unless the amount of funding appropriated to the program increases. This also means that HRSA does not have the authority to use this program to affect the geographic distribution of pediatric trainees. Unlike CMS programs, HRSA does require CHGME funding recipients to report data on a number of program elements. They are required to report financial data; specifically, they must detail the support they receive from other sources to prevent duplication of payment and programs are required to return duplicate payments. CHGME programs are also required to report programmatic data including data on the number of residents they train, the specialties they train in, and whether individuals who complete their training care for children within the hospital's service area or state. HRSA also uses these data to track former trainees as they progress in their careers to examine outcomes such as whether these trainees serve patients who are covered by Medicaid. The 2013 program reauthorization also includes a new authority for HRSA to develop a quality bonus system where a percentage of the program's appropriation is reserved and then allocated to hospitals that meet specified quality targets. The program is collecting baseline data in FY2019 about CHGME resident involvement in hospital quality initiatives (e.g., integrated care models and social determinants of health). These data will be used as a baseline to establish standards for implementation in FY2021. HRSA administers the teaching health center GME program (or THCGME), which provides payments to outpatient facilities to support the training of primary care medical and dental residents at these facilities. Because residency training has been, in general, hospital-based, experts have raised concerns that physicians are not prepared to treat patients in outpatient settings, where care is increasingly being delivered. Under the THCGME program, HRSA provides DGME and IME payments to outpatient facilities, such as federal health centers (a.k.a. FQHCs), to support the costs associated with residency training. The program started in FY2011, supporting residents who began their training in AY2012. The program has been funded by direct appropriations enacted in three successive laws: (1) the ACA, which provided funding from FY2011-FY2015; (2) the Medicare Access and CHIP Reauthorization Act of 2015, which provided funding for FY2016 and FY2017 ( P.L. 114-10 ); and (3) the Bipartisan Budget Act of FY2018 ( P.L. 115-123 ), which provides funding for FY2018 and FY2019. The most recent extension included expanded program funding to both increase the number of training programs operating and the number of trainees supported at existing programs. Table 3 shows the program's funding and number of residents trained since its inception. HRSA awards THCGME funds to all facilities eligible for payments under the statutory definition of a teaching health center. In statute, the program's funds must be used to support primary care residents (defined as residents training in family medicine, internal medicine, pediatrics, combined training in internal medicine-pediatrics, obstetrics and gynecology, psychiatry, general dentistry, pediatric dentistry, or geriatrics). Programs were paid $150,000 per FTE under the ACA funding, and $95,000 per FTE using the MACRA funds. This decrease occurred because there are now more residents in training than when the program began. The program's per resident funding level under BBA 2018 is not yet known; however, a 2015 survey of active programs by HRSA indicate that the cost of training a resident at a teaching health center was $157,602 per resident. This amount is higher than estimated in other programs, in part, because THGME programs are small, which lessens economies of scale and because the programs estimate higher costs for training in outpatient facilities. To determine the cost of training at THCs, HRSA contracted with George Washington University to develop a THCGME cost reporting instrument to better reflect the costs that THCs incur when operating GME programs. The instrument includes both the costs that THCs incur while training and the revenues that residents generate. Though some THCs had challenges reporting all of the data elements, this information provided a more comprehensive accounting of costs than are available for most federally support GME programs. The THCGME program is required to collect data on various aspects of the residents it trains and the BBA 2018 included additional data collection requirements. Specifically, it required HRSA to report on (1) the number of patients treated by THC residents; (2) the number of visits by patients treated by THC residents; and (3) the number of THC residents who completed a residency in the reporting year, and the number and percentage of these residents who (1) entered primary care practice and (2) entered practice at a health care facility in a HPSA or a rural area. Finally, the law requires the HHS Secretary to submit a report to Congress, by March 31, 2019, on the costs that THCs incur while training residents. The first THCGME class completed it training in 2014; as such, outcomes associated with the program are preliminary. HRSA's data suggest that the program is successful at training residents who enter primary care and that its graduates are more likely to enter into primary care practice at safety net facilities (such as the facility types that are eligible to sponsor a THCGME program). Follow-up studies showed that 69% of all THCGME graduates were currently practicing in a primary care setting and 55% were in a medically underserved community and/or rural setting. The Department of Defense (DOD) trains residents who have acquired a uniformed service obligation through a DOD physician training program. Examples include the Uniformed Services University of the Health Sciences (USUHS) and the Health Profession Scholarship Program. USUHS students enter active uniformed service as medical students, receive the pay and benefits of an officer at the O-1 level, and incur a seven-year service obligation upon graduation. Under the scholarship program, DOD pays tuition and fees, plus a monthly stipend for students enrolled in civilian medical schools. In return, the students incur an obligation to serve a year of active duty service for each year of benefits received, with a two-year minimum obligation. Upon graduation, most scholarship program participants (regular program participants) go on active duty and begin GME in military hospitals. Other scholarship program participants (deferred program participants) are granted deferments while they pursue civilian GME. In FY2017, DOD administered residency programs at 26 DOD hospitals and trained an estimated 1,455 FTE residents in over 100 specialties. DOD residency programs are accredited by ACGME and managed by each respective military service. The military services generally partner with civilian teaching hospitals, where residents rotate for training in areas or populations not seen at a DOD hospital. Residents from civilian partner facilities may also rotate to DOD facilities. DOD exercises control over the type of residents it trains and the facilities where they train. Specifically, each of the military services determines its workforce requirements and then coordinates with the DOD Comptroller to ensure adequate funding. Within the Army, the GME Program Office in the Medical Education Directorate of the Office of The Surgeon General develops policy, manages the tri-service Medical Occupation Data System GME database, serves as the Army primary point of contact for GME, and coordinates the Army responsibilities for an annual selection board. The number, specialty, and location of specific training program slots are specified in an annual school year plan approved by the Surgeon General of the Army that serves as a blueprint for the Joint Services GME Selection Board (JSGMESB). This board convenes annually to select trainees for all programs. Within the Air Force, the number and specialty type of training slots are determined through the Air Force Health Professions Education Requirements Board (HPERB). This annual process models expected attrition, identifies health care workforce needs, and plans and programs for GME needs. The HPERB receives GME training requests from medical commands each March. Since Air Force medical billets are frequently integrated into sister service facilities, the Air Force commands collaborate with the other services in developing these requests. Within the Navy, the Chief of the Navy Medical Corps determines the number and specialty of training slots during an annual training plan meeting. Input from manpower and personnel planners, clinical specialty leaders, and the Office of the Chief of the Navy Medical Corps are used in developing the annual Training Plan. Similar to the other services, the process culminates in selections made at the annual JSGMESB. Because many DOD training programs are either integrated or collocated, the service GME chiefs collaborate throughout the year to ensure the integrity, efficiency, and quality of the military GME process. This involves aligning training slots to DOD hospitals that have adequately large and diverse patient populations to sustain the training requirements. GME is funded through the annual DOD appropriation in the Defense Health Program budget account under Operations & Maintenance in the Education and Training budget activity group. For FY2018, Congress appropriated $692.6 million for DOD health care education and training. While the GAO estimated in FY2012 that DOD spent $16.5 million on GME, the military departments report that attempts to determine the actual cost of GME have been unsuccessful. The military departments agree that the data necessary "to do a valid calculation are not available." This assessment is consistent with data collection variances in non-DOD administered GME programs. The federal government funds a number of programs that support medical residency training. These programs are operated by different departments across the federal government, and each has its own stated program goals. The rules governing these programs and the purposes of federal support vary. These programs have generally not been examined in conjunction with one another and may have goals that are contrary, duplicative, or otherwise not aligned. For example, in a 2015 report, GAO specifically noted that CMS's GME programs (i.e., Medicare and Medicaid) do not target areas that HHS has identified as workforce needs, nor do they align with workforce goals included in HHS's strategic plan. A 2018 report GAO issued reconfirmed this finding. The Council on Graduate Medical Education (COGME), the federal advisory group tasked with examining GME policy, also noted a lack of alignment across programs and in its 2017 report called for "a national strategic plan for graduate medical education" to be created by a non-partisan strategic planning committee. One of the major challenges for GME policymakers is that data to evaluate programs are lacking. This lack of program transparency has been a consistent theme in a number of recent GME evaluations. In the 2018 GAO report noted above, GAO found that HHS and VA GME programs did not collect sufficient data to properly evaluate the federal government's GME investments. This report did not evaluate DOD GME. GAO recommended that HHS and the VA identify information needed to evaluate their GME investments and improve the quality and consistency of data collected. Their study found among HHS and VA GME programs that the data collection was generally done at the individual program level and was generally collected to determine hospital compliance with program statute and were not sufficient to determine program costs. In addition, because the data collected were to determine compliance with different program statutes, these data were not consistent across programs. GAO did state that collecting GME data may be difficult because some aspects of the costs of GME training are difficult to quantify (e.g., faculty teaching salaries) and that GME costs vary by site (e.g., costs would differ between a hospital and a clinic where residents rotate for training). Despite these challenges, GAO has consistently recommended better data collection for GME programs. The HRSA THCGME supported the development of a data collection instrument to quantify both teaching costs and revenue generated by residents. As part of this analysis, they surveyed THC programs to attempt to identify these data elements (including services and space that were donated to programs). Overall, they found that most programs were able to quantify the expenses associated with training, but that examining the revenue generated was more difficult. Despite these challenges, the data collection instrument because of its scope might be useful to better quantify the costs of residency training at other facility types and by other payers. Although efforts are underway to improve data collection, they are largely at beginning stages and are not coordinated across programs. As mentioned, the CHGME program is collecting baseline data to develop quality measures for its program. As part of the development of standards, HRSA sought public comments. In general, the commenters noted that there were no generally accepted standards for measuring residency program quality, and that the lack of accepted measures made it difficult to judge relative program performance or change over time. As such, the agency is collecting baseline data, including detailed curriculum data, in FY2019 and is focusing on hospital quality initiatives that have direct resident involvement. Another effort in its early stages is being undertaken by the National Academy of Medicine, which sought expert input about how to develop metrics to evaluate individual residency program outcomes at a meeting held in 2017. Although workshop participants overall agreed that GME quality measures are needed, most noted that developing and collecting these measures would be challenging. For example, if one of the outcomes of interest is the quality of care that a training program's graduates provide, it is difficult to attribute whether a program graduate's ability to provide quality care is due to the training received during medical school, residency, or from peers while in practice. Some academic research has been undertaken in this area, which has shown that residency training can affect the quality of care its residents deliver and the cost of that care. Despite progress in this area, efforts are generally preliminary and data available are limited. The current lack of data (overall or for specific programs) makes it difficult for policymakers seeking to amend GME payments, because data are not available to evaluate the relative success or weakness of the current payment systems. This may be particularly challenging for those who wish to expand payments, because the limited data that do exist indicate that payments—in particular, Medicare's IME payments—are higher than can be empirically justified. As such, some argue that Medicare payments should be reduced; this was suggested by the National Commission on Fiscal Responsibility and Reform, by CBO in their Options for Reducing the Deficit, and in various years of the President's budget, including a proposal in the FY2019 President's Budget. Others argue that payments should be expanded to reduce or avert physician shortages, though such shortages themselves have been debated. Congress may consider using federal GME support to encourage training in specific specialties and may consider doing so by amending how payments are allocated through existing federal programs, as some of these programs (e.g., Medicare and Medicaid) exercise little control over the specialties they support. Researchers have found that when hospitals expand residency training, they tend to do so in specialties where the benefits derived from residents' labor exceed the cost of their training (i.e., it is profitable for the hospital to train additional residents). Current data collected on federal programs make it difficult to determine when a hospital requires an incentive (e.g., a payment from a federal program) to operate a residency program or when it is profitable for a hospital to train residents without an incentive. Recent research found that it may be cheaper for a hospital to use resident services than to hire nonphysician providers to replace resident labor and that the outcomes provided by resident were similar or better. Congress could pursue policy options to encourage additional training in specific specialties, as it has in the past. These options have not always been successful because incentives are generally given to the hospital and often measure the specialty when the resident begins training, which may miss residents who choose to subspecialize. Designing policies to affect the specialty composition of the future workforce may be also challenging, because residents may move to a different hospital to pursue further training, because GME incentives are given to the hospital but not to residents, and because current specialty needs, shortages, and surpluses may change. A related challenge is that currently most federal programs pay the same amount for residents across specialties and by year of training (with the exception of fellows). Some have speculated that a hospital's cost of training a resident may differ by specialty or by the year that the resident is in training. The relative cost to a hospital for operating a residency program may also vary by a number of factors, such as the size of the residency program, the specialty of the program, the total number of residency programs that the hospital operates, and the availability and cost of alternative providers who would be needed to replace the resident's labor. Residents may also generate revenue for a hospital directly (e.g., because they provide additional labor) or may do so indirectly (e.g., because the prestige of a teaching hospital may make it more attractive for some patients). Determining these "costs," should they exist, is challenging. In some cases, federal GME program payments may undercompensate a hospital while in other cases program payments may exceed the hospital's costs. GAO attempted to examine the cost of training in a 2018 report and found that measuring these costs was difficult and that some costs were difficult to identify. They also noted that the current data collected were not sufficient to identify these costs or to compare them across GME programs. In general, the data collected are not sufficient to determine if or when these scenarios occur nor are data available to determine the factors that may affect hospital training costs. Better data on these "costs" may be useful to better target federal GME support. Congress may also consider policy options that seek to influence the geographical distribution of residents. Such strategies have been pursued in the past; for example, the ACA's redistribution of Medicare-funded residency slots gave preference to hospitals in states with health professional shortage areas and low resident-to-population ratios. Successfully implementing policy options to achieve geographic distribution goals have a number of the same challenges that policy options that seek to target the specialty composition of the physician population do. For example, proposed policy changes generally target hospitals and not the residents themselves, which may be not be effective when the desired outcomes are determined by where the residents ultimately choose to practice. In addition, geographic distribution policies may face challenges because some areas that have traditionally trained residents may lose their current levels of support. For example, prior critiques have raised concerns that where current residents are trained is not reflective of where the current population is located. For example, GAO notes that "Medicare GME funding is disbursed based on historical patterns. Therefore, the Medicare-supported residency slots, supported by this Medicare GME funding, are most highly concentrated in northeastern states." GAO confirmed this finding in a 2017 report, which examined residency training from 2005 through 2015 and found that the locations remained largely unchanged despite uneven population growth across regions during this time period. Given that training sites have been largely static, successful policy options would either need to add total residents (i.e., expand overall support) or would need to implement a drawdown in support, which may be unpopular and may also be a lengthy process because some residents are currently supported in training programs that last a number of years. Although prior critiques have focused on Medicare's GME support because it is the largest source of GME support, program challenges are not limited to Medicare, as other federal sources of GME support have limited data available and some programs have little flexibility in how payments are used. As these programs all seek to train physicians and are, at times, training the same physicians, policymakers may be interested in examining these programs in concert to minimize duplication and maximize program alignment. Appendix A. Additional Resources Below are resources for readers interested in specific critiques and policy options suggested to reform Graduate Medical Education (GME). Resources are organized alphabetically by the group that has issued the report. Council on Graduate Medical Education (COGME) Federal executive branch advisory council that provides ongoing assessment of physician workforce trends and training. For all reports, see http://www.hrsa.gov/advisorycommittees/bhpradvisory/cogme/index.html . Relevant Reports Council on Graduate Medical Education, Towards the Development of a National Strategic Plan for Graduate Medical Education , Twenty Third Report, Rockville, MD, April 2017, https://www.hrsa.gov/sites/default/files/hrsa/advisory-committees/graduate-medical-edu/reports/April2017.pdf . Council on Graduate Medical Education, The Role of Graduate Medical Education in the New Health Care Paradigm , Twenty Second Report, Rockville, MD, November 2014, http://www.hrsa.gov/advisorycommittees/bhpradvisory/cogme/Reports/22report.pdf . Council on Graduate Medical Education, Improving Value in Graduate Medical Education Twenty-First Report, August 2013, http://www.hrsa.gov/advisorycommittees/bhpradvisory/cogme/Reports/22report.pdf . Council on Graduate Medical Education, Enhancing Primary Care, Twentieth Report, December 2010, http://www.hrsa.gov/advisorycommittees/bhpradvisory/cogme/Reports/twentiethreport.pdf. Council on Graduate Medical Education, Enhancing Flexibility in Graduate Medical Education Nineteenth Report, September 2007, http://www.hrsa.gov/advisorycommittees/bhpradvisory/cogme/Reports/nineteenthrpt.pdf . Council on Graduate Medical Education, Financing Graduate Medical Education in a Changing Health Care Environment , Fifteenth Report, http://www.hrsa.gov/advisorycommittees/bhpradvisory/cogme/Reports/fifteenthreport.pdf . Government Accountability Office (GAO) Federal legislative branch agency that evaluates federal programs including those that finance health care and support the physician workforce. For all reports, see www.gao.gov . Relevant Reports U.S. Government Accountability Office, Physician Workforce: HHS Needs Better Information to Comprehensively Evaluate Graduate Medical Education Funding , GAO-18-240, 2018, https://www.gao.gov/assets/700/690581.pdf . U.S. Government Accountability Office, Physician Workforce: Expansion of the Children's Hospitals Graduate Medical Education Payment Program , GAO-18-66R, 2017, https://www.gao.gov/assets/690/688072.pdf. U.S. Government Accountability Office, Physician Workforce: Location and Types of Graduate Training Were Largely Unchanged, and Federal Efforts May Not Be Sufficient to Meet Needs, GAO-17-411, May 5, 2017, https://www.gao.gov/assets/690/684946.pdf. U.S. Government Accountability Office, Health Care Workforce: Comprehensive Planning by HHS Needed to Meet National Needs , GAO-16-17, December 11, 2015, https://www.gao.gov/assets/680/674137.pdf . U.S. Government Accountability Office, Health Care Workforce: Federally Funded Training Programs in Fiscal Year 2012, GAO-13-709R, August 15, 2013, https://www.gao.gov/assets/660/656960.pdf . U.S. Government Accountability Office, Graduate Medical Education: Trends in Training and Student Debt, GAO-09-438R, May 4, 2009, http://www.gao.gov/new.items/d09438r.pdf . Medicare Payment Advisory Commission (MedPAC) Federal legislative branch advisory commission that evaluates Medicare payment policy, including Medicare's financing of physician training. For all reports, see www.medpac.gov. Relevant Reports MedPAC, "Does It Cost More to Train Residents or to Replace Them?" September 2013, http://www.medpac.gov/docs/default-source/contractor-reports/sept13_residents_gme_contractor.pdf?sfvrsn=0 . Medicare Payment Advisory Commission, Graduate Medical Education Financing: Focusing on Educational Priorities, Report to the Congress: Aligning Incentives in Medicare, Washington, DC, June 2010, Chapter 4, at http://www.med http://www.medpac.gov/documents/reports/Jun10_Ch04.pdf?sfvrsn=0 pac.gov/documents/Jun10_EntireReport.pdf. Medicare Payment Advisory Commission's June 2009 Report to Congress: Improving Incentives in the Medicare Program, Chapter 1, at http://www.medpac.gov/documents/reports/Jun09_Ch01.pdf?sfvrsn=0 . National Academy of Medicine (Previously Institute of Medicine) The National Academies of Sciences, Engineering, and Medicine are private, nonprofit institutions that aim to provide expert advice on pressing domestic and international challenges. Work can be funded by government and non-governmental entities. For all reports, see http://www.nationalacademies.org/ . Relevant Reports Board on Health Care Services, Health and Medicine Division, The National Academies of Sciences, Engineering, and Medicine, Graduate Medical Education Outcomes and Metrics: Proceedings of a Workshop, Payal Martin, Mariana Zindel, and Sharyl Nass, Rapporteurs (Washington, DC: National Academies Press, 2018). Committee on the Governance and Financing of Graduate Medical Education; Board on Health Care Services; Institute of Medicine, Graduate Medical Education That Meets the Nation's Health Needs, ed. Jill Eden, Donald Berwick, and Gail Wilensky (Washington, DC: National Academies Press, 2014). Committee on Implementing a National Graduate Medical Education Trust Fund, Division of Health Care Services, Institute of Medicine, On Implementing a National Graduate Medical Education Trust Fund . (Washington, DC: National Academies Press, 1997) . Appendix B. GME Program Information | Access to health care is, in part, determined by the availability of physicians, a function of the physician supply. Policymakers have demonstrated a long-standing interest in access to care, both in general and for specific populations. Moreover, federal support for medical residency training (a.k.a., graduate medical education [GME]) is the largest source of federal support for the health care workforce. Although the health workforce includes a number of professions, the size of the federal investment in GME—estimated at $16 billion in 2015—makes it a policy lever often considered to alter the health care workforce and impact health care access. This report describes federal programs that provide GME support. Although these programs may also support training for other health professions, this report focuses on training for physicians, who receive the bulk of GME support. The report examines GME support in Medicare, Medicaid, the Department of Veterans Affairs, the Department of Defense, and programs administered by the Health Resources and Services Administration, such as the Children's Hospital and Teaching Health Center GME payment programs. The report details the mechanisms that various federal programs use to support GME and provides data, when available, on funding and the number of trainees. As noted in the table below, the data available vary by program. |
By the early 1990s, after decades of civil war and military rule in parts of the hemisphere, 34 of the 35 governments in the region were elected civilian democracies. Likewise, most of the countries in the region discarded statist economic policies in favor of economic liberalization. In order to build on these values shared by the United States and Latin America as well as develop an agenda for the hemisphere's future, President Clinton organized the first modern Summit of the Americas. Held in Miami in 1994, the Summit was the first meeting of the region's leaders since 1967 and was attended by all 34 democratically elected heads of government in the region, excluding only Fidel Castro of Cuba. After much discussion, the region's leaders approved a comprehensive Plan of Action with 23 separate initiatives under four major themes: p reserving and strengthening the community of d emocracies of the Americas , promoting prosperity through economic integration and free t rade , eradicating poverty and discrimination in the hemisphere, and guaranteeing sustainable development and conserving the n atura l environment for future g enerations . One of t he most important initiative s to emerge from the Miami Summit was the agreement to work towards the creation of a Free Trade Area of the Americas (FTAA) , which was to be completed by January 1, 2005 . Between the 1994 Miami Summit and the 2009 Port of Spain Summit , there were three Summits of the Americas and two Special Summits of the Americas , each introducing new initiatives and producing extensive Plans of Action . In 1996, a Special Summit on Sustainable Development was held in Santa Cruz, Bolivia , focusing on environmental issues in the hemisphere. In 1998, Santiago, Chile hosted the second Summit of the Am ericas. The Santiago Summit focused on education , but also marked the initiation of negotiations over the FTAA. Quebec City, Canada hosted the third Summit of the Americas in 2001. The Quebec City Summit produced a commitment to democracy, led to the creation of the Int er-American Democratic Charter, and generated a preliminary draft of the FTAA. Another Special Summit of the Americas was held in Monterrey, Mexico in 2004 . The Monterrey Summit produced the Declaration of Nuevo León, which reaffirmed the region's commitment to implementing the Quebec City Plan of Action. These S ummits have been complemented by regular meetings of the ministers of defense, education, finance, justice, labor, and trade of the countries of the region. The Summit of the Americas process has been gradually institutionalized by the Organization of American States (OAS), with the third Summit designating the OAS as the Secretariat of the Summit Process. The fourth Summit of the Americas , which immediately preceded the Port of Spain Summit, was held in Mar del Plata, Argentina in November 2005. Althou gh the theme of the Summit was " Creating jobs to fight poverty and strengthen democratic g overnance," debate largely centered around the Bush Administration's proposal to resume negotiations on the FTAA. President Hugo Chávez of Venezuela led the opposition to the proposal, speaking to proteste rs at the parallel ' People's Summit, ' who gathered to demonstrate —sometimes violen tly—against President Bush, U.S. military involvement in Iraq, and the FTAA. Brazil, Argentina, Uruguay, and Paraguay —member countries of the Common Market of the South (Mercosur)—a lso opposed the resumption of talks on the FTAA. The Mercosur countries oppose d the continuation of U.S. a gricultural subsidies and argue d that talks should not resume until after conclusion of the World Trade Organization's (WTO) Doha Development Round , when there may be a greater possibility of achieving what they would consider a balanced and equitable agreement. Despite consensus among 29 of the 34 heads of state and government that trade talks should resume, the economic weight of the dissenting countries effectively killed the FTAA . According to some observers, one of the greatest political accomplishments of the Summit process has been the Inter-American Democratic Charter. In the Declaration of Quebec City, the leaders of the Americas committed to a democracy clause, which led to the creation of the Inter-American Democratic Charter in September 2001. The Charter affirms the peoples of the Americas' universal right to democracy and asserts that the governments of the region have an obligation to promote and defend democracy. Although it has produced somewhat mixed results, the Inter-American Democratic Charter has been invoked on several occasions following challenges to democratic institutions in the region, such as the attempted coup against President Hugo Chávez of Venezuela in 2002 and the removal of President Lucio Guttierez from office by Ecuador's Congress in 2005. The Summits have also led to several important economic initiatives in the hemisphere. In the Declaration of Nuevo León, the leaders of the hemisphere committed to reducing the average cost of remittance transfers by at least 50% by 2008. Between 2000 and 2006, transaction costs to send remittances were reduced from 15% to 5.6%, allowing $5 billion more to reach recipient families. The United States has played a large role in reducing the transaction costs of remittances by encouraging competition, eliminating some regulations, and promoting the use of new technology. The cost of sending remittances through some corridors between the United States and Mexico has fallen by 50% and the United States has begun to partner with other countries like Guatemala in hopes of achieving similar cost reductions. In addition to political and economic initiatives, the Summits of the Americas have prompted some successful social programs. The Declaration of Nuevo León set the goal of providing anti-retroviral therapy to 600,000 people living with HIV/AIDS in the hemisphere by 2005. As a result of funding from a variety of multilateral, bilateral, and domestic initiatives, over 640,000 people in the region were receiving treatment by the time of the 2005 Mar del Plata Summit, exceeding the Nuevo León goal. These initiatives included the President's Emergency Plan for AIDS Relief (PEPFAR) and the Global Fund to Fight HIV/AIDS, Tuberculosis, and Malaria. Additionally, the U.S. government helped over 400,000 people in the region get tested for HIV and spent over $552 million on HIV/AIDS programs in the hemisphere between 2001 and 2007. This represented a substantial increase in funding, rising from just $22 million in 2001 to over $153 million in 2007. The Summits of the Americas process has drawn criticism throughout its brief history. Civil society and anti-globalization organizations contend that the Summits lack openness and transparency. These groups argue that important discussions that affect the welfare of all people in the region should not be held behind closed doors and that the Summits should be open to civil society representatives. The exclusivity of the Summits and the large role that negotiations over the FTAA have played at each of the Summits have led some civil society groups to assert that the Summits promote the expansion of corporate power while ignoring social welfare, environmental protection, and citizens' rights. Although the countries of the region agreed in the Declaration of Quebec City that the Summits must be open, transparent, and include civil society, many civil society groups contend that little has been done to increase their participation. A number of observers have also criticized the Summits of the Americas for producing overly-ambitious documents that repeatedly mandate new initiatives while largely ignoring the status of implementation of previous Summit commitments. Since the first Summit of the Americas, over 600 initiatives have been introduced. Many of these mandates provide no criteria for measuring their implementation. Likewise, there are few mechanisms to enforce implementation of those initiatives that are measurable. Furthermore, many countries lack the organizational capacity, political will, or financial resources to implement the Summits' mandates. As a result, most Summit commitments have never been met. The failure of many countries to implement the Summits' mandates has cast doubt upon the effectiveness of the Summit process and called into question the credibility of the Summits of the Americas as an mechanism for achieving tangible results in the hemisphere. Some analysts, acknowledging the divergence of economic values among countries of the region, have begun to question whether the Summit of the Americas process is worth continuing. Whereas the Summit process was initiated in a spirit of cooperation by like-minded leaders in Miami in 1994, the hemisphere is now more divided than at any time since the Cold War. The dismissal of the Bush Administration's proposal to resume talks on the FTAA at the Mar del Plata Summit was a clear manifestation of the increasing number of leaders and countries in the region that reject neoliberal economic policies. Indeed, the most recent Latinobarómetro survey found that while 56% of Latin Americans agree that a market economy is the only path to development, only 32% are satisfied with services that have been privatized and majorities in every Latin American nation think their countries should rely more on state solutions than market solutions to resolve societal problems. Given these economic divisions and the movement of the Summit agenda away from the FTAA and toward state-based development programs, some analysts believe the interests of the United States would be better served by focusing instead on finalizing bilateral and multilateral agreements with those countries that still share the U.S. commitment to free trade. The fifth Summit of the Americas was held April 17-19, 2009 in Port of Spain, Trinidad and Tobago. All 34 democratically elected leaders of the hemisphere attended the Summit, many for the first time, including President Obama and Presidents Fernández de Kirchner of Argentina, Morales of Bolivia, Bachelet of Chile, Arias of Costa Rica, Correa of Ecuador, Colom of Guatemala, Zelaya of Honduras, Calderón of Mexico, Ortega of Nicaragua, Lugo of Paraguay, and García of Peru. Although Raúl Castro officially succeeded his brother Fidel as President of Cuba in February 2008, the country's communist government was once again the only country in the region not invited to attend the Summit, which is limited to democratic nations. The theme of the Port of Spain Summit was, "Securing our citizens' future by promoting human prosperity, energy security, and environmental sustainability." The Port of Spain Summit came at a difficult time in hemispheric relations. As previously noted, the 2005 Mar del Plata Summit was marred by protestors and was frequently confrontational. In the years following the Summit, the United States had become even more isolated from the rest of the region. By 2008, only 58% of Latin Americans had favorable opinions of the United States, Venezuela and Bolivia had expelled U.S. Ambassadors, and regional bodies that exclude the United States—such as the Rio Group and the Union of South American Nations (UNASUR)—had begun exerting greater leadership in the region while the United States and the regional body to which it belongs—the OAS—had lost influence. This divisiveness continued in the lead up to the Summit, as some regional leaders voiced their policy disagreements with the United States and their intentions to confront President Obama at the Summit. President Hugo Chávez of Venezuela stated that he would attend the Summit in order to "defend the integration of the Caribbean and Latin America and demand that the empire Obama leads lift its blockade of Cuba, abide by UN resolutions, and condemn Israel." President Chávez also hosted a meeting of the countries involved in his Bolivarian Alternative for the Americas (ALBA)—a socially oriented trade block—the day prior to the Summit and announced that the ALBA countries would not sign the Summit's Declaration of Commitment, which had been negotiated by all 34 countries over the preceding six months. Likewise, a number of heads of state and government from the region—including some traditional allies—vocally blamed the United States for the global financial crisis and called for a new U.S. policy toward Cuba. Given these divisions, many observers had low expectations for the Summit and cautioned that President Obama needed to be careful not to let it turn into a political circus. Despite these challenges, a number of analysts were optimistic about the Summit. Some were encouraged by the scope and depth of the Port of Spain Draft Declaration of Commitment, which addressed past criticisms by identifying a number of specific, measurable, and attainable targets for proposed initiatives as well as institutions to assist in their implementation. Likewise, the Draft Declaration was built around issues where there was thought to be consensus in the hemisphere. Other observers asserted that President Obama's attendance at the Summit alone would help reverse the negative views of the United States that have grown over the last several years as a result of his wide popularity throughout Latin America. Several Latin American leaders had expressed hope for improved relations with the United States following President Obama's election, leading some analysts to believe that President Obama would have an opportunity to strike a new tone in U.S. relations with the region. In July 2008, the Summit Implementation Review Group (SIRG, a planning and review committee with representation from all nations participating in the Summit) issued a "Draft Declaration of Commitment" for the Port of Spain Summit. The Draft Declaration combined the traditional Summit Declaration and Plan of Action into a single document and proposed 65 commitments under six themes. Negotiations over the document's text continued through the Port of Spain Summit. The final Declaration expanded to 96 commitments, adopted more ambiguous language, and considerably reduced the number of measurable mandates. While the Draft declaration had won praise from some analysts for its relative brevity and focus on implementation, a number of observers characterized the final Declaration as largely meaningless. Although the changes made to the document were done in hopes of achieving consensus, some countries remained unwilling to sign the Declaration, asserting that it did not sufficiently address issues such as the international financial crisis and the reintegration of Cuba into the Inter-American system. As a result, the 34 heads of state and government attending the Summit agreed to a compromise that resulted in Prime Minister Patrick Manning of Trinidad and Tobago, the Summit Chairman, signing the Declaration on behalf of all participating countries. According to the Declaration, countries reaffirm their support for a number of past commitments regarding human prosperity, such as halving extreme poverty by 2015, eradicating the worst forms of child labor by 2020, and eliminating forced labor before 2010. Among the new national commitments are goals to reduce business start-up times to a maximum of 30 days by 2015, incorporate the surveillance of non-communicable diseases and their risk factors into existing national health information reporting systems by 2015, and reduce the incidence of mother-to-child transmission of HIV to less than 5% by 2015. Additionally, the countries of the region commit to achieving universal primary education by 2015, increasing secondary education enrollment to 75% by 2010, and increasing enrollment in tertiary education to at least 40% by 2020. The energy security section of the Declaration sets no specific goals for the countries of the Americas, though it does proclaim a number of general commitments. Among other provisions of the Declaration, the countries of the hemisphere aim to develop cleaner, more affordable, and sustainable energy systems. They also support the exchange of information, technologies, and best practices and welcome individual efforts of countries to manage their extractive sectors in ways that contribute to economic and social development and environmental stewardship. Much like the energy security section, the environmental sustainability section of the Declaration presents a wide variety of commitments, but offers very little in terms of measurable initiatives. Countries of the hemisphere commit to ensuring the eventual stabilization of greenhouse gas concentrations in the atmosphere at a level that will not seriously affect Earth's climate systems and working toward a global agreement on Climate Change at the United Nations Framework Conventions on Climate Change (UNFCCC) meeting in Copenhagen, Denmark in November and December of 2009. The Declaration also encourages countries to undertake a number of actions, such as strengthening their domestic environmental planning and improving their capacity to prepare, prevent, reduce, and respond to natural disasters. In terms of public security, governments of the region commit to cooperate with one another to combat terrorist and criminal organizations, prevent them from operating across borders, and deny them resources. The Declaration also reaffirms the hemisphere's support for the Inter-American Convention against the Illicit Manufacturing of and Trafficking in Firearms, Ammunition, Explosives and other Related Materials (CIFTA) and encourages the OAS to prepare a comprehensive hemispheric strategy to deal with criminal gangs. The nations of the Americas reaffirm their commitments to a variety of regional democratic initiatives in the Declaration, such as the Inter-American Democratic Charter and the Inter-American Conventional Against Corruption. The hemisphere also commits to conclude negotiations on a number of initiatives, such as the American Declaration on the Rights of Indigenous Peoples, the Inter-American Convention against Racism and All Forms of Discrimination and Intolerance, and the proposed Social Charter of the Americas and its Plan of Action. Additionally, the Declaration affirms the importance of decentralization, public transparency, and human rights. In order to improve the effectiveness of the Summit of the Americas and ensure that the commitments made at the Summit are met, the Declaration adopts a number of reforms to the Summit process. Countries agree to hold the Summits of the Americas on a regular basis, at least every three years. They also direct the General Secretariat of the OAS and the Joint Summit Working Group to provide an annual comprehensive report to the SIRG regarding progress made toward Summit objectives. Furthermore, the Declaration encourages countries to increase the participation of civil society and business groups in the Summit process. During his speech at the Summit, President Obama proposed an "Energy and Climate Partnership of the Americas." The proposal seeks to increase regional cooperation to promote energy efficiency, invest in renewable energy sources, and reduce greenhouse gas emissions. Although it was initially conceived during the 2008 U.S. electoral campaign as a hemispheric arrangement, the Obama Administration has reframed the partnership as a flexible framework in which individual countries will be encouraged to suggest tangible ideas for cooperation with the United States on particular energy issues of interest to them. The energy partnership also coincides with a number of goals of the Declaration of Commitment of Port of Spain and several of the proposals in S. 587 (Lugar), the Western Hemisphere Energy Compact, which was introduced in March 2009. As part of his commitment to combating inequality and creating prosperity from the bottom up, President Obama introduced a $100 million "Microfinance Growth Fund for the Western Hemisphere" at the Summit. While there are already many microfinance institutions (MFIs) in the region, the international financial crisis has seriously constrained their abilities to obtain sufficient private finance to meet the lending demands of micro and small businesses. These finance constraints are occurring at the same time that micro and small enterprises have become the sole sources of income of many newly unemployed people throughout the region. As a result, regional MFIs could face up to a $750 million shortfall this year. In order to help rebuild the lending capacities of regional MFIs, the Microfinance Growth Fund will provide them with stable medium and longer-term finance. The fund is a partnership of the Multilateral Investment Fund (MIF) at the Inter-American Development Bank (IDB), the U.S. Overseas Private Investment Corporation (OPIC), and the Inter-American Investment Corporation (IIC). The fund partners hope to provide $100 million in initial capital and raise a total of $250 million through public-private partnerships. In order to address growing security threats in the region, President Obama announced a $30 million initiative to strengthen cooperation between the United States and the countries of the Caribbean. As part of the initiative, the United States will work with the countries of the Caribbean Community and the Dominican Republic to develop a joint security strategy that addresses the shared concerns of transnational crime, illicit trafficking, and maritime and aviation security. President Obama also pledged to take aggressive action to reduce the U.S. demand for drugs and stop the flow of guns and bulk cash from the United States to the rest of the region. Accordingly, the President declared ratifying CIFTA a priority. A number of analysts think that the most significant result of the Port of Spain Summit of the Americas may be an improvement in U.S. relations with the rest of the hemisphere. Despite speeches from some leaders that criticized past and current U.S. policies in the region and a few other confrontational incidents, the Summit was largely free of the contentious climate that characterized the previous Summit in Mar del Plata, Argentina. During his Summit speech, President Obama pledged to "seek an equal partnership" with the countries of the region, "based on mutual respect." He also met and listened to the concerns of the leaders of the countries of UNASUR, the Central American Integration System (SICA), and the Caribbean Community (CARICOM) during three side meetings and made a point of engaging leaders—such as President Chávez of Venezuela—who had poor relationships with the previous U.S. administration. Although some critics asserted that President Obama failed to advance U.S. ideals as a result of his unwillingness to confront leaders like President Chávez, the President's actions were very well received by observers throughout Latin America. Indeed, leaders from a variety of countries and ideological backgrounds praised President Obama and declared the Summit a success and the beginning of a new era in hemispheric relations. While some concrete steps—such as President Chávez's naming of a new ambassador to the United States—have been taken to build on the good will generated by the Summit, most analysts caution that significant policy differences remain and continued engagement will be crucial to sustaining stronger hemispheric relations. | The fifth Summit of the Americas in Port of Spain, Trinidad and Tobago was held April 17-19, 2009. It was the first hemispheric forum for President Barack Obama to engage with leaders from across Latin America and the Caribbean. The Port of Spain Summit was also the first meeting of all 34 democratic heads of government from Latin America, the Caribbean, Canada, and the United States since the contentious 2005 Summit in Mar del Plata, Argentina. Despite some criticism of past and current U.S. policies in the region, the Summit was largely cordial and may provide the foundation for improved hemispheric relations. There have now been five Summits of the Americas, two Special Summits of the Americas, and a number of ministerial-level summits held since 1994. Previous Summits led to a number of successful initiatives in the region, including the creation of the Inter-American Democratic Charter, reductions in the cost of remittance transfers, and increased provision of anti-retroviral therapy to victims of HIV/AIDS. Despite these accomplishments, some observers have criticized the Summits of the Americas as lacking transparency, being ineffective, or failing to advance U.S. interests. The theme for the Port of Spain Summit was, "Securing our citizens' future by promoting human prosperity, energy security, and environmental sustainability." Given the confrontational nature of the previous Summit and the actions of some regional leaders prior to their arrival in Port of Spain, many observers had low expectations for the Summit. Other analysts were optimistic about the possibility of improving hemispheric relations given President Obama's popularity in the region. Disagreements over Cuba's reintegration into the Inter-American System and other issues such as the global financial crisis prevented the Summit from producing a unanimous Declaration of Commitment, though a somewhat vague document was adopted as the consensus thought of the countries of the region. While the Summit Declaration introduced few concrete initiatives, President Obama offered several proposals, including an "Energy and Climate Partnership of the Americas" and a "Microfinance Growth Fund for the Western Hemisphere." President Obama received a warm reception from the leaders of the region, leading some analysts to assert the most significant result of the Port of Spain Summit may be an improvement in U.S. relations with the rest of the hemisphere. On March 31, 2009, the Senate approved S.Res. 90 (Kerry) expressing support for the fifth Summit of the Americas and calling on the United States to reinvigorate and strengthen its engagement with the hemisphere, especially concerning the financial crisis, energy security, and public safety. The resolution also declared that the United States was prepared to work with the rest of the region to advance an agenda of human prosperity, implement a regional energy strategy, encourage the participation of non governmental organizations in the Summit process, and strengthen the Summit follow-up mechanisms. This report will not be updated. |
Federal judges have repeatedly expressed concern about what they view as a continuing decline in their "real salary" level. Chief Justice Roberts has characterized the current judicial pay rate as a "constitutional crisis," particularly noting that judicial salaries remain steady or decrease as the real salaries of lawyers, law professors, and wage earners continue to increase. The salary for district court judges is currently $169,300; the salary for court of appeals judges is currently $179,500. In 2006 dollars, the median salary for district court judges between 1955 and 2006 was $167,047; the median salary for court of appeals judges over the same time period was $178,139. While the judges' current salary is only slightly below the 1955-2006 median, the salary level has steadily decreased since 1991, when the real salary of district judges was $185,170 and of court of appeals judges was $196,419. Out of evident concern about the erosion of salary levels for federal judges in recent years, four bills pending in the 110 th Congress would increase those levels. While one bill ( S. 197 ) would provide for a nominal 1.7% salary adjustment, the other three— S. 2353 , H.R. 3753 , and S. 1638 —would provide for much more substantial increases, of 16.5%, 28.7%, and 28.7% respectively (for specific values, see Table 3 , below). H.R. 3753 and S. 1638 would also grant federal judges annual cost-of-living adjustments (COLAs) equal to the increase in base pay for General Schedule (GS) salaries unless Congress acted to block the increase from taking effect. In addition, H.R. 3753 and S. 1638 would, while retaining the "Rule of 80" for senior status qualification, create a "Rule of 84" for retirement, where years of service and age must add to 84 (starting at 67 years old and 17 years of service). H.R. 3753 and S. 1638 would reduce the amount of annuity retired federal judges receive if they have earned income that exceeds the value of their annuity; for every $2 in annual earned income above the level of the annuity, a federal judge's annuity would be reduced by $1, but no reduction to an annuity could be greater than 67%. H.R. 3753 and S. 1638 require that judges in senior status perform, each year, the equivalent work of an active judge on their district or circuit performs in four months. S. 1638 also includes a provision that restricts the reimbursable seminar-related travel for federal judges to $2,000 per trip and $20,000 per year, with exceptions for events approved by the State Department and those sponsored by the federal government, state governments (not including public educational institutions), bar associations, and the National Judicial College. S. 1638 also outlaws the acceptance of honorary memberships valued at more than $50 per year and applies the regulations of the Judicial Conference on outside earned income to justices of the U.S. Supreme Court. This report reviews the most common arguments that have been advanced in recent years for and against raising federal judicial salaries; examines a large body of data relevant to the question of whether fluctuations in judicial pay levels have affected the federal judiciary's ability to recruit and retain judges; considers various time periods (between 1955 and 2006) over which the rise and fall of judicial salaries may be examined, taking into account, as well, changes that have occurred at various points in time in non-salary compensation that federal judges receive; identifies and analyzes options available to Congress in addressing the judicial pay issue in addition to increasing judicial salaries by a specific amount or percentage on a one-time basis—including "de-linking" congressional and judicial salaries, providing judges with salaries based on their cost of living, revising retirement benefits, and altering outside income limits; and provides a side-by-side comparison of the three bills noted above that would provide for a substantial judicial pay increase, showing how the levels provided for would compare with those of the benchmark year of 1969 (the year of highest real salaries for federal judges since at least 1913). Should Congress choose to act, it can increase but not decrease judicial salaries. The Constitution prohibits Congress from diminishing the salaries of Article III federal judges. The degree to which federal judges' pay has changed depends on how it is measured. While real judicial salary for district court judges declined 21.5% between 1969 and 2006, such a calculation does not take into account real income growth for other classes of wage earners. According to Paul Volcker, chairman of the National Commission on Public Service, the real compensation of the average wage earner has grown 18.5% since 1991, and the real salaries of federal workers more generally have grown 15.1%. The real growth of salaries for individuals whom federal judges regard as their professional peers, particularly partners in law firms and law professors, may have been even greater. Using those benchmarks, the 2003 Volcker Commission study reported a more notable decline in real judicial salary: Judicial salaries are the most egregious example of the failure of federal compensation policies. Federal judicial salaries have lost 24 percent of their purchasing power since 1969, which is arguably inconsistent with the Constitutional provision that judicial salaries may not be reduced by Congress...The lag in judicial salaries has gone on too long and the potential for diminished quality in American jurisprudence is now too large. Several professional organizations have expressed concerns similar to those made by Chief Justice Roberts and other current and former members of the federal judiciary. The American Bar Association, the National Bar Association, several state and local bar associations, the U.S. Chamber Institute for Legal Reform, several law school deans, and the American Judicature Society, among other organizations, have expressed support for increasing the salaries of federal judges. In addition, the current administration of President George W. Bush has expressed support for raising federal judges' salaries. On balance, the majority of expressed opinions on the topic of judicial salary appear to favor some form of increase in the pay of federal judges, though the specific amount of the pay and future prospects for judicial compensation may divide judges, policymakers, and professional organizations. The consequences of such a decline in judicial salary are alleged to be the creation of problems of recruitment and retention in the federal judiciary. Abner Mikva, who served in Congress, as a court of appeals judge, and as White House counsel, has argued that low judicial pay has several consequences for the judiciary: It is true that more judges, faced with the alternatives of senior status or outright retirement, are choosing the more lucrative path of retirement. But they have served their time, and a vacancy occurs whether or not the judge retires or takes senior status. I chose retirement rather than senior status so that I could become White House counsel. While I received no pay in that job, I have had the opportunity to earn substantial income since I left the White House and became a neutral with JAMS, a dispute-resolution firm. The public obviously benefits from the ongoing service of a senior judge, but it is not a flaw in the system that allows judges to have the option to make up for some lost earning opportunities after retirement. The real problem of inadequate judicial pay is the limits it puts on attracting judges to the bench in the first place. I saw these limits both as White House counsel for President Clinton, when I was very much involved in finding candidates to fill judicial vacancies, and as a member of various selection panels since I returned to the private sector. Lawyers most appropriate for consideration as judges are at the height of their earning power in the private sector. At one time law schools were a good place to look, but even those salaries have advanced beyond the judicial levels now in existence. To ask a lawyer to go on the bench from the private sector is usually to ask that person to take a drastic reduction in earnings, as well as the other problems of living in a public fishbowl. Those who argue against raising judicial salary tend to make four arguments. First, they note that the salaries of federal judges are high relative to all workers in the United States. The 2006 salary of federal district court judges ($165,200) would put judges somewhere between the 90 th and 95 th percentile among all American households, assuming no other members of the household had income as defined by the Census Bureau. Court of appeals judges (2006 salary of $175,100) and Supreme Court justices (2006 salary of $203,000 for associate justices and $212,100 for the Chief Justice) would be above the 95 th percentile in household income. Second, opponents argue that federal judges and the "perks" of being a federal judge (prestige, job security, opportunity to select and work with law clerks, interesting work, retirement package that offers full salary upon qualification) more than compensate for any shortcomings in judicial salary. Third, some have argued that raising judicial salaries may not solve some of the problems thought to be associated with low and declining judicial salary. As Judge Richard Posner, a judge on the Seventh Circuit Court of Appeals who has written extensively on judicial salary, argues: Raising salaries would not do a great deal to attract commercial lawyers to judgeships. The lawyer who doesn't want to exchange a $1 million income for a $175,000 income is unlikely to exchange it for a $225,000 income—[Chief Justice] Roberts doesn't name a figure to which he thinks judicial salaries should be raised, but he can hardly expect Congress to raise salaries by more than 30 percent, and that only intermittently, so that inflation will eat away at the salary until the next jump. Fourth, they contend that many of the consequences one might expect from declining salaries, including problems recruiting and retaining federal judges, have not manifested themselves in the degree to which advocates for judicial salary contend. The difference of opinion on the necessity of a raise in judicial salary stems, in part, from disagreement on some of the consequences of what might be considered a low judicial salary. In particular, those who advocate and oppose increasing judicial salary disagree over the extent to which declines in judicial salary: make it more difficult to recruit federal judges from private practice, depriving the federal judiciary of talented candidates; lead more federal judges, before becoming eligible for retirement, to leave the bench to work in private practice, increasing turnover in the federal judiciary; and lead more judges, after becoming eligible for retirement to leave the judiciary (often for jobs in the private sector or elsewhere), rather than remaining in the judiciary in semi-retired "senior status," depriving the federal judiciary of important resources of manpower and expertise. To date, little systematic evidence has been collected which would allow Congress to evaluate the degree to which the current patterns of recruitment and retention on the federal judiciary deviate from historical patterns and the degree to which those deviations (if they do exist) can be attributed to fluctuations in judicial salary. This report collects and analyzes evidence that can be used to evaluate how increases and decreases in judicial pay have affected the federal judiciary's ability to draw on a diverse set of professional backgrounds and deter federal judges from leaving their positions early to earn more money. Those who seek higher federal judicial salaries, including several current and former federal judges, contend that relatively low judicial salaries deprive the federal judiciary of the ability to recruit lawyers from private practice. As a result, federal judges are increasingly drawn from other ranks of the judiciary and government service rather than from private practice. The Ad Hoc Group on Federal Judicial Salaries, for example, has argued that the declining earning power of federal judges raises the prospect of "an alteration of the federal bench from one drawn from all elements of the legal profession to one populated only by the independently wealthy and those for whom a federal judicial appointment represents a salary enhancement." Justice Stephen Breyer, in prepared remarks he delivered in April 2007 to the Subcommittee on the Courts, the Internet, and Intellectual Property of the House Judiciary Committee, outlined what he viewed as the consequences of such a shift: A federal district court is a community institution. The federal judiciary will best serve that community when its members come from all parts of the profession, large firms, small firms, firms of different kinds of practice, all varieties of government practice, other courts, and academia. That diversity, important as it is to the institution, is gradually disappearing. Given the importance of the background of federal judges, an analysis of the data cited by Justice Breyer may illuminate the degree to which the trends they cite appear in the federal judiciary. The data cited by both Chief Justice Roberts and Justice Breyer appear in Figure 1 . The indicator used in Figure 1 , and by Justice Breyer, is the occupations federal district court judges held immediately prior to their appointments to the federal bench. Though the proportion of judges coming to the federal bench from private practice has declined since the Eisenhower Administration, current levels are roughly equal to those of the presidential administrations of Franklin D. Roosevelt and Harry S Truman. The appointment practices of Dwight D. Eisenhower's administration were exceptional in the extent to which district court judges were drawn from private practice; the Eisenhower Administration appointed 65.1% of its federal judges from private practice, while no other administration since 1933 has appointed more than 55% of its federal judges from the same population. Four Presidents since 1933—Franklin D. Roosevelt, Harry S Truman, William J. Clinton, and George W. Bush—have appointed fewer than 40% of federal district judges directly from private practice. Since 1933, the percentage of federal judges whose immediate prior position was another judgeship, either at the state or federal level, has increased. The percentage of district court judges appointed by President George W. Bush who were already judges—46.8%—is 2.5 times greater than the percentage of district court judges appointed by President Franklin D. Roosevelt who were already judges (18.6%). Since 1933, only Presidents Ronald Reagan and George W. Bush have appointed a smaller percentage of district court judges from the judiciary than their immediate predecessors. The data presented in Figure 1 do not illustrate a relationship between judicial salary and the immediate prior positions of federal district court judges. While the percentage of federal judges whose immediate previous position was another judgeship has increased, on a fairly consistent basis, since 1933, the real salaries of federal judges have risen and fallen several times over that same time interval. The experiences of two presidential periods (Reagan and Nixon/Ford) highlight the difficulties of comparing salary and immediate prior occupation of federal district court appointees: Reagan Administration (1981-1988): Throughout this period, real salaries for federal judges were below the 1955-2006 median. This time period also saw a decline in the number of federal district judges appointed whose immediate prior position was another judgeship. The data for this period are inconsistent with the argument that lower judicial salaries translate into more federal judges whose immediate prior position was another judgeship. Nixon/Ford Administrations (1969-1976): For all but one year of this period, real salaries for federal judges were above the 1955-2006 median, while the percentage of appointed federal judges who were from private practice (51.4%) was the second-highest of all administrations within the 1933-2006 time frame. These data are consistent with the argument that lower judicial salaries translate into more federal judges whose immediate prior position was another judgeship. These examples suggest that any conclusions about the decrease in real salary causing changes in the composition of professions leading to federal judgeships should be made with caution. Federal judges concerned about the adequacy of their salary might choose one of two methods to make more money than they do as federal judges. First, they may simply resign as federal judges and take positions that provide higher levels of compensation. Second, they may choose to retire, taking an annuity equal to their salary upon retirement that will never increase, rather than taking senior status, which entitles judges to continued cost-of-living adjustments if Congress authorizes such adjustments for active judges. Advocates of higher judicial salary argue that federal judges resign and retire at greater rates during periods of low judicial salary. In testimony before the Subcommittee on Courts, the Internet, and Intellectual Property of the House Judiciary Committee, Justice Samuel Alito noted the following: Twenty Article III judges have resigned or retired from the federal bench since January 1, 2005. It is our understanding that seventeen of these judges sought other employment. Six of these judges retired to join JAMS, a California-based arbitration/mediation [company], where they have the potential to earn the equivalent of the district judge salary in a matter of months. Five judges entered the private practice of law (presumably at much higher salaries). Two judges resigned to become corporate in-house counsels. One judge resigned to accept a state judicial appointment (at a higher salary). Another judge retired to accept an appointment to a quasi-governmental position. One judge recently announced his resignation to accept an appointment in higher education. One judge resigned to accept an appointment in the executive branch of government. The degree to which these numbers represent trends or aberrations in the federal judiciary could help illustrate how the decisions federal judges make about remaining in or leaving their positions are affected by judicial salary. If there is a relationship between salary and early departure, then one way to increase the stability of the judiciary would be to increase the salary of federal judges. If, on the other hand, judicial salary and the method (and frequency) of departure from the federal judiciary are unrelated, then increasing judicial salary may not alter the decisions of federal judges to depart for other positions. Before evaluating the relationship between salary and patterns of departure from the federal bench, a review of the options federal judges have for departure may prove useful. In the past 53 years, there have been two significant changes to the retirement system for federal judges, one in 1954 and one in 1984. Congress also made modest changes to senior status in 1989 and 1996. In 1954, Congress enacted legislation allowing judges to take senior status if they had reached 70 years of age with 10 years of service as an Article III judge or 65 years of age with 15 years of service. At the time, senior status allowed a federal judge to "retain his office but retire from active service," (thus receiving their salary) but did not specify how much work judges in senior status must do to retain their offices. Judges could also "resign with salary" if they were 70 years old and had served as Article III judges for at least 10 years. The 1954 legislation was the first legislation that allowed judges younger than 70 to leave active service and receive their salaries (though they could only take senior status and could not resign with salary until they were 70 years old and had served for 10 years); before that time, only judges 70 and older could choose to depart while retaining their salary, and only then by taking senior status. In 1984, Congress enacted legislation that eliminated the two age and service thresholds for senior status (70 years of age and 10 years of service, or 65 years of age and 15 years of service) and replaced them with the Rule of 80, allowing any judge to take senior status who was at least 65 years of age and whose age and years of service add to at least 80. The 1984 legislation also eliminated the option of judges "resigning with salary" but allowed judges to "retire" and permitted judges to exercise this option if they met the criteria of the Rule of 80. Practically speaking, resigning before 1984 and retiring after 1984 were the same: judges who choose this option (i.e., retire) leave office but receive the salary they were receiving upon departure for the rest of their lives. In 1989, Congress allowed judges serving in senior status to receive the same adjustments to salary that judges in active service received. In so doing, Congress outlined the criteria for qualifying for senior status (and the pay adjustments). Each year, senior status judges must handle the equivalent of 25% of the caseload of an active judge or serve the federal judiciary in an administrative capacity. In 1996, Congress further amended the provisions of senior status to allow judges to count work done in later years to fulfill the workload criteria for earlier years in which they did not meet the 25% threshold and to count administrative work toward the 25%. Under current law, federal judges may retire or take senior status when they are at least 65 years of age and their age and years of service in Article III judgeships add to at least 80 (the Rule of 80). Federal judges who resign, rather than retire, are not eligible for judicial retirement. Unlike pension plans where individuals may acquire some level of retirement income (partial vesting) after a few years of employment, judicial retirement is all-or-nothing: federal judges who do not meet the requirements of the Rule of 80 do not earn retirement benefits. A federal judge who is appointed at 45 years of age and resigns at 60 will receive no annuity because both the age and years of service requirements must be met to qualify for judicial retirement; for the same reason, a federal judge appointed at 50 who resigns at 59 will also not receive judicial retirement. Federal judges may depart active status on their court in a variety of ways: they may resign, be impeached and convicted, be elevated, resign, retire, take senior status, or die while in office. If judicial salary is related to departure (that is, if judges are more likely to leave the bench when salary levels are low), then one should expect to observe two phenomena when judicial salaries decline: an increase in the number of judges who resign (and, so doing, forfeit judicial retirement) and judges who opt to retire rather than take senior status upon qualifying under the Rule of 80. Doing the latter (retiring rather than taking senior status) would allow a judge to earn income in a position (in private practice or academia) while still drawing a judicial retirement annuity that does not change as the salaries of active judges change. Table 1 summarizes the options federal judges have to leave active service under current law, and the consequences of those choices, in comparison with active service. To evaluate the claim that departures of federal judges are related to salary, one might start by distinguishing between judges who resign and those who retire. Judges who resign are not eligible for judicial retirement, so they may make a significant monetary sacrifice by resigning from the federal bench that they hope to offset by alternative employment. The years after 1984 provide a reasonable period for analysis of judicial departures due to the changes in judicial retirement and resignation. "Resignations" before the enactment of the 1984 legislation could come with salary if the judge met the age and years of service requirement; all resignations after enactment of the 1984 legislation meant that the resigning judges would receive no judicial retirement. Figure 2 plots the percentage of lower court judges who departed their position by resignation between 1985 and 2007 against the real salary of district court judges over the same time period. Since 1985, the percentage of judges who resign and forgo judicial retirement has fluctuated. In the first 16 years after 1985, the percentage of judges who resigned declined in every four-year period while real judicial salary increased in the first three of those same four-year periods. Between 2001 and 2004, in contrast, when real judicial salary rose slightly over the 1997-2000 period, 6.4% of federal judges who left active status did so by resigning. In 2005 and 2006, 7.9% of federal judges who left active status did so by resigning. Generally speaking, as salaries rose, the percentage of judges who left office by resignation fell, but the 1997-2000 period, where no federal district judges resigned though real salary fell, stands as an exception to the general trend. Federal judges who do not qualify to take judicial retirement, but who are concerned about their compensation, make a decision to remain a member of the federal judiciary or resign and pursue alternative employment. On the other hand, federal judges who meet the requirements for judicial retirement (the Rule of 80) face a different choice; they may choose to retire (after which they may or may not pursue additional employment) or take senior status, where they continue to hear cases and perform administrative tasks for their courts. Both retired and senior judges receive an annuity equal to the salary they were receiving when they left active status; only judges on senior status, however, continue to receive cost-of-living adjustments and any other raises Congress approves as long as they remain in senior status. Figure 3 presents data on the percentage of federal district court judges who, between 1985 and 2006, opted for outright retirement rather than senior status. The data presented in Figure 3 demonstrate that, with the exception of the 1997-2000 time period, the percentage of district court judges who retired rather than take senior status declined steadily, if not dramatically, since the 1989-1992 period. Over the 1985-2007 time period, the percentage of district judges who retired rather than take senior status fell from 4.95% in the 1985-1988 time period to 1.22% in 2005-2007. Though the raw number of federal judges choosing retirement without first taking senior status between 1985 and 2007 may not be large (29 judges, compared with 695 who took senior status in that time frame), variations over time may still help explain the effect of judicial salary on the departure decisions of federal judges. If declining judicial salary explains the choice judges make between retirement and senior status, it might be argued that judges in the 2001-2004 and 2005-2007 periods should have retired at rates comparable to the 1997-2000 period, whereas the retirement rates for those two periods are actually lower than the 1997-2000 time period, and the retirement rate for the 2005-2007 time period was the lowest of any time period since 1985. The data evaluated to this point note only the degree to which judicial salary is correlated with the professional backgrounds of district judges and the departure via resignation or retirement of federal judges. Establishing correlation is a necessary, but not a sufficient, condition to establish causation. This section evaluates, first, the strength of the correlations established by the data and, second, considers what intervening variables might influence the relationship between judicial salary and the kind of candidates recruited to become federal judges and how federal judges depart the bench. Any conclusions made about causation from correlations should be made with these considerations in mind. The data presented here suggest that there are, at best, weak correlations between judicial salary levels and the pool of candidates from which judges are drawn. While the federal judiciary consists of a different mix of individuals than it did 50 or 70 years ago, concluding that these trends are caused by lower judicial salary raises several concerns. Changes in the immediate prior position of district court judges appear to arise independent of fluctuations in judicial salary; the decline in private practice as a prior occupation dates to the Eisenhower administration, and the increase in service as judge as a prior occupation dates at least to the Franklin D. Roosevelt administration, while judicial salary has risen and fallen several times over those same time periods. Establishing the correlation that is a prerequisite for causation requires more convincing data than the data presented thus far by advocates of higher judicial salary. Similarly, determining that low judicial salaries cause judges to depart early, either by resigning or by retiring rather than taking senior status, can be difficult. The correlations between judicial salary and the number of judges who resign or retire (rather than taking senior status) again appear to be limited. The proportion of judges resigning declined in every four-year period between 1985 and 2000, and judicial salary rose in all but the last (1997-2000) four-year period in that time interval, suggesting that there may have been, at least between 1985 and 1996, an inverse relationship between judicial salary and the proportion of judges who resign. That pattern, however, does not necessarily hold for the 1997-2006 period. Over those 10 years, real judicial salaries dropped during the 1997-2000 period and then fluctuated little. Yet, the number of judges who resigned varied from 0% in 1997-2000 to 7.8% in 2001-2004, two periods in which real judicial salaries differed by less than 1.1% (the median real salary for district court judges was $166,618 for 1997-2000 and $168,441 for 2001-2004). Finally, the percentage of judges who opted to retire rather than take senior status between 1985 and 2007 appeared to decline—to 1.22% between 2005 and 2007 from 4.95% between 1985 and 1988. If low judicial salary caused retirements, then the rate of retirements should have remained constant from 1997 to 2007, a period of nearly constant real salary for federal judges. Instead, the percentage of judges who retired rather than take senior status declined over that time period. Concluding that judicial salary has caused fewer judges to be drawn from private practice (or more from other ranks of the judiciary), or that judicial salary causes judges to resign or retire are claims that require the development of more conclusive evidence. Even if correlations are established, they may exist due to intervening factors—some unconsidered factor which may explain the relationship between the two factors observed to correlate with one another. In the case of the relationship between judicial salary and judicial recruitment and judicial tenure, one might consider, as a potential intervening variable, the impact of the changing nature of the appointment process. The average confirmed district court nominee was pending before the Senate for 70 days if nominated by President Jimmy Carter; through the 109 th Congress, the average time from nomination to confirmation of confirmed district court nominees by President George W. Bush was 171 days. Independent of fluctuations in judicial salary, the longer amount of time that now passes between nomination and confirmation may deter candidates who otherwise might be interested in federal judgeships from expressing interest in those positions. President Bush suggested that the contemporary practices in the nomination and confirmation process may have affected who will serve in the federal judiciary: Lawyers approached about being nominated will politely decline because of the ugliness, uncertainty, and delay that now characterizes the confirmation process. Some cannot risk putting their law practices—their livelihoods—on hold for long months or years while the Senate delays action on their nominations. Some worry about the impact a nomination might have on their children, who would hear dad or mom's name unfairly dragged through the mud. So they decide to remove themselves from consideration. When people like this decline to be nominated, they miss out on a great calling. But America is deprived of something far more important: the service of fair and impartial judges. Establishing a causal relationship between judicial salary and departures may also be confounded by intervening variables. Generally speaking, departures may be driven by job satisfaction in addition to concerns about judicial salary. Judges whose caseloads are higher may be more likely to resign than judges whose caseloads are lower. Several studies have indicated that the per-judge caseload in many districts and circuits is much higher than it was 30 or 40 years ago, and may contribute to decisions judges make to depart the federal bench. Judges may also be concerned about personal security, collegiality on their courts, and a myriad of other factors when they consider remaining on the bench or departing the bench. If one adds these possible intervening variables to the weak correlations discussed above, it becomes clear that more evidence may be necessary to evaluate the degree to which judicial salary causes the changes that may be taking place in the federal judiciary. Real salaries for district court judges declined 21.5%—to $165,200 from $210,570—between 1969 and 2006 while the real salaries of other wage earners rose over the same time period. As discussed below, the salaries of individuals federal judges may consider as professional peers—law professors, partners in law firms—have increased at rates greater than those of the average wage earners, leaving federal judges with the perception that their salaries continue to fall further behind where they were in 1969 than the actual dollar figures illustrate. That perception, and any deleterious effects that perception may have on who becomes a judge, how long judges remain on the bench, and the quality of the work they provide as federal judges, may magnify observed effects in ways that are difficult to measure using objective criteria. That is, federal judges may not be exiting the federal judiciary at greater rates during periods of lower salary, but the perception that they are doing so may affect the morale of the judiciary. Although statistical analysis may not reveal a strong effect for salary on the career decisions of federal judges, several former federal judges have pointed to salary as one of their reasons for departure. Furthermore, though the effect of judicial salary on recruitment and retention in the federal judiciary may be modest, some advocates for higher judicial salary argue that the role of judicial salary in career considerations may continue to grow. As the American Bar Association and Federal Bar Association have noted of the departures of federal judges, "even though the absolute number of departures is not large, the trend is alarming because the number is increasing significantly (even after factoring in the overall growth of the federal judiciary) in a profession where there is an expectation, grounded in the Constitution, of life tenure." An informed consideration of options available to Congress, should it wish to address the issue of judicial salary, requires an understanding of the fluctuations that have occurred in judicial salary over time. It also requires choosing an appropriate time frame over which to evaluate claims made in favor of and against raising judicial salary. Any choice of baseline has strengths and weaknesses. One useful way to choose baselines may be to consider changes in the non-salary compensation that federal judges receive. In monetary terms, the most significant non-salary benefit is the retirement package available to federal judges who choose to vacate their position by retirement or by taking senior status. When comparing judicial salary over time, it may prove useful to keep the changes in judicial retirement benefits in mind. Comparisons of judicial salary within, rather than across, the eras defined by retirement benefits (1955-1984, 1984-1989, and 1989-present) could be more useful. Directly comparing salary data across these time periods should be undertaken with caution, as any such comparison does not account for the non-salary compensation available to federal judges. By creating the Rule of 80, the 1984 legislation made it easier for judges to qualify for either senior status or retirement, which may have increased the attractiveness of federal judgeships without a direct increase in the salary in that time interval. The 1989 legislation may have made senior status a more attractive option because judges in senior status could qualify for the same salary adjustments as active judges. At the same time, the 1989 legislation may have encouraged federal judges to retire rather than taking senior status because it required, for the first time, that federal judges perform a certain level of work to qualify to remain in senior status. The Judicial Conference, and federal judges who have testified on the issue of judicial salary, favor comparisons using 1969 as a baseline. In that year, the salaries of federal judges rose to $40,000 from $30,000. In 2006 dollars, the increase was to $219,727 from $173,793—a raise of $45,934. The salaries paid federal judges in 1969 were the highest real salary for federal judges in any year since at least 1913. While comparisons of judicial salary since 1969 span more than one era of retirement, using 1969 as a baseline may be useful because data on salaries of comparable professions from that year, collected by the Judicial Conference, may help assess the change in judicial salaries relative to other professions. It would, however, be misleading to compare patterns in departure from the bench across the different time periods, given changing meanings assigned to "retire" and "resign," distinctions that are an important part of the judicial salary debate. Figure 4 , below, illustrates real (dollar values adjusted for inflation) salaries for federal district court judges. Appendix B includes these nominal and real values for the salaries of district court judges, court of appeals judges, and the average for American wage earners over the 1955-2006 time interval. As the data presented in Figure 4 and Appendix B indicate, judicial salaries have varied considerably since 1955; their lowest real value (since 1955) occurred in 1986, when the real salary was $144,762 for district court judges and $153,039 for court of appeals judges. The highest real salaries in the last 50 years occurred in 1969, when the real salary was $210,570 for district court judges and $222,018 for court of appeals judges. Within this range, the current salaries are closer to the minimum than the maximum real values, but they are also not very far from the median values for district and court of appeals judges over the 1955-2006 interval. The median real salary for district court judges between 1955 and 2006 is $167,047. The 2006 real salary for district court judges, $165,200, was 98.9% of the median real salary for the 1955-2006 period. Should Congress choose to act to change the compensation for federal judges, its choices are not limited to increasing the salary for federal judges, although such a choice may address the immediate concerns of those who advocate for higher judicial salary. Congress may also choose to consider several changes to the structure of salary and benefits for federal judges, including "de-linking" congressional and judicial salaries, paying judges different salaries based on the location of their chambers, revising retirement benefits for federal judges, altering survivor benefits for the spouses and dependents of federal judges, reconsidering limits on the outside income judges are permitted to earn, convening the Citizens' Commission on Public Service and Compensation, and creating "automatic" adjustments for judicial salaries. Foremost among the requests of Congress by the Judicial Conference is an increase in the salary paid to federal judges, though the Judicial Conference, and individual judges and justices, have generally not outlined a specific salary level they would like Congress to provide. Justice Breyer, in response to a question posed by Representative Steve Cohen of Tennessee, said "the rule [Art. III of the Constitution] is supposed to be no diminishment of compensation. Let's keep it real, and let's say the compensation should stay the same compared to the average American that it was when I took office. That's what I think most judges would say." A starting point for considering the appropriate level of judicial salary may be determining the proper comparison group for federal judges. Judicial salaries have been compared with those of lawyers in private practice, heads of non-profit corporations, and judges in other countries. No other occupation offers a perfect comparison to the work of federal judges. Accordingly, making any comparisons across professions may prove problematic. Many federal judges come from private practice, but many also come from legal academia, state judiciaries, and other positions in the government (see Figure 1 , above). One may consider comparing salaries in those professions from which judges come to judicial salaries with the proviso that such a comparison likely does not fully account for the compensation (monetary and non-monetary) that federal judgeships offer. Members of the judiciary also compare the salaries of federal judges with those of law school professors and deans. In 1969, the dean of Harvard Law School made $40,000 ($219,728 in 2006 dollars)—very close to the then-salary of $38,333 for U.S. district court judges and almost identical to the $40,417 salary of U.S. court of appeals judges. Today, according to the Administrative Office of the U.S. Courts, the deans of "top" law schools earn $430,000, or 95.7% more than the $219,728 real salary of the dean of Harvard Law School 1969. Senior professors at Harvard Law School earned, on average, $28,000 in 1969 ($153,809 in 2006 dollars). Senior professors at "top" law schools now earn, on average, $330,000, 114.6% more than the $153,809 real salary of senior professors at Harvard Law School in 1969. By comparison, district court judges earn $165,200, 21.5% less than what they earned (in 2006 dollars) in 1969. Judges on the U.S. courts of appeals earn $175,100, 21.1% less that what they earned (in 2006 dollars) in 1969. In some respects, the working conditions for federal judges compare well to those of law professors. Like law professors once they are granted tenure, federal judges have considerable job security. Like law professors, federal judges have a diverse workload. Like law professors, federal judges enjoy a certain amount of prestige. But the monetary components of the two professions may not lend themselves to perfect comparisons. Federal judges may enjoy retirement benefits that are more generous than those of law professors, but law professors likely have much more freedom to set their own schedules and choose work that they find interesting. Law professors may also earn additional salary as consultants (though restrictions may be imposed by their universities on the consulting they may do). Federal judges may earn no more than 15% of the annual base pay rate for Level II of the Executive Schedule in outside earned income; in 2007, federal judges were limited to earning no more than $25,200 in outside earned income. Comparing the two professions has other limits as well. Law schools are free to bid for the services of faculty members in a market. Such a market does not exist for federal judges, as only the federal government purchases the services of federal judges. Such a market for law professors may drive up salaries of the best law professors, whereas such competition for services does not exist within the judiciary ("better" judges are not paid more than other judges). At the same time, both legal academia and the judiciary are part of a broader market for legal services, and the federal judiciary must compete with legal academia, private practice, and other government agencies for the services of qualified individuals. Nothing published by the federal judiciary, however, compares the salaries of federal judges with those of state judges. Judges at the state level perform functions comparable to those of federal judges, though workload, salary, and prestige vary considerably across the different states. State judges also have less job security than federal judges, as many of them must win elections to retain their positions. Despite the imperfect comparison, the data on the salaries of state judges may help illustrate the degree to which trends in federal judicial salary are trends common to all judges or unique to members of the federal judiciary. The average (mean) salary for associate justices on state courts of last resort in 2006 was $140,150. By comparison, the average (mean) salary for associate justices on state courts of last resort in 1976 was $38,152 ($135,175 in 2006 dollars). In other words, the average annual real salary of associate justices of state supreme courts rose 3.7% between 1976 and 2006. In that time, the annual salary of federal district court judges rose 6.0% (from $155,895 to $165,200 in real dollars). Table 2 , below, outlines several possible comparisons to other professions or positions in legal services and calculates the salaries federal district court judges would receive had their salaries experienced comparable growth to these other professions or positions between 1969 and 2006. As noted above, 1969 provides a high baseline for the salaries of federal judges, as their salaries in 1969 were the highest real salaries federal judges have received since at least 1913. At the same time, the Judicial Conference provides data for other professions in 1969; those data are not available from the Judicial Conference for other years, so comparisons to 1969 are driven, in part, by data availability. As the data in Table 2 indicate, salaries in all other fields reported have increased, in real terms, since 1969. For some groups, particularly all lawyers and associate justices of state supreme courts, those increases, relative to inflation, have been quite modest. In other areas, particularly the legal academy and among law partners, the increase in real salary has been more pronounced. Federal district court judges represent the only group (presented here) for which real salaries declined in the 1969-2006 period. Related to the issue of judicial salary is the relationship between the salaries of federal judges and Members of Congress. To argue that judicial and congressional salaries are "linked" might create the mistaken impression that judicial and congressional (and executive salaries, as Executive Level II salaries are also "linked" at the same level) all must move at precisely the same rate. Such an impression is only partially correct. "There is no constitutional or statutory requirement (other than the provision of law establishing the [Citizens' Commission on Public Service and Compensation]) that the salaries of federal executive branch officials and federal justices and judges be limited by the salaries of Members of Congress, or that Member pay be limited by the salaries of these federal executive and judicial officials." Unlike adjustments to Executive Schedule (EX) and congressional salaries, which take effect under the Ethics Reform Act of 1989 unless Congress acts to block them, adjustments to judicial salaries require affirmative action by Congress in order to be raised. The Further Continuing Appropriations for Fiscal Year 1982 Act requires that any increase in the salaries of judges and justices be "specifically authorized by Act of Congress hereafter enacted." Congress did not enact the recommended 1.7% pay increase for federal judges for calendar year 2007; S. 197 , which would provide the increase effective January 1, 2007, passed the Senate by unanimous consent on January 22, 2007. The House has thus far taken no action on the bill. The legislation is currently pending before the Courts, Internet, and Intellectual Property Subcommittee of the House Judiciary Committee. While there is no statutory linkage between congressional and judicial salaries, the recommended annual increase is the same for members of Congress, Executive Schedule (EX) employees, and federal judges. Until 2007, Congress enacted the same increase for congressional, judicial, and EX salaries. Under the Ethics Reform Act of 1989, the annual salary adjustments of Members of Congress, the Vice President, persons employed on the Executive Schedule (EX), and federal judges are based on the Employment Cost Index (ECI) for private industry wages. Specifically, salary adjustments reflect the December-to-December change in the ECI, reduced by 0.5%. An additional statute restricts the rate of adjustment for judicial, congressional, and executive officials whose salaries are covered by the Ethics Reform Act of 1989 to being no greater than the rate of adjustment for the base pay of General Schedule (GS) employees. Those who refer to judicial and congressional salaries as "linked" correctly point to the fact that the annual recommended salary adjustment (the December-to-December change in the ECI, reduced by 0.5%) is the same for federal judges, Members of Congress, and EX employees. But the process by which the annual adjustment is enacted into law differs for the three sets of officials. For EX employees and Members of Congress, the recommended adjustment takes place unless Congress acts to block the increase. Since enactment of the Ethics Reform Act of 1989, Congress has blocked enactment of the increase for EX employees and Members of Congress in 1994, 1995, 1996, 1997, and 1999. In 2007, Congress blocked enactment of the increase for Members of Congress, but not for EX employees. The 2007 decision by Congress to not adjust congressional or judicial salaries, but to allow EX salaries to increase, represented the first time since enactment of the Ethics Reform Act of 1989 that EX Level II employees, Members of Congress, and federal district court judges have received different salaries. As a result, in 2007, EX Level II employees (deputy secretaries of departments, secretaries of military departments, and heads of major agencies) received salaries of $168,000, while Members of Congress and district court judges received salaries of $165,200. In 2008, EX Level II employees, federal judges, and Members of Congress will receive a cost-of-living adjustment of 2.5% to their 2007 salaries. For EX Level II employees, the 2008 salary rate is $172,200 and Members of Congress and district court judges will receive a 2008 salary of $169,300. Because the mechanisms by which the salary recommendations for EX employees, Members of Congress, and federal judges are enacted differ, it may not be accurate to label those salaries as "linked," to the extent that term implies that the salaries can only move together. It may be more accurate to label the practice of providing Members of Congress, federal district judges, and EX Level II employees the same salaries as "pay parity." Advocates of abandoning parity in judicial and congressional salaries contend that the rise of judicial salaries has slowed since they were statutorily linked to the salaries of Members of Congress. The relationship between pay parity and salary growth, however, is complex. Between 1955 and 1986, a period when Congress, in statutorily increasing judicial salaries, did not link those salaries to its own levels, real salaries of district court judges fell by 14.5% (0.5% per year), to $144,762 in 1986 from $169,254 in 1955. Between 1987 and 2006, the real value of judicial (and congressional) salaries rose 5.9% (0.3% per year), to $165,200 in 2006 from $156,007 in 1987. Based on this evidence, it appears that judicial salaries to date have actually risen more under pay parity than absent a congressional practice of equal salary for Members of Congress and federal district judges. This finding is reinforced by accounting for wage growth among all workers over the same time periods. Over the 1955-2006 time period, judicial salaries fared better relative to all wage earners, on average, when they were equal to the salaries of Members of Congress than when judicial salaries were not necessarily equal to those of Members of Congress. Between 1955 and 1986, the real value of the National Average Wage Index increased by 28% (0.9% per year); the real value of the National Average Wage Index increased by 16.6% (1.0% per year) between 1987 and 2006. Relative to all wage earners, judicial salaries fell by about 1.4% per year between 1955 and 1986 (0.5% decline per year for judges compared to 0.9% increase per year for all wage earners). After 1989, judicial salaries fell about 0.7% per year relative to all wage earners (0.3% increase per year for judges compared to 1.0% increase per year for all wage earners). The growth of congressional salaries has slowed more than the growth of the salaries of federal judges since the two salaries have been equal. Between 1955 and 1986, the real salaries of Members of Congress fell from $156,716 to $138,140, an 11.9% (0.4% per year) decrease in real salary. Salaries of Members of Congress, like those of federal judges, have risen 0.3% per year since 1987 (as noted above, the real salaries of federal judges fell 0.5% per year between 1955 and 1986). Salary linkage, then, appears to have increased the growth of congressional salaries (to 0.3% per year increase from 0.4% per year decrease) slightly less than linkage has increased the growth of judicial salaries (to 0.3% per year increase from 0.5% per year decrease). Should Congress choose to raise the salaries of federal judges or change how the salaries of federal judges are set, it could consider ending the practice of parity of congressional and judicial salaries and allow them to increase at different rates. The primary argument against pay parity is that the practice holds back judicial salaries: For 20 years, legislators have matched their salaries to those of United States district judges and deputy cabinet secretaries. They hoped that coupling their own compensation with that of officials less in the public eye would salvage legislative salary increases despite voter hostility. However, Congress has still been reluctant to increase its salaries (compared to, say, average worker wage gains). Thus, linkage has not produced the benefits legislators anticipated for their own salaries, and at the same time, it has held back less controversial salary increases for judges and executives. There are at least two arguments in favor of pay parity. First, some Members of Congress believe that their work is equal to that of federal district judges and, accordingly, that both should receive the same salary. As Representative F. James Sensenbrenner has argued, I am one of those that believes that when you're dealing with constitutional officers of the government in all three branches—and you and we are—there should be some type of comparability in compensation since the branches are separate and co-equal....And I think the real question that has to be answered is not whether you deserve more pay or you don't deserve more pay, but are the duties and responsibilities and time involved in discharging the duties of a federal district judge worth that much more than the duties, responsibilities and time involved in being a member of the House of Representatives, or a United States Senator. The second argument for linkage is more pragmatic; Members of Congress may favor pay parity as a mechanism to justify raising their own salaries. Before 1987, Congress tended to increase judicial salaries first and follow those increases by raising the salaries of Members. Since 1928 (and with the exception of the period from 1969 to 1978, when salaries for Representatives and Senators exceeded those of district judges), salaries of district judges have generally risen before the salaries of Representatives and Senators. Were Congress to de-link salaries, one might expect a resumption of the pattern of judicial salaries rising first, followed by congressional salaries. This pattern would mean Members of Congress might have to consider their own salary increases as separate legislative items (rather than as part of a broader salary package for officials across all three branches of government). Pay parity is an important component of the debate over the salaries of federal judges; should Congress decide to address the issue of judicial salary, it could choose to consider the advantages and disadvantages of the practice of paying federal district judges and Members the same salary. The three pieces of legislation introduced in the 110 th Congress that offer substantial increases in the salaries of federal judges— H.R. 3753 , S. 1638 , and S. 2353 —would, if enacted, end the practice of parity between congressional and judicial salaries, as none currently contain language increasing congressional salaries. Federal judges have, since 1891, been paid the same salaries regardless of the location of their chambers or residences. In contrast, General Schedule federal employees across the country receive different salaries that depend on the location of their duty station. Those who argue for higher salaries for federal judges often, implicitly or explicitly, express concern that the same salary for all federal judges can hamper the ability to recruit candidates for federal judgeships in areas of the country where the cost of living is higher. For example, Justice Antonin Scalia reportedly noted, in a December 2006 speech, "if you become a federal judge in the Southern District of New York, you can't raise a family on what the salary is." Congress might wish to consider taking into account the cost of living in different regions of the country when determining the salaries that federal judges and justices receive. Such action has historical precedent; before 1891, Congress regularly paid different salaries to judges serving in different districts; in Illinois, for example, judges on the Northern District of Illinois were paid an annual salary of $4,000 from 1867 to 1890; over the same time period, judges on the Southern District of Illinois were paid an annual salary of $3,500. Locality pay for General Schedule employees is based on duty station, or where the employee is assigned to work, and not residence. That may create unexpected difficulties as applied to the judiciary, as judges have some freedom to choose where to locate their chambers. Within a given judicial district or circuit, the judicial council of each circuit may assign district judges to a particular location within each district. Circuit judges have greater latitude on where to locate their chambers and typically travel to the same location (usually the location of the courthouse for the circuit court, though panels occasionally hear cases at other courthouses in the circuit and at other locations, including law schools) to hear oral arguments for one or two weeks each month. Granting locality pay to judges may concentrate judges' chambers in different areas of each district or circuit. For example, the Northern District of Illinois has an Eastern Division (with a courthouse in Chicago) and a Western Division (with a courthouse in Rockford). If Congress were to adopt the same locality pay areas used by the Office of Personnel Management, judges with chambers in Chicago would be paid more than judges with chambers in Rockford, and judges whose chambers are in Rockford might seek to move their chambers to Chicago, a higher-paying locality within the same judicial district. Congress might choose to address this matter in several ways. First, it could choose to do nothing. Second, it might choose to allocate judgeships within the divisions of each district. Current federal law establishing the boundaries of the U.S. district courts dictates the counties which fall in each district and the locations at which courts may be held. Congress might choose to allocate judgeships among the divisions in a given district, which would limit the locations where judges may place their chambers. Congress might also consider specifying the location of chambers of court of appeals judges, who may place their chambers anywhere within the circuit to which they are appointed. Third, Congress might choose to offer the same pay to every judge within a given district or circuit. Doing so, particularly for circuit judges, may limit the effectiveness of locality pay because the geographical size of some of the circuits is so large. Fourth, Congress might adopt a form of locality pay that is not tied directly to the Office of Personnel Management's locality pay structure and better reflects the boundaries of judicial districts and the divisions within those districts. Federal judges who resign forgo judicial retirement, and it may be the case that candidates for federal judgeships decline the opportunity to be nominated, in part, because the salary and other compensation offered to federal judges cannot equal those available to lawyers who remain in private practice. If Congress wishes to address this issue, it might consider altering how federal judges qualify for judicial retirement. Judicial retirement is available to federal judges who meet the criteria of the Rule of 80 and entitles federal judges to an annuity equal to their salary at the time of their retirement when they depart active duty. Judges who take senior status continue to receive the cost-of-living adjustments Congress authorizes for active federal judges; since 1989, senior status judges have had to handle a caseload (or, since 1996, comparable administrative work) equal to that of one-fourth of the work of active judges in a given district or circuit in order to remain on senior status. The retirement provisions for federal judges are generous relative to those for other federal government positions in that very few other federal government positions offer a retiree with as few as 10 years of service an annuity equal to the employees' salary upon retirement. Any offer less generous to federal judges might discourage federal judges from departing the bench while they are still healthy; Congress first enacted judicial retirement provisions to encourage judges to depart while they retained their health. Any other provision (e.g., a mandatory retirement age for federal judges) would violate the Constitution's provision that judges may serve "during Good Behaviour" and may only lose their positions after impeachment by the House and conviction by the Senate. Current retirement provisions may be seen as generous from the perspective of judges who have qualified for them, but may be seen as difficult to attain for federal judges who face decisions about their financial futures before they are eligible for retirement or senior status. Judge Paul G. Cassell, who resigned from the U.S. District Court for the District of Utah in 2007, noted the issue of judicial pay in his resignation letter: I would like to ensure that my children will have the same educational opportunities that I had. How to achieve that within the constraints on current judicial pay is more than a difficult task. My wife and I have concluded that we may not be able to do what we have always planned to do unless I make some changes. If Congress were concerned that potential federal judges bypass the opportunity to serve as judges due to financial concerns, it could allow federal judges to earn partial retirement after serving a certain period of time. The current system provides judicial retirement under an "all-or-nothing" premise: judges either qualify for judicial retirement, at the equivalent of full salary, or they do not. Congress may consider allowing federal judges to receive a percentage of their annual salary if they choose to resign or retire before qualifying for the Rule of 80. Doing so might increase the number of people who express interest in serving as federal judges, but might also increase the number of judges who depart office in mid-or late-career to seek additional income from a job elsewhere in the federal government, in the private sector, or in academia. Of the legislation currently pending in Congress, H.R. 3753 , as ordered reported by the House Judiciary Committee, makes several changes to the system of judicial retirement; none of the other pending pieces of legislation change judicial retirement provisions. While leaving in place the "Rule of 80" for judges to take senior status, H.R. 3753 and S. 1638 would require federal judges to meet a new "Rule of 84" if they wished to retire. The Rule of 84 works much like the Rule of 80, as federal judges' age and years of service would have to add to 84 (starting with 67 years of age and 17 years of service, ranging to 72 years of age and 12 years of service) in order to retire and receive an annuity equal to the salary they were receiving at the time they retired. Under S. 1638 and H.R. 3753 , federal judges who retire and find other employment would have their annuities reduced if their earned income exceeds their annuity; for every $2 their earned income exceeds their annuity each year, the annuity would be reduced by $1. This reduction would stop once it had reached 67%, so all retired federal judges would receive at least 33% of their annuity. Under the Judicial Survivors' Annuities System (JSAS), "a judge's eligible spouse, former spouse, and/or dependent children are entitled to a survivor's annuity if a judge dies while in office or while receiving retirement compensation." As of 1999, active and senior status judges contributed 2.2% of their salary, and retired judges contributed 3.5% of their retirement annuity, to the JSAS if they elected to participate. Judges who do not elect to participate receive no survivor benefit. A judge's survivors are eligible for an annuity between 25% and 50% of the judge's average annual salary, depending on how long the judge participated in the JSAS. If Congress elects to consider revising the JSAS system, it might consider the survivor benefits available to other federal employees under FERS and CSRS, and the contributions made by employees under those programs, as a starting point. Federal employees covered by FERS do not elect to participate and do not pay any salary to qualify for survivor benefits. Covered federal employees under FERS and CSRS, however, make contributions to retirement annuities and to any optional retirement savings (including the Thrift Savings Plan, or TSP). The Ethics Reform Act of 1989 imposed limits on the amount of outside income federal judges may earn. The Ethics Reform Act limits government officials whose position is classified above GS-15 of the General Schedule (or, for positions outside the General Schedule, those positions where the base pay equals or exceeds 120% of the minimum pay for GS-15) from having outside earned income exceeding "15 percent of the annual rate of basic pay for Level II of the Executive Schedule." In 2008, federal employees covered by this provision, including federal judges, may earn no more than $25,830 in outside income. Federal officials, including federal judges, are also not permitted to receive honoraria for speeches, appearances, or articles. Federal judges are also expected to comply with the Code of Judicial Conduct. In particular, judges are permitted to engage in extra-judicial activities that improve the administration of justice, but are expected to avoid extra-judicial activities that may create risk of conflict with judicial duties. Perhaps most relevant, the Code of Judicial Conduct creates an expectation that judges regularly report outside compensation for law-related and extra-judicial activities. Before 1989, there was no restriction on the amount of outside earned income federal judges could earn. This freedom may have allowed federal judges to supplement their salaries, but it also caused considerable controversy. Controversy surrounding outside income adversely affected the unsuccessful nomination of Abe Fortas to be Chief Justice in 1968 and played a secondary role in the failed nomination of Clement Haynsworth to be an Associate Justice of the Supreme Court in 1969. Congress might choose to consider altering the limits on how much outside income federal judges may earn. Easing the limits might encourage federal judges to remain in active service for longer periods of time and may encourage individuals to serve in the federal judiciary who were otherwise reluctant to do so. Congress might also choose to leave the restrictions on outside income in place. It does not appear that the imposition of outside income limits in 1989 caused federal judges to depart in numbers that exceeded historical patterns. According to the data presented in Figures 2 and 3 , above, imposition of the restrictions on outside income did not appear to affect the number of judges who resigned or the number of judges who retired rather than taking senior status. The proportion of judges who left active service by resignation was lower between 1989 and 1992 than between 1985 and 1988; the proportion of judges who retired rather than taking senior status rose slightly between 1985-1988 and 1989-1992 (to 5.41% from 4.95%) following enactment of the outside income limits in the Ethics Reform Act of 1989. S. 1638 , as reported by the Senate Judiciary Committee, would limit the reimbursable seminar-related travel for federal judges to $2,000 per trip and $20,000 per year, with exceptions for events approved by the State Department and those sponsored by the federal government, state governments (not including public educational institutions), bar associations, and the National Judicial College. S. 1638 would also prohibit the acceptance of honorary memberships valued at more than $50 per year, and apply the regulations of the Judicial Conference on outside earned income to justices of the U.S. Supreme Court. The Ethics Reform Act of 1989 created the Citizens' Commission on Public Service and Compensation that was designed to replace the Quadrennial Commission (which was composed of individuals from the private sector who recommended salary levels for Members of Congress, federal judges, and several executive branch officials). The Citizens' Commission was to consist of 11 private citizens who would meet once every four years and recommend to the President the rates of pay for Members of Congress, the Vice President, Executive Schedule Level II employees, federal judges and justices, and governors of the Federal Reserve. The President was to review the recommendations of the commission and then transmit his own recommendations, which would be based on what "the President considers to be fair and reasonable in light of the Commission's report and recommendations, the prevailing market value of the services rendered in the offices and positions involved, the overall economic condition of the country, and the fiscal condition of the Federal Government." Those recommendations would then be considered by Congress. This process was intended to augment the method by which annual pay adjustments are made (the December-to-December change in the Employment Cost Index, less 0.5%). The Citizens' Commission on Public Service and Compensation, however, has never met. Accordingly, neither the President nor Congress has had the recommendations of the Citizens' Commission to structure discussion on salary for certain federal employees (including federal judges). Congress may wish to convene the Citizens' Commission to guide its deliberations on judicial salaries and the salaries of other federal officials. If Congress were to convene the Citizens' Commission, salary recommendations would be regularly presented to Congress by the President, with the intent of regular increases in salary. In a 2002 letter to Paul Volcker, chairman of the National Commission on Public Service, L. Ralph Meacham, director of the Administrative Office of the U.S. Courts, argued that Congress and the President intended for the Citizens' Commission, created as part of the Ethics Reform Act of 1989, to "provide top government officials with regular increases that would alleviate the future need for major 'catch up' adjustments of the type enacted in 1989." Meacham further argued that the failure of the commission to meet meant that "Judges (as well as other high-level government officials) have received only four cost-of-living salary adjustments since January 1993. What this means is that since 1993 [until 2002], the annual cost-of-living salary adjustments for these officials have averaged only about one percent." Congress might also choose to consider changing how cost-of-living adjustments are made to judges' salaries. The annual automatic recommendation for salaries of Members of Congress and federal judges is the December-to-December change in the Employment Cost Index for private-sector wages, reduced by 0.5%. In addition, the rate of adjustment for judicial, congressional, and executive officials whose salaries are covered by the Ethics Reform Act of 1989 can be no greater than the rate of adjustment for General Schedule (GS) employees. Under current law, Congress must enact legislation each year to allow judges' salaries to change. The salaries of Members of Congress, on the other hand, increase unless Congress acts to prevent the scheduled increase from taking effect. Congress, however, might consider changing the law, to allow judges' salaries to increase automatically without the requirement of an authorization by Congress for each such increase. Doing so might allow judicial salaries to increase more frequently than they have since the current method of recommending and adopting judicial and congressional salaries was implemented in 1989. Changing the mechanism by which judicial salaries are adjusted to account for changes in cost-of-living, however, might not translate into more frequent increases in judicial salary, if Congress chooses to continue the practice of pay parity between judicial and congressional salaries. Should Congress choose to continue this practice, and should Congress occasionally choose to reject recommended adjustments to congressional and judicial salaries, judicial salaries will likely continue to fall relative to the salaries of private-sector workers. H.R. 3753 , as reported by the House Judiciary Committee, and S. 1638 , as reported by the Senate Judiciary Committee, would raise judicial salaries each year by the base rate increase given to General Schedule employees. Doing so would effectively automate the process by which federal judges currently receive cost-of-living adjustments, as the default adjustment to the General Schedule is the December-to-December change in the Employment Cost Index, less 0.5%, though the President may adjust this recommendation. Four pieces of legislation pending in the 110 th Congress deal with judicial salary. S. 197 , passed by the Senate on January 8, 2007, and pending before the House, authorizes the enactment of the 1.7% increase in judicial salary that was recommended under the procedures outlined in the Ethics Reform Act of 1989. Three other pending pieces of legislation— S. 1638 , S. 2353 , and H.R. 3753 would provide federal judges with much larger raises. Table 3 provides a side-by-side comparison of the three pieces of legislation. If adopted, the new salary levels proposed by S. 1638 and H.R. 3753 would be the highest real salaries federal judges have received since at least 1913. In 1969, currently the year with the highest real salaries for federal judges since at least 1913, district court judges received real salary of $210,570; court of appeals judges received a real salary of $222,018. Without endorsing any specific proposals, the Bush Administration has indicated its support for raising judicial salaries. S. 2353 , which has been referred to the Senate Judiciary Committee, provides immediate increases in salary to federal judges; however, it makes no other changes to the compensation practices for federal judges. H.R. 3753 , as ordered reported by the House Judiciary Committee, and S. 1638 , as reported by the Senate Judiciary Committee, allow for annual salary adjustments for federal judges equal to the change in the base rate of pay for General Schedule employees. H.R. 3753 and S. 1638 would also change the workload of judges in senior status, requiring that they perform the equivalent of four months of the work of an active judge in a given year, whereas the current requirement is a work equivalent of three months a year. H.R. 3753 and S. 1638 also include two changes to retirement (as opposed to senior status). While federal judges will still be able to take senior status under the Rule of 80, eligibility to retire will be governed by a new Rule of 84, where age and years of service, starting with 67 years old and 17 years of service, must add to 84 for a federal judge to retire and receive an annuity equal to their salary at time of retirement. Judges who retire and whose earned income after retirement exceeds the amount of their retirement annuity would find that annuity reduced by $1 for every $2 they earn above the level of their annuity. This reduction could affect no more than 67% of their annuity, and the calculation is made annually, so the annuity could be restored to its full value if a retired judge stops earning outside income in excess of his or her annuity. S. 1638 also includes a provision that restricts the reimbursable seminar-related travel for federal judges to $2,000 per trip and $20,000 per year (these values would be indexed to inflation), with exceptions for events approved by the State Department and those sponsored by the federal government, state governments (not including public educational institutions), bar associations, and the National Judicial College. S. 1638 also limits the acceptance of honorary memberships to those valued at no more than $50 per year and applies the regulations of the Judicial Conference on outside earned income to justices of the U.S. Supreme Court. Appendix A. Number of Judgeships, Vacancies, Active Judges, Departures from Active Service, and Method of Departure for Article III U.S. District Courts, Court of International Trade, and U.S. Courts of Appeals, 1985-2007 Appendix B. Nominal and Real Salaries for U.S. District Court and Court of Appeals Judges, 1955-2006 | Several federal judges, including the Chief Justice of the United States, have expressed concern over the level of judicial salary. Chief Justice Roberts has called the current levels of judicial salary a "constitutional crisis" that threatens the independence of the federal courts. The most common arguments for raising judicial salary claim that low judicial salaries (1) limit the ability of the federal judiciary to draw on a diverse pool of candidates for positions on the federal bench; (2) force federal judges concerned about their financial futures to resign from the bench before they become eligible for retirement; and (3) drive other federal judges, upon becoming eligible for retirement, to retire completely (to earn extra income outside the judiciary), rather than remain to assist the courts as judges on "senior status." Opponents of raising judicial salary generally question whether variations in judicial salary affect recruitment and retention of federal judges. Examination of the available evidence on the effect of judicial salary on judicial recruitment and retention suggests (1) trends away from appointing judges directly from private practice and toward appointing federal judges who are already in the judiciary (as state judges or federal bankruptcy or magistrate judges) date to before the most recent decline in judicial salaries, (2) federal judges are not resigning from the federal bench at rates much higher than historical averages, and (3) the percentage of federal judges who chose retirement in lieu of senior status has also not risen markedly in the last several years. From an examination of data on judicial departures, we are unable to identify a conclusive relationship between judicial salary and federal judges' decisions to resign or retire. Should Congress wish to address the issue of judicial salary, it has several options. In addition to increasing the pay of federal judges on a one-time basis by a specific amount or percentage, Congress might consider "de-linking" congressional and judicial salaries, providing that judges receive salaries based on their cost of living, revising retirement benefits, adjusting survivor benefits for the spouses and dependents of federal judges, altering outside income limits, convening the Citizens' Commission on Public Service and Compensation, or enacting automatic adjustments for judicial salary. Four bills concerning judicial salary have been introduced in the 110th Congress: S. 197 would adjust the salaries of federal judges upward by 1.7%; S. 2353 would increase the salaries of federal judges by 16.5%; and S. 1638, as reported by the Senate Judiciary Committee, and H.R. 3753, as ordered reported by the House Judiciary Committee, would increase the salaries of most federal judges by 28.7%, permit cost-of-living adjustments to judicial salaries to go into effect unless Congress passed legislation stopping them from doing so, change the eligibility for federal judges to retire, and change how the annuity they receive upon retirement is calculated. S. 1638 also imposes limits on reimbursable travel and honorary memberships for judges, as well as applying limits on outside earned income to U.S. Supreme Court justices. This report will be updated as events warrant. |
The Higher Education Act of 1965 (HEA; P.L. 89-329), as amended, authorizes a broad array of federal student aid programs that assist students and their families with paying for or financing the costs of obtaining a postsecondary education. These federal student aid programs are authorized under Title IV of the HEA. Requirements applicable to the administration of Title IV federal student aid programs are specified in Title I of the HEA, as well as in Title IV. The HEA also authorizes many other types of programs, including programs that make federal aid and support available to institutions of higher education (IHEs). The Department of Education (ED) administers programs authorized under the HEA. In 2008, the HEA was reauthorized under the Higher Education Opportunity Act (HEOA; P.L. 110-315 ); and in 2009 technical amendments to the HEA were made under P.L. 111-39 . Institutions that participate in one or more Title IV programs, or that seek to begin participating in these programs, are subject to a wide range of requirements under the act to report or disclose information to the Secretary of Education (the Secretary), to students, to the public, or to other entities. As part of the amendments made to the HEA, the HEOA added numerous additional requirements for the reporting and disclosure of information, many of which are applicable to IHEs. This has resulted in a sizable expansion of reporting and disclosure requirements with which IHEs must comply as a condition of their participation in HEA, Title IV federal student aid programs. This report responds to requests by Members of Congress for an in-depth examination of the reporting and disclosure requirements applicable to IHEs that participate in Title IV federal student aid programs. Specifically, it identifies and describes the reporting and disclosure requirements specified under Title I and Title IV of the HEA that applied to institutions prior to the enactment of the HEOA and those that were amended or newly established by the HEOA. It has been prepared to serve as a resource to assist Members of Congress and their staff in overseeing the Department of Education's implementation of amendments to the HEA made by the HEOA. This report is designed to provide a thorough presentation of provisions in the HEA that require IHEs to report or disclose information, while also highlighting those provisions that were added or amended by the HEOA. In general, the organization of this report follows the statutory framework of the HEA. With respect to a number of subject areas, substantially similar requirements for the reporting or disclosure of information are specified in more than one part or section of the HEA. For example, similar requirements for the disclosure of information about student loans are specified in several areas of the HEA; and certain requirements for the reporting or disclosure of information may be specified in the Program Participation Agreement, as well as in other sections of the HEA. While the Secretary has latitude to streamline similar requirements in implementation, in this report, such requirements are generally identified as they appear in the act. This report attempts to be comprehensive, but not necessarily exhaustive, in its scope. It is designed to identify and describe requirements in the HEA for IHEs to report or disclose information. It does not attempt to identify every instance in which an IHE may be required to respond to a federal statutory or regulatory requirement. For example, it does not examine all requirements that are primarily operational in nature for IHEs to provide information related to federal student aid programs, such as the exchange of information through ED's Common Origination and Disbursement (COD) system, nor the requirement of IHEs to verify student aid application information. It also does not examine requirements for IHEs to retain documentation of their compliance with HEA or regulatory provisions that have no associated requirement for them to report or disclose information. This report also does not address response burden, nor non-HEA requirements and regulations that may impact IHEs. The HEOA requires the Secretary to enter into an agreement with the National Research Council to conduct a study to determine the number and scope of all the federal regulations and reporting requirements applicable to IHEs, and the associated response burden. The HEOA also requires the Government Accountability Office (GAO) to conduct a study on IHEs' time and cost burdens associated with completing the Integrated Postsecondary Education Data System (IPEDS) surveys. Both of these studies are required to be completed by August 2010. The Secretary of Education ultimately is responsible for determining which HEA reporting and disclosure requirements are applicable to IHEs that participate in Title IV and for promulgating regulations to implement those requirements. In July and August, 2009, ED published proposed regulations to implement the HEOA amendments to the HEA in the Federal Register . The HEOA also amended the HEA, effective July 1, 2010, to require the Secretary to provide IHEs with a list of all the reports and disclosures required under the act. The list that must be prepared by the Department of Education must include the following: the date the report or disclosure is required to be completed and submitted, made available, or disseminated; the required recipients; any required methods for transmittal or dissemination; a description of the content of each report or disclosure sufficient to allow the IHE to assign responsibility to staff; references to applicable statutes, regulations, and guidance; and any other pertinent information relating to the reporting or disclosure requirement. The remainder of this report identifies and describes requirements for institutions to report or disclose information to the Secretary, to students, to the public, or to other entities, such as lenders, guaranty agencies, and consumer reporting agencies, as specified in the HEA and Department of Education regulations. It begins with generally applicable requirements as specified in HEA, Title I—General Provisions; Title IV, Title G—General Provisions; and Title IV, Part H—Program Integrity, and concludes with Title IV program-specific requirements for the federal student loan and campus-based programs. Information on requirements to report or disclose information as part of the IPEDS surveys is presented in the Appendix . The report generally follows the statutory framework of the HEA, and is organized by Title and Part. Brief general descriptions are provided for each of the major requirements for IHEs to report or disclose information. These descriptions are followed by tables which present the pre-HEOA requirements for IHEs to report or disclose information, a statutory or regulatory citation for the requirement, and the designated recipient of the information. The tables also show any corresponding changes made by the HEOA to these requirements. For instance, the tables highlight additional new requirements, as well as changes to the content of what was required to be reported under previously exiting requirements. Prior to the reauthorization of the HEA in 2008, Title I of the HEA included four parts, which established general provisions for the remainder of the HEA: (1) Part A: Definition of an Institution of Higher Education, (2) Part B: Additional General Provisions, (3) Part C: Cost of Higher Education, and (4) Part D: Administrative Provisions for Delivery of Student Financial Assistance. Several of the provisions included in Title I specifically affected IHEs' participation in the Title IV federal student aid programs. Only Part B, however, included specific reporting requirements for institutions. Part C included implicit reporting requirements such as those related to IPEDS, which is an annual series of surveys administered by ED. The requirement for institutions to participate in IPEDS was and continues to be included in the Program Participation Agreement (PPA) requirements included in HEA, § 487. The HEOA amends the institutional reporting requirements included in Part A, Part B, and Part C. The HEOA adds a new set of institutional reporting requirements to Part C with a focus on transparency in college costs for consumers and textbook information. The HEOA also adds a new Part E: Lender and Institution Requirements Relating to Education Loans, which contains a series of requirements for IHEs to disclose information about student loans, which are in addition to requirements specified separately under Title IV, Part B—the Federal Family Education Loan (FFEL) program; Title IV, Part D—the William D. Ford Federal Direct Loan (DL) program; and Title IV, Part E—the Federal Perkins Loan program. This section of the report examines the reporting requirements specified in Title I, Part A, Part B, and Part C of the HEA prior to and after enactment of the HEOA. It also examines requirements specified in Title I, Part E of the HEA that were enacted by the HEOA amendments. The HEA includes two definitions of IHEs. The first definition, specified in § 101, applies for institutional participation in programs other than those authorized under Title IV. The second definition, specified in § 102, applies for institutional participation in Title IV programs, the focus of this report. The § 101 definition recognizes as IHEs those institutions that are legally authorized by the state, are accredited or pre-accredited by an agency or association recognized by ED, are nonprofit institutions, award a bachelor's degree or provide at least a two-year program that is accepted as credit toward the completion of a bachelor's degree, and enroll as regular students only individuals who have graduated from a secondary institution or hold the equivalent of a high school diploma. The § 101 definition also recognizes institutions offering not less than a one-year program of training in preparation for employment and institutions admitting students beyond the age of compulsory secondary school attendance. The HEA, § 102 definition of an IHE, which applies for participation in Title IV programs, includes all institutions recognized as IHEs under HEA, § 101, and also proprietary institutions, postsecondary vocational institutions, and institutions located outside of the United States (i.e., foreign institutions). Proprietary institutions are defined as those institutions that provide training in preparation for gainful employment in a recognized occupation; are legally authorized by the state; are accredited by an agency or association recognized by ED; admit as regular students only individuals who have graduated from a secondary institution or hold the equivalent of a high school diploma, or who are past the age of compulsory attendance in the state in which the institution is located; and have been in existence for at least two years. In addition, until enactment of the HEOA, proprietary institutions were required to derive at least 10% of school revenue from non-Title IV funds. Under the HEOA, this requirement—commonly referred to as the 90/10 rule—was removed from the § 102 definition of an IHE and made part of the requirements for institutional program participation agreements, specified under HEA, Title IV, Part G (described below). Postsecondary vocational institutions must meet criteria similar to those applicable to proprietary institutions with two exceptions: (1) they must be nonprofit institutions, and (2) they are not subject to the 90/10 rule. In addition, to be eligible to participate in Title IV programs, institutions must meet certain requirements based on course of study or enrollment. Institutions are required to report compliance with the following four requirements as part of their Application for Approval to Participate in Federal Student Financial Aid Programs (E-App) (described below under Title IV, Part H). 1. No more than 50% of an institution's courses, other than a postsecondary career and technical institution, may be correspondence courses (excluding courses offered by telecommunications) (§ 102(a)(3)(A)). 2. No more than 50% of an institution's students may be enrolled in correspondence courses (excluding courses offered by telecommunications) (§ 102(a)(3)(B)). 3. No more than 25% of an institution's enrollment may be comprised of students who are incarcerated (§ 102(a)(3)(C)). 4. No more than 50% of enrollment at an institution that does not provide a two-year or four-year course of study (or both) leading to an associate's or bachelor's degree may be comprised of students who do not possess a high school diploma or its equivalent (§ 102(a)(3)(D)). In general, foreign institutions are currently eligible to participate in the Federal Family Education Loan (FFEL) program if they meet the same requirements as an IHE under § 101 and have been approved by ED to participate in the FFEL program. Foreign medical and veterinary institutions, however, must meet additional requirements to participate in the FFEL program. Foreign institutions must report information demonstrating that they meet the terms of these requirements on the E-App. (see below). Foreign medical institutions must meet one of the following two sets of additional criteria (§ 102(a)(2)(A)). 1. At least 60% of the students, and at least 60% of the graduates of a graduate medical school located outside of the United States, must not be U.S. citizens or permanent residents; and at least 60% of the students or graduates of a graduate medical school located outside of the United States or Canada taking examinations administered by the Educational Commission for Foreign Medical Graduates must receive a passing score. 2. The graduate medical school must have a clinical training program that was approved by a state as of January 1, 1991. For foreign for-profit veterinary institutions to be eligible to participate in the FFEL program, they must require their students to complete their clinical training at an approved veterinary school located in the United States. The HEOA amended eligibility requirements for foreign medical institutions and veterinary institutions, and added eligibility requirements for foreign nursing schools to participate in the FFEL program, effective July 1, 2010. It is expected that when these new requirements become effective, foreign institutions would be required to report information demonstrating that they meet these requirements on the E-App. Foreign for-profit graduate medical institutions. Effective July 1, 2010, foreign medical institutions will be required to meet one of the following two sets of additional criteria to participate in the FFEL program. 1. At least 60% of the students, and at least 60% of the graduates of a graduate medical school located outside of the United States, must not be U.S. citizens or permanent residents; and at least 75% of the students or graduates of a graduate medical school located outside of the United States or Canada taking examinations administered by the Educational Commission for Foreign Medical Graduates must receive a passing score. 2. The graduate medical school must have a clinical training program that was approved by a state as of January 1, 1991; and must continue to operate a clinical training program in at least one state that is approved by that state. Foreign veterinary institutions . The HEOA made no changes to the requirements for these institutions to participate in the FFEL program. Fore ign nursing schools. In accordance with amendments enacted in the HEOA and P.L. 111-39 , effective July 1, 2012, foreign nursing schools can become eligible to participate in the FFEL program, but will be required to meet the following five eligibility requirements. 1. The school must have an agreement with either a hospital or accredited school of nursing located in the United States at which the school's students are required to complete their clinical training. 2. The school must have an agreement with an accredited school of nursing located in the United States which provides that its students will also receive a degree from the school in the United States upon graduation. 3. The school may certify only FFEL program loans for its students. 4. The school must reimburse the Secretary for the costs of any loan defaults for current and former students included in the calculation of its cohort default rate for the preceding fiscal year. 5. At least 75% of students or graduates from the school who, during the preceding year, took the National Council Licensure Examination for Registered Nurses must have received a passing score. In accordance with HEA, § 117, institutions that are owned or controlled by a foreign source or that receive a gift from or enter into a contract with a foreign source valued at $250,000 or more, when considered alone or in combination with other gifts from or contracts with that foreign source within a calendar year, must file a disclosure report with the Secretary. The report must be filed on January 31 or July 31, whichever date is closest following receipt of the gift. Institutions that are required to publicly disclose gifts from or contracts with foreign sources under state laws that are substantially similar to the requirements of HEA, § 117, or that are required by any executive branch agency to prepare a report on gifts from or contracts with foreign sources according to requirements that are substantially similar to the requirements of HEA, § 117, may file a copy of such disclosure report in lieu of separately filing a disclosure report with the Secretary. If an institution fails to comply with these requirements, the Secretary may request the Attorney General to bring a civil action to request the court to compel compliance. Institutions that knowingly or willfully fail to comply with the requirements of this section must repay the United States for the full costs of obtaining compliance. The HEOA did not amend the HEA requirements for the disclosure of foreign gifts. Reporting requirements for IHEs relating to the disclosure of foreign gifts are presented in Table 1 . The HEA includes several institutional reporting requirements related to the prevention of drug and alcohol abuse, most of which had been incorporated into the HEA prior to the enactment of the HEOA. As a condition of eligibility to receive funds or any form of financial assistance under any federal program, institutions are required to certify to the Secretary that they have adopted and implemented a program to prevent the use of illicit drugs and the abuse of alcohol. An institution failing to provide this certification is not eligible to receive funds or any other form of financial assistance under any federal program. Institutions must distribute information about drug and alcohol abuse and prevention to students and employees on an annual basis. This includes standards of conduct, applicable legal sanctions, a description of health risks, a description of available counseling, treatment, or rehabilitation programs, and a description of institutional sanctions. Institutions must also make this information available to the Secretary and the public upon request. In addition, institutions are required to conduct a biennial review of the effectiveness of their programs, to implement changes to the programs if necessary, and to ensure that required sanctions are consistently enforced. (HEA, §§ 120 and 487(a); and 34 CFR § 668.14). Part B of the HEA, as amended by § 107 of the HEOA, retains all of the aforementioned reporting requirements. However, the requirements for the biennial review have been expanded to include a determination of the number of drug and alcohol-related violations and fatalities that occur on campus or as part of the institution's activities that are reported to campus officials, and the number and types of sanctions imposed by the institution in response to these violations and fatalities. Reporting requirements for IHEs relating to drug and alcohol abuse prevention are presented in Table 2 . Under Title I, Part C, the Department of Education collects a broad array of information about institutions. On an annual basis, the Commissioner of Education Statistics is required to collect information from (at least) all institutions participating in Title IV programs. Examples of information collected include data on tuition and fees, costs of attendance (COA), and the average amount of financial assistance received by undergraduate students by type of assistance required to be collected under HEA, § 131(a). These data are annually collected by ED through IPEDS. Institutions must participate in IPEDS to retain their Title IV eligibility. Institutions are also required to participate in any other federal postsecondary institution data collection in a timely manner (e.g., the National Postsecondary Student Aid Survey (NPSAS)). Under the HEOA amendments to the HEA, these reporting requirements were retained and expanded to reflect the addition of new data elements to IPEDS (see Title IV, Part G, and Table 16 , below), and a new requirement that NPSAS data be representative for each state. Reporting requirements that relate to college affordability and transparency, IPEDS, NPSAS, and college textbook information are summarized below. Under HEA, § 131(a), IHEs are required to annually report information on undergraduate tuition and fees, cost of attendance, the number of undergraduate students receiving specified forms of financial assistance, and the average amount of financial assistance received. Institutions have been required to report this information through IPEDS. The HEOA amended the HEA by establishing a requirement for ED to annually publish six lists relating to college affordability by sector (e.g., public four-year institutions): 1. the 5% of institutions with the highest tuition and fees; 2. the 5% of institutions with the highest net price; 3. the 5% of institutions with the largest percentage increase in tuition and fees over the last three academic years; 4. the 5% of institutions with the largest percentage increase in net price over the last three academic years; 5. the 10% of institutions with the lowest tuition and fees; and 6. the 10% of institutions with the lowest net price. Institutions listed on the third or fourth lists are also subject to reporting requirements related to the reasons for cost increases and steps being taken to reduce costs, unless their increase in tuition and fees or net price over the three-year period was less than $600. Reporting requirements for IHEs relating to the cost of higher education are presented in Table 3 . The HEOA amended the HEA to require ED to make available various information about institutions, such as data concerning student enrollment, graduation rates, cost of attendance, student aid, and specific services offered by the institution. Many of these items were already collected in some form through IPEDS or other data collection efforts maintained by ED. As discussed later in the Title IV, Part G section of this report, the Program Participation Agreement requires all institutions to participate in IPEDS, and other postsecondary education data collection efforts as designated by the Secretary, in a timely manner and "to the satisfaction of the Secretary." The HEOA amended the HEA by adding new requirements relating to transparency in college tuition for consumers (HEA, § 132(i)). This amendment requires the Secretary to make an array of consumer information publicly available on the College Navigator website. It may be presumed that much of this information will be collected through IPEDS if it is not already being collected through another data collection effort. Table 4 presents an analysis of the new consumer information reporting requirements and identifies for each data element, whether it was being collected through IPEDS or another source prior to the enactment of the HEOA, or whether it is a new data collection requirement. Prior to enactment of the HEOA, the HEA generally did not specify data elements on which the Secretary must publicly report—with the exception of data related to tuition and fees and cost of attendance (§ 131(a) and (b), discussed above)—and, for the most part, the HEA did not specify data elements that institutions must provide to the Secretary. Thus, the comparisons made in Table 4 primarily focus on the differences between specific requirements included in § 132(i) and IPEDS data collection requirements in effect prior to the enactment of the HEOA. The HEOA also amended the HEA by adding a new requirement for the Secretary to develop a multi-year tuition calculator for use by current and prospective students, their families, and others in estimating prices for tuition and fees in future years for each year during the normal duration of a program of study (HEA, § 132(j)). The multi-year tuition calculator will use tuition and fee information reported by IHEs as required under HEA, § 132(i). For institutions that offer multi-year tuition guarantee programs, the calculator must also allow individuals to obtain estimates of tuition and fees in future years based on the provisions of the tuition guarantee program. Prior to the enactment of the HEOA, § 131(d) of the HEA required the Secretary to conduct a triennial, nationally representative survey of individuals who receive federal student aid under Title IV. The survey was required to be representative of students from all types of institutions, as well as full-time students, part-time students, undergraduate students, graduate students, professional students, current students, and former students. The specified purposes of the survey were to identify the population of federal student aid recipients; to determine their income distribution and socioeconomic characteristics; to describe the combinations of federal, state, and private aid received by students; and to describe loan recipients' debt burden and their capacity to repay their education debts. This information has been collected through the National Postsecondary Student Aid Study (NPSAS), authorized under the Education Sciences Reform Act of 2002, Title I, Part D, §153(a)(1)(E). The HEOA amends the HEA at § 132(k) to require ED to conduct a quadrennial survey, on a state-by-state basis, of individuals who receive federal student financial aid under Title IV. The state-by-state survey must be representative of students from all types of institutions, as well as full-time students, part-time students, undergraduate students, graduate students, professional students, current students, and former students. The specified purposes of the survey were expanded to also include describing the impact of students' education debt burden on their courses of study and post-graduation plans, and describing how the costs of textbooks and other instructional materials affect the costs of postsecondary education. It appears that the new state-by-state representative sample of students and former students may be implemented as a modification to the NPSAS, through which similar information on students is currently collected. While NPSAS respondents are students or former students, institutions are required to provide ED with certain information about sampled students through a two-stage process. In the 2008 NSPAS, about 1,900 IHEs were included in the sample of institutions. These IHEs were asked to provide ED with enrollment lists that included the names of all students enrolled at a certain date, as well as information including date of birth, social security number, education level, major, and contact information. From the enrollment lists, ED then selected approximately 140,000 students to include in their survey sample. ED also requested additional information from the IHEs on sampled students, including demographic information, admission information (for undergraduates), enrollment status, the degree the student is working toward, and tuition, financial aid, and scholarship information. The HEOA did not change the types of information to be collected from IHEs for the NPSAS. However, the new requirement for data to be representative by state will increase the number of students and IHEs required to be included in the NPSAS sample. The increase will be especially acute in states with a relatively small number of students, as a large portion of these students will have to be included in a sample to ensure it is representative of the state. The HEOA prospectively amends Title I, Part C of the HEA by adding a new § 133, which establishes new requirements concerning information about textbooks. Under the new requirements, information provided by publishers to faculty members who are in charge of selecting course materials at Title IV participating institutions must include certain price information and copyright dates of previous editions. The new provision also will require textbook publishers to "unbundle" materials, except under certain circumstances, and to make textbooks and each supplement to a textbook available as separate items. In accordance with the new provision, IHEs that receive federal financial assistance will be required, to the maximum extent possible, to publish as part of online course pre-registration and registration materials, the International Standard Book Number (ISBN) for all materials that will be used in each class, as well as the retail price of required and recommended course materials for each course listed in the institution's course schedule. Institutions will also be required to make available to the college bookstores they operate, or with which they are affiliated, upon request, their course schedule for the subsequent academic period, the aforementioned information about course materials, and enrollment information for each class. In addition, under the new provision, IHEs will be encouraged to disseminate information to students regarding the availability of renting textbooks, purchasing used textbooks, guaranteed textbook buy-back programs, and alternative ways to obtain course content. Requirements for IHEs that receive federal financial assistance to disclose certain information about college textbooks are presented below in Table 5 . The HEOA adds a new Part E to Title I which establishes new requirements for lenders and institutions with respect to federal student loans made under Title IV, as well as private student loans. For institutions that participate in preferred lender arrangements—in which the IHE recommends, promotes, or endorses the student loan products (e.g., FFEL program loans and private student loans) of certain lenders—new requirements specify that IHEs must disclose or report certain information, including the maximum amount of Title IV grant and loan aid available to students; detailed information about the terms and conditions of loans; that under the FFEL program, the institution is required to process applications to obtain a loan from any eligible lender; and a detailed explanation of why the IHE entered into a preferred lender arrangement with the lender. Institutions that participate in preferred lender arrangements also must inform prospective borrowers of private student loans that they may qualify for federal student aid under Title IV, and that the terms and conditions of federal student loans may be more favorable than the terms and conditions of private student loans. Institutions may make the required disclosures about student loans and preferred lender arrangements on model disclosure forms developed by the Secretary and the Board of Governors of the Federal Reserve System, or on forms developed by the institution. Institutions that participate in the DL program must make publicly available a completed model disclosure form for DL program loans containing information comparable to what must be disclosed by IHEs with respect to FFEL program loans. The Secretary will be required to provide completed model disclosure forms for DL program loans to IHEs that participate in the DL program. Institutions will be required to post this information on their websites and to include it in informational materials about financial aid that are distributed to prospective students and their families. The HEOA also amended the HEA to establish a requirement for borrowers of private student loans to self-certify their eligibility for these loans. The provisions for self-certification require institutions to disclose to prospective borrowers of private student loans certain information necessary for completion of the form, including their cost of attendance, their expected family contribution, and the estimated financial assistance they will receive. Detailed information on reporting requirements for institutions with respect to student loans is presented in Table 6 . Title IV, Part G includes a broad array of requirements and other provisions applicable to institutions that participate in Title IV programs. Part G provisions which establish requirements for IHEs to report or disclose information may be categorized into the following major areas. Student eligibility requirements applicable to the receipt of federal student aid, including determination of eligibility and need, and verification of immigration status. Information about the institution and its programs; the availability of, procedures to apply for, and descriptions of federal student aid programs; the institution's transfer of credit policies; and penalties for drug-related offenses. Entrance and exit counseling for borrowers of FFEL and DL program loans; and verification of borrower information in the National Student Loan Data System (NSLDS). Information on athletic programs and students who receive athletically related student aid; and completion or graduation rates, both for recipients of athletically related aid and for all students. Information on campus security, campus crime, fire safety, and missing persons procedures. Information required as part of program participation agreements, including the reporting or disclosure of institutional and financial assistance information, information collected as part of the IPEDS surveys, information on student loan codes of conduct, and information on student loan preferred lender lists. This part of this report identifies and describes provisions specified in Title IV, Part G that require the reporting or disclosure of information by institutions that participate in Title IV programs. Under Title IV, Part G, institutions are required to provide students with a determination of eligibility and need for federal aid. They are also required to provide information concerning individuals who are determined to be ineligible for federal student aid due to their immigration status to the U.S. Citizenship and Immigration Services (USCIS); and information concerning individuals determined to be ineligible for federal student loans to applicable lenders and guaranty agencies. Reporting requirements for IHEs relating to student eligibility are presented below in Table 7 . Prior to enactment of the HEOA, HEA, § 485 required each institution whose students participate in HEA Title IV programs to disseminate multiple pieces of information through various means, upon request, to enrolled students and to prospective students. In addition, compliance with the requirements of § 485 has been a component of the Program Participation Agreement into which IHEs must enter with the Secretary for initial and continuing eligibility to participate in Title IV programs. (Program Participation Agreements are discussed below.) All enrolled students must be provided an annual notification about what information is available and how it may be obtained. The types of information that institutions must provide include information about available financial assistance programs, how to obtain financial aid, and conditions for receiving aid; costs of attendance; specific program costs; the institution's academic program; facilities and services available to individuals with disabilities; the institution's accreditation; standards for satisfactory student progress; completion or graduation rates; the ability of students to enroll in a study-abroad program that may still qualify them for federal student aid; and campus crime. An institution whose mission includes the preparation of students to enroll in another eligible institution also must provide the transfer-out rate of its certificate- or degree-seeking, full-time undergraduate students. The HEOA added several disclosure and regulatory requirements to the HEA. As previously mentioned, institutions are required, upon request, to disclose various information to current and prospective students. The HEOA expanded on these requirements to include additional information that must be disclosed, such as institutional policies and sanctions related to copyright infringement, information about student body diversity, and the placement in employment of the institution's graduates. Additional requirements were added related to the disaggregation of completion and graduation rates, emergency response and fire safety, transfer of credit, missing person procedures, drug policy notifications, and reimbursements paid to any employees for service on advisory boards. For example, under the new transfer of credit policies, institutions must publicly disclose any criteria used to make transfer of credit determinations, and the institutions with which it has established an articulation agreement. Under the new policies relating to drug-related offenses, institutions must notify students about penalties for drug violations, including notifying students who have lost their eligibility for federal student aid due to a drug violation of the options to regain eligibility. Previously existing and new reporting requirements are detailed below in Table 8 . According to statutory and regulatory provisions in effect prior to the enactment of the HEOA, IHEs are required to ensure that student borrowers of FFEL and DL program loans receive initial counseling and exit counseling. Department of Education regulations specify requirements for initial counseling, while statutory provisions specify requirements for exit counseling. Initial counseling, or entrance counseling, must be provided before the first disbursement of the loan. The counseling must include an explanation of the Master Promissory Note (MPN), the significance of the borrower assuming an obligation to repay a student loan, the consequences of default, sample repayment schedules, the borrower's rights and responsibilities with respect to the loan, and the terms and conditions of the loan. Exit counseling must be provided before a student who has borrowed a FFEL or DL program loan leaves school. Exit counseling includes a review of the information provided during entrance counseling; an estimate of average anticipated monthly payments based on the borrower's actual student loan debt or the average student loan debt of borrowers in the same program at the same school; available repayment options; debt management strategies; options for deferment, forbearance, forgiveness, and discharge; notification that the borrower's loan history is available through NSLDS; and information about whom the borrower may contact regarding questions about the terms and conditions of his or her loan (i.e., the Department of Education Student Loan Ombudsman). The HEOA amended the HEA to specify statutory requirements for entrance counseling and to add additional statutory requirements for exit counseling. New requirements for exit counseling include the provision of information about the option to pay the interest as it accrues on Unsubsidized Stafford Loans and PLUS Loans while the borrower is in school; the importance of contacting the IHE in the case of early withdrawal so that exit counseling can be provided; the effects of consolidating one or more FFEL, DL, or Perkins Loans into a Consolidation Loan on the terms and conditions of the underlying loan or loans; and a description of tax benefits available to borrowers. The HEOA also amended the HEA by adding a requirement that institutions inform borrowers of loans made under the FFEL, DL, and Perkins Loan programs that information about their loans will be submitted to NSLDS and will be accessible to guaranty agencies, lenders, and institutions that are determined by the Secretary to be authorized users of NSLDS. Information on requirements applicable to institutions with respect to the disclosure of information as part of entrance counseling, exit counseling, and NSLDS is presented in Table 9 . Institutions at which students receive athletically related student aid are required to annually report to the Secretary by July 1 on the number of participating students by sport, race, and sex; completion or graduation rates by race and sex in specific sports for the current year and average of the four most recent years; and the completion or graduation rate for all students by race and sex for the current year and average of the four most recent years. The information must also be provided to prospective athletically related aid recipients and their parents, guidance counselors, and coaches. These requirements may be waived by the Secretary for an institution that is a member of an athletic association or conference that voluntarily publishes completion or graduation rate data (or has agreed to publish such data), if the Secretary determines the published information is comparable to the aforementioned information (HEA § 485(e); and 34 CFR §§ 668.41 and 668.48). Any coeducational institution participating in Title IV programs and that has an intercollegiate athletic program must annually report information on team composition, operating expenses, coaches, the ratio of athletically related aid for men versus women, revenues for men's and women's teams, and related data. A report on athletic program participation rates and financial support data must be made available to students and potential students, upon request, and to the public. Enrolled students must be informed of their right to request the information. The report must be provided to ED within 15 days of the institution making the report available to students and the public. (HEA § 485(g); and 34 CFR 668.14, 668.41, and 668.47; OMB No. 1845-0010).) Reporting requirements for IHEs with respect to athletically related student aid and athletic programs are presented in Table 10 . Statutory requirements related to campus crime and security are specified in HEA, § 485(f). Institutions must certify that they have established a campus security policy and have complied with the disclosure of campus security policy and campus crime statistics requirements. Institutions must provide detailed information about campus security policies and crime statistics, including statistics on the types of crimes committed by category, a description of programs to inform current and prospective students and employees about the prevention of crimes, crime statistics, and various policy statements. Institutions must distribute an annual security report to enrolled students and current employees by October 1 of each year. Statistics about the number of criminal offenses by category also must be reported annually to ED. In addition, institutions are required to make timely reports to the campus community about any crimes considered to be a threat to students or employees. Institutions also are required to develop and distribute materials about their sex offense policies, prevention measures, reporting procedures, and penalties. Any institution with a police or security department must maintain a daily crime log that includes the nature, date, time, and general location of each crime, as well as the disposition of the complaint, if known. Institutions that substantially misrepresent the number, location, or nature of crimes may be subject to civil penalties under HEA § 487(c)—Audits; Financial Responsibility; Enforcement of Standards. (HEA §§ 485(f) and 487(a); and 34 CFR 668.14, 668.41, and 668.46.) The HEOA adds several requirements related to campus crime and security. For example, it expands the list of crimes for which institutions must indicate whether the crime committed was a "hate crime" to include crimes such as simple assault and intimidation. It also modifies current reporting requirements related to the relationship between campus law enforcement and other security personnel. The HEOA requires institutions to inform current and prospective students and employees about campus policies related to immediate emergency response and evacuation procedures, including the use of electronic or cellular communication. (HEA, § 485(f).) The HEOA amends the HEA by establishing a requirement that institutions publish an annual fire safety report, to be available to the public and submitted to the Secretary, that contains information about fire safety practices and standards at the institution and provides data on fires that occurred in on-campus housing facilities. (HEA, § 485(i).) The HEOA amends the HEA by establishing requirements related to missing student notification. Each institution is required to have a policy for students residing in on-campus housing that informs them that they each have the option to identify someone to be contacted if they are determined to be missing. The policy must also specify contact requirements for students under the age of 18 who are determined to be missing, and indicate that law enforcement will be contacted within 24 hours of a student being determined to be missing (§485(j)(1)). Prior to the enactment of the HEOA, the HEA did not include reporting requirements related to missing person procedures. (HEA, § 485(j).) Reporting requirements applicable to institutions with respect to campus security, campus crime, fire safety, and missing persons procedures are presented in Table 11 . The Program Participation Agreement (PPA) is a document that each institution is required to sign in order to participate in federal student aid programs, and which also contains general reporting requirements for institutions. In some instances, these requirements may be redundant with those specified in other sections of the HEA, while in other instances they may add new requirements, or provide clarification of or additional information about a requirement that is mentioned elsewhere in the HEA. For example, the PPA requires that if an institution uses job placement rates as a means of attracting students, it must make the most recent employment statistics, graduation statistics, and other information available to substantiate the advertised rates, as well as relevant state licensing requirements for the state in which the institution is located related to any jobs for which the program is designed to prepare students. This requirement is not stated clearly elsewhere in the HEA, although this is information that accrediting agencies are required to review. (HEA § 487(a); and 34 CFR § 668.14.) Provisions of PPAs that require the reporting or disclosure of information are presented in Table 12 . Part H of Title IV specifies the roles and responsibilities for the three aspects of the program integrity triad: (1) state authorization, (2) accreditation by an accrediting organization recognized by the Secretary of Education, and (3) eligibility and certification by ED. The triad is intended to provide balance in assuring the eligibility of institutions for Title IV programs. The state role is primarily one of consumer protection, while the accrediting agencies are intended to function as a quality assurance mechanism. These two legs of the triad were developed independently of the federal government. The federal government has historically relied on them to avoid generating concerns about federal interference in educational decision-making. ED is responsible for the third leg of the triad, oversight of compliance; that is, protecting the administrative and fiscal integrity of the federal student aid programs. Most of the reporting requirements in Part H are imposed in response to the third leg of the triad. These requirements, however, are generally specified in regulations rather than statutory language. The state role in the triad is to provide legal authority for postsecondary institutions to operate in the state in which they are located. The state provides legal authorization to an institution through a charter, license, or other written document issued by the appropriate state agency or state official. Each institution is required to provide evidence to the Secretary that the institution has authority to operate within a state at the time it is certified as eligible for the Title IV federal student aid programs (see discussion below). The HEOA did not amend this requirement. (HEA § 495.) The second aspect of the triad focuses on accreditation. Institutions that want to participate in the federal student financial aid programs must be accredited by an accrediting agency or organization recognized by the Secretary. The HEA, both prior to and after the enactment of the HEOA, includes numerous requirements that accrediting agencies must meet to gain recognition from the Secretary. These provisions require the accreditors to assess specific aspects of an institution, such as its success with respect to student achievement, curricula, faculty, and student support services. While these provisions apply directly to accrediting agencies, they have an indirect effect on institutions in so far as institutions must provide information and data that accrediting agencies must examine in order to gain recognition from the Secretary. Therefore, this section examines potential reporting requirements that may be placed on institutions by accrediting agencies in response to the requirements accrediting agencies must meet to be recognized by the Secretary. It is unclear to what extent these requirements are actually reporting requirements that are placed on institutions. In addition, this section focuses only on potential institutional reporting in response to the requirements in the HEA. Accrediting agencies may have their own institutional reporting requirements that are not addressed in the HEA. Accrediting agencies must consistently apply and enforce standards that ensure that the education programs, training, or courses of study offered by an IHE are of sufficient quality to meet the stated objectives for which the programs, training, or courses are offered. The standards used by the accrediting agency or association must assess student achievement, in relation to the institution's mission, including, as applicable, course completion, passage of state licensing examinations, and job placement rates. The accrediting organization must also consider the institution's curricula, faculty, facilities, fiscal and administrative capacity, student support services, recruiting and admissions practices, measures of program length, objectives of the credentials offered, and student complaints received directly by the agency or association or those that are available to the agency or association. The institution's record of compliance with the institutional requirements of Title IV must also be examined with respect to the most recent student loan default rate data provided by ED, the results of financial or compliance audits, program reviews, and other information provided to the agency or association by ED. (HEA §496(a).) The HEOA amended the HEA by modifying and adding requirements related to accreditors' assessments of institutions. When consistently applying and enforcing standards, an accrediting agency must do so in a manner that respects the stated mission of the institution, including religious missions. The HEOA also requires accrediting agencies to require institutions that offer distance education or correspondence education to have a process by which the institution is able to determine that the student who registers for a course is the student who participates in, completes, and receives credit for the course. When accrediting agencies evaluate the institution's success with respect to student achievement, their evaluation may include different standards for different institutions or programs, as established by the institution. Finally, as part of an accrediting agency's review of an institution for accreditation or reaccreditation, the accrediting agency must confirm that the institution has transfer of credit policies that are publicly disclosed and include a statement of the criteria used to make transfer-of-credit decisions. As previously mentioned, this overview of HEA reporting requirements does not focus on the accreditation process. However, there are two sets of special circumstances in which an institution must report information directly to the Secretary with respect to a change in accreditation. Institutions seeking a change in accreditation must provide all materials related to its prior accreditation or preaccreditation, and materials substantiating the need for the change, to the Secretary. In addition, institutions seeking multiple accreditations must provide the Secretary and each accrediting agency with the reasons they seek to do so. (34 CFR § 600.11.) The HEOA did not amend these requirements. Table 13 details potential reporting requirements that may be placed on institutions by accrediting agencies in response to the requirements accrediting agencies must meet to be recognized by the Secretary. Unlike previous reporting requirements discussed in this report, it is unclear to what extent these are actually reporting requirements with which institutions must comply. ED is responsible for the eligibility and certification portion of the triad. In this capacity, ED is responsible for verifying the institution's legal authority to operate in a state and its accreditation status, and for evaluating its administrative capability and financial responsibility. ED has developed an Application for Approval to Participate in Federal Student Financial Aid Programs (E-App) that all institutions must complete in order to be eligible to participate in Title IV programs. Through the application, ED requests information and documentation related to educational programs, telecommunications and correspondence courses, changes in ownership or structure, third-party servicers that perform functions related to the federal student aid programs, administrative capability, and financial responsibility. Eligibility to participate in Title IV programs is authorized for up to six years. The HEOA did not amend requirements related to eligibility and certification procedures. All institutional reporting requirements discussed in this section were included in the HEA prior to the enactment of the HEAO. The form used to establish institutional eligibility to participate in Title IV programs is also used for a variety of other purposes. The form is used by an institution that wants to be designated as an "eligible" institution (but not participate in Title IV programs), so that its students may receive deferments on Title IV loans or be eligible to receive the HOPE or Lifetime Learning Scholarship tax credits, or so the institution may apply to participate in non-Title IV HEA programs. Thus, complying with the reporting requirements on the application affects not only an institution's Title IV eligibility but also its eligibility for certain non-Title IV programs. The form must also be completed by an institution that wants to receive initial certification, be recertified, or be reinstated to participate in the federal student aid programs. Institutions that undergo a change of ownership, convert from a for-profit institution to a nonprofit institution or vice versa, or merge with another institution must also complete the form. Finally, institutions that want to expand their federal student aid program eligibility or certification or need to update previously reported information must complete the form. The application form is developed by the Secretary and is designed to collect enough information from each institution to determine whether the institution meets the requirements of eligibility, accreditation, financial responsibility, and administrative capability. In completing the application, institutions must also describe the relationship between a main campus and all branch campuses and any third-party servicers. In addition, information relating to the institution's administrative capability and fiscal responsibility must be provided, upon request, to the Secretary, the appropriate guaranty agency, and the appropriate accrediting agency. The information must also be provided to the state agency that legally authorizes the institution to operate and to the state agency that approves public postsecondary vocational education, if the institution is a public postsecondary vocational educational institution. (HEA §§ 487(a) and 498(b); CFR § 668.14; and OMB No. 1845-0012.) The institution must indicate on the application if it wants to participate in Title IV programs, and it must submit the required documentation to be considered for certification. For example, each institution must provide evidence that it has the authority to operate within a state at the time it is certified by ED. Institutions currently certified to participate in Title IV programs must apply for recertification periodically. An institution currently certified to participate in at least one Title IV program that wants to participate in one or more additional Title IV programs must submit an application to the Secretary. (HEA § 495(b); and 34 CFR § 600.20 (a).) Foreign institutions are permitted to participate in the Federal Family Education Loan (FFEL) program authorized under Title IV, Part B. A foreign institution that wants to participate in the FFEL program or continue its eligibility for this program must submit an application to the Secretary with all required information and documentation. Foreign institutions failing to provide this information are not eligible to participate in FFEL. (34 CFR § 600.53.) Table 14 summarizes the types of information collected on the E-App. In addition to the information collected on the E-App, institutions are required to submit various documents depending on their specific circumstances. These documents are listed below. All applicants: Current letter of accreditation and any attachments, valid state license or other state authorization, 501(c)(3) designation from the IRS (for nonprofit institutions only), and a copy of approval from the institution's accrediting agency if the institution contracts with an organization or an ineligible institution to provide more than 25% of any educational program. Initial applicants: Audited financial statements for the two most recently completed fiscal years and a default management plan (unless exempt from providing the latter). Institutions with a change in ownership or structure: Audited financial statements for the two most recently completed fiscal years, audited financial statements of the new owner of the institution's two most recently completed fiscal years, audited same-day balance sheet showing the financial condition of the institution after the change in ownership, and a default management plan (unless exempt from providing the latter). Institutions seeking reinstatement: Audited financial statements for the two most recently completed fiscal years and a default management plan (unless exempt from providing the latter). Foreign institutions: Certified English translation of nonprofit designation status (for nonprofit institutions only), most recent catalog and its certified English translation of all sections dealing with degrees and programs provided, legal authorization and its certified English translation to provide an educational program beyond the secondary school level in the country in which the institution is located, legal authorization and its certified English translation to award a degree that is equivalent to a degree in the United States, legal authorization and its certified English translation to provide graduate medical education (if applicable), audited financial statements for the two most recent years (if an initial applicant), and a default management plan (unless exempt from providing the latter). Once an institution is determined to be eligible and certified to participate in Title IV programs, the institution must complete a Program Participation Agreement (described earlier). The PPA applies to all Title IV programs with the exception of the Leveraging Educational Assistance Partnership (LEAP) program. Under the PPA, an institution acknowledges that it is bound by the requirements of the Title IV programs and the laws, regulations, and policies governing these programs. Some financial and compliance reports are required to be submitted on a periodic basis. These reports are often used to determine an institution's initial or continuing eligibility to participate in Title IV programs. They are submitted directly to the Secretary and are made available to guaranty agencies, eligible lenders, and state agencies. In applying for certification or recertification, an institution must submit to the Secretary a financial statement audited by an independent certified public accountant. In addition, to be considered financially responsible, a public institution must notify the Secretary that it is designated as a public institution in a specific state and must provide a letter from that state or other government entity confirming its designation as a public institution and that it is not in violation of a past performance requirement. (HEA §498(c) and 34 CFR 668.171.) An institution must comply with requirements for both financial and compliance audits, and the results must be submitted to the Secretary and made available to relevant guaranty agencies, eligible lenders, and state agencies. The financial audit must consider the overall financial condition of the institution, while the compliance audit focuses on funds obtained by the institution under HEA, Title IV or obtained from a student or parent who has a Title IV loan insured or guaranteed by ED. The compliance audit and audited financial statements must be submitted no later than six months after the last day of the institution's fiscal year. In addition, a public institution must submit to the Secretary a statement from the State Auditor General that the institution met all of its financial obligations for the past year and that it continues to have sufficient resources to meet all of its financial obligations. (HEA §487(c); and 34 CFR §§ 668.15 and 668.23.) If an institution offers more than 50% of its courses by correspondence, has 50% or more of its regular students enrolled in correspondence courses, has more than 25% of its regular students in incarceration, or fails to meet requirements regarding the percentage of students with a high school diploma, the school is ineligible for Title IV. The institution must report this information to the Secretary by July 31 following the end of an award year. If an institution files for bankruptcy or its owner or chief executive officer has committed fraud involving Title IV funds, the institution must report the violation to the Secretary within 10 days. (HEA, § 102; 34 CFR § 600.7.) Noncompliance with standards for participation in Title IV programs may result in an emergency action; imposition of a fine; limitation, suspension, or termination of participation in a Title IV program; and the limitation, suspension, or termination of the servicer (if an institution uses a third-party servicer) to contract with any institution to administer any aspect of its participation in Title IV programs. Further, if an institution is determined to be not financially responsible or fails to submit its financial and compliance audits by the date required and in the manner required, the institution may be fined or have its participation in Title IV programs limited, suspended, or terminated. If the institution is provisionally certified, its certification may be revoked. The specific reporting requirements that may be associated with an institution's failure to comply with standards for participation are beyond the scope of this report. (34 CFR §§ 668.11, 668.81 through 668.86, 668.92 through 668.95, and 668.171.) If an institution's participation in Title IV programs ends, the institution must notify the Secretary and submit various documents to the Secretary, including a letter of engagement for an independent audit, plans for collection of outstanding loans, and financial and performance reports. The specific reporting requirements that may be associated with the end of an institution's participation in Title IV federal student aid programs are beyond the scope of this report. (34 § CFR 668.26.) While most requirements for the reporting or disclosure of information, as specified in Title I, or Part G and Part H of Title IV, are applicable to IHEs as a condition of their participation in one or more Title IV programs, several Title IV programs contain specific requirements for IHEs to report or disclose certain program-specific information to the Secretary, to students or borrowers, or to other entities. Some of these requirements are substantially similar to requirements specified elsewhere in the HEA. Also, in some instances, these requirements are operational in nature; for example, calculating financial need for borrowers and forwarding this information to lenders, or notifying lenders of a change in the status of a borrower. In other instances, these requirements pertain to the application to participate in a program and the use of funds for that program, as with the Fiscal Operations Report and Application to Participate (FISAP) for the campus-based programs. This part of this report examines program-specific reporting and disclosure requirements applicable to IHEs that participate in the FFEL program, the DL program, and the three campus-based programs—the FSEOG program, the FWS program, and the Federal Perkins Loan program. Most requirements for institutions to report or disclose information with respect to the FFEL and DL programs are specified in the HEA under Title I or Part G—General Provisions, and Part H—Program Integrity of Title IV (see above), and in regulations implementing these provisions. However, the HEA also specifies several institutional requirements for the reporting or disclosure of information in statutory language authorizing the FFEL and DL programs. In accordance with FFEL program requirements specified in Title IV, Part B, institutions are required to comply with several reporting and disclosure requirements which are primarily operational in nature. For each borrower of a Stafford Loan, institutions must provide eligible FFEL program lenders with a statement showing relevant need analysis data used in determining the borrower's eligibility for the loan (e.g., EFC, COA, and EFA, as applicable), the loan amount, and a disbursement schedule. Institutions must also provide information on changes in a borrower's permanent address, when the student ceases to be enrolled at least half-time, and any other change in status to the lender or the guaranty agency. The HEOA did not amend these FFEL program requirements. These requirements are presented in Table 15 . In accordance with DL program requirements specified in Title IV, Part D, institutions are required to provide timely and accurate information to the Secretary concerning the status of student borrowers while in attendance and after they leave school, for purposes of servicing and collecting on loans. This requirement is similar to the FFEL program requirements described above. The HEOA amended the HEA to establish requirements for institutions that participate in the DL program to comply with the student loan disclosure requirements specified in HEA, § 433 that are applicable to lenders of FFEL program loans, including disclosures before disbursement and before repayment. DL program reporting and disclosure requirements are presented in Table 16 . The Federal Supplemental Educational Opportunity Grant program, the Federal Work-Study program, and the Federal Perkins Loan program are collectively referred to as the campus-based programs. These programs are authorized under Title IV, Part A, Subpart 2; Part C; and Part E, respectively. They are need-based federal student aid programs under which students may receive aid made available through the institution they attend. Campus-based aid is funded through a combination of federal allocations to institutions and institutional matching funds. Institutions that participate in the campus-based programs are subject to a number of program-specific reporting requirements specified in the statute or regulations. As its name implies, the FISAP is a data collection instrument used to gather program and fiscal information from institutions that have participated in one or more of the campus-based programs in a prior award year, and to gather information used in the allocation of funds to institutions that intend to participate in one or more of the campus-based programs in the subsequent award year. The FISAP is intended to ensure the proper and efficient administration of funds that institutions receive from the Secretary. Information reported on the FISAP includes identifying information and characteristics of the IHE, the IHE's request for funds to participate in each applicable program, enrollment information for undergraduate and graduate students arrayed according to income level, fiscal and program data for each applicable program (e.g., allotment of funds, aggregate student financial need, Perkins Loan cohort default rate data, employment in FWS community service, transfer of funds between programs, etc.), the distribution of campus-based program aid recipients by student type and income level, and administrative costs. The FISAP form contains more than 200 line items, and many of these line items have multiple data elements. FISAP forms are made available by July 1 of each year and completed FISAPs are due to ED by October 1 of each year. Institutions submit completed FISAPs to ED electronically via the Student Aid Internet Gateway. Requirements specified in the HEA for the reporting of information that is collected via the FISAP for the FSEOG, FWS, and Federal Perkins Loan programs are presented in Table 17 , Table 18 , and Table 19 , respectively. The HEOA made relatively few changes to the campus-based programs and these tables show the additional information that IHEs will likely be required to report on the FISAP. Institutions or groups of institutions may use FWS funds to operate job location and development programs for currently enrolled students. Each institution that operates a job location and development program must enter into an agreement with the Secretary stating that the institution will submit an annual report on the use of the funds under the program and an annual evaluation of the effectiveness of the program in benefitting the institution's students. (HEA, § 446(b)(6)). Under the Federal Perkins Loan program, institutions make loans directly to students. In their capacity as lenders, institutions are required to disclose certain information about the terms and conditions of Perkins Loans to borrowers prior to making a loan, as part of the loan agreement, and also prior to the commencement of repayment. In addition, institutions must disclose information about borrower's Perkins Loans to consumer reporting agencies, including information about the disbursement and repayment of loans, loan defaults, and the rehabilitation of defaulted loans. Requirements for institutions to report or disclose information about the terms and conditions of Perkins Loans to borrowers, and the repayment of loans to consumer reporting agencies is presented in Table 20 . In addition, as a requirement of program participation agreements (see previous discussion), institutions must report information on Perkins Loans to the National Student Loan Data System (NSLDS). Under Title IV, Part G, as part of Program Participation Agreements, IHEs are required to respond to IPEDS or any other federal postsecondary institution data collection effort, as specified by the Secretary, in a timely manner and to the satisfaction of the Secretary. There are multiple postsecondary data collections that are conducted by ED on either an annual basis (e.g., IPEDS) or every few years (e.g., NPSAS). For some of these data collection efforts the participation of all IHEs is required (e.g., IPEDS), while for others a sample of IHEs are selected for participation (e.g., the National Postsecondary Student Aid Study (NPSAS)). Because IPEDS is an annual, mandated reporting requirement for all IHEs, this appendix provides a detailed depiction of the IPEDS reporting requirements. A review of other postsecondary data collections is beyond the scope of this report. Integrated Postsecondary Education Data System IPEDS is the primary postsecondary education data collection program for the National Center of Education Statistics at ED. Through IPEDS, data are collected from all primary providers of postsecondary education in the U.S. through surveys. Data are collected from academic, vocational, and continuing professional education programs that are provided by institutions open to the general public. All IHEs that participate, or are authorized to participate, in any of the federal student aid programs authorized by Title IV of the HEA are required to respond to IPEDS. Other institutions may choose to participate in IPEDS. Selected data for any institution that responds to IPEDS are included in the College Navigator website. IPEDS data are collected through a series of eight survey components: institutional characteristics, degree completions, 12-month enrollment, human resources (including fall staff and salaries), fall enrollment, finance, financial aid, and graduation rates. Most surveys are conducted annually. Examples of data collected on each of these surveys are provided below. Institutional characteristics: institutional contact information, educational offerings, mission statement, control, affiliation, admissions requirements, and student charges. Degree completions: level or type of degree (degree programs) and length of program (non-degree programs). 12-month enrollment: unduplicated headcounts and instructional activity, and full-time equivalent (FTE) enrollment. Human resources: employees assigned by position, including full- or part-time status, function, or occupational category; and faculty status and tenure status; as well as data on fall staff and salaries. Fall staff: full-time faculty by contract length and salary intervals, non-faculty employed full time by primary occupational activity and salary class intervals, tenure of full-time faculty, and number of new hires by primary occupational activity (data collected biennially in odd-numbered years from IHEs with 15 or more full-time employees). Salaries: number of full-time instructional staff by rank, gender, and length of contract; total salary outlay; and fringe benefit information (data are collected from degree-granting institutions only). Fall enrollment: number of full- and part-time students enrolled in the fall, students in courses creditable toward a degree, and students enrolled in courses that are part of a vocational or occupational program; residence of students; and age of students. Finance: revenues by source, expenses by function, physical plant assets and indebtedness, and endowment investment. Financial aid: number of students receiving federal grants, state and local government grants, institutional grants, and loans; and average amount of aid received by type of aid. Graduation rates: number of students entering the institution, number of students completing their program within 150% of the normal period of time, number of students who transferred, and number of students who received athletically related student aid. It should be noted that not every survey is administered to every institution each year, and that not every student is included in various data elements. For example, the fall staff survey component is conducted only in odd years. The salaries survey component is required to be completed only by degree-granting institutions. Financial aid data are collected for full-time, first-time, and degree- and certificate-seeking students only. In calculating graduation rates, only full-time, first-time, and degree- or certificate-seeking students are counted in the initial calculation of the number of students entering an institution during a particular year. In addition, different versions of various surveys are administered to IHEs depending on whether the IHE is a four-year, two-year, or less-than-two-year institution; on whether the IHE is a public, private nonprofit, or private for-profit institution; and on other institutional factors such as the institution's number of full-time employees. The individual survey components are administered in either the fall, spring, or winter. For the 2008-2009 academic year, the following components were administered in each of these time periods. Fall 2008: Institutional Characteristics, Completions, and 12-Month Enrollment Winter 2008-2009: Human Resources, Fall Enrollment, and Finance Spring 2009: Graduation Rates and Student Financial Aid, as well as Fall Enrollment and Finance (for IHEs that did not finalize these data during the winter data collection) Table A-1 provides an overview of the survey items to which a public, four-year institution would be required to respond. As previously discussed, the specific survey components, survey items, and number of survey items varies based on institutional characteristics, such as institutional level and control. | The Higher Education Act of 1965 (HEA; P.L. 89-329), as amended, authorizes a broad array of federal student aid programs that assist students and their families with paying for or financing the costs of obtaining a postsecondary education. These federal student aid programs are authorized under Title IV of the HEA. Requirements applicable to the administration of Title IV federal student aid programs are specified in Title I of the HEA, as well as in Title IV. The HEA also authorizes many other types of programs, including programs that make federal aid and support available to institutions of higher education (IHEs). The Department of Education administers programs authorized under the HEA. In 2008, the HEA was reauthorized under the Higher Education Opportunity Act (HEOA; P.L. 110-315); and in 2009 technical amendments to the HEA were made under P.L. 111-39. Institutions that participate in one or more Title IV programs, or that seek to begin participating in these programs, are subject to a wide range of requirements under the act to report or disclose information to the Secretary of Education, to students, to the public, or to other entities. As part of the amendments made to the HEA, the HEOA added numerous additional requirements for the reporting and disclosure of information, many of which are applicable to IHEs. This has resulted in a sizable expansion of the reporting and disclosure requirements with which IHEs must comply as a condition of their participation in HEA, Title IV federal student aid programs. This report responds to requests by Members of Congress for an in-depth examination of the reporting and disclosure requirements applicable to IHEs that participate in Title IV federal student aid programs. Specifically, it identifies and describes the reporting and disclosure requirements specified under Title I and Title IV of the HEA that applied to institutions prior to the enactment of the HEOA and those that were amended or newly established by the HEOA. It has been prepared to serve as a resource to assist Members of Congress and their staff in overseeing the Department of Education's implementation of amendments to the HEA made by the HEOA. It is designed to be comprehensive, though not necessarily exhaustive, in scope. It will not be updated. |
Around the world, more than 3.3 billion people have access to the Internet, an increase from about 2 billion people in 2013. Most use this access to conduct activities related to their day-to-day lives—such as accessing government services, banking and paying bills, communicating with friends and relatives, researching health information, and, in some cases, participating in their counties' political processes. In most countries, those who use the Internet to participate in their countries' political processes take for granted that they may use the Internet to engage openly in political discussions and to organize politically oriented activities. However, the freedoms of speech, association, and assembly—including both political speech and organizing conducted via the Internet—are not available to citizens in every country. In some countries activists are in danger any time they access or even attempt to access a prohibited website or service or promote political dissent. Political activity is monitored and tracked. Despite such hurdles, political activists have embraced the Internet, using it to share information and organize dissent. To protect themselves, they have purchased and deployed circumvention technologies to skirt government censors. The restriction of Internet freedom by foreign governments creates a tension between U.S. policymakers and industry. One of the most fundamental of these tensions is between the commercial needs of U.S. industry, which faces competitive and legal pressures in international markets, and the political interests of the United States, which faces other pressures (e.g., national security, global politics). This tension is complicated by the fact that many of the technologies in question may be used both for and against Internet freedom, in some cases simultaneously. Governments everywhere need the Internet for economic growth and technological development. Some also seek to restrict the Internet in order to maintain social, political, or economic control. Such regimes often require the assistance of foreign Internet companies operating in their countries. These global technology companies find themselves in a dilemma: they must either follow the laws and requests of the host country, or refuse to do so and risk the loss of business licenses or the ability to sell services in that country. At the same time, if companies do comply with the requirements of the host nation, they risk raising the concern of U.S. lawmakers by appearing to be complicit with a repressive regime. Others believe that technology can offer a complementary (and, in some cases, better) solution to prevent government censorship than mandates imposed on companies. Hardware, software, and Internet services, in and of themselves, are neutral elements of the Internet; it is how they are implemented by various countries that makes them "repressive." For example, software is needed by Internet service providers (ISPs) to provide that service. However, software features intended for day-to-day Internet traffic management, such as filtering programs that catch spam or viruses, can be misused. Repressive governments use such programs to censor and monitor Internet traffic—sometimes using them to identify specific individuals for persecution. Both the Department of State and the Broadcasting Board of Governors (BBG) have an active role in fighting Internet censorship. Since 2011, the State Department has worked to "protect and defend a free and open Internet" as an element of its policy supporting universal rights of freedom of expression and the free flow of information. It supports the following key initiatives to advance Internet freedom as an objective of U.S. foreign policy: Continue the work of the State Department's NetFreedom Task Force (previously called the Global Internet Freedom Task Force (GIFT)). The Task Force oversees U.S. efforts in more than 40 countries to help individuals circumvent politically motivated censorship by developing new tools and providing the training needed to safely access the Internet; Make Internet freedom an issue at the United Nations and the U.N. Human Rights Council in order to enlist world opinion and support for Internet freedom; Work with new partners in industry, academia, and non-governmental organizations to establish a standing effort to advance the power of "connection technologies" that will empower citizens and leverage U.S. traditional diplomacy; Provide new, competitive grants for ideas and applications that help break down communications barriers, overcome illiteracy, and connect people to servers and information they need; Urge and work with U.S. media companies to take a proactive role in challenging foreign governments' demands for censorship and surveillance; and Encourage the voluntary work of the communications-oriented, private sector-led Global Network Initiative (GNI). The GNI brings technology companies, nongovernmental organizations, academic experts, and social investment funds together to develop responses and mechanisms to government requests for censorship. In May 2011, the State Department released, International Strategy for Cyberspace: Prosperity, Security, and Openness in a Networked World . This report contains a section called "Internet Freedom: Fundamental Freedoms and Privacy," which sets out a four-pronged strategy to help secure fundamental freedoms and privacy in cyberspace. Support civil society actors in achieving reliable, secure, and safe platforms for freedoms of expression and association The State Department supports individual use of digital media to express opinions, share information, monitor elections, expose corruption, and organize social and political movements, and denounce those who harass, unfairly arrest, threaten, or commit violent acts against the people who use these technologies. The department believes that the same protections must apply to ISPs and other providers of connectivity, "who too often fall victim to legal regimes of intermediary liability that pass the role of censoring legitimate speech down to companies." Collaborate with civil society and nongovernment organizations to establi sh safeguards protecting their I nternet activity from unlawful digital intrusions The State Department will promote cybersecurity among civil society and nongovernmental organizations to help ensure that freedoms of speech and association are more widely enjoyed in the digital age. Cybersecurity is particularly important for activists, advocates, and journalists on the front lines who may express unpopular ideas and opinions, and who are frequently the victims of disruptions and intrusions into their email accounts, websites, mobile phones, and data systems. The United States supports efforts to empower these users to protect themselves, to help ensure their ability to exercise their free expression and association rights on the new technologies of the 21 st century. Encourage international cooperation for effective commercial data privacy protections The State Department believes that protecting individual privacy is essential to maintaining the trust that sustains economic and social uses of the Internet. The United States has a robust record of enforcement of its privacy laws, as well as encouraging multi-stakeholder policy development We are continuing to strengthen the U.S. commercial data privacy framework to keep pace with the rapid changes presented by networked technologies We recognize the role of applying general privacy principles in the commercial context while maintaining the flexibility necessary for innovation. The United States will work toward building mutual recognition of laws that achieve the same objectives and enforcement cooperation to protect privacy and promote innovation. Ensure the end-to-end interoperability of an Internet accessible to all The final prong of the strategy is that users should have confidence that the information they send over the Internet will be received as it was intended, anywhere in the world, and that under normal circumstances, data will flow across borders without regard for its national origin or destination. Ensuring the integrity of information as it flows over the Internet gives users confidence in the network and keeps the Internet open as a reliable platform for innovation that drives growth in the global economy and encourages the exchange of ideas among people around the world. The United States will continue to make clear the benefits of an Internet that is global in nature, while opposing efforts to splinter this network into national intranets that deprive individuals of content from abroad. The Task Force is the State Department's policy-coordinating and outreach body for Internet freedom. The members address Internet freedom issues by drawing on the department's multidisciplinary expertise in international communications policy, human rights, democratization, business advocacy, corporate social responsibility, and relevant countries and regions. The Task Force is co-chaired by the Under Secretaries of State for Democracy and Global Affairs and for Economic, Business, and Agricultural Affairs and draws on the State Department's multidisciplinary expertise in its regional and functional bureaus to work on issues such as international communications, human rights, democratization, business advocacy and corporate social responsibility, and country specific concerns. The Task Force supports Internet freedom by monitoring Internet freedom, and reporting in its annual Country Reports on Human Rights Practices the quality of Internet freedom around the world; responding in both bilateral and international forums to support Internet freedom; and expanding access to the Internet with greater technical and financial support for increasing availability of the Internet in the developing world. The Freedom Online Coalition is a group of governments committed to collaborating to advance Internet freedom. The State Department represents the United States in coalition activity. The Coalition provides a forum for governments to coordinate efforts and work with civil society and the private sector to support the ability of individuals to exercise their human rights and freedoms online. In addition to the United States, 28 other governments are active in the coalition: Australia, Austria, Canada, Costa Rica, the Czech Republic, Estonia, Finland, France, Georgia, Germany, Ghana, Ireland, Japan, Kenya, Latvia, Lithuania, the Maldives, Mexico, Moldova, Mongolia, the Netherlands, New Zealand, Norway, Poland, Spain, Sweden, Tunisia, and the United Kingdom. The Digital Defenders Partnership, a project of the Freedom Online Coalition, is a collaboration among government donors to provide emergency support for Internet users who are under threat for peacefully exercising their rights through new technologies. The Partnership awards grants around the world to, for example establish new Internet connections when existing connections have been cut off or are being restricted; develop methods to protect bloggers and digital activists; develop tools needed to respond to emergencies; develop decentralized, mobile Internet applications that can link computers as an independent network (mesh network); support digital activists with secure hosting and DDOS mitigation; and build emergency response capacity. The BBG directly funds initiatives to develop software and other technologies to allow dissidents to circumvent censorship and surveillance by their governments, and communicate freely. The FY2017 budget request for a newly established Office of Internet Freedom is $12.5 million. In the past, initiatives have included developing Android apps, including censorship circumvention tools as well as secure device-to-device sharing of multimedia news and information; developing an SMS-based social media network in Cuba; and providing ongoing evaluation of circumvention tools. In response to criticism, particularly of their operations in China, a group of U.S. information and communications technology companies, along with civil society organizations, investors, and academic entities, formed the Global Network Initiative (GNI) in 2008. The GNI aims to promote best practices related to the conduct of U.S. companies in countries with poor Internet freedom records. The GNI adopts a self-regulatory approach to promote due diligence and awareness regarding human rights. A set of principles and supporting mechanisms provides guidance to the ICT industry and its stakeholders on how to protect and advance freedom of expression and the right to privacy when faced with pressures from governments to take actions that infringe upon these rights. Companies undergo third-party assessments of their compliance with GNI principles. Although some human rights groups have criticized the GNI's guidelines for being weak or too broad, the GNI's supporters argue that the initiative sets realistic goals and creates real incentives for companies to uphold free expression and privacy. In November 2015, the GNI sent letters to all members of the European Parliament regarding "Resolution on Prevention of Radicalisation and Recruitment of European Citizens by Terrorist Organisations." The letter was sent to express concerns among GNI members that the proposed resolution—which at the time had been approved by the Committee on Civil Liberties, Justice, and Home Affairs, and has since been adopted —while well-intended, could have unintentional consequences: The GNI acknowledges the legitimate national security and law enforcement obligations of governments. However, our members are concerned that the rush to adopt laws and policies that increase government requirements on companies to restrict or remove content may have serious consequences for freedom of expression and may not be effective in countering violent extremism and stemming recruitment by organizations such as ISIS. Appendix A. For Further Reading Freedom on the Net 2015 Freedom House October 2015 https://freedomhouse.org/report/freedom-net/freedom-net-2015 How to Circumvent Online Censorship Electronic Frontier Foundation Updated August 14, 2015 https://ssd.eff.org/en/module/how-circumvent-online-censorship Letter from GNI to European Parliament Regarding Terrorist Recruitment and Radicalization Global Network Initiative November 18, 2015 http://globalnetworkinitiative.org/sites/default/files/GNI%20Letter%20on%20Radicalization%20to%20EU%20MEPs_0.pdf Protecting Human Rights in the Digital Age Global Network Initiative February 2011 https://globalnetworkinitiative.org/sites/default/files/files/BSR_ICT_Human_Rights_Report.pdf Leaping o ver the Firewall: A Review of Censorship Circumvention Tools Freedom House April 2011 https://www.freedomhouse.org/sites/default/files/inline_images/Censorship.pdf The Political Power of Social Media: Technology, the Publ ic Sphere, and Political Change Journal of the Council on Foreign Relations January/February 2011 http://www.foreignaffairs.com/articles/67038/clay-shirky/the-political-power-of-social-media *Full article not available online. Appendix B. Methods/Technologies Used to Monitor and Censor Websites and Web-Based Communications There are three different types of targets that are censored: Services, e.g., email, the web, peer-to-peer, social networking service Content, e.g., hate speech, child pornography, gambling, human-rights organizations, independent news sites, political opposition sites Activities, e.g., illegal music downloads, spam, political organizing by opposition groups in repressive regimes. These targets can be censored using the methods listed below. Key-Word List Blocking This is a simple type of filtration where a government drops any Internet packets featuring certain keywords, such as "protest" or "proxy." Domain Name System (DNS) and DNS Cache Poisoning (Spoofing) and Hijacking (Filtering/Redirection) These methods introduce malware and/or errors into the Internet's or local DNS cache to misdirect the original request to another IP address. IP Blocking IP blocking is one of the most basic methods that governments use for censorship, as it simply prevents all packets going to or from targeted IP addresses. This is an easy technology to implement, but it does not address the problem of individual communications between users. This method is used to block banned websites, including news sites and proxy servers that would allow access to banned content, from being viewed. Bandwidth Throttling Bandwidth throttling simply limits the amount of traffic that can be sent over the Internet. Keeping data volume low facilitates other methods of monitoring and filtering by limiting the amount of data present. Traffic Classification This is a much more sophisticated method of blocking traffic than IP blocking, as governments can halt any file sent through a certain type of protocol, such as FTP. Because FTP transfers are most often sent through a specific communications port, a government can simply limit the bandwidth available on that port and throttle transfers. This type of traffic-shaping practice is popular with repressive governments because it is not resource intensive and it is fairly easy to implement. Shallow Packet Inspection (SPI) Shallow packet inspection is a less sophisticated version of the deep packet inspection (DPI) technique (DPI is described below) that is used to block packets based on their content. Unlike DPI, which intercepts packets and inspects their fingerprints (fingerprinting is described below), headers, and payloads, SPI makes broad generalities about traffic based solely on evaluating the packet header. Although shallow packet inspection cannot provide the same refined/detailed traffic assessments as DPI, it is much better at handling volume than DPI. SPI is much less refined than DPI, but it is capable of handling a greater volume of traffic much more quickly. SPI is akin to judging a book by its cover. This method is prone to exploitation by users because they can disguise their packets to look like a different kind of traffic. Packet Fingerprinting This is a slightly more refined method of throttling packets than shallow packet inspection, as it looks not only at the packet header but at its length, frequency of transmission, and other characteristics to make a rough determination of its content. In this manner, the government can better classify packets and not throttle traffic sent out by key businesses. Deep Packet Inspection (DPI)/Packet Content Filtering DPI is the most refined method that governments have for blocking Internet traffic. As mentioned above, deep packet inspectors examine not only a packet's header but also its payload. For instance, certain keywords can be both monitored and the email containing them can be kept from reaching its intended destination. This gives governments the ability to filter packets at a more surgical level than any of the other techniques discussed so far. While providing the most targeted traffic monitoring and shaping capabilities, DPI is also more complicated to run and is far more labor intensive than other traffic-shaping technologies. Appendix C. Examples of Technologies Used to Circumvent Censorship Each of the circumvention methods explained below can, in general, be considered an anonymous "proxy server." A proxy server is a computer system or an application program that acts as an intermediary for requests from a user seeking resources from other servers, allowing the user to block access to his or her identity and become anonymous. Web-Based Circumvention Systems Web-based circumvention systems are special web pages that allow users to submit a URL and have the web-based circumventor retrieve the requested web page. There is no connection between the user and the requested website, as the circumventor transparently proxies the request, allowing the user to browse blocked websites seamlessly. Since the web addresses of public circumventors are widely known, most Internet filtering applications already have these services on their block lists, as do many countries that filter at the national level. Examples: Proxify, StupidCensorhip, CGIProxy, psiphon, Peacefire/Circumventor. Web and Application Tunneling Software Tunneling encapsulates one form of traffic inside of other forms of traffic. Typically, insecure, unencrypted traffic is tunneled within an encrypted connection. The normal services on the user's computer are available, but run through the tunnel to the non-filtered computer, which forwards the user's requests and their responses transparently. Users with contacts in a non-filtered country can set up private tunneling services while those without contacts can purchase commercial tunneling services. "Web" tunneling software restricts the tunneling to web traffic so that web browsers will function securely, but not other applications. "Application" tunneling software allows the user to tunnel multiple Internet applications, such as email and instant messenger applications. Examples: Web Tunneling: UltraReach, FreeGate, Anonymizer, Ghost Surf. Examples: Application Tunneling: GPass, HTTP Tunnel, Relakks, Guardster/SSH. Anonymous Communications Systems Anonymous technologies conceal a user's IP address from the server hosting the website visited by the user. Some, but not all, anonymous technologies conceal the user's IP address from the anonymizing service itself and encrypt the traffic between the user and the service. Since users of anonymous technologies make requests for web content through a proxy service, instead of to the server hosting the content directly, anonymous technologies can be a useful way to bypass Internet censorship. However, some anonymous technologies require users to download software and can be easily blocked by authorities. Examples: Tor, JAP ANON, I2P | Modern communication tools such as the Internet provide a relatively inexpensive, accessible, easy-entry means of sharing ideas, information, and pictures around the world. In a political and human rights context, in closed societies when the more established, formal news media is denied access to or does not report on specified news events, the Internet has become an alternative source of media, and sometimes a means to organize politically. The openness and the freedom of expression allowed through social networking sites, as well as the blogs, video sharing sites, and other tools of today's communications technology, have proven to be an unprecedented and often disruptive force in some closed societies. Governments that seek to maintain their authority and control the ideas and information their citizens receive are often caught in a dilemma: they feel that they need access to the Internet to participate in commerce in the global market and for economic growth and technological development, but fear that allowing open access to the Internet potentially weakens their control over their citizens. Internet freedom can be promoted in two ways, through legislation that mandates or prohibits certain activities, or through industry self-regulation. Past legislation has been aimed at prohibiting or requiring the reporting of the sale of Internet technologies and provision of Internet services to "Internet-restricting countries" (as determined by the State Department). Some believe, however, that technology can offer a complementary and, in some cases, better and more easily implemented solution to ensuring Internet freedom. They argue that hardware and Internet services, in and of themselves, are neutral elements of the Internet; it is how they are implemented by various countries that may be repressive. Also, Internet services are often tailored for deployment to specific countries; however, such tailoring is generally done to bring the company in line with the laws of that country, not with the intention of allowing the country to repress and censor its citizenry. In many cases, that tailoring would not raise many questions about free speech and political repression. |
Membership in the United Nations (U.N.) has been an issue of ongoing interest for Congress. Over the years, Members have focused on the process and criteria for U.N. membership, as well as on U.S. policy and roles in determining membership. Currently, the United Nations has 193 members. The organization also has two non-member observer states, the Holy See (Vatican) and "Palestine," which have standing invitations to participate as observers in the sessions and work of the U.N. General Assembly. Each of the U.N. system's 15 specialized agencies—which are independent international intergovernmental organizations with their own constitutions, rules, and budgets—have different criteria and processes for membership. Examples of specialized agencies include the Food and Agriculture Organization (FAO), U.N. Educational Scientific, and Cultural Organization (UNESCO), and World Health Organization (WHO). Under Article 4 of the U.N. Charter, the U.N. Security Council and U.N. General Assembly are the primary bodies involved in the process for considering U.N. membership applications. Security Council recommendations on membership are subject to veto by any of the five permanent members. As a member of the P-5, the United States plays a key role in determining U.N. membership. It has less influence on membership decisions in the U.N. specialized agencies, where each member country has one vote and there is no veto power. Any position on membership the United States takes in both the United Nations and its specialized agencies lies primarily with the executive branch, which represents the United States in U.N. fora. Generally, congressional activities related to U.N. membership have focused on supporting or opposing the membership of specific states or groups—including Israel, Kosovo, Montenegro, the Palestine Liberation Organization (PLO), South Africa, and Taiwan, among others. This report highlights key steps in the process for attaining membership in the United Nations and its specialized agencies. It discusses the capacities associated with U.N. membership and observer status, as well as criteria for and implications of membership. It also examines related U.S. legislation and recent congressional and Obama Administration actions. For an analysis of country or organization-specific aspects of U.N. or specialized agency membership, including U.S. policy, see CRS Report RL34074, The Palestinians: Background and U.S. Relations , by [author name scrubbed]; CRS Report R41952, U.S.-Taiwan Relationship: Overview of Policy Issues , by [author name scrubbed] and [author name scrubbed]; and CRS Report R42999, The United Nations Educational, Scientific, and Cultural Organization (UNESCO) , by [author name scrubbed] and [author name scrubbed]. The criteria and process for admitting new U.N. members were established in 1945 by the 51 original members of the United Nations in Article 4 of the U.N. Charter. U.N. membership decisions are determined by the General Assembly on the recommendation of the Security Council. Membership is open to all "peace-loving states" that accept the obligations contained in the Charter and, in the judgment of the organization, are able and willing to carry out such obligations. Many experts contend that the imprecise nature of these criteria has allowed member states to broadly interpret the conditions for membership, in some cases causing political considerations to have significant weight on membership decisions. The pace at which new members have been admitted to the United Nations has generally reflected the geo-political circumstances of the time. For example, Cold War tensions contributed to the limited number of new members admitted during the organization's first decade. Both Eastern and Western bloc countries were concerned that new members might strengthen the voting power of the other bloc; consequently, just nine states were admitted between 1945 and 1954 (see Figure 1 ). From the mid-1950s through the 1970s, U.N. membership more than doubled as former European colonies in Africa were admitted. Another wave of new members resulted from the dissolution of the former Soviet Union, Yugoslavia, and Czechoslovakia in the 1990s and early 2000s. The four states most recently admitted as members were Switzerland (2002), Timor-Leste (2002), Montenegro (2006), and South Sudan (2011). A key area of ongoing debate regarding U.N. membership is the organization's possible role in determining statehood. By international practice, a state is generally understood to be "an entity that has a defined territory and a permanent population, under the control of its own government, and that engages in, or has the capacity to engage in, formal relations with other such entities." On the one hand, the United Nations—as an organization of independent states—does not recognize states; rather, states recognize states. As such, many experts and observers, including the United Nations itself, argue that the organization does not have the authority to recognize either a state or government. On the other hand, many analysts agree that U.N. membership is an acknowledgement by U.N. members that an entity has satisfied the requirements of statehood. It provides governments with legitimacy, not only internationally, but also domestically. For many countries, membership in the United Nations provides an equal voice in U.N. bodies like the General Assembly, an international platform to advocate and pursue national and foreign policy objectives, and the opportunity to receive or provide technical or development assistance through multilateral mechanisms. Consequently, obtaining U.N. membership is often a priority for new countries, territories, organizations, or entities (hereinafter referred to as "entities" for the purpose of this report) aiming to obtain statehood. The circumstances under which a state obtains U.N. membership can vary. The original 51 members of the organization include many of the Allied nations of World War II that had either signed the United Nations Declaration in 1942, or participated in the founding United Nations Conference in San Francisco in 1945. The remaining 142 members were accepted for membership under the criteria and processes outlined in the Charter and the Rules of Procedure for both the General Assembly and the Security Council. Examples of circumstances under which these states obtained U.N. membership are described below, and in some cases may overlap. Some members, sometimes referred to as existing states , were not among the original 51 U.N. members; they were, however, subsequently admitted to the organization. Examples include Barbados, Brazil, Italy, Japan, Tunisia, and Nigeria. Other members are or were divided states . Such states, which were divided because of the East-West conflict, have generally obtained U.N. membership after the claims of various sides had been determined in favor of either division or reunification. Examples include the Federal Republic of Germany and the German Democratic Republic (now Germany), North and South Korea, and the Republic of Vietnam and Democratic Republic of Vietnam (now Vietnam). Some members have been admitted after the secession or partition of a state that was already a U.N. member. In such cases, the seceding entity reapplied for membership. Examples include the partitions of Pakistan and India and Pakistan and Bangladesh, and the admission of Estonia, Latvia, and Lithuania as new U.N. members after the breakup of the Soviet Union. In some cases, two existing member states have merged . In practice, the process for admitting such members has been flexible; the newly merged states did not have to reapply for membership. Examples include East and West Germany (Germany) and the Yemen Arab Republic and the People's Democratic Republic of Yemen (Yemen). One state, Indonesia, withdrew and re-entered the United Nations in the mid-1960s. The General Assembly and Security Council treated the withdrawal as if it were a "temporary 'inactive' membership" that ended cooperation with the organization, rather than the country's membership. The Assembly and Council provided a standing invitation for Indonesia to "reactivate" its membership at any time. Indonesia eventually rejoined the organization without reapplying for admission. The criteria for U.N. membership are outlined in Article 4 of the U.N. Charter (see text box ), and can be divided into four key elements. First, an applicant must be a state. An entity applying for U.N. membership must meet the requirements of statehood under international law (a defined territory, a permanent population, and independent governance), be recognized by other states, and have the capacity to conduct diplomacy with other countries. Second, an applicant must be "peace-loving." This criterion has been used to evaluate an applicant's past and current conduct. The concept of a "peace-loving" state in many ways reflects the United Nations' purpose of maintaining international peace and security. Third, an applicant must declare that it accepts obligations contained in the U.N. Charter by (1) consenting to be bound by the U.N. Charter, a legally binding international treaty; and (2) attaching a formal declaration to its U.N. membership application. Fourth, an applicant must be willing and able to carry out U.N. Charter obligations. U.N. members have identified several indicators to consider when evaluating this criteria application: including the maintenance of friendly relations with other states; the fulfillment of international obligations; and the use of peaceful dispute settlement under international law. The Security Council and General Assembly are the primary bodies that consider U.N. membership applications under Article 4 of the U.N. Charter. The rules of procedure for both the Security Council and the General Assembly set forth the details of this process. Applications for membership are submitted by the requesting state to the U.N. Secretary-General, who then forwards them to the Assembly and the Council. The amount of time it takes for an application to move through the process varies. In some cases, membership may be granted within weeks or months, while in other cases an application may remain pending indefinitely. When applying for U.N. membership, an applicant states that "it accepts the obligations contained in the Charter," in accordance with Rules 58 through 60 of the Provisional Rules of Procedure of the Security Council . The Council President, in most instances, refers the application to the Council Committee on the Admission of New Members for its consideration. The Council Committee then completes its review and submits a report, with recommended resolution language, to the Council. In a formal meeting, the Council considers the application. Decisions on membership applications may be vetoed by any of the P-5. If the Council, however, decides to recommend the application for admission, it adopts a resolution of recommendation that is forwarded to the General Assembly, with a complete record of the discussion. The Council, in recent years, has also issued a presidential statement on its action. If the Council does not recommend membership, "it shall submit a special report to the General Assembly" with a complete record of the discussion. Rule 136 of the Rules of Procedure of the General Assembly states that if the Security Council recommends the applicant state for membership, the General Assembly shall consider whether the applicant is "a peace-loving State" and is "able and willing" to carry out the obligations contained in the Charter. The Assembly decides, by a two-thirds majority of the members present and voting, on the state's application for membership. Membership becomes effective on the date on which the General Assembly adopts the resolution on admission. If the Security Council has not recommended an application for membership or postpones its consideration, then General Assembly Rule 137 provides that the Assembly may, after full consideration of the special report of the Security Council, send the application back to the Council, along with a full record of the discussion in the Assembly, for further consideration and recommendation. The U.N. Charter outlines the process and criteria for suspension and loss of membership. Both actions require approval from the Security Council and the General Assembly, making them intentionally difficult to implement. Suspension is specifically addressed in Article 5, which states that U.N. members against which preventative or enforcement action has been taken by the Security Council may be suspended from the "exercise of rights and privileges" of membership. Suspension is generally not permanent; a state that is suspended remains a member and continues to be bound by obligations under the U.N. Charter. Suspension requires a two-thirds majority decision by the General Assembly, on the recommendation of nine Security Council members, including the P-5. The Security Council decides whether to restore the rights and privileges of membership, also by a vote of nine in favor, including members of the P-5. To date, no state has been suspended. Loss of membership is addressed in Article 6 of the Charter. A member that has "persistently violated" the principles of the U.N. Charter may be expelled from the organization by the General Assembly on the recommendation of the Security Council. The expulsion of a member requires a two-thirds majority decision by the General Assembly, on the recommendation of nine Security Council members, including the P-5. Loss of membership is permanent; a member expelled under Article 6 is no longer bound under the obligations of the Charter. No member has been expelled to date. Instead of suspending or removing a state, members have exercised alternative measures, including enforcement powers under Chapter VII of the U.N. Charter, Action with Respect to Threats to the Peace, Breaches of the Peace, and Acts of Aggression; application of Article 19 of the Charter, which states that a U.N. member that is in financial arrears shall have no vote in the General Assembly; and rejection of a member state's credentials in the General Assembly. Over time, U.N. members have developed the practice of inviting entities and "non-member states" to observe the work of the United Nations, particularly the General Assembly. This practice is not outlined in the U.N. Charter; rather, it has evolved in practice over many years, originating with Switzerland's application for permanent observer status in 1946. Many states that were once U.N. observers, such as Austria, Bangladesh, Japan, Switzerland, and Vietnam, eventually applied for and obtained U.N. membership. There are currently two non-member observer states: the Holy See (Vatican), which gained permanent observer status in 1964; and "Palestine," which gained observer "entity" status in 1964, and observer "non-member state" status in 2012. The process and criteria for membership in U.N. specialized agencies vary depending on the organization. There are currently 15 specialized agencies in the U.N. system (see text box ). Each of these entities is a legally independent intergovernmental organization with its own constitution, rules, membership, organs, and financial resources. The United States is a member of all specialized agencies except for two—UNIDO and UNWTO. The membership requirements set forth in the constitutions of these agencies show a range of membership processes, summarized below (also see the Appendix ). In 11 specialized agencies, membership in the United Nations gives a state access to membership in the agency without having to have its admission approved by the membership of the agency (ICAO, IFAD, ILO, IMO, ITU, UNIDO, UPU, WHO, WIPO, WMO, and UNESCO). Of these 11 agencies, three also provide membership, without a vote, to member nations of any specialized agency (IFAD, UNIDO, and WIPO). Two agencies require some process of voting for admission (FAO and UNWTO). UNWTO requires a two-thirds vote of its General Assembly for membership—however, an amendment to Article 5 of its statute, adopted in 2005 but not yet in force, would have membership open to all states that are U.N. members. The two international financial institutions—the World Bank Group and the IMF—have different membership processes. Each member of the IMF is assigned a quota "based broadly on its relative position in the world economy," which determines its maximum financial commitment to the IMF, voting power, and access to IMF financing. In order to admit new IMF members, the overall quota must be changed. (Because the United States currently controls 16.75 percent of IMF votes, it can block the admission of any new members.) To be a member of the World Bank Group, entities must also be members of the IMF. Specifically, IMF membership is required to join the Group's International Bank for Reconstruction and Development (IBRD, the Bank's non-concessional lending facility). In turn, IBRD membership is required for admission to other parts of the Group, including the International Development Association (the Bank's concessional lending facility) and the International Finance Corporation (which lends to private sector entities in development countries), among others. Some specialized agencies allow for "associate membership." Generally, an associate member is defined as a territory or group of territories that are not responsible for the conduct of its international relations. The criteria and activities related to this type of membership vary depending on the organization and are often outlined in specialized agency constitutions, statutes, or rules of procedure. Examples of specialized agencies that grant associate membership include FAO, UNESCO, and WHO. Palestine's change in observer status and its efforts to apply for U.N. membership have garnered significant domestic and international attention. These events are part of a broader, ongoing initiative by Palestine Liberation Organization (PLO) Chairman and Palestinian Authority President Mahmoud Abbas to obtain membership or non-member observer state status in various U.N. and related bodies as a means to achieving more widespread recognition of Palestinian statehood. Brief descriptions of these efforts follow. Application for U.N. Membership . In September 2011, Palestine submitted an application for membership to U.N. Secretary-General Ban Ki-moon. The Secretary-General subsequently submitted it to the Security Council for consideration. The Council's Committee on the Admission of New Members stated that it was "unable to make a unanimous recommendation to the Security Council" regarding Palestine's application. The application remains pending and is unlikely to be considered by the Council. The Obama Administration has stated that the United States would veto any proposed Security Council resolution recommending Palestinian membership. Change in U.N. Observer Status . In November 2012, the U.N. General Assembly voted to change Palestine's observer status from "entity" to "non-member state." Palestine's previous relationship with the United Nations, as defined through a series of General Assembly resolutions, was as an observer "entity." As a permanent non-member observer state, Palestine has maintained many of the capacities it had as an entity. Although Palestine has the term "state" in its current designation, it is not a U.N. member. As a non-member state, Palestine does not have the right to vote, call for a vote, or put forward candidates in the General Assembly. UNESCO Membership . In October 2011, the UNESCO General Conference—the organization's main decision-making body—adopted a resolution admitting Palestine as a member. The General Conference agreed to Palestinian membership by a vote of 107 in favor, 14 against (including the United States), and 52 abstaining. Accession to Multilateral Treaties . In April 2014, the Palestinians submitted 13 letters of accession to the United Nations and two to the governments of Switzerland and Norway for a range of international convention and treaties. Accession is proceeding in accordance with the specific provisions set forth in each treaty. As one of the five permanent members of the Security Council, the United States can play a key role in determining membership in the United Nations. It has a more limited role in determining membership in U.N. specialized agencies. A decision to admit a new member in these bodies is generally made by the entire membership, where each member—including the United States—has one vote. The decision to vote for or against membership in both the United Nations and its specialized agencies lies primarily with the executive branch of the U.S. government, which represents the United States in the United Nations and related agencies. Some Members of Congress, however, have sought to influence U.S. policy on the issue by proposing legislation advocating or opposing the membership of various countries and entities—including Israel, Montenegro, Kosovo, South Africa, China/Taiwan, and the PLO. Some Members have also introduced legislation calling on the United Nations to suspend the membership of any country that does not meet certain criteria. Notably, in the mid-1990s, Congress enacted two laws to prohibit funding to the United Nations or its affiliated organizations under specific conditions related to internationally recognized attributes of statehood or PLO membership in the United Nations: S ection 410 of the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995 ( P.L. 103-236 ) states that the United States shall not make contributions to "any affiliated organization of the United Nations which grants full membership as a state to any organization or group that does not have the internationally recognized attributes of statehood"; and S ection 414 of the Foreign Relations Authorization Act, Fiscal Years 1990 and 1991 ( P.L. 101-246 ) states, "No funds authorized to be appropriated by this Act or any other Act shall be available for the United Nations or any specialized agencies thereof which accords the Palestine Liberation Organization the same standing as member states." The United States currently withholds its voluntary and assessed contributions to UNESCO in response to the 2011 decision by UNESCO members to admit Palestine as a member. In FY2013 through FY2015, the President asked Congress to provide authority to waive the above-mentioned legislative restrictions; however, many Members of Congress appear unwilling to do so. The Obama Administration has stated that the United States does not intend to withdraw from UNESCO despite the funding restrictions. In November 2013, the United States lost its voting rights in the UNESCO General Conference as a result of its withholding of assessed contributions. The 113 th Congress has addressed U.N. membership primarily in the context of specific countries—with a particular focus on Palestinian membership efforts. For example, the FY2014 foreign operations appropriations bill (Division K of P.L. 113-76 ) prohibits U.S. assistance to the Palestinian Authority if the Palestinians obtain membership in the United Nations or U.N. specialized agencies outside of an agreement negotiated between Israel and the Palestinians. The Secretary of State may waive these restrictions if he certifies to the appropriations committees that doing so is in the national security interests of the United States. In addition, some Members have introduced legislation seeking to further tie U.S. funding of the United Nations to Palestinian membership decisions, and expressing support for Taiwan's participation and membership in the United Nations. As the 113 th Congress considers issues related to membership in the United Nations and its specialized agencies, Members may take several policy issues and related questions into account. U.S. decisions on membership in one U.N. entity can potentially affect membership in related U.N. entities. For instance, as discussed previously, states that are admitted as members of the United Nations are eligible for membership, without a vote, in 11 specialized agencies. Three of these specialized agencies—IFAD, UNIDO, and WIPO—offer membership, also without a vote, to members of any other specialized agency. A newly admitted member of the United Nations, IFAD, UNIDO, or WIPO that wishes to obtain membership in specialized agencies must provide appropriate notification. The type and extent of such notifications vary depending on the organization. Based on existing restrictions in U.S. law, Palestinian membership in U.N. bodies could have implications for U.S. contributions to the United Nations and its specialized agencies. When Palestine was admitted to UNESCO in October 2011, for example, it also became eligible for membership, without a vote, in IFAD, UNIDO, and WIPO. To date, the Palestinians have not pursued membership at these organizations; however, if they were to do so, they would likely receive an invitation for membership. The United States is a member of IFAD and WIPO, and is not a member of UNIDO. It is unclear whether the United States would withhold funding to these organizations as it has done in the case of UNESCO. Experts and observers generally agree that individual U.N. members' response to the criteria for U.N. membership and decision to admit a state are inherently political. The extent to which the criteria have been applied to various membership applications has depended on the applicant country or entity, geopolitical issues at the time, and individual member states' national interests and views on the role and nature of the United Nations. In particular, the complex relationships among member states play an important role in membership decisions. These relationships are independent of the United Nations, but can impact whether an entity or state applies for membership, if an application is considered by the Security Council and General Assembly and, ultimately, whether an entity is invited to be a member of the organization. In light of the aforementioned issues, Members of Congress may face several questions related to U.N. and specialized agency membership, including whether to support or oppose the efforts of various entities to pursue membership in the United Nations or its specialized agencies; what specific steps Members might take to support or oppose the membership of various entities, including, but not limited to, those that represent the Palestinians; and how, if at all, to address the Obama Administration's continued requests to support legislation that would provide authority to waive the legislative restrictions that prohibit U.S. funding for UNESCO. The extent to which Members might address these issues depends on a range of factors—including whether the Palestinians pursue membership in other U.N. entities and how such efforts might take place within the context of overall Israeli-Palestinian relations; as well as other domestic and foreign policy priorities. The table below provides relevant membership provisions for U.N. specialized agencies and one related organization. It draws from various agency constitutions, conventions, or statutes that address (1) the process and/or criteria for membership, (2) withdrawal from the organization, and (3) the impact of arrears. | Since the United Nations (U.N.) was established in 1945, the U.S. government, including many Members of Congress, has maintained an ongoing interest in the criteria and process for membership in the United Nations and its specialized agencies. The United Nations currently has 193 member states and two observer non-member states—the Holy See (Vatican) and "Palestine." Criteria and Process The decision to admit a state into the United Nations is made by the U.N. General Assembly on the recommendation of the U.N. Security Council, including all five permanent members (P-5): the United States, China, France, United Kingdom, and Russia. Membership is open to all "peace-loving states" that accept the obligations contained in the U.N. Charter and, in the judgment of the organization, are able and willing to carry out such obligations. Given the imprecise nature of such criteria, many member states have broadly interpreted the conditions for U.N. membership. Consequently, global and domestic politics play a primary role in many membership decisions. Each of the United Nations' 16 specialized agencies has its own constitution, rules, membership, governance, and financial resources. As such, the process and criteria for admitting new members vary depending on the organization. In 11 specialized agencies, U.N. membership gives a state access to membership in the agency without requiring its admission to be approved by the current membership. Of these 11 agencies, 3 also provide membership, without a vote, to any member of any other specialized agency. Two other specialized agencies require a separate voting process to admit new members. U.S. Role and Policy Decisions on U.N. membership are subject to veto by any of the P-5; thus, the United States plays a significant role in determining U.N. membership. The United States has a more limited role in U.N. specialized agencies because decisions to admit new members to these bodies are generally made by the entire membership and each member has one vote. U.S. membership decisions in both the United Nations and its specialized agencies lie primarily with the executive branch, which represents the United States in U.N. and other multilateral fora. Although Congress often does not play a large role in determining U.N. membership, Members have sought to influence U.S. policy on the issue through legislation advocating or opposing the membership of various countries and entities—including Israel, Montenegro, Kosovo, South Africa, China/Taiwan, and the Palestine Liberation Organization (PLO). Notably, in the mid-1990s, Congress enacted two separate laws that prohibit funding to U.N. entities that (1) admit the PLO as a member, and (2) grant full membership as a state to any organization or group that does not have the internationally recognized attributes of statehood (see Section 410 of P.L. 103-236 and Section 414 of P.L. 101-246). The United States currently withholds its assessed and voluntary contributions to the U.N. Educational, Scientific and Cultural Organization (UNESCO), which admitted Palestine as a member in 2011. Key Issues Members of Congress may consider the following issues related to U.N. membership: Impact on other U.N. entities and international organizations. Membership in one U.N. organization can potentially affect membership in other U.N. entities. Some experts also suggest that U.N. membership could affect membership in other international organizations, such as the International Criminal Court. U.S. contributions to U.N. entities. Based on restrictions in U.S. law, Palestinian membership in U.N. bodies could have implications for U.S. funding of the United Nations and its specialized agencies. For example, when Palestine was admitted to UNESCO, it became eligible for membership, without a vote, in three specialized agencies—the International Fund for Agricultural Development (IFAD), the World Intellectual Property Organization (WIPO), and the U.N. Industrial Development Organization (UNIDO). To date, Palestine has not joined any of these specialized agencies. The United States is a member of IFAD and WIPO, but not UNIDO. Political considerations in membership criteria and process. Many experts agree that each U.N. member state's decision to admit a new state is largely political. The extent to which the criteria outlined in the U.N. Charter has been applied to membership applications has often depended on geopolitical issues at the time, and member states' national self-interests and views on the role and nature of the United Nations. This report may be updated as events warrant. |
T he term big data continues to be a buzzword in many industries. While frequently discussed, no commonly accepted definition of the term big data exists. In many cases, the terminology used to discuss the topic is not always consistent and can vary by industry and user. Based on the broad scope of the subject, this report will rely on a broad and general definition of big data compiled from resources within the agricultural community. The analysis also uses a terminology based on some of the more commonly used terms by government, research, and industry within the context of agriculture. While technology is a key and underlying component of big data use in the industry, its ongoing growth and evolution make it difficult to discuss in great detail. For the purposes of this report, technology—including hardware, software, and telemetry—and analytics are discussed in broad terms, using examples where relevant. These should not be considered exhaustive and do not imply endorsement of a named product or company. This report is also limited to the agricultural industry. Within the industry, farming and ranching operations use big data in different ways. Where possible both are discussed; however, an increasing focus is placed on the use of big data in the production of crops. This imbalance is not intentional, but rather reflects the availability of resources for this discussion. For the purposes of this report, the term big data will be discussed in two contexts: public and private. Public-level big data represent records that are collected, maintained, and analyzed through publicly funded sources, specifically by federal agencies (e.g., farm program participant records, Soil Survey, and weather data). Private big data represent records generated at the production level and originate with the farmer or rancher (e.g., yield, soil analysis, irrigation levels, livestock movement, and grazing rates). Both private and public big data play a key role in the use of technology and analytics that drive a producer's evidence-based decisions. Both also present challenges, such as privacy and security, for producers and policymakers. As previously stated, a commonly accepted definition of the term big data does not exist. At first glance, it appears that the term is used to describe a large collection of records. This categorization, however, is generally considered to be an understatement. For something to fall into the category of big data it need not be big . Rather, the term big data is often used to describe a modern trend in which the combination of technology and advanced analytics creates a new way of processing information that is more useful and timely. In other words, big data is just as much about new methods for processing data as about the data themselves. Big data is viewed as dynamic and when analyzed can provide a useful tool in a decisionmaking process. In the context of agricultural production, big data generally refers to the use of technology and advanced analytics for processing data in a useful and timely way. Big data may significantly affect many aspects of the agricultural industry, although the full extent and nature of its eventual impacts remain uncertain. Many observers predict that the growth of big data will bring positive benefits through enhanced production, resource efficiency, and improved adaptation to climate change. While lauded for its potentially revolutionary applications, big data is not without issues. It is still unclear how big data will progress within agriculture due to challenges associated with both technical and policy issues. The use of technology in agriculture has continued to grow since the early part of the 20 th century, when the industry shifted from the horse-drawn plow to mechanized tractors. The advent of plant genetics, chemical inputs, and, more recently, guidance systems has transformed the industry into one that is increasingly technology-intense and data-rich. The ability to generate, capture, and store data in the agricultural industry has continued to grow with the use of mobile technology and data management software. Additionally, external data sets are now readily available to the industry, allowing for a more complete picture of the world in which production agriculture occurs. The technological advances that make up the modern computing environment have contributed to debate about big data. While data collecting is not new, especially in the context of public data collection, only since the advent of more efficient, mobile technologies and the digitization of data have large records been able to be evaluated and analyzed in a timely and more useful way. One key hallmark of big data is that it requires the use of analytical tools to extract value from it. Without analysis, large quantities of data can be expensive, time consuming, and distracting. From a policy perspective, issues related to big data involve nearly every stage of its existence, including its collection (how it is captured), management (how it is stored and managed), and use (how it is analyzed and used). These three stages exist in both public and private data, and are discussed in greater detail in the private big data section below. Both private and public big data play a key role in the use of technology and analytics that drive a producer's evidence-based decisions. While discussed separately in this report, they are typically combined to create a more complete picture of an operation and therefore better decisionmaking tools. For example, companies that offer private big data products (discussed in the " Data Uses " section below) will combine agronomic, environmental, and operational data from multiple sources (i.e., public and private) in order to better describe current conditions and predict future results. This combination is one of the key reasons big data for agriculture is viewed as such a valuable tool. On October 22, 2015, the House Agriculture Committee conducted a hearing on private big data in the agriculture industry. Panelists discussed benefits and concerns related to private big data. Data ownership and privacy were chief among concerns, but most panelists agreed that little to no government intervention was desired. No bills have been introduced in the last two Congresses relating specifically to big data in agriculture. Several bills in the 114 th Congress could address issues that are potentially relevant to big data applications in agriculture, such as information sharing in cybersecurity, privacy, and notification of data breaches. Public agricultural data sets are traditionally created through the use of surveys, samples, and statistical analysis. Advances in technology and analytics through big data have expanded this traditional role but also highlight another, previously less-used source—administrative data. While some public data records created by traditional means (e.g., surveys) are statutorily required to meet the mission of an agency, administrative data records are generally byproducts of program administration. Whether the information is voluntarily or mandatorily collected also varies. Using big data to inform federal actions is of increasing interest to policymakers. Specifically, it is the use of administrative data that raises the possibility of analyzing existing data records in order to make more efficient and better-informed decisions about federal farm programs and activities. It could also provide additional insight into behavioral and societal aspects of U.S. agriculture that might currently be underexplored. The agricultural industry has a number of publicly generated data sources. Primarily, these sources are located at the U.S. Department of Agriculture (USDA). Other federal agencies, such as the U.S. Bureau of Labor Statistics, the National Oceanic and Atmospheric Administration (NOAA), and the National Aeronautics and Space Administration (NASA), also produce data sets important to the industry (e.g., meteorological information and satellite imagery). USDA is arguably the agricultural industry's largest collector, manager, and user of public big data. A number of agencies within USDA participate in one or more of these activities. Whether the agency is a collector, manager, or user of traditional data or administrative data can sometimes make identifying an agency's role in big data difficult. Depending on how big data is defined, most USDA agencies could be considered users, generators, or managers of big data in one way or another. Traditional data is identified as the collection, management, and use of data obtained and analyzed through traditional means, such as surveys and sample collection. Examples of agencies and activities that generate traditional data include National Agricultural Statistics Service (NASS) —collects, manages, and analyzes survey data through the Census of Agriculture; Economic Research Service (ERS) —collects, manages, and uses resource, production, and financial data through the Agricultural Resource Management (ARM) survey; Agricultural Research Service (ARS) —collects, manages, and uses scientific data related to agriculture through its mission of research and information access; Natural Resources Conservation Service (NRCS) —collects, manages, and uses soil, water, and geospatial data through the Soil Survey program; Agricultural Marketing Service (AMS) — collects, manages, and uses price and sales information through its market news programs; and World Agricultural Outlook Board (WAOB) —analyzes commodity and market data to develop the World Agricultural Supply and Demand Estimates (WASDE) report. Some of these and other agencies have the capability of generating administrative data, generally as a by-product of program administration. While these agencies may not typically be considered big data agencies—their data is not generally made public and their data is not always aggregated or analyzed the same way as other big data—they nonetheless have similar issues as those of other big data agencies (i.e., security, privacy, technology capacity, and funding). Examples of these agencies include Risk Management Agency (RMA) —collects, manages, and uses individual yield and loss information to administer the Federal Crop Insurance program; Farm Service Agency (FSA) —collects and manages individual producers' farm record data, federal payments, and loan information used in administering various farm programs; and NRCS —collects and manages conservation plans, geospatial data, and conservation program activities and payments. A number of benefits to the agricultural industry are generally associated with public big data, including but not limited to Authority —Much public big data is governed by various statutes and guidance documents that establish standards for quality. The use of common standards is believed to make public data more statistically reliable than some private sources, and public big data is therefore typically viewed as a trusted, authoritative source. Confidentiality —Public big data is governed by statutes and guidance documents that establish requirements for privacy. In many cases, agencies are able to anonymize data so as to protect individual producers' identities. While some privacy and confidentiality concerns may also present challenges for agencies, their big data sources are generally thought to be more transparent and regulated than private ones. Equal Access —Technology has not only impacted the ability to collect, store, and analyze data, but also makes it more transparent and publicly accessible. The use of the Internet and open data initiatives allows greater access to and use of public big data. Long- T erm Investment —The collection and use of data, including within the field of agriculture, has a long history in the United States. Frequently, the greatest value in traditional public data sets is derived from their ability to provide a baseline or benchmark for the industry as well as trends over time. The use of administrative data might provide new benchmarks and trends for areas previously not measured. While many see public big data as a trusted and reliable source, it is not without its challenges, including but not limited to Resources —The collection, management, and analysis of data are complex, cumbersome, and frequently resource intensive. Reduced federal budgets and staffing levels, combined with a technology adoption lag, have impaired the ability of some federal agricultural agencies to collect, manage, or use big data to its fullest potential. Supporters of public big data frequently request additional or sustained resource levels. Incorporation —Traditional public data collection is typically through the use of statistically valid surveys. Increasingly, the technology and analytics of big data have allowed surveys to expand and have also resulted in the creation of additional value in administrative data. This has called into question whether the traditional public data sources can or should incorporate new big data sources. Are traditional and administrative big data compatible? What could be lost or gained if the current use of proper sampling were to change, relative to participation-based data sets? Availability —While not considered 100% "open," most public data is available in large part because of technology (see "Equal Access" bullet above). These are typically limited to the more traditional big data sources; however, there is an increasing interest in making administrative big data open as well. In some cases, public data access is driven by statutory language prohibiting its release. Security —A number of high-level data breaches have raised concerns about the government's ability to protect its own big data sources. Under current law, all federal agencies have cybersecurity responsibilities relating to their own systems. While no known breach has occurred at USDA in recent years, some are concerned about the department's ability to protect information from similar attacks. Similar to public big data, private big data refers to the combination of technology and analytics used to process data. The key differences are who generates the underlying data, where that data is generated, and the purposes for which it is generated. In this report, private big data is limited to private data sets generated on the farm or ranch, by the producer, for enhancing the operation. There are a number of key players in the agricultural industry that make private big data possible through the use of technology (e.g., software and hardware) and advanced analytics (e.g., descriptive, predictive, and prescriptive). Of the different stages of private big data—collection, management, and use—most people are familiar with the end result, or use of, the big data itself. This is frequently because it is the easiest to understand. It is where the producer most interacts with data—after it has been collected, analyzed, and turned into a usable form. For example, big data is used to create prescriptive plans that include recommendations on seed and fertilizer application rates, soil analysis, and localized weather reports. Other stages in the big data cycle, such as the collection and management of data, can be more complex, and frequently hold the biggest challenges for the agricultural industry. The number and type of players involved with private agricultural big data are constantly evolving. For that reason, this report arranges the discussion by examples of players within each stage of the big data process—collection, management, and use. These stages do not operate independently of one another and are, in practice, fluid in nature. In some cases the same player is active in more than one stage, or in all stages, of the process. This section is not intended to serve as an exhaustive list, but rather a starting point to discuss who and what is involved in each stage of the big data process. The actual collectors of private big data are, in most cases, producers, who collect big data as part of their normal day-to-day activities. The collection stage, however, refers less to who collects the data than to how it is collected. Frequently, data collection involves physical technology, such as sensors, imagery, drones, radar, and other technologies all working together to provide detailed information about soil content, weeds and pests, sunlight and shade, nutrient deficiencies, moisture, and other factors. Physical technology forms only part of the data collection process, though. The other part is the network through which the technology communicates, typically the Internet. This is generally referred to as the "Internet of Things" (IoT) —networks of objects that communicate with other objects and with computers through the Internet. Both have led to questions related to ownership, privacy, and security, among others. Data collection is an ever-expanding area of big data and includes a number of key players, including but not limited to Equipment Manufacturers —In many cases the manufacturers of traditional farm equipment (e.g., tractors, combines, and implements) are well positioned to expand into data collection technologies since, in many cases, the technology is an extension of the equipment already in use. C hemical Companies and Applicators —The application and use of nutrients and pesticides are increasingly complex. As producers look for ways to reduce cost and become more efficient, the application of additives is frequently an area for improvement. Chemical companies are playing an increasing role in the research and development of data collection tools and methods to improve application use. Multi- U se Technologies —The agricultural industry increasingly is finding value in technologies used by other industries. For example, some farmers in the dairy industry are exploring the use of radio frequency identification (RFID), which is more commonly used in the shipping and transportation industries, to track movement, production, feed, and disease outbreaks in herds. Frequently these companies have an interest in multiple industries, one of which could be agriculture. Private big data management generally covers the organization, administration, and governance of characteristically large volumes of data. The goal of data management is to ensure a high level of data quality and accessibility for the end user, and ultimately the next stage of data use through big data analytics (discussed in the next section). While most see storage as the key function of data management, it often also includes processing and security measures. Key players, including private data managers and data banks, continue to expand. Others, such as data cooperatives, are entering the mix as producer-owned solutions for small to mid-sized operations that otherwise might face steep market access points individually. In some cases these players collect and organize the data for a fee, while in others they capture the value of the data by acting as a broker to trade or sell the data. Examples of the players include Producers —In some cases the function of data storage and management is conducted at the farm-level. Concerns about security, and the sensitive nature of the data itself, have resulted in producers opting to store their data locally rather than through a third party or in a cloud computing environment. Data Collectors —In some cases the same companies that offer data collection services also offer data management services. They are generally affiliated with other agricultural products (e.g., equipment, seed, or chemicals). Independent Agricultural Data Banks —These are private companies that offer to store, organize, and, in some cases, analyze data for a fee. They are generally independent of a company that provides other goods or services to the agricultural industry. Additional services may also be included, such as weather information, location services, and benchmarking. Data C ooperatives —These are producer-owned information cooperatives (co-ops) that store, aggregate, and exchange data for their members. Similar to commodity co-ops, data co-ops pool members' data to create economies of scale and generate additional value and negotiating position. Data is then anonymized before being sold to interested parties. In return, members receive a portion of the proceeds from the sale as well as other infrastructure benefits provided by the co-op (e.g., storage and management). The final stage of the big data process is the use of the data itself. This stage is where the actual tools are created and the value of private big data occurs for producers. A combination of big data sources is generally analyzed and packaged into an easily understandable and useful product. These can cover the spectrum of qualitative analytical products: descriptive products (e.g., those that provide a better or more advanced way of looking at an operation); prescriptive products (e.g., those that provide timely recommendations for operation improvement based on real-time and historical data); and predictive products (e.g., those that use current and historical data sets to forecast future events and returns). Depending on the size and complexity, this stage may encompass all three types of analytical products. The primary players and users of private big data products are the farmers and ranchers themselves. Other interested parties, however, recognize the value of big data and the ways it can be used beyond improving an individual operation (e.g., retail, marketing, or environmental improvement). Examples of key players in the use of private big data include Farmers and Ranchers —The end user of private big data is frequently the farmer or rancher from which the data originated. The value is derived from a big data product that offers improved production (e.g., lower costs, increased yields, or reduced inputs). Retailers —These are the creators of the big data products themselves. They derive value by analyzing the data, packaging it into a useable and timely product, and selling it to the producer. In some cases these are parties from other stages (i.e., data collectors or data managers) or retailers of other products (e.g., equipment and seed companies) or both. Increasingly, retailers themselves might find value in big data or the products they create separate from the value derived from the producer. It is generally these groups that advocate for big data to get bigger in order to create a greater value for themselves and consumers. Industry Groups —The terms and uses of big data are often confusing and not well defined. Producer concerns related to privacy, security, and ownership abound, leaving many producers to look toward national commodity and agricultural industry groups for guidance regarding licensing language and data contracts. These groups are frequently active in establishing standards and issuing guidance for members on how to navigate big data. Environmental Interests —Economics is only one benefit from the use of private agricultural big data. The power of technology and information can also result in a positive environmental effect through reduced inputs (e.g., fertilizer, pesticides, and water) and efficiencies (e.g., reduced air emissions through reduced tillage overlap). This has caused various environmental interests to pay attention to agricultural big data and in some cases become active players. As the use of private big data continues to expand, the number and scope of benefits continue to grow. Examples of observed benefits include Production Benefits —The number of benefits created by private big data—from increases in yields and greater efficiencies to reduced costs, inputs, and farm risk—continues to grow. Most of these benefits are directly received by the producers themselves through increased profits; however, spillover effects from increased farm revenue and environmental sustainability are also possible. Environmental Benefits —Similar to production benefits, the environmental benefits of private big data continue to develop. On-farm environmental benefits, including improved soil quality and water availability, can further benefit production as well as the environment. The reduction of inputs, including pesticides, fertilizer, water, and energy, often results in off-farm benefits through improved water quality and biodiversity. New and Expanded Business Opportunities —The rise of big data and the advances in technology have created a number of new business opportunities around its use. While much of the attention has been directed at the creation of these large, prescriptive, analytic tools, other businesses have developed around or been modified by one or more aspects of the farming operation. For example, in the custom applicator industry, the use of big data allows the third party (i.e., custom applicator) to invest in the technology in order to provide a more precise application of various inputs as a service. For instance, instead of producers investing in the equipment required for certain big data collection, they may contract with another party who can use the same equipment and networks to determine and apply required amounts of inputs. Real Time —Advances in technology have led to the real-time collection and processing of data and congruently to the ability to receive real-time decisionmaking tools. This can further expedite decisionmaking and possibly lead to increases in automation. Private big data is constantly and rapidly changing. The complex nature of big data and the pace with which it is moving have created much confusion in the industry. This has led to a number of challenges for production agriculture and raises questions about whether the industry can manage these challenges and whether there is a role for federal involvement. Examples of challenges include Ownership —This is a widely discussed concern within the agricultural community. Many believe that the owner of private big data is obvious; it is the producer from which it is collected. This is not always true, however, because of how the data moves through the different stages of collection, management, and use. For example, when data is analyzed and provided to the producer during the use stage as a decision tool for their operation, the producer would seemingly be the clear owner because they derive the most value from the data's use. It is not that simple, however, because that same data might also have value to a third party who is able to aggregate it and analyze it for a different purpose (e.g., a company might be interested in seed, yield, and input rates for determining future pricing of their product). Therefore the answer to the question of ownership generally lies in who owns and controls the value of the data. As previously discussed, raw, large data sets frequently hold little value to the end consumer. It is the combination of this data with that of quantitative analytics that creates the value. Other questions also include the following: who owns the secondary and tertiary uses of the data; can this ownership be limited or expanded, and in what way; who is the owner if the data is collected under a separate contract (e.g., custom harvesting or custom applicator); and are the ownership rights of the landowner different from the producer when they are not the same party; what are the options, if any, to not having or limiting data collection? Privacy —Agricultural production presents unique challenges related to localized competition for resources (e.g., access to land and water). In many cases neighbors are competing against one another for access to such resources. The concern of privacy is one that most producers acknowledge in the context of big data. Information related to yields and performance can hold incredible value. The independent nature of farming tends to drive privacy concerns. While most concerns are in respect to market competition, there are an increasing number of privacy concerns related to regulatory and non-agricultural interest groups coming into possession of a producer's data. Security —Many producers are concerned about the security implications of big data getting bigger and requiring the use of more advanced networks. As previously discussed, concerns about security and privacy have resulted in producers opting to store their data locally rather than through a third party or in a cloud computing environment. In some ways, however, this reduces the value of the data because in most cases, the bigger the data set, the greater the additional value created. With recent security breaches in both the public and private sectors it may be unreasonable to believe that all data is fully secure. Market —Unbalanced access to information can frequently distort the marketplace. Some speculate that the use of yield or sales data could create a market advantage for some input companies (e.g., seed and fertilizer companies). Others are concerned that big data will increase the competitiveness of rental agreements, while others see the potential for big data to affect commodity markets. Expense —Similar to the discussion under public big data, the collection, management, and analysis of data are not free. The use of big data products can come at a cost, albeit one which larger operations are able to afford with the anticipation of higher returns. Smaller operators, however, may face challenges related to economies of scale given the high price of equipment and services related to big data. Arguments have also been made that while some private big data products offer greater returns with greater investment, some smaller companies present small operators with options to capture the benefits of big data through more affordable technologies and services. Infrastructure —Recent surveys and studies indicate that, in general, rural areas tend to lag behind urban and suburban areas in broadband deployment. In the context of big data, the ability to send and receive data as well as the speed with which this occurs is central to its use and adoption. The federal government has played a role in addressing rural broadband infrastructure through financial assistance programs and spectrum policy for wireless connectivity. Technology System Failure —Users of technology know that it can be wonderful until it stops working. Basic system failures and limitations will continue to be a challenge for big data. In some cases the collection of the wrong data or inaccurate data can lead to poor decisions, rather than improved ones. Technology Adoption —The adoption of technology itself could prove a hurdle for the agricultural industry. While some producers are open to the adoption of technology on their operations, the sector's aging producer population may be slow to adopt it. Both public and private big data can exist independently of one another; consequently, they are discussed separately in this report. This was done by design to illustrate an increasingly complicated topic. It does not, however, represent how observers think about big data in the context of agriculture. Most see big data in agriculture at the end use point, where farmers use precision tools to potentially create positive results like increased yields, reduced inputs, or greater sustainability. While this is certainly the more intriguing part of the discussion, it is but one aspect and does not necessarily represent a complete picture. Big data is a complicated topic, not only from a technological and analytical standpoint, but also from a legal, ethical, and regulatory standpoint. The number of key players continues to grow, as does the list of benefits and challenges. As Congress follows the issue a number of questions may arise, including a principal one—what is the federal role? | Recent media and industry reports have employed the term big data as a key to the future of increased food production and sustainable agriculture. A recent hearing on the private elements of big data in agriculture suggests that Congress too is interested in potential opportunities and challenges big data may hold. While there appears to be great interest, the subject of big data is complex and often misunderstood, especially within the context of agriculture. There is no commonly accepted definition of the term big data. It is often used to describe a modern trend in which the combination of technology and advanced analytics creates a new way of processing information that is more useful and timely. In other words, big data is just as much about new methods for processing data as about the data themselves. It is dynamic, and when analyzed can provide a useful tool in a decisionmaking process. Most see big data in agriculture at the end use point, where farmers use precision tools to potentially create positive results like increased yields, reduced inputs, or greater sustainability. While this is certainly the more intriguing part of the discussion, it is but one aspect and does not necessarily represent a complete picture. Both private and public big data play a key role in the use of technology and analytics that drive a producer's evidence-based decisions. Public-level big data represent records collected, maintained, and analyzed through publicly funded sources, specifically by federal agencies (e.g., farm program participant records and weather data). Private big data represent records generated at the production level and originate with the farmer or rancher (e.g., yield, soil analysis, irrigation levels, livestock movement, and grazing rates). While discussed separately in this report, public and private big data are typically combined to create a more complete picture of an agricultural operation and therefore better decisionmaking tools. Big data may significantly affect many aspects of the agricultural industry, although the full extent and nature of its eventual impacts remain uncertain. Many observers predict that the growth of big data will bring positive benefits through enhanced production, resource efficiency, and improved adaptation to climate change. While lauded for its potentially revolutionary applications, big data is not without issues. From a policy perspective, issues related to big data involve nearly every stage of its existence, including its collection (how it is captured), management (how it is stored and managed), and use (how it is analyzed and used). It is still unclear how big data will progress within agriculture due to technical and policy challenges, such as privacy and security, for producers and policymakers. As Congress follows the issue a number of questions may arise, including a principal one—what is the federal role? |
Federal and state laws have always played a role in protecting minors from criminal victimization. For example, Congress has enacted laws dealing with child pornography, child luring, and child sexual exploitation. However, given its immediacy, anonymity, and accessibility, the Internet offers a forum, through social networking sites, for harassment and other social ills committed against minors. The Internet's nuances present new challenges for federal and state legislators and law enforcement personnel responsible for defining and prosecuting criminal use. This is especially true with the relatively new crime of Internet "harassment." The term Internet harassment usually encompasses "cyberstalking," "cyberharassment," and/or "cyberbullying." These activities, when committed against minors, may cause emotional harm. Recent high-profile cases involving teen suicides demonstrate the potentially severe consequences of this emotional harm. As such, legislators are faced with determining how to handle the problem. Various laws, not specific to minors, govern traditional crimes such as stalking and harassment, which generally include a threat of harm. These laws generally criminalize unlawful conduct that fails to rise to the level of assault or battery. Recognizing that the Internet can be used to stalk or harass individuals, Congress and some states have amended "traditional" stalking and harassment statutes to include Internet activity. However, these statutes are generally inapplicable in situations in which minors suffer emotional harm due to embarrassment or humiliation. When, if ever, should criminal sanctions be imposed for these incidents? Should legislators amend traditional stalking and harassment statutes to cover these situations? Or should legislators create new crimes covering such activity? Should such activity conducted by a neighbor, for example, be prosecuted on the federal level because the Internet was used? Or should prosecution of such activity remain at the state level? These are just some of the questions legislators may consider in addressing the problem of Internet harassment of children. While these policy considerations are noteworthy, this report focuses on the applicable constitutional constraints legislators may consider in drafting legislation in this area. Generally, states assert jurisdiction over law enforcement authority within their borders. However, Congress may legislate in the state law enforcement arena under certain constitutionally permissible circumstances. For example, Article I, Section 8, Clause 4 of the United States Constitution authorizes Congress to "regulate Commerce with foreign Nations, and among the several States." There are three categories of activities subject to congressional regulation under the Commerce Clause. Congress may regulate the use of the channels of interstate commerce, or persons or things in interstate commerce, although a threat may come only from intrastate activities. Finally, Congress may regulate those activities having a substantial relation to interstate commerce (i.e., those activities that substantially affect interstate commerce). As the Internet is an instrumentality of interstate commerce, Congress has the power to enact appropriate legislation. Pursuant to this authority, Congress has enacted laws designed to protect children. Congress has enacted several statutes designed to address protection of children on the Internet. These statutes run the gamut from establishing new crimes (i.e., use of interstate facilities to transmit information about a minor) to expanding the scope of existing crimes (i.e., child luring). In addition, Congress has enacted laws designed to curtail both the downloading of inappropriate content by children and the uploading of impermissible personal information from children. The Child Online Privacy Protection Act (COPPA) is directed to the protection of children less than 13 years of age from operators of commercial websites or online services. COPPA mandates several requirements for sites that either direct their services to children under the age of 13 or have actual knowledge that their general audience site is collecting information from such children. The act applies to individually identifiable information about children, and requires, among other things, that sites post a clear notice of their data collection practices on their home pages and on every page where information is requested. Another federal statute, the Child Online Protection Act (COPA), restricts access by minors to materials commercially distributed that are harmful to minors. However, COPA has never taken effect because a federal district court issued a preliminary injunction against its enforcement pending trial. The injunction was affirmed on appeal by the Supreme Court, which, on June 29, 2004, remanded the case for trial. On March 22, 2007, a federal district court found COPA unconstitutional and issued a permanent injunction against its enforcement. On July 22, 2008, the Third Circuit Court of Appeals upheld the 2007 decision. Finally, the narrowest statute, the Children's Internet Protection Act (CIPA), applies only to public libraries and schools and mandates that they employ software filters to restrict access by minors to inappropriate material. CIPA has withstood challenge to its constitutionality. 18 U.S.C. § 2425 prohibits the use of a facility of interstate commerce, such as a computer connected to the Internet, to transmit information about a minor under the age of 16 for criminal sexual purposes. Individuals convicted under this statute face a punishment of a fine and/or maximum imprisonment of five years. In addition to the aforementioned protections, federal and state legislators have enacted several criminal provisions designed to punish Internet users who hurt minors physically. Some laws that traditionally protect children, such as those used to combat child pornography and luring, have been expanded to apply to situations where an individual uses the Internet to facilitate the crimes. For example, "child luring" consists of an adult knowingly and intentionally inducing a child, by means of a computer, to engage in sexual intercourse or sexual conduct. A majority of states have laws that specifically prohibit electronic luring or solicitation of minors by computer for the purpose of inducing them to engage in illegal sexual conduct. On the federal level, child luring is covered by 18 U.S.C. § 2422(b), which prohibits the use of any facility or means of interstate commerce to knowingly persuade, induce, entice, or coerce a minor to engage in criminal sexual activity or prostitution, or to attempt to do so. Violators of 18 U.S.C. § 2422(b) face a punishment of a fine and a minimum imprisonment of 10 years or life. Internet harassment is a new phenomenon that presents a challenge for law enforcement, legislators, educators, and parents. The term Internet harassment lacks a uniform definition but usually encompasses cyberstalking, cyberharassment, and/or cyberbullying. It is worth noting that most cyberstalking and/or cyberharassment statutes cover both adult and minor victims. If one were to categorize these activities based on danger or greatest potential harm, cyberstalking would be the most dangerous, followed by cyberharassment and then cyberbullying. Generally, cyberstalking includes a credible threat of harm, while the other two do not. Cyberharassment and/or cyberbullying may cause embarrassment, annoyance, or humiliation to the victim. Some individuals use the terms cyberharassment and cyberbullying interchangeably, while others reserve the term cyberbullying to describe harassment between minors, usually within the school context. In a criminal context, these activities are predicated on a perpetrator's desire to inflict emotional harm, usually in the form of humiliation or embarrassment. Legislators are faced with several questions in tackling this problem as it pertains to minors. When, if ever, should individuals be criminally liable for causing humiliation or embarrassment to another? Should new laws be created to cover such action? Or, is it sufficient to amend existing laws? Cyberstalking refers to the use of Internet, e-mail, or other electronic communications to stalk another person. A cyberstalker may send repeated, threatening, or harassing messages. Or a cyberstalker can urge other Internet users into harassing or threatening a victim by utilizing Internet bulletin boards or chat rooms. For example, a cyberstalker may post a controversial or enticing message on a board under the victim's name, address, phone number, or e-mail address, resulting in the victim receiving subsequent unwanted responses. Each message, whether from the actual cyberstalker or others, may have the intended effect on the victim, even though the cyberstalker's effort tends to be minimal. Due to the lack of direct contact between the cyberstalker and the victim, it is sometimes difficult for law enforcement to identify, locate, arrest and subsequently prosecute the offender. The anonymity of the Internet also provides new opportunities for cyberstalkers. A cyberstalker's true identity can be concealed by using different Internet service providers (ISPs) and/or by adopting multiple screen names. Anonymity leaves the cyberstalker in a somewhat advantageous position. Unbeknownst to the target, the perpetrator could be in another state, around the corner, or in the next cubicle at work. The perpetrator could be a former friend or lover, a total stranger met in a chat room, or simply a teenager playing a practical joke. State and local law enforcement agencies are sometimes hampered by jurisdictional limitations. A cyberstalker located in a different city or state than the victim may present more of a challenge for local authorities investigating an incident. Even if a law enforcement agency is willing to pursue a case across state lines, it may be difficult to obtain assistance from out-of-state agencies when conduct has been limited to harassing e-mail messages without the occurrence of actual violence. Several states have laws that explicitly include electronic forms of communication within stalking or harassment laws. For example, California legislators amended the state stalking law to expressly include stalking via the Internet. Under California law, a person commits stalking if he or she "willfully, maliciously, and repeatedly follows or harasses another person and ... makes a credible threat with the intent to place that person in reasonable fear for his or her safety, or the safety of his or her immediate family." The term "credible threat" includes threats that are (1) "performed through the use of an electronic communication device, (2) implied by a pattern of conduct or a combination of verbal, written, or electronically communicated statements." Table 2 provides a list of states that have enacted cyberstalking statutes. Federal laws designed to combat cyberstalking exist. For example, 18 U.S.C. § 2261A prohibits an individual from using "the mail, any interactive computer service, or any facility of interstate or foreign commerce to engage in a course of conduct that causes substantial emotional distress to that person or places that person in reasonable fear of ... death." However, this statute is inapplicable in situations where both the victim and perpetrator are in the same state or tribal jurisdiction. While this law was amended in 2006 to include "interactive computer service," courts have not addressed the term's scope and applicability to the Internet or instances of cyberstalking that cause "substantial emotional distress." In addition, 18 U.S.C. § 875 makes it a crime, punishable by up to five years' imprisonment, to transmit any communication in interstate or foreign commerce containing a threat to injure another person. Section 875(c) generally applies to any communication actually transmitted in interstate or foreign commerce. This statute has been used primarily against threats conveyed via telephone. However, the law has been expanded to prosecute cyberstalkers. For example, in United States v. Kammersell , the court found that the term "transmits in interstate commerce," as it applied to the offense of making threatening communication, encompassed the alleged conduct of sending a threatening message via the Internet, despite the fact that the defendant and victim resided in the same state. The message had been sent from the defendant's computer in Riverdale, Utah, processed through the ISP's message server in Virginia, and then transferred to the victim's computer in downtown Ogden, Utah, a few miles from the defendant's computer. Thus, 18 U.S.C. § 875 has been expanded to cover threats transmitted via the Internet. However, a threat must be one that a reasonable person would take as a serious expression of an intention to inflict bodily harm and would perceive such expression as communicated to effect some change or achieve some goal through intimidation. In United States v. Alkhavaz , the court found that electronic mail messages between the defendant and another individual, expressing sexual interest in violence against third-party women and girls, did not constitute "communications containing a threat." Instead, the court concluded the communications were "attempts to foster a friendship based on shared sexual fantasies." One could argue that one of the limitations of 18 U.S.C. § 875(c) is its inapplicability to a situation where an individual engages in a pattern of conduct intended to "harass" or "annoy" another (absent some threat). Also, it is unclear whether this statute would apply to a situation in which a person harasses another by posting messages on a "public" bulletin board or in a chat room, encouraging others to harass or annoy the individual. It would appear that in some of these situations, a defendant may be prosecuted under the federal telephone harassment statute, 47 U.S.C. § 223. While cyberstalking laws exist at both the federal and state levels, they are generally inapplicable in situations referred to as cyberharassment and/or cyberbullying, depending upon the jurisdiction. Under federal law, some instances of cyberharassment may be prosecuted under 47 U.S.C. § 223, which carries a punishment of a fine and/or imprisonment. One provision of this statute makes it a crime, punishable by up to two years in prison, to use a telephone or telecommunications device to "annoy, abuse, harass, or threaten" any person at a dialed number. In 2006, Congress expanded the definition of "telecommunications device" to include e-mail communications. However, the statute still requires that a perpetrator remain anonymous. Although this statute covers both threats and harassment, it applies only to direct communication between a perpetrator and a victim. As such, it would be inapplicable in a situation where a person harasses another person by posting messages on a "public" bulletin board or in a chat room encouraging others to "harass" or "annoy" another individual. In addition, it is worth noting that although the statute has been found constitutional, that determination was made before the statute was amended. In United States v. Bowker , the defendant made more than 100 anonymous phone calls to a television news reporter during a seven-month period. Many calls were threatening and sexual in nature. The Bowker court reasoned that § 223(a)(1)(C) was not overbroad because [T]he focus of the telephone harassment statute is not simply annoying telephonic communications. It also prohibits abusive, threatening or harassing communications. Thus, the thrust of the statute is to prohibit communications intended to instill fear in the victim, not to provoke a discussion about political issues of the day. The court noted that while § 223(a)(1)(C) could have unconstitutional applications, that fact does not warrant facial invalidation. The court concluded that Bowker's speech was not constitutionally protected because he called his victim "predominately, if not exclusively, for the purpose of invading her privacy and communicating express and implied threats of bodily harm." Courts have yet to address this statute as it applies to Internet "harassment." Examples of cyberharassment include sending threatening or harassing e-mail messages and instant messages to another individual, posting highly offensive and/or hurtful blog entries about certain individuals, or creating entire Web pages for the sole purpose of tormenting and humiliating another individual. Generally, cyberharassment differs from cyberstalking in that a credible threat is not involved. Cyberharassment statutes vary by jurisdiction. Some are incorporated in general harassment statutes, while others are separate statutes. For example, the Iowa harassment statute provides that [a] person commits harassment when, with intent to intimidate, annoy, or alarm another person, the person does any of the following: (1) Communicates with another by telephone, telegraph, writing or via electronic communication without a legitimate purpose and in a manner likely to cause the other person annoyance or harm ... Virginia's "harassment by computer" statute states: If any person, with the intent to coerce, intimidate, or harass any person, shall use a computer or computer network to communicate obscene, vulgar, profane, lewd, lascivious, or indecent language, or make any suggestion or proposal of an obscene nature, or threaten any illegal or immoral act, he shall be guilty of a Class 1 misdemeanor. Table 1 provides a list of states that have cyberharassment statutes. Table 3 provides the statutory language addressing cyberharassment. Although the Internet is a relatively new medium, it is being used for an old purpose—harassment of others. Children experiment online with different personas, and may be nastier in the Internet's anonymous atmosphere than they would be in person. In addition, targeted mockery can be far more painful when it is public, permanent, and written than when muttered in passing in a school hallway. Creating defamatory or sexually explicit depictions of students and school personnel on websites are two types of student Internet speech that may constitute cyberbullying. Cyberbullying generally refers to harassment occurring among school-aged children through the use of the Internet. Recent incidents of teen suicides appear to illustrate the harm that may be caused by cyberbullying. According to media accounts, classmates sent Vermont teenager Ryan Patrick Halligan several instant messages questioning his sexuality. In addition, the teen was threatened, taunted, and incessantly insulted online. Ultimately, Halligan committed suicide. Responding in part to the suicide, Vermont's state legislature passed an "anti-cyberbullying" law in 2004. The statute requires schools to create disciplinary policies encompassing both on- and off-campus (limited to school-sponsored activities) bullying among school children. The statute provides a broad definition of "bullying" that may be interpreted to include Internet misbehavior. Several other states have passed legislation requiring or authorizing school districts to adopt cyberbullying policies. For example, in Arkansas, cyberbullying was added to the schools' anti-bullying policies and included in provisions for school officials to punish students for some off-campus activities "if the electronic act is directed specifically at students or school personnel and is maliciously intended for the purpose of disrupting school and has a high likelihood of succeeding in that purpose." However, it should be noted that some of these policies are limited in their application. For example, in Washington, the school district harassment prevention policies are applicable only to actions that take place "while on school grounds and during the day." In other words, some of these policies would not cover bullies from other districts or other states. In addition, adults who "harass" or "cyberbully" minors would not be covered in most instances. In another teen suicide, the issue of an adult engaging in cyberbullying activities has caused some individuals to use the terms cyberharassment and cyberbullying interchangeably. On May 15, 2008, a federal grand jury indicted a Missouri woman for her alleged role in a MySpace hoax against a minor. The indictment alleged that the defendant created a false identity on the social network MySpace to obtain information from Megan Meier, a teenager. The indictment further alleged that this information was used to "torment, harass, humiliate, and embarrass" the juvenile. The false identity was that of a 16-year-old boy named "Josh Evans." Communications allegedly ensued between Megan and "Josh" for some time. According to media accounts, Megan took her life after receiving a cruel message from "Josh." State prosecutors declined to prosecute this "harassment" activity, noting that the woman's intent did not cross a threshold into criminal activity based on state laws governing stalking, harassment, and child endangerment. It is important to note that the federal government did not charge the Missouri woman with harassment of Meier. Rather, the government's legal theory was based on the Computer Fraud and Abuse Act, specifically 18 U.S.C. § 1030(a)(2)(C) and (c)(2)(B)(2), which makes it a felony punishable by up to five years of imprisonment if one "intentionally accesses a computer without authorization ..., and thereby obtains ... information from any protected computer if the conduct involved an interstate ... communication" and "the offense was committed in furtherance of any ... tortious act [in this case intentional infliction of emotional distress] in violation of the ... laws ... of any State." Prosecutors alleged that the defendant violated MySpace's terms of use by using a fictitious name, thereby giving her no authority to access MySpace. To address the problem of cyberbullying, H.R. 1966 was introduced on April 9, 2009, during the 111 th Congress. This bill would amend title 18 of the United States Code by making cyberbullying a federal crime with a punishment of up to two years of imprisonment and/or a fine. Specifically, section 3 of H.R. 1966 states that: (a) Whoever transmits in interstate or foreign commerce any communication, with the intent to coerce, intimidate, harass, or cause substantial emotional distress to a person, using electronic means to support severe, repeated, and hostile behavior, shall be fined under this title or imprisoned not more than two years, or both. There are constitutional principles that limit the authority of all governmental entities (federal, state, and local) to enact cyberharassment and/or cyberbullying statutes, namely the First and Fourteenth Amendments. The First Amendment declares that "Congress shall make no law ... abridging the freedom of speech." The Fourteenth Amendment's due process clause imposes the same restriction upon the states, many of whose constitutions have a comparable limitation on state legislative action. Although the First Amendment guarantees free speech, the right is not absolute. Governments impose limitations on many types of speech, including fighting words, false statements of fact, and obscene speech. Moreover, courts distinguish between constitutionally protected speech and other less socially valuable categories of speech. Other examples of unprotected speech include speech that incites others to engage in lawless behavior, constitutes true threats, or is protected by intellectual property laws. The U.S. Supreme Court has decided several cases that provide the framework in which states must act to protect the constitutionality of cyberharassment and/or cyberbullying statutes. The Court has cited three reasons why threats of violence may be outside the First Amendment's protection: "protecting individuals from the fear of violence, from the disruption that fear engenders, and from the possibility that the threatened violence will occur." However, in Watts v. United States , the Court held that only "true threats" are outside the amendment's scope. In Watts , the defendant attended a political rally and made the statement, "I have already received my draft classification ... I am not going. If they ever make me carry a rifle the first man I want to get in my sights is [President] L.B.J." The defendant was arrested and charged with violating 18 U.S.C. § 871(a) for "knowingly and willfully ... [making a] threat to take the life of or to inflict bodily harm upon the President of the United States." The defendant challenged his jury conviction. The U.S. Supreme Court reversed, holding that, although the federal statute was not unconstitutionally overbroad, the defendant's statement was protected because it was not a "true threat." The Court found that the content of Watts's statement, the context in which the statement was made, and the audience's reaction to the statement were all supportive of Watts's claim that he engaged in protected "political hyperbole." The Court recognized that "true threats" should not be afforded First Amendment protection, and stated, "What is a threat must be distinguished from what is constitutionally protected speech." Watts did not establish a bright-line test for distinguishing a true threat from protected speech. As such, lower courts have created varying tests for determining whether speech rises to the level of a true threat. The primary federal cases dealing with threat speech have arisen under 18 U.S.C. § 875, which imposes criminal sanctions on anyone who "transmits in interstate or foreign commerce any communication containing any threat to kidnap any person or any threat to injure the person of another," and 18 U.S.C. § 876, which prohibits threats against the President. The main point of contention among the circuits is whether the focus of a "true threat" test should be on the speaker or the listener. Some circuits evaluate the existence of a threat by determining whether the speaker should reasonably have foreseen his words to be threatening, while others rest the determination on whether a reasonable recipient would be threatened by the statement. For example, in Planned Parenthood v. American Coalition of Life Activists , the 9 th Circuit Court of Appeals upheld a damage award in favor of four physicians and two health clinics that had provided medical services, including abortions, to women. The plaintiffs sued under the Freedom of Access to Clinic Entrances (FACE), a federal statute that gives aggrieved persons a right of action against whomever by "threat of force ... intentionally ... intimidates any person because the person is or has been ... providing reproductive health services." The defendants had published "WANTED," "unWANTED," and "GUILTY" posters with the names, photographs, addresses, and other personal information of abortion doctors, three of whom were subsequently murdered by abortion opponents. The defendants also operated a "Nuremberg Files" website that listed approximately 200 people under the label "ABORTIONIST," with the legend: "Black font (working); Greyed-out Name (wounded); Strikethrough (fatality)." The posters and website contained no language that literally constituted a threat, but, the court found, "they connote something they do not literally say," namely "You're Wanted or You're Guilty; You'll be shot or killed," and the defendants knew that the posters had caused abortion doctors to "quit out of fear for their lives." In reaching its decision, the court concluded that a "true threat" is "a statement which, in the entire context and under all the circumstances, a reasonable person would foresee be interpreted by those to whom the statement is communicated as a serious expression of intent to inflict bodily harm upon that person." Based upon the aforementioned constitutional framework, it is likely that cyberstalking, cyberharassment, and/or cyberbullying statutes may be deemed constitutionally deficient if the situation does not rise to the level of a "true threat" under most circumstances. This analysis may be different depending on whether the challenged language is contained in a state statute or school policy. School officials are using cyberharassment and cyberbullying policies to take disciplinary action against students, including suspensions and expulsions. When students and/or parents have challenged schools' disciplinary response to students' "offensive" expression, courts have relied on Supreme Court precedent. While students generally retain the protections of the First Amendment, these protections may not always mirror the constitutional protections afforded in other contexts. For example, in Tinker v. Des Moines Independent Community School District , the Court held that student expression may be regulated only if it would substantially disrupt school operations or interfere with the rights of others. In Tinker , students wore black armbands to school to protest the United States' involvement in Vietnam, despite knowledge that such action was in violation of school policy. The students were asked to remove the armbands, and upon their refusal were suspended until they came to school without the armbands. Thereafter, the students filed a complaint seeking to enjoin the school district from disciplining them. The district court dismissed the complaint, concluding that the school's policy against armbands was reasonable to prevent disturbance of school discipline. On appeal, the U.S. Supreme Court stated that the wearing of armbands for the purpose of expressing different viewpoints is the type of symbolic act within the protection of the First Amendment. Specifically, the Court ruled that "First Amendment rights, applied in light of the special characteristics of the school environment, are available to teachers and students. It can hardly be argued that either students or teachers shed their constitutional rights to freedom of expression at the schoolhouse gate." The Court subsequently refined the Tinker rationale as it applies to verbal expression or "pure speech." In Bethel School District 403 v. Fraser , the Court ruled that school officials had the authority to discipline a student for violating school rules by delivering a lewd speech at a school assembly. In Fraser , a high school student gave a nominating speech on a classmate's behalf during an official school-wide assembly for student government elections. In this speech, the student used sexual innuendos. Reaction to the speech was mixed; some students yelled and simulated sexual acts, while other students and teachers were offended. The student was suspended for three days and prohibited from speaking at graduation. In deciding this case, the Court shifted focus from the students' rights articulated in Tinker , but instead emphasized the school's duty to inculcate habits and manners of civility and teach students the boundaries of socially appropriate behavior. In addition, the Court noted the importance of protecting minors from vulgar, lewd, or indecent language. As such, the Court concluded that the nomination speech had a disruptive effect on the education process, and that it was up to school officials to determine what manner of speech in the classroom or in school assembly is appropriate. While it is undisputed that the First Amendment does not protect "offensive" speech while on school grounds, courts are less clear when the speech occurs off school premises. For example, in J.S. v. Bethlehem Area School District , an 8 th grader created a website that contained derogatory remarks regarding a math teacher and a principal. Most of the website was devoted to ridiculing the math teacher, comparing her to Adolph Hitler and making fun of her physical appearance. In addition, the site contained a solicitation for contributions to pay for a "hit man." School officials subsequently expelled the student, citing the extreme emotional distress suffered by the math teacher and the disruption the website caused at the school. The student argued that his website was protected speech. In reviewing the case, the Pennsylvania Supreme Court decided two issues: (1) whether the student's speech constituted a true threat; and (2) whether the Tinker and Fraser standards permit a school district to discipline a student for off-campus speech. In addressing the "true threat" issue, the court determined that, although the website was in extremely poor taste, it was not a "true threat." Specifically, the court stated that "[w]e believe that the [w]ebsite, taken as a whole, was a sophomoric, crude, highly offensive and perhaps misguided attempt at humor or parody. However, it did not reflect a serious expression of intent to inflict harm," as the site focused primarily on the teacher's physical appearance, utilizing cartoons, hand drawings, and a reference to Adolph Hitler. The court then addressed whether First Amendment jurisprudence permitted the school to discipline a student for off-campus speech. It dismissed the argument that the website was off-campus speech beyond the school's jurisdiction. Specifically, the court stated that "[w]e find there is a sufficient nexus between the [w]ebsite and the school campus to consider the speech as occurring on-campus." The court made this determination because the student had accessed the site at school, showed it to a fellow student, and informed other students about the site. The court then reasoned that school officials could punish the student under the Tinker or Fraser standard —under the Fraser standard because the speech on the website was vulgar and highly offensive, and under the Tinker standard inasmuch as the website caused a substantial disruption of school activities. Similarly, in Wisniewski v. Board of Ed. , the court affirmed the school district's suspension of an 8 th grade student who had disseminated to friends an instant message icon showing a pistol firing a bullet at his English teacher, accompanied by the words, "Kill Mr. Van der Molen." The student created the icon a couple of weeks after his class had been informed of a zero-tolerance policy regarding threats. The student also sent messages with the "objectionable" icon to approximately 15 other students, but not to any school personnel. Another student informed and provided the English teacher with a copy of the icon. The English teacher forwarded the information to the high school and middle school principals, as well as to law enforcement personnel. The student accepted responsibility for the icon's creation and was subsequently suspended for five days. The student was allowed to return to school pending a superintendent's hearing. The English teacher requested and was allowed a class reassignment. A police investigator as well as a psychologist determined that the student intended the icon to be a joke and not a threat toward the English teacher. However, a hearing officer found the determination unpersuasive and irrelevant. She concluded that the student had engaged "in the act of sending a threatening message to his buddies, the subject of which was a teacher." In addition, she concluded that his action had disrupted school operations by "requiring special attention from school officials, replacement of the threatened teacher, and interviewing pupils during class time." The student was subsequently suspended for a semester. The student's parents filed suit against the school board and the superintendent, seeking damages under 42 U.S.C. § 1983, claiming that the student's icon was protected speech under the First Amendment and not a true threat. The district court dismissed the claim. The appellate court declined to address whether the icon was a true threat. Instead, the court applied the Tinker standard and concluded that even though the icon's creation and transmission had occurred off campus, it was reasonably foreseeable that school officials would find out about the icon and that it would "materially and substantially disrupt the work and discipline of the school." Thus, the appellate court concluded that the First Amendment claim had been properly dismissed. However, in Beussink v. Woodland R-IV School District , a U.S. district court held that the plaintiff had demonstrated the likelihood of success of his First Amendment claim. In this case, a high school student was suspended for the contents of a website that contained vulgar criticism directed toward school officials. The student had created the website at home on his personal computer without using school facilities or resources. However, one of the student's friends became angry with him, accessed the website at school and showed it to the school's computer science teacher. The teacher informed the principal about the site. Immediately after viewing the site, the principal suspended the student. Due to the school's policy regarding absenteeism, the suspension resulted in the student failing all his classes. In reviewing the student's suspension, the court determined that the evidence presented did not establish that Beussink had been disciplined because of the fear of disruption or interference with school discipline, but rather because the principal had been upset by the website's content. Thus, the court concluded that the website did not materially and substantially interfere with school discipline, as Tinker requires. As such, the court granted a preliminary injunction against the school district. In Layshock v. Hermitage School District , the court held that a student's speech right had been violated when the school district failed to demonstrate a nexus between the student's parody of the principal and a substantial disruption of the school environment. The student created the "parody profile" of his principal on MySpace by using his grandmother's home computer. This parody profile displayed the principal's picture, which Layshock had copied from the school's website. The template for the profile allowed users to fill in background information and include answers to specific questions. The student answered the questions with what were alleged to be objectionable answers. For example, in response to a question regarding alcohol use, the profile read "big keg behind my desk." The profile also referred to the principal as a "big steroid freak" and reflected that the principal was "too drunk to remember" his birthday. The principal subsequently discovered another parody profile created by another student. Apparently, there were at least three parody profiles. Evidence was presented that indicated that other students had viewed Layshock's parody profile during school hours. In an attempt to curtail the creation of parody profiles, the school officials sought to block students' access to MySpace. The principal contacted MySpace directly, and succeeded in having the profiles disabled. Students joked and talked about the parody profiles while in school. Teachers interviewed students to determine the profiles' creator or creators. When asked, Layshock admitted to creating one profile. Layshock was informed that he was being considered for disciplinary action for "Disruption of the normal school process: Disrespect: Harassment of a school administrator via a computer/internet with remarks that have demeaning implications: Gross misbehavior: Obscene, vulgar and profane language." At a subsequent hearing, the student received a 10-day out-of-school suspension. Additional discipline included banning him from attending or participating in any events sponsored by the school district, and prohibiting him from participating in the high school graduation ceremony. The court concluded that there were several gaps in the causation link between the student's off-campus conduct and any material and substantial disruption of school operations. The school district failed to demonstrate which parody profile caused the alleged disruption, as there were three other profiles available on MySpace during the same time frame. In addition, the court noted that the school district had failed to demonstrate that the alleged disruption was due to Layshock's parody and not the administrators' reactions. Furthermore, the court determined that the actual disruption had been rather minimal, as "no classes were cancelled, no widespread disorder occurred, there was no violence or student disciplinary action." As such, the court concluded that the school administrator lacked the authority to punish Layshock for his off-campus creation of the parody profile. Another constitutional constraint on legislators and school administrators when drafting legislation or school policies aimed at curtailing "cyberharassment" and/or "cyberbullying" is the Fourteenth Amendment. Its provisions are as follows: All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. The Fourteenth Amendment's due process clause includes two distinct aspects: substantive due process and procedural due process. Procedural due process, based on principles of "fundamental fairness," addresses which legal procedures are required to be followed in state proceedings. Relevant issues include notice, opportunity for hearing, confrontation and cross-examination, discovery, basis of decision, and availability of counsel. Criminal statutes that lack sufficient definiteness or specificity may be held "void for vagueness." Under this doctrine, a governmental regulation or statute may be declared void if it fails to give a person adequate warning that his or her conduct is prohibited or if it fails to set out adequate standards to prevent arbitrary and/or discriminatory enforcement. In Grayned v. City of Rockford , the U.S. Supreme Court stated that [v]ague laws offend several important values. First, because we assume that man is free to steer between lawful and unlawful conduct, we insist that laws give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly. Vague laws may trap the innocent by not providing fair warnings. Second, if arbitrary and discriminatory enforcement is to be prevented, laws must provide explicit standards for those who apply them. A vague law impermissibly delegates basic policy matters to policemen, judges, and juries for resolution on an ad hoc and subjective basis, with the attendant dangers of arbitrary and discriminatory applications. A statute may be so vague or threatening to constitutionally protected activity that it can be pronounced facially unconstitutional. For example, in Papachristou v. City of Jacksonville , a unanimous Court struck down as facially invalid a vagrancy ordinance that punished dissolute persons who go about begging, ... common night walkers, ... common railers and brawlers, persons wandering or strolling around from place to place without any lawful purpose or object, habitual loafers, ... persons neglecting all lawful business and habitually spending their time by frequenting houses of ill fame, gaming houses, or places where alcoholic beverages are sold or served, persons able to work but habitually living upon the earnings of their wives or minor children. The Court found the statute facially invalid, as it failed to provide fair notice or require specific intent to commit an unlawful act. The Court concluded that the statute permitted arbitrary and erratic arrests and convictions, provided police officers too much discretion, and criminalized activities that are normally innocent. A Texas appellate court applied the aforementioned principles in finding a state harassment statute unconstitutional. In Karenev v. Texas , the Court of Appeals of Texas held that a state harassment statute that criminalized the sending of repeated "electronic communications in a manner reasonably likely to harass, annoy, alarm, abuse, torment, embarrass, or offend another" was unconstitutionally vague, and thus the statute was void. As such, the appellate court reversed the court's judgment and rendered judgment of acquittal. In this case, the defendant, after moving out of the marital residence, sent his estranged wife (Elena) a series of e-mail messages, all written in Bulgarian. In some of these messages, as translated, the defendant predicted his wife's future and stated that "he would raise their child, Elena's mother would be paralyzed, and Elena would be in either a mental hospital or prison." In another e-mail, the defendant called Elena "not even a regular slut ..., something much scarier," "a pathological li[ar], a dirty whore, a filthy thief, a rotten user, a sick nymphomaniac, a mental case, and a devil's work." He also told her, "It is about time to pay for all of your filthy deeds which you have committed during your pathetic life!" At trial, the defendant testified that during his travels to Bulgaria he had run into fortunetellers who asked him to relay the messages to Elena regarding her future. Presumably, these were fortunetellers Elena had relied on previously. A jury subsequently convicted the defendant on one count of harassment. The defendant challenged the constitutionality of the harassment statute. The statute, as previously noted, stated in part that a person commits harassment "if with intent to harass, annoy, alarm, abuse, torment, or embarrass another he sends repeated electronic communications in a manner reasonably likely to harass, annoy, alarm, abuse, torment, embarrass, or offend another." The court, relying on precedent, found that the portions of the harassment statute establishing as an offense the sending of electronic communications that "annoy or alarm" are unconstitutionally vague. Also, the court noted that the terms "harass," "abuse," "torment," and "embarrass" are "susceptible to uncertainties of meaning." In addition, the court determined that the statute fails to "establish a clear standard for whose sensibilities must be offended." The aforementioned principles are also applicable in the school setting. For example, in Flaherty v. Keystone Oaks School District , the court held that the breadth of student handbook policies pertaining to discipline and technology were overreaching, thus violating students' free speech rights. In addition, the court held that the policies were unconstitutionally vague in definition and as applied. In this case, the student was disciplined for posting Internet messages on a message board devoted to high school volleyball in western Pennsylvania. The site was not sponsored or affiliated with the school district. One of the messages stated that one of the opposing players' mothers was a "bad teacher." When school administrators were informed of the postings, the student faced disciplinary action. In granting summary judgment, the court found the school policies overbroad for several reasons. First, the polices were not referred to or incorporated in the student handbook. In addition, the policy "authorizes discipline where a student's expression that is abusive, offending, harassing, or inappropriate, interferes with the educational program of the schools." The court concluded that the policy did not comply with the Tinker requirement that such discipline should be reserved for those circumstances that cause a substantial disruption to school operations. The court noted that even if it did not find the policy overbroad, it would find the student handbook policies unconstitutionally vague, as the terms "abuse, offend, harassment, and inappropriate" were not defined in any significant manner. In addition, the court found the policies not only vague in definition but also in application. The court noted that school personnel had varying interpretations of the policies. As such, the court concluded that the policies were vague enough to result in arbitrary enforcement. Therefore, the court concluded that the student handbook policies did not provide the student with adequate warning of proscribed conduct. With the proliferation of potential uses and abuses of the Internet, the crime of Internet harassment presents challenges for law enforcement personnel, legislators, educators, and parents. These challenges are exacerbated by a lack of uniformity in defining the terms cyberharassment and cyberbullying. In addition, jurisdictional limits and the anonymity of the Internet sometimes make it difficult for law enforcement personnel to identify, locate, arrest, and prosecute alleged offenders. While states generally assert jurisdiction over law enforcement authority within their borders, Congress may legislate, pursuant to the Commerce Clause, Internet activities. Or Congress may elect to adopt a wait-and-see approach, monitoring state Internet harassment-related activities and the types of behavior prosecuted. Legislators and school administrators continue to grapple with ways of combating cyberbullying, in light of recent high-profile teen suicides, while maintaining the free flow of information and opinion on the Internet. As Internet harassment may cause its victims emotional harm as opposed to physical harm, legislators must determine what level, if any, of harassment should be criminalized. While traditional harassment statutes may provide some guidance in drafting legislation and/or school policies, it is important to differentiate between the one-to-one communication of a telephone or e-mail communication and the one-to-many communication of a posting on a public website. In drafting legislation or school policies, legislators and school administrators must consider the constitutional constraints of the First and Fourteenth Amendments. Statutes and school policies must be narrow enough not to infringe upon protected speech. In addition, such restrictions must provide adequate notice of what activities constitute Internet harassment. While school administrators arguably have more leeway in adopting Internet harassment policies, they are still generally limited to restricting speech that substantially or materially disrupts the educational process. To facilitate this goal, it may be desirable for legislation and school policies to include definitions for all relevant terms such as "annoy," "harass," "repeated communication," "alarm," or "torment," as these may be too vague or subjective, which may lead to an inordinate amount of prosecutorial discretion. | While Congress, under the Commerce Clause, has authority to regulate the Internet, Internet "harassment" presents new challenges for legislators in terms of defining and prosecuting such activity. Definitions for these terms vary based upon jurisdiction. Internet harassment usually encompasses "cyberstalking," "cyberharassment," and/or "cyberbullying." If one were to categorize these offenses based on danger or greatest potential harm, cyberstalking would be the most dangerous, followed by cyberharassment and then cyberbullying. Generally, cyberstalking includes a credible threat of harm, while the other two do not. Cyberharassment and/or cyberbullying may cause embarrassment, annoyance, or humiliation to the victim. Some individuals use the terms cyberharassment and cyberbullying interchangeably, while others reserve the term cyberbullying to describe harassment between minors, usually within the school context. While laws that address cyberstalking exist at both the federal and state levels, the question of how to handle situations that do not involve a credible threat of harm against minors has drawn congressional interest. Recent high-profile cases involving teen suicides illustrate the harmful effects of Internet harassment on young people. To address the problem, H.R. 1966 was introduced in the 111th Congress. This bill would amend title 18 of the United States Code by making cyberbullying a federal crime with a punishment of up to two years of imprisonment and/or a fine. Legislators have traditionally enacted laws prohibiting child pornography, child luring, and child sexual exploitation. However, Internet harassment potentially causes emotional harm to its victims as opposed to the physical harm inflicted by the aforementioned activities. In addressing these concerns, legislators strive to maintain a balance between enacting statutes broad enough to cover undesirable behavior, while simultaneously narrow enough to prevent infringement upon an individual's right to express oneself under the First Amendment. The First Amendment protects certain forms of speech, but this protection is limited within the school environment. While school administrators have more flexibility in disciplining children whose speech disrupts the learning environment, this flexibility does not cover all forms of Internet harassment. As Internet harassment is a relatively new phenomenon, courts are just beginning to determine the constitutionality and scope of these school policies and statutes. This report discusses Internet crimes, such as cyberbullying, cyberharassment, and cyberstalking, along with the limitations of such laws in the current environment. It will be updated as events warrant. |
Most of the funding for the activities of the Department of Housing and Urban Development (HUD) comes from discretionary appropriations provided each year in the annual appropriations acts enacted by Congress. HUD's programs are primarily designed to address housing problems faced by households with very low incomes or other special housing needs. These include several programs of rental assistance for persons who are poor, elderly, and/or have disabilities. Three rental assistance programs—Public Housing, Section 8 Vouchers, and Section 8 project-based rental assistance—account for the majority of the department's non-emergency funding (about three-quarters of total funding in FY2010). Two flexible block grant programs—HOME and Community Development Block Grants (CDBG)—help communities finance a variety of housing and community development activities designed to serve low-income families. Other, more specialized grant programs help communities meet the needs of homeless persons, including those with AIDS. HUD's Federal Housing Administration (FHA) insures mortgages made by lenders to home buyers with low downpayments and to developers of multifamily rental buildings containing relatively affordable units. FHA collects fees from insured borrowers, which are used to sustain the insurance fund and offset its administrative costs. Surplus FHA funds have been used to offset the cost of the HUD budget. In recent years the HUD budget has also received significant amounts of emergency supplemental funding. Almost $20 billion was provided through HUD's budget for recovery assistance to communities affected by Hurricane Katrina and the other hurricanes of 2005. The economic stimulus legislation enacted in 2009 ( P.L. 111-5 ) provided over $13 billion to HUD's programs. Table 1 presents total enacted appropriations for HUD over the past five years, including emergency appropriations. HUD's budget authority (not including emergency supplemental funding, discussed later) has increased by about 40% since 2002. As demonstrated by the line in Figure 1 , the rate of growth had increased in recent years. In FY2004 and FY2005, year-over-year growth was relatively flat (under 2%), but, beginning in FY2006, HUD's budget had year-over-year increases of 5% or more each year, with growth of nearly 10% in FY2009 and nearly 12% in FY2010. The FY2011 appropriations act reversed the recent trend of increasing budget authority by decreasing HUD's budget authority by nearly 11% compared to FY2010. Adjusting for inflation, the growth in "real" funding (shown by the gray bars in Figure 1 ) has been less robust. Over the 10-year period, adjusting for inflation, HUD's budget grew by about 15%. Through FY2008, the year-over-year growth never exceeded about 3.5%, and in two years there were declines. Most of the growth over the previous 10 years came in two years: FY2009 and FY2010, although about half of that growth was eliminated with the reductions in FY2011. As shown in Figure 2 , HUD's funding is made up of several components. The components of HUD's annual funding, or budget authority, include regular annual appropriations, emergency appropriations, rescissions, and offsets. HUD's programs and activities are funded almost entirely through regular annual appropriations , also referred to as discretionary appropriations. The amount provided in the annual appropriations acts each year generally determines how much funding will be obligated and eventually spent for each of HUD's programs and activities. In some years, Congress will also provide emergency appropriations , usually in response to disasters, through one or more of HUD's programs. These funds are generally provided outside of the regular appropriations acts—often in emergency supplemental spending bills—and are generally provided in addition to regular annual appropriations. Congressional appropriators are generally subject to limits on the amount of new non-emergency discretionary funding they can provide in a year. One way to stay within these limits is to provide less in regular annual appropriations. Another way is to find offsets. A portion of the cost of HUD's regular annual appropriations acts is generally offset in two ways. The first is through rescissions , or cancellations of unobligated or recaptured balances from previous years' funding. The second is through offsetting receipts and collections , generally derived from fees paid by HUD partners or clients. The interaction between new appropriations and offsets provided through rescissions, receipts, and collections determines HUD's total net budget authority. Net budget authority is also the "cost" of the HUD budget, as estimated by the Congressional Budget Office (CBO) in its scorekeeping process. The total amount of net budget authority provided to HUD each year, while important for federal budgeting purposes, is not necessarily the best measure of the amount of funding that is being provided for HUD's programs and activities. Because of the role of offsets, declining or increasing net budget authority does not necessarily mean declining or increasing regular appropriations. As shown by the line in Figure 2 , which repeats the data shown by the line in Figure 1 , net non-emergency budget authority for HUD increased 40% between FY2002 and FY2011, from over $29 billion to over $41 billion. However, the overall increase in net new non-emergency budget authority masks several important trends. As noted earlier, between FY2002 and FY2010, HUD's net non-emergency budget authority increased by 57%. During that period, regular annual appropriations, which is the amount provided by Congress to fund HUD's programs and activities, grew by only 37% (shown by the dark green bars in Figure 2 ). During the same period, the amount available in offsetting receipts and collections and the amount rescinded, which Congress uses to reduce the cost of providing new appropriations, declined by more than 70% and 96%, respectively (shown by the dark and light red bars in Figure 2 ). In summary, from FY2002-FY2010, appropriations were increasing, but the amount of offsets and rescissions available to offset the cost of those appropriations was decreasing. That trend was reversed in FY2011, when Congress cut the amount of appropriations relative to FY2010 and, at the same time, the amount of available offsets increased. In terms of net budget authority, HUD's funding was cut by 11% in FY2011 compared to FY2010. However, regular appropriations in FY2011 were only cut by about 4%. The difference between the cut in net budget authority and appropriations is attributable to a 43% increase in offsets (discussed later in this section). The growth in regular appropriations during this period (shown by the dark green bars in Figure 2 ) is largely attributable to growth in HUD's Section 8 tenant-based voucher and project-based rental assistance programs, which combined are the largest component of the HUD budget. As can be seen in Figure 3 , from FY2002 to FY2011 appropriations for the combined Section 8 programs grew by 77%, while combined funding for all other HUD programs and activities declined by about 6%. During this period, the Section 8 programs went from accounting for about 46% of HUD's regular appropriations to accounting for over 60% of HUD's regular appropriations. As can be seen in the chart, for a number of years Section 8 funding grew while combined funding for all other HUD programs declined. In FY2008, FY2009, and FY2010, combined funding for other HUD programs began to grow, but it declined sharply in FY2011. As noted earlier, there are two Section 8 programs: tenant-based rental assistance (vouchers) and project-based rental assistance. They were funded in the same account for many years, but since FY2005 they have been funded separately. As is shown in Figure 3 , appropriations for the Section 8 programs combined have grown by nearly 80% from FY2002 to FY2011. However, it is important to note that the rates of growth have not been the same across the two Section 8 programs. As shown in Figure 4 , appropriations for the Section 8 project-based rental assistance (PBRA) program grew by 75% from FY2005 to FY2011; appropriations for the Section 8 tenant-based rental assistance (TBRA) program, or Section 8 Housing Choice Voucher program, grew only about one-third as much during that period, by about 24%. The growth in appropriations for PBRA is largely attributable to the renewal of old project-based Section 8 contracts when they expire. Those contracts were originally funded in the 1970s and 1980s with long-term appropriations. The contracts typically require new annual appropriations in order to be renewed. The vast majority of contracts are now funded with annual appropriations, but some expirations continue to occur and require new appropriations each year. As discussed earlier and shown in Figure 2 , between FY2002 and FY2010 the amount of offsetting receipts declined by about 70%. That decline was largely attributable to declines in offsetting receipts available from the FHA mortgage insurance programs. The amount available from FHA to offset the cost of new HUD appropriations had declined from a high of over $3.5 billion in FY2004 to well under $0.5 billion in FY2010. That trend completely reversed in FY2011 when the amount of offsetting receipts from FHA increased to over $4 billion, the highest level in a decade. The increase is attributable to FHA's increasing market share following the downturn in the economy, as well as to policy changes made by FHA that increased the fees charged to new FHA-insured borrowers. When no FY2011 appropriations legislation was enacted before the beginning of the fiscal year (October 1, 2010), the 111 th Congress enacted a series of continuing resolutions (CRs) that continued funding at the FY2010 level for most accounts in the federal budget (including all of the accounts in HUD's budget). The final CR of the 111 th Congress, P.L. 111-322 , was slated to expire at the earlier of March 4, 2011, or enactment of FY2011 appropriations legislation. In addition to continuing funding for HUD programs, P.L. 111-322 also extended, through the end of FY2011, FHA mortgage limit increases that would otherwise have expired in December 2010. In the week before funding under P.L. 111-322 was scheduled to expire, the 112 th Congress approved a short-term CR ( H.J.Res. 44 , P.L. 112-4 ) to fund the government through March 18, 2011. This short-term CR continued funding for all HUD programs at their FY2010 levels except for the Community Development Fund, which was reduced to eliminate funding for Economic Development Initiative (EDI) and Neighborhood Initiative (NI) earmarks. In the week before funding under P.L. 112-4 was scheduled to expire, Congress approved another short-term CR, which continued funding through April 8, 2011 ( H.J.Res. 48 , P.L. 112-6 ). It maintained funding at the FY2010 levels for most HUD programs, but, like H.J.Res. 44 , it provided no funding for EDIs and NIs. Further, P.L. 112-6 includes no funding for HUD's Brownfields Redevelopment program. Congress enacted one final short-term continuing resolution ( P.L. 112-8 ), before enacting a final FY2011 appropriations law. On April 15, 2011, the Department of Defense and Full-Year Continuing Appropriations Act of 2011 was signed into law ( P.L. 112-10 ). Division A provided year-long FY2011 appropriations for the Department of Defense; Division B provided year-long FY2011 appropriations for the remaining government agencies, including HUD. It funded some HUD programs at FY2010 levels, but it reduced funding for other programs and increased funding for the two Section 8 programs. The act also included an across-the-board 0.2% rescission from all non-defense discretionary accounts, including those in HUD's budget. The law provided $41.1 billion in net new budget authority for HUD, a decrease of about 11% from the FY2010 enacted level. However, the decrease in net new budget authority only represented a 4% decrease in appropriations for HUD programs in aggregate, due to a substantial increase in offsetting collections and receipts from the FHA mortgage insurance programs from FY2010 to FY2011. The Consolidated and Further Continuing Appropriations Act of 2012 ( H.R. 2112 , P.L. 112-55 ) was signed into law on November 18, 2011. The law provides year-long appropriations for several government agencies, including HUD, and provides continuing appropriations through December 16, 2011, for the remaining government agencies. In terms of funding for HUD, the act provides about $37.3 billion in net funding for HUD, which is about 9% less than was provided in FY2011. However, part of the decrease in net funding is attributable to increases in offsetting receipts and rescission. Looking only at gross appropriations, total funding for HUD's programs was decreased by about 2%. On September 21, 2011, the Senate Appropriations Committee reported an FY2012 THUD funding bill ( S. 1596 ). It included about $3 billion less in net budget authority (reflecting increased offsetting receipts) and about $1.3 billion less in regular appropriations (not reflecting rescissions) for HUD than was provided in FY2011. On October 20, 2011, the Senate began consideration of the provisions of S. 1596 as a part of the so-called "Minibus." The Minibus, S.Amdt. 738 to H.R. 2112 , includes FY2011 appropriations for those agencies under the jurisdiction of the THUD subcommittee (reflecting S. 1596 ) as well as two other subcommittees (Agriculture and Commerce-Justice-Science). The bill was approved by the full Senate on November 1, 2011. The House Appropriations Committee did not formally report an FY2012 THUD bill; however, on September 7, 2011, the THUD subcommittee released a draft version of its unnumbered bill, which was approved by the subcommittee the next day. According to the subcommittee's press release, the bill included about $3 billion less for HUD than was provided in FY2011 and $4 billion less than was requested by the President. The subcommittee also released a draft committee report and summary table. The draft bill was not formally introduced. In February 2011, the President released his budget request for FY2012. It included a request for nearly $47.9 billion in gross new appropriations for HUD in FY2012. After accounting for rescissions of prior-year unobligated balances and offsets available from the Federal Housing Administration (FHA) mortgage insurance programs, the President's request for net new budget authority for HUD in FY2012 totaled over $42 billion. Table 2 includes an account-by-account comparison of the President's request and the final FY2012 law. The Section 8 Housing Choice Voucher program is funded through the tenant-based rental assistance account; it is both the largest assistance program administered by HUD and the largest account in HUD's budget. Most of the funding provided to the account each year is for the annual renewal of the roughly 2 million vouchers that are currently authorized and being used by families to subsidize their housing. The account also provides funding for the administrative costs incurred by the PHAs that administer the program. The account is funded using both current-year appropriations and advance appropriations provided for use in the following fiscal year. (For more information about the program, see CRS Report RL34002, Section 8 Housing Choice Voucher Program: Issues and Reform Proposals , by [author name scrubbed].) The President's budget requested over $19.2 billion for Section 8 vouchers in FY2012, which is over $800 million more than was provided in FY2011. The President's budget documents indicated that the amount requested would be sufficient to fund all existing vouchers expected to be in use by families in FY2012. It also requested funding to create new vouchers to serve homeless veterans, families involved in the child welfare system, and new interagency collaborative demonstrations between HUD and other agencies for homeless and at-risk families with children and persons with disabilities. (For more information on the President's request for funding for new vouchers to serve homeless veterans, homeless and at-risk families with children, and homeless individuals with disabilities, see the " Homelessness Assistance " section later in this report.) P.L. 112-55 provides $18.9 billion for the tenant-based rental assistance account, of which $17.2 billion is for voucher renewals. While the amount provided for renewals in FY2012 would appear to be higher than the amount provided in FY2011, the law rescinds $650 million from the advance appropriation provided in FY2011 for use in FY2012. As a result, the total amount of funding available for the TBRA account in CY2012—the program is funded and managed in a calendar year cycle—is $18.3 billion, of which $16.6 billion is for voucher renewals. In order to offset the impact of the lower funding level attributable to the rescission, the law directs the Secretary of HUD to reduce the funding allocation to those PHAs with excess balances in their reserve accounts (referred to as net restricted assets, or NRA). The intent of this offset is to require PHAs to spend down their reserves equivalent to the rescission so that total funding for the program in CY2012 is equivalent to the pre-rescission funding level. This funding mechanism—a rescission from the advance appropriations offset against agency reserves—has been used in prior years, most recently in FY2009. The Senate bill, S. 1596 , had proposed a similar strategy, although the rescission would have been $100 million higher. The House draft did not propose such a rescission. The public housing program provides publicly owned and subsidized rental units for very low-income families. Created in 1937, it is HUD's oldest housing assistance program, and arguably HUD's most well-known assistance program. (For more information, see CRS Report R41654, Introduction to Public Housing , by [author name scrubbed].) Although no new public housing developments have been built for many years, Congress continues to provide funds to the more than 3,100 public housing authorities (PHAs) that own and maintain the existing stock of more than 1 million units. Public housing receives federal funding under three accounts, which, when combined, result in public housing being the third-largest funded program in HUD's budget (following the two Section 8 programs, discussed later in this report). Through the operating fund, HUD provides funding to PHAs to help fill the gap between tenants' contributions toward rent and the cost of ongoing maintenance, utilities, and administration of public housing. Through the capital fund, HUD provides funding to PHAs for large capital projects and modernization needs. HOPE VI is a competitive grant program that provides funding to help demolish and/or redevelop severely distressed public housing developments, with a focus on building mixed-income communities. In terms of public housing operating funding, the President's FY2012 budget requested a 14% reduction compared to the final FY2011 funding law. The amount requested was less than what would be needed to "fully fund" the amount PHAs would be eligible to receive under the operating fund formula (a proration of about 80%). The President's budget proposed to supplement the requested funding level by offsetting the funding allocations to certain PHAs (those that have reserves above a certain level). Under the proposal, PHAs would not have received an even proration level of 80%; instead, PHAs with large reserves would receive less than 80% of the funding allocation for which they are eligible, and PHAs without large reserves would receive more than 80%. This proposal would effectively force certain PHAs to supplement their reduced funding level by spending down their reserves. The President's budget requested the authority to offset about $1 billion in funding to PHAs with high reserve levels. Adding together the amount of funding requested and assuming the use of $1 billion in reserves, the overall resources available for the program would be close to 100% of formula eligibility. The proposed offset was opposed by PHA industry groups, which contended that the reserves are important assets for those PHAs that have them and that the proposal punishes PHAs that have managed their funding well. HUD contended that, in a limited funding environment, this strategy ensures higher funding levels for those PHAs without the reserves necessary to offset funding reductions. The final FY2012 HUD funding law funds the operating fund at the President's requested level. It includes the requested authority to reduce funding to PHAs with large reserves, but caps that offset at $750 million. The final FY2012 funding law matches what was included in the Senate-passed HUD appropriations bill; the House draft bill had proposed $100 million less than what had been requested by the President and had included a modified version of the offset language. In terms of public housing capital funding, the President's FY2012 budget requested $2.4 billion, about a $100 million decrease compared to FY2010 (a 4% decrease). However, the amount requested by the President was a nearly 19% increase compared to the amount provided in FY2011 ($2 billion). HUD's budget documents note that the department feels that capital funding alone will not be sufficient to meet the backlog of unmet capital needs in public housing, and that the department is pursuing its Transforming Rental Assistance initiative in order to help PHAs leverage private capital. (See " Transforming Rental Assistance " later in this report.) The final FY2012 appropriations law provides less than $1.9 billion for the capital fund. This is the same amount that was proposed by the Senate, but more than $200 million above the amount included in the draft House bill. As in FY2010 and FY2011, the President's FY2012 budget requested no new funding for HOPE VI; instead, it requested $250 million for the Choice Neighborhoods Initiative. Choice Neighborhoods was a new Obama Administration proposal in the FY2010 budget. It is modeled after the HOPE VI program, which provides competitive grants to PHAs to revitalize severely distressed public housing. The Choice Neighborhoods Initiative broadens the scope of HOPE VI by offering competitive grants to revitalize severely distressed neighborhoods, not limited to public housing. In addition to PHAs, local governments, nonprofits, and for-profit developers would be eligible to compete for the funding. In FY2010, Congress provided $200 million to the HOPE VI account, but set aside up to $65 million for a Choice Neighborhoods demonstration. The FY2011 appropriations law reduced the funding level for the HOPE VI account to $100 million, but maintained the Choice Neighborhoods set-aside. The final FY2012 HUD appropriations law provides $120 million for Choice Neighborhoods and no funding for HOPE VI. However, the law requires that $80 million of the amount provided be used for public housing. P.L. 112-55 , the final FY2012 appropriations law, contains a provision limiting the use of funds provided under the act for PHA staff salaries. Specifically, the act prohibits the use of funding appropriated under the act for the public housing program or Section 8 tenant-based voucher program for any PHA staff salaries above level IV of the federal Executive Schedule. A similar, but broader, provision was included in the House draft bill; no similar provision was included in the Senate bill, or in the President's request. The President's budget included a request for several statutory changes that would affect HUD's rental assistance programs, including the public housing and Section 8 programs. Specifically, HUD asked for language that would broaden the definition of "extremely low-income" to reflect the higher of 30% of area median income or the poverty thresholds published by the Department of Health and Human Services (HHS); revise the deductions from income used to calculate rent for elderly or disabled families by increasing the standard deduction and increasing the threshold for deducting medical or related costs; permit the income of "fixed-income" families to be recertified every three years instead of every year; allow higher voucher payment standards for persons with disabilities; permit HUD to make revisions to the way Fair Market Rent is calculated; and permit HUD to run a demonstration to test different models for setting rent in rental assistance programs. Versions of these provisions were included in Section 8 voucher reform legislation considered in the 111 th Congress. HUD estimated that these changes would result in an overall reduction in the cost of HUD rental assistance programs. The final FY2012 HUD appropriations law did not include these proposed policy changes. The Senate bill had included them, whereas the House draft bill had not. President Obama's FY2012 budget again requested funding for a new "Transforming Rental Assistance" initiative, which was initially proposed in the FY2011 budget request. The initiative is designed to streamline HUD's multiple rental assistance programs in order to permit owners of HUD-assisted properties to better leverage outside resources. Specifically, the $200 million requested was to be used to transfer a variety of HUD-assisted housing units with project-based rental assistance from their existing subsidy types to a new form of project-based rental assistance. For FY2012, HUD proposed that TRA be treated as a demonstration, called the "Rental Assistance Demonstration (RAD)" with a rigorous assessment component, under which up to 236,000 units of public housing and other rent-assisted units owned by private property owners could convert to long-term Section 8 contracts or project-based Section 8 vouchers. According to HUD's budget documents, the demonstration would test conversion under RAD as a tool for preserving public and other assisted housing. Further, this new form of rental assistance would feature tenant portability, meaning that families living in units receiving this new form of project-based rental assistance would have the option to take their subsidies with them if they choose to move to a new unit of private market housing. The final FY2012 appropriations law includes language authorizing a modified version of RAD. It will permit up to 60,000 units of public housing and/or Section 8 moderate rehabilitation properties to convert to a project-based Section 8 contract. The law does not contain any direct funding for the demonstration, but does permit HUD to transfer funds from public housing and Section 8 accounts to cover the costs of the conversion. The enacted version of RAD does not specifically include the portability provisions requested in the budget request. The Senate bill had included a version of RAD; the House draft bill had not. P.L. 112-55 also included an assisted housing preservation provision which permits the project-basing of certain tenant protection vouchers. The Community Development Fund (CDF) account funds the CDBG program and several other set-asides. The CDBG program, which was first authorized under Title I of the Housing and Community Development Act of 1974 ( P.L. 93-383 , 42 U.S.C. 5301 et seq. ), is the largest source of federal financial assistance in support of state and local neighborhood revitalization, housing rehabilitation, and economic development activities. For FY2010, CDBG formula funds were awarded to approximately 1,151 entitlement communities, the 50 states, the District of Columbia, Puerto Rico, and the insular areas of Guam, the Virgin Islands, American Samoa, and the Mariana Islands. CDBG assistance may be used to fund eligible activities that meet one of three national objectives: to principally benefit low- and moderate-income persons, to aid in eliminating or preventing slums or blight, or to address an imminent threat to the health and safety of the public. The Administration's FY2012 budget recommended a total funding level of $3.781 billion for programs funded under the CDF account. The proposed funding level represented about an 8% increase above the $3.501 billion appropriated for FY2011. The Administration's FY2012 budget also proposed restructuring the CDF account by minimizing, through transfer or termination, activities not directly related by authorizing statute to the CDBG program. The Administration's budget proposed to eliminate funding for the Neighborhood Initiative (NI) and Economic Development Initiative (EDI) programs; eliminate funding for Section 107 (university programs) activities; transfer its Sustainable Communities Initiative (SCI) to a new stand-alone account. For FY2012, the Administration requested an 11.5% increase in funding for the CDBG formula component of the CDF account, from $3.296 billion appropriated in FY2011 to $3.668 billion, including grants to insular areas. It also sought to fund CDBG grants for Indian tribes at $65 million, as required by the CDBG program's authorizing statute. In addition, the Administration requested $25 million for Rural Innovation Grants and $23 million for Guam beyond the amount it would have received as an insular area grantee. Rural Innovation Funds would have been awarded competitively and targeted to rural areas whose populations do not exceed 20,000 persons to support innovative housing and economic development efforts, while assistance to Guam was intended to address community development needs arising from the relocation of military facilities and personnel to the island. As in previous years, the Administration's budget did not include funding for Economic Development Initiatives and Neighborhood Initiatives grants, two programs subject to congressional earmarks. The Administration stated that it opposed earmarking NI and EDI funds. The House draft bill recommended $3.501 billion for CDF activities, including $3.466 billion for CDBG formula grants to states, local governments, and insular areas; and $35 million for Indian tribes. Although the subcommittee-approved draft bill would have maintained overall CDF appropriations at the FY2011 funding level, the accompanying draft report noted that the report accompanying H.Con.Res. 34 , the FY2012 Budget Resolution, recommended eliminating the program on the grounds that it was not a core federal government function. While the report accompanying the THUD draft bill did not eliminate funding for the CDBG program, it did note that "states and local communities can and should undertake more of their community development activities using state and local taxes. Such a shift will provide better transparency and accountability of local officials, who use taxpayer dollars on local community development activities." The House draft bill would have shifted CDF funding priorities, including eliminating funding for the Administration's Sustainable Communities Initiative, and reducing funding for CDBG Indian Tribes from $64 million appropriated in FY2011 to $35 million. In addition, the bill included a provision that recommended lowering the ceiling on the percentage of funds grantees could use to cover CDBG administrative expenses from the current 20% to 10% of the grantee's CDBG allocation. The Senate bill recommended a substantial reduction in the CDF account. Overall CDF funding would have declined to $3.0 billion, excluding $400 million for CDBG supplemental disaster assistance. The proposed $3 billion appropriations level for CDF activities was $500 million less than appropriated for FY2011 or the House subcommittee draft bill, and about $800 million less than requested by the Administration. The Senate bill recommended $2.851 billion for CDBG formula funding. The final FY2012 HUD appropriations law, P.L. 112-55 , appropriated $3.408 billion for CDF activities, and with the exception of $400 million in CDBG disaster assistance, the act appropriated funds only for core CDBG programs, specifically, $60 million for Indian Tribes, and $2.948 billion for formula grants to states, entitlement communities, and insular areas. The $2.948 billion for CDBG formula grants is about 12% less than appropriated in FY2011, 20% less than requested by the President, and 15% less than recommended by the House, but about 3% more than recommended by the Senate. P.L. 112-55 did not include a provision included in the Senate version of H.R. 2112 , which would have prohibited the use of federal grants, such as CDBGs, from being used to repay other federal loans, such as CDBG Section 108 loan guarantees; and a provision recommended in the House draft bill that would have reduced the percentage of CDBG funds a grantee could use for administrative expenses from 20% to 10%. The act does include a provision directing the Government Accountability Office (GAO) to undertake a study of the effectiveness of the two block grant programs (CDBG and HOME) administered by HUD's Office of Community Planning and Development (CPD). The study is to be completed and presented to Congress within 180 days following the enactment of P.L. 112-55 . The act also directs HUD to submit to Congress, within 120 days following the passage of the act, a progress report on efforts the department has undertaken to improve grantee accountability in the management of programs administered by CPD. In addition, the conference report directs HUD to undertake an analysis of the extent to which CDBG funds are being used to meet the matching fund requirements of other federal programs. In addition to the regular CDBG appropriations for FY2012, P.L. 112-55 includes $400 million in CDBG supplemental disaster assistance. Funds are to be disbursed to states and local governments to manage recovery efforts in areas declared disaster by the President in 2011. These supplemental funds are to be used to assist such states and local governments undertake disaster relief and long-term recovery plans, including those related to the restoration of housing, infrastructure, and economic revitalization. Funds may not be used for activities funded by or eligible for reimbursement by the Federal Emergency Management Agency or the Army Corps of Engineers. In order to receive funds, eligible states and local governments must submit disaster recovery plans detailing the use of funds and how planned activities will contribute to disaster recovery efforts. The act allows HUD to waive statutory or regulatory provisions governing the use of CDBG funds, except those related to fair housing, nondiscrimination, labor standards, and environmental review. In seeking a waiver of CDBG program requirements, grantees must explain why such waiver is necessary to the grantee's recovery efforts. Of that amount, $100 million is exempt from discretionary spending limits imposed by the Balanced Budget and Emergency Deficit Control Act of 1985, as amended by the Budget Control Act, P.L. 112-25 . For more information, see CRS Report R41754, Community Development Block Grants: Funding Issues in the 112 th Congress and Recent Funding History , by [author name scrubbed]. The Section 108 loan guarantee program allows states and entitlement communities to pledge their annual CDBG allocations as collateral in order to help finance redevelopment activities. CDBG entitlement communities and states are allowed to borrow, for a term of up to 20 years, an amount equal to as much as five times their annual CDBG allocations for qualifying activities. As security against default, states and entitlement communities must pledge their current and future CDBG allocations. The Administration's FY2012 budget proposed restructuring the program and doubling its loan commitment ceiling from $250 million in FY2010 to $500 million in FY2012. The Administration's FY2012 budget justifications noted that given the continued difficulties in the credit markets, the proposed increase in funding would help local governments finance large-scale projects at a rate slightly above Treasury yields. In addition to an increase in the loan commitment ceiling, the Administration proposed revamping the program by charging a fee-based assessment to borrowers accessing the program, which would eliminate the need for an appropriated credit subsidy. This proposal was first made by the Administration in its FY2010 budget, but it was rejected by Congress in FY2010 and FY2011 in favor of maintaining the status quo. The House draft bill recommended an appropriation of $6.8 million in credit subsidies in support of $275 million in loan guarantee commitments. The Senate bill recommended $4.960 million in credit subsidies in support of $200 million in loan guarantee commitments. Among the amendments approved for inclusion in the bill was S.Amdt. 796 . Proposed by Senator Coburn, the amendment would have prohibited the use of grants made available under the bill from being used to repay any other federal loans. This amendment has implications for the CDBG program and its companion Section 108 loan guarantee program. Statutory authority governing the Section 108 loan guarantee program allows CDBG funds to be used as collateral to secure and repay Section 108 loan guarantees in case of default. In order to avoid default on Section 108 loan guarantees, states and communities have used CDBG funds to cover revenue shortfalls associated with the repayment of bonds used to finance Section 108 supported projects. For the third year in a row, the Administration failed to win congressional support for its proposal to convert Section 108 loan guarantees to a fee-based program. P.L. 112-55 maintains the program's current structure while appropriating $5.952 million in credit subsidies in support of the $240 million in Section 108 loan guarantee commitments. The act included an additional provision that prohibits a state from diverting proceeds from sale of notes backed by Section 108 loan guarantees to any other community other than the local government that initially sought and received the loan guarantee commitment. It did not include the provision included in the Senate bill that would have prohibited federal funds, such as CDBG, from being used to repay other federal assistance, such as Section 108 loan guarantees. The Administration requested $150 million to fund its multipronged Sustainable Communities Initiative (SCI) in the FY2012 budget. This was the same amount requested by the Administration and approved by Congress for FY2010, the first year of the SCI, but it is $51 million more than the amount appropriated for FY2011. Unlike the FY2010 and FY2011 appropriations for SCI, which were included as subaccounts under the Community Development Fund (CDF), the Administration proposed funding the SCI as a separate appropriation. The Administration's FY2012 request would have been used to fund the program's three components: Regional Integrated Planning Grants. The Administration requested $100 million that would have been competitively awarded to regional organizations in metropolitan areas to support efforts to develop effective models that would integrate the planning requirements of various disciplines critical to the development of sustainable communities. This would be done in collaboration with the Department of Transportation (DOT), the Environmental Protection Agency (EPA), and other federal agencies. Community Challenge Grants (CCGs). The Administration requested $40 million for this component of SCI. Funds would be competitively awarded to communities to reform existing building codes and zoning ordinances with the goal of promoting sustainable growth and discouraging inefficient land use patterns. Research and Evaluation. The Administration requested $10 million to support research efforts focusing on quantifying and evaluating the benefits and tradeoffs related to sustainable communities, including the long-term benefits of Regional Integrated Planning Grants and Community Challenge Grants. In addition, funds would be used to support efforts to improve the technical capacity of entities involved in regional and community planning and development. It should be noted that, as proposed by the Administration, these three initiatives were to be administered through the recently created Office of Sustainable Housing and Communities within HUD. The House draft bill did not include funding for the Administration's SCI, while the Senate bill recommended $90 million for the SCI activities, which was $60 million less than the amount requested by the President and $9 million less than appropriated for FY2011. P.L. 112-55 did not include a specific appropriation for SCI activities. However, the conference report accompanying H.R. 2112 ( P.L. 112-55 ) noted that such activities could be carried out with CDBG and the agency's Transformation Initiative funds. The HOME Investment Partnerships Program provides block grant funding to states and certain localities (known as "participating jurisdictions") to be used for a variety of affordable housing activities. HOME funds can be used for either owner-occupied or rental housing activities, and they must benefit households that are considered to be either low-income (i.e., incomes at or below 80% of area median income) or very low-income (i.e., incomes at or below 60% of area median income). Between the program's inception in 1992 and the end of FY2010, the HOME program has funded nearly 979,000 units of affordable housing and funded tenant-based rental assistance for nearly 234,000 families. The President's FY2012 proposed budget requested $1.65 billion for the HOME program. This represented an increase of $43 million from the enacted FY2011 funding level of $1.607 billion, but a reduction of $175 million from the enacted FY2010 funding level of $1.825 billion. The House draft bill included $1.2 billion for the HOME program, $450 million less than the President's budget request and $400 million less than the enacted FY2011 funding level. The Senate bill included $1 billion for the HOME program, $650 million below the President's budget request and $607 million below the FY2011 enacted level. The Senate bill also included a number of provisions relating to the expenditure of HOME funds. The proposed reductions, and the additional provisions in the Senate bill, were partially in response to concerns raised in an article in the Washington Post related to the use of HOME funds. The article alleged that some HOME funds used for rental housing developments had been mismanaged by participating jurisdictions, and that HUD did not provide sufficient oversight of participating jurisdictions' use of funds. A 2009 HUD Office of the Inspector General (OIG) report also stated that HUD should improve its oversight of HOME funds. HUD maintains that its oversight of the program is adequate, and notes that block grant programs by design delegate much of the responsibility of overseeing the expenditure of funds to the jurisdictions that participate in the program. P.L. 112-55 includes $1 billion for the HOME program, the same amount as the Senate bill, along with the provisions related to the expenditure of HOME funds. The Self-Help and Assisted Homeownership Opportunity Program account provides funds for the Self-Help Homeownership Opportunity Program (SHOP), as well as set-asides for capacity building and for the Housing Assistance Council. SHOP provides funding to eligible nonprofits, such as Habitat for Humanity, to use for acquisition and infrastructure improvement costs related to sweat equity and volunteer-based homeownership programs that benefit low-income families. The President's FY2012 budget proposed eliminating funding for SHOP and funding capacity building in its own account. HUD's FY2012 Congressional Budget Justification noted that the activities funded under SHOP are also activities on which states and participating jurisdictions can choose to use their HOME funds. The House draft bill and the Senate bill both continued to provide funding for SHOP, as did the final enacted law. The House draft bill provided $10.9 million for SHOP, a reduction of nearly $16 million from the FY2011 enacted level of $27 million. The Senate bill included $17 million for SHOP, a decrease of $10 million from FY2011 enacted level. The House draft bill funded capacity building in its own account, while the Senate bill continued to fund capacity building within the SHOP account. P.L. 112-55 provides $13.5 million for SHOP, and continues to provide funding for capacity building within the SHOP account. The primary source of federal funding for housing for homeless individuals and families is the HUD Homeless Assistance Grants, which were most recently reauthorized in the 111 th Congress through the Homeless Emergency Assistance and Rapid Transition to Housing (HEARTH) Act ( P.L. 111-22 ). Prior to enactment of P.L. 111-22 , there were four Homeless Assistance Grants; the new law consolidated three of the grants, so two grants remain: the Emergency Solutions Grants (ESG) program and the new Continuum of Care (CoC) program. In addition, rural communities will have the option of applying for their CoC allocation separately, through a new Rural Housing Stability (RHS) grant program. The ESG program funds the emergency needs of people who are homeless and homelessness prevention activities. The CoC program focuses on the longer-term needs of persons experiencing homelessness, including transitional and permanent housing and supportive services. For FY2012, Congress provided the same amount for the Homeless Assistance Grants that was appropriated in FY2011—$1.9 billion—and less than the amount proposed in the President's budget for FY2012 ($2.4 billion). The language in P.L. 112-55 specifies that the funds appropriated are for the new programs authorized by the HEARTH Act. Not less than $250 million is to be used for the ESG program (an increase from $225 million in FY2011), and nearly $1.6 billion is to be used for the CoC and RHS grants. The conference report accompanying P.L. 112-55 ( H.Rept. 112-284 ) noted concern that HUD had not yet implemented the new HEARTH Act programs, and directed that HUD "publish at least interim guidelines for the Emergency Solutions Grants and Continuum of Care this fiscal year and to implement the new grant programs as soon as possible, so that the updated policies and practices in HEARTH can begin to govern the delivery of homeless assistance funding." While draft regulations for the ESG program have been released, HUD has yet to release regulations regarding the CoC program. Additional funding for homeless veterans in FY2012 is also provided through the Section 8 tenant-based rental assistance account. Congress has funded Section 8 vouchers for homeless veterans through the tenant-based account since FY2008, providing total funding sufficient to support more than 30,000 vouchers for one year ($275 million from FY2008 through FY2011). In P.L. 112-55 , Congress appropriated another $75 million for Section 8 vouchers for homeless veterans, which is expected to support an additional 10,000 vouchers. Each of the funding proposals for FY2012—the House draft bill, S. 1596 , and the President's budget—had also proposed funding these vouchers at $75 million. In addition, for the second year in a row, the President's budget would have funded a demonstration program in which HUD would have collaborated with the Department of Health and Human Services (HHS) to fund vouchers for homeless individuals with physical and mental health issues and with the Department of Education (ED) to fund vouchers for homeless families with children. The budget proposed $57 million for the demonstration program, and while the Senate bill would have included $5 million for this proposal, neither the House draft bill nor P.L. 112-55 included the demonstration. The project-based rental assistance account provides funding to administer and renew existing project-based Section 8 rental assistance contracts between HUD and private multifamily property owners. Under those contracts, HUD provides subsidies to the owners to make up the difference between what eligible low-income families pay to live in subsidized units (30% of their incomes) and a previously agreed-upon rent for the unit. No new contracts have been entered into under this program since the early 1980s. When the program was active, Congress funded the contracts for 20- to 40-year periods, so the monthly payments for owners came from old appropriations. However, once those contracts expire, they require new annual appropriations if they are renewed. As more contracts expire, and assuming the owners choose to renew, more new appropriations are needed to maintain the subsidies. Further, some old contracts do not have sufficient funding to finish their existing terms, so new funding is needed to complete the contract (referred to as amendment funding). As more contracts have shifted from long-term appropriations to needing new appropriations, this account has grown and become the second-largest account in HUD's budget. The President's budget request included a $165 million increase in funding for project-based rental assistance. The amount requested included funding to renew all contracts that are now in need of new appropriations (approximately 83% of all contracts, according to HUD's budget documents). The final appropriations law for FY2012 funds the account about $100 million below the requested level. The conference report notes that the level provided reflects revised estimates of need provided by HUD. The House draft bill had proposed to fund the account at the requested level, and the Senate bill had proposed to fund the account just below the requested amount. Through the Section 202 Supportive Housing for the Elderly program and the Section 811 Supportive Housing for Persons with Disabilities program, HUD provides capital grants and rental assistance to nonprofit developers to build or rehabilitate housing units for elderly residents and residents with disabilities. HUD capital grants have funded more than 106,000 units of Section 202 housing and more than 30,000 units of Section 811 housing. In addition, the Section 811 program has historically provided funding for tenant-based vouchers for persons with disabilities. Currently, approximately 14,811 vouchers are funded. The Housing for the Elderly budget account includes funding for not only the Section 202 program, but also funds for Service Coordinators and the Assisted Living Conversion Program. For FY2012, Congress reduced funding for Section 202 and these related programs by approximately $24 million, from $399 million appropriated in FY2011, to $375 million. The reduction is even greater when compared to program appropriations in the years preceding FY2011. From FY2001 through FY2010, appropriations ranged from $722 million to $825 million. Within the FY2012 Housing for the Elderly appropriation, $91 million is reserved for Service Coordinators and $25 million is set aside for the Assisted Living Conversion Program. This leaves approximately $232 million for the Section 202 program, to be used to renew existing rental assistance contracts and potentially to provide rental assistance to tenants who have not previously received it. Unlike previous years' appropriations for Section 202, there is not sufficient funding to support the construction of new housing units. Prior to enactment of P.L. 112-55 , proposals to fund Section 202 in FY2012 ranged from about $370 million in the Senate bill ( S. 1596 ) to $600 million in the House draft bill, and $747 million in the Administration's proposed budget. For FY2012, Congress appropriated $165 million for Section 811, which is $15 million more than the appropriation of $150 million in FY2011. However, in order to determine total funding for housing units authorized through the Section 811 program, it is also necessary to look at the Section 8 tenant-based rental assistance account. Prior to FY2011, the Section 811 account funded both project-based and tenant-based rental assistance, but Congress has since begun funding the renewal of Section 811 tenant-based vouchers through the Section 8 tenant-based rental assistance account. In FY2012, the total provided for Section 811 through these two accounts increased by approximately $92 million compared to FY2011. In FY2011, Congress appropriated $150 million to the Section 811 account, $118 million for capital grants and project rental assistance, and $32 million to renew tenant-based rental assistance vouchers. Another $35 million was appropriated to the Section 8 account to renew Section 811 vouchers. In FY2012, P.L. 112-55 included $165 million for the Section 811 account and $112 million for the renewal of Section 811 vouchers through the Section 8 account, for a total of $277 million. The $165 million appropriated in FY2012 for Section 811 is to be used to renew project-based rental assistance contracts. In addition, these funds may be used for a new rental assistance program whereby state housing finance agencies may make rental assistance available in conjunction with other forms of subsidized housing (e.g., housing supported through Low Income Housing Tax Credits). While no funds are available to support the construction or rehabilitation of new units, it is thought that without the need for Section 811 capital grants to construct housing, more program funds may be available to fund rental assistance in other assisted housing developments. Prior to enactment of P.L. 112-55 , the Senate had proposed to provide a total of $263 million for Section 811 units ($150 million through the Section 811 account and $113 million through the Section 8 account), and the House draft bill proposed the same amount as the President's budget request, a total of $310 million ($196 million through the Section 811 account and $114 million through the Section 8 account). The House draft bill and the President's request would have included funds to support the creation of new Section 811 units. Through its Housing Counseling Assistance Program, HUD annually provides competitive grants to HUD-approved housing counseling agencies. These housing counseling agencies provide a range of housing counseling services, including pre-purchase homeownership counseling; post-purchase homeownership counseling; mortgage delinquency counseling; and counseling for renters, the homeless, or seniors seeking reverse mortgages. (Receiving housing counseling is a requirement for obtaining a Home Equity Conversion Mortgage, or HECM, which is a reverse mortgage insured by the Federal Housing Administration.) In recent years, congressional appropriations for HUD's housing counseling program had been increasing, partly in response to increased mortgage default and foreclosure rates. In FY2010, Congress provided $87.5 million for HUD's housing counseling program. However, in FY2011 Congress did not provide any funding for HUD's housing counseling program. The elimination of HUD housing counseling funding reflected the fiscal environment at the time that the FY2011 appropriations law was passed, as well as some concerns over the time it took HUD to distribute prior years' funds. Some policymakers also questioned whether the funding was duplicative of foreclosure mitigation counseling funds that have been appropriated to the National Foreclosure Mitigation Counseling Program, administered by NeighborWorks America, since FY2008. (Congress did continue to fund the NeighborWorks counseling program in FY2011 at its FY2010 level of $65 million.) However, proponents of HUD's housing counseling program note that the HUD funding can be used for a wider range of types of housing counseling than the NeighborWorks funds, which are limited to foreclosure counseling. Housing advocates and some Members of Congress asked appropriators to restore funding for HUD's housing counseling program, arguing that the program is the only dedicated federal source of funds for many types of counseling (including reverse mortgage counseling), and that current economic conditions make the need for housing counseling services more acute. The President's FY2012 budget, which came out prior to the enactment of the final FY2011 appropriations law, requested $88 million for HUD's housing counseling program. The House draft bill included no funds for HUD's housing counseling program, although the draft committee report accompanying the draft bill directed HUD to provide a briefing along with its FY2013 budget submission addressing questions about its administration of the program. The Senate bill proposed $60 million, specifying that the funds must be awarded by HUD within 120 days. P.L. 112-55 includes $45 million for housing counseling, and, like the Senate bill, specifies that the funds must be awarded within 120 days of the enactment of the act. For more information on both HUD's housing counseling program and the NeighborWorks counseling funding, see CRS Report R41351, Housing Counseling: Background and Federal Role , by [author name scrubbed]. As previously mentioned, in recent years additional housing counseling funds have been provided to NeighborWorks America specifically for foreclosure mitigation counseling through the National Foreclosure Mitigation Counseling Program (NFMCP). NeighborWorks is a government-chartered, nonprofit corporation with a national network of affiliated organizations that engage in a variety of community reinvestment activities, such as generating investment and providing training and technical assistance related to affordable housing. The organization began operating under the name NeighborWorks America in 2005, although its legal name remains the Neighborhood Reinvestment Corporation. NeighborWorks receives a regular annual appropriation each year under the name Neighborhood Reinvestment Corporation. This appropriation is separate from the NFMCP funding, which is provided in addition to the regular annual appropriation to NeighborWorks. Although NeighborWorks is not part of HUD, it is usually funded as a related agency in the annual HUD appropriations laws. For FY2012, P.L. 112-55 provides $80 million for the NFMCP, which is $15 million more than was provided in FY2011. The Federal Housing Administration (FHA) insures mortgage loans made by private lenders to eligible borrowers. The provision of FHA insurance helps to make mortgage credit more widely available, and at a lower cost, than it might be in the absence of the insurance. Borrowers of FHA-insured loans pay both upfront and monthly fees, or premiums, for the cost of the insurance. The FHA insurance programs are administered primarily through two program accounts in the HUD budget: the Mutual Mortgage Insurance/Cooperative Management Housing Insurance Fund account (MMI/CMHI) and the General Insurance/Special Risk Insurance Fund account (GI/SRI). The Mutual Mortgage Insurance (MMI) Fund is the largest of the FHA insurance funds, and when there is public discussion of "FHA insurance" or "FHA loans," it is usually related to the MMI Fund and the single-family home loans insured under that fund. The Home Equity Conversion Mortgage (HECM) program, FHA's reverse mortgage program, is also included in the MMI Fund, resulting in the establishment of two risk categories in the MMI Fund: the MMI Purchase and Refinance risk category and the MMI HECM risk category. The GI/SRI Fund provides insurance for more-risky home mortgages, for multifamily rental housing, and for an assortment of special-purpose loans such as hospitals and nursing homes. The issues discussed in this section apply to the single-family mortgage loans insured under the MMI Fund. Historically, the MMI Fund has had a negative subsidy rate, which means that it generates negative credit subsidy that can be used to offset the funding needs of other programs in the HUD budget. In other words, the MMI Fund has generally made more money in fees than it has paid out in claims, and therefore it has not historically needed an appropriation from Congress in order to operate, although it does traditionally receive a congressional appropriation for administrative expenses. As described earlier, the MMI Fund is divided into the MMI Purchase and Refinance risk category and the MMI HECM risk category. The Administration estimated that the Purchase and Refinance risk category of the MMI Fund would have a negative subsidy rate of -2.16% for FY2012. The Administration further estimated that the Purchase and Refinance risk category of the MMI Fund would therefore generate about $4.7 billion in negative credit subsidy, meaning that it would make money for the government. The Administration estimated that the MMI HECM risk category would have a negative credit subsidy rate of -1.52% and would generate about $300 million in negative credit subsidy in FY2012. The MMI Fund in total, then, would be estimated to generate about $5 billion in negative credit subsidy in FY2012 (the $4.7 billion in credit subsidy from the Purchase and Refinance risk category plus the $300 million from the HECM risk category). As is generally the case when the private market tightens its lending standards, the demand for FHA-insured mortgages has increased in the past few years. FHA estimated that it insured nearly 40% of home purchase loans in 2010, compared to 4.5% in FY2005. FHA's higher loan volume means a higher volume of mortgage insurance premiums paid into the MMI Fund, and given that the proportion of loans to borrowers with higher credit scores has risen in recent years, FHA believes that its newer mortgages are of a better credit quality than past mortgages. However, the default rate on FHA-insured loans remains high, particularly on loans originated in earlier years, and this puts some strain on the MMI Fund. In the Cranston-Gonzales National Affordable Housing Act of 1990 ( P.L. 101-625 ), Congress mandated that within 10 years after enactment the MMI Fund must have a capital reserve ratio of at least 2%, and that it must maintain that ratio at all times going forward. The capital reserve ratio is a measure of the resources that FHA has on hand to cover unexpected losses, in addition to the amount FHA has set aside for expected losses based on its current book of business. During FY2009, the capital reserve ratio was estimated to be 0.53%. This was the first time since the requirement was put into effect that the capital reserve ratio had fallen below 2%. The capital reserve ratio remained under 2% in subsequent years, falling to 0.24% in FY2011. In FY2010, FHA made a number of changes aimed at increasing its capital reserves. These included both increasing the premiums that borrowers pay, and making changes to underwriting criteria and lender enforcement designed to strengthen the credit quality of FHA-insured loans. The FY2012 HUD Budget Justification indicated that HUD would pursue an additional increase in the annual FHA insurance premium paid by borrowers; this increase went into effect in April 2011. The increased premium is expected to further strengthen FHA's capital reserves. P.L. 112-55 included a provision reinstating recently expired higher loan limits for FHA in some areas. By statute, FHA can only insure mortgages up to a certain principal amount. These loan limits are based on area median home prices, and therefore vary by area. There is also a national floor and a national ceiling that affect loan limits in low-cost and high-cost areas, respectively, and these are calculated as percentages of the national conforming loan limit for Fannie Mae and Freddie Mac. In early 2008, the Economic Stimulus Act of 2008 (ESA) temporarily raised the FHA loan limits in high-cost areas and some other areas in response to the housing downturn and tighter credit availability. Specifically, ESA specified that the FHA loan limit would be 125% of area median home prices in most areas, with a high-cost area limit of 175% of the GSE conforming loan limit (a ceiling of $729,750). The Housing and Economic Recovery Act of 2008 ( P.L. 110-289 ) established new statutory limits at 115% of area median home prices in most areas, with a high-cost area limit of 150% of the GSE conforming loan limit (a ceiling of $625,500). These limits were intended to go into effect beginning in 2009; however, the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ) specified that the loan limits in a given area would be set at the higher of the ESA or the HERA limits through 2009. The provision setting the FHA loan limits at the higher of the ESA limits or the HERA limits in a given area was extended a number of times until the last extension expired at the end of FY2011, at which time the loan limits fell to HERA levels. However, P.L. 112-55 reinstated the higher FHA loan limits through December 31, 2013. Not all areas are affected by a change in the FHA loan limits from those specified in HERA to those specified in ESA. The change affects high-cost areas, since the high-cost area ceiling is lower under HERA than under ESA. The change also affects some areas that are not high-cost, depending on the trajectory of home prices in those areas, since the loan limit under ESA is 125% of 2007 area median home prices while the loan limit under HERA is 115% of more recent area median home prices. The Budget Control Act of 2011 On August 2, 2011, President Obama signed the Budget Control Act of 2011 (BCA; P.L. 112-25 ) into law following lengthy negotiations surrounding the national debt limit. The act included provisions authorizing increases in the debt limit, as well as provisions designed to reduce the federal deficit. One way the act attempts to reduce deficits is by establishing discretionary spending caps, which limit the amount of money that can be spent through the annual appropriations process over the next 10 years. These statutory budget caps are enforceable via a process known as sequestration. If the caps are exceeded in any year, under sequestration the executive branch is required to proportionally reduce funding for all agencies, accounts, programs, projects, and activities by the amount necessary to reduce total budget authority to the level authorized under the caps. Some programs are exempted from sequestration or receive special treatment; none of HUD's discretionary programs are exempted or receive special treatment. The total amount of discretionary funding available under the caps in FY2012, as established under the BCA, is less than the amount that was available in FY2011, but is more than the amount that was approved under the House budget resolution (discussed in the next section of this Appendix). The BCA included several other deficit reduction provisions that do not directly affect HUD but could have implications for the department. The BCA created a deficit reduction "super committee," which was charged with finding at least an additional $1.2 trillion in deficit savings over a 10-year period. Since the Joint Select Committee on Deficit Reduction failed to complete its mandate, under the terms of the BCA, an automatic sequestration will take place in FY2013 and the discretionary budget caps for FY2014-FY2021 will be reduced in order to achieve the desired $1.2 trillion in savings, barring additional action by Congress. FY2012 Budget Resolutions The annual budget resolution acts as an agreement between the House and Senate establishing parameters within which Congress can consider legislation dealing with spending and revenue. In addition to setting forth enforceable levels of spending, revenue, and public debt, the budget resolution provides spending allocations to House and Senate committees. Once the House and the Senate Appropriations Committees receive a committee allocation in the budget resolution, they divide their allocation of discretionary budget authority among their 12 subcommittees. Each subcommittee is responsible for one of the 12 regular appropriations bills. The allocations to each of the subcommittees are generally referred to as 302(b) allocations. While a budget resolution and subcommittee allocations alone cannot be used to determine how much funding any individual account or program will receive, they do set the parameters within which decisions about funding for individual accounts and programs can be made. The House and the Senate budget committees began their consideration of the FY2012 budget resolution when they received the President's budget. As part of the formulation process, the committees receive information from executive branch officials, Members of Congress, and the public, as well as "views and estimates" statements from authorizing committees with jurisdiction over spending and revenues. The target date for completion of the budget resolution is April 15. On April 6, 2011, the House Budget Committee reported its FY2012 budget resolution ( H.Con.Res. 34 ). It was agreed to by the House on April 15, 2011. On May 10, 2011, the House Appropriations Committee released draft subcommittee allocations. The THUD subcommittee received an allocation of $47.7 billion in FY2012, which was $8.7 billion (or 15%) lower than the allocation it received in FY2011 ($56.4 billion). In addition to setting overall spending levels, H.Con.Res. 34 contains another provision that could have implications for the THUD subcommittee and potentially for HUD's budget. Section 408 directs the Congressional Budget Office (CBO), at the direction of the chairman of the Budget Committee, to use a different method when scoring FHA receipts. According to CBO, if this alternate scoring mechanism was used in FY2012, the FHA account would not produce the $5 billion in offsetting receipts estimated in the President's budget, but would instead require appropriations. While the Senate Budget Committee did not consider an FY2012 budget resolution, the FY2012 discretionary spending cap, combined with specific Senate procedural provisions enacted under the BCA, serve as an alternate to a formal Senate budget resolution for FY2012. Specifically, the procedural provisions of the BCA required the chair of the Senate Budget Committee to establish committee spending allocations, subject to the discretionary spending limit, and these levels are to have the same force and effect as if they were included and associated with a budget resolution for FY2012 adopted by Congress. Under these terms, the Senate established an allocation of $57.3 billion for THUD for FY2012, which is nearly $1 billion higher than the House allocation under H.Con.Res. 34 . Since the FY2012 discretionary spending cap enacted under the BCA (discussed in the prior section of this Appendix) is higher than those adopted under H.Con.Res. 34 , for the purposes of conferencing on the final FY2012 THUD appropriations law ( P.L. 112-55 ), the higher Senate allocation for THUD was used. | The President's FY2012 budget was released on February 14, 2011. It included a request for nearly $47.9 billion in gross new appropriations for HUD in FY2012. After accounting for rescissions of prior-year unobligated balances and offsets available from the Federal Housing Administration (FHA) mortgage insurance programs, the President's request for net new budget authority for HUD in FY2012 totaled just over $42 billion. The President's budget, which was released prior to enactment of a final FY2011 appropriations law, included proposals for some funding increases relative to FY2010 (Section 8 Tenant-Based Rental Assistance and Project-Based Rental Assistance), and some funding decreases relative to FY2010 (public housing operating fund, Community Development Block Grant program, HOME, and Section 202 and 811). However, in the case of almost all of the programs proposed for funding decreases relative to FY2010, the President's requested amount was higher than what was ultimately provided in the FY2011 appropriations law. In total, the President's funding request for HUD would have resulted in a nearly $2.5 billion increase in gross new appropriations in FY2012 relative to FY2011. However, because the President's budget estimated a substantial increase (nearly $2 billion) in the amount of offsetting receipts available from FHA in FY2012 relative to FY2011, the net budget authority requested in the President's budget would have represented an increase of only about $600 million in FY2012 relative to FY2011. While the House Appropriations Committee did not formally report an FY2012 Transportation, HUD, and Related Agencies (THUD) bill, on September 7, 2011, the THUD subcommittee released a draft version, including about $3 billion less in net funding for HUD than was provided in FY2011 (about $1.4 billion less in gross appropriations). It was approved by the subcommittee the next day. On September 21, 2011, the Senate Appropriations Committee reported its FY2012 THUD funding bill (S. 1596). It included about $4 billion less in net funding for HUD than was provided in FY2011 (about $1.3 billion less in gross regular appropriations). On November 1, 2011, the full Senate approved S.Amdt. 738 to H.R. 2112, the so-called Senate "Minibus." It included FY2012 appropriations for those agencies under the jurisdiction of the THUD subcommittee (reflecting S. 1596) as well as two other subcommittees (Agriculture and Commerce-Justice-Science). Several HUD-related amendments were considered and adopted. In mid-November, the House and Senate reported a conference agreement on the Minibus (H.R. 2112, H.Rept. 112-284), which was subsequently enacted by Congress and then signed into law by the President on November 18, 2011 (P.L. 112-55). The final FY2012 appropriations law provided about $37.3 billion in net funding for HUD, which is about 9% less than was provided in FY2011. However, part of the decrease in net funding is attributable to increases in offsetting receipts and rescission. Looking only at gross appropriations, total funding for HUD's programs was decreased by about 2%. While not directly affecting HUD funding, the provisions in the Budget Control Act of 2011 (P.L. 112-25) relating to statutory discretionary budget caps and their enforcement through sequestration could have implications for the amount of funding available for HUD in FY2012 and the future (see the Appendix for more information). |
Through its oversight, authorization, and appropriations roles, Congress will likely play a central role in helping implement any decision to increase U.S. troop levels in Afghanistan, as well as any change in their mission. Beyond committing additional forces to Afghanistan, Congress will also likely need to address how sending additional forces to Afghanistan will affect the overall readiness of the U.S. military, the availability of forces in the event of a crisis elsewhere, and what additional resources will be required to support this potential long-term commitment of additional U.S. troops. Today, the Afghanistan War—approaching 16 years—is the longest armed conflict in U.S. history. U.S. military forces entered Afghanistan in late 2001 in response to the September 11, 2001, terrorist attacks (see Figure 1 ). The United States and allies initially drove the Taliban from power and largely destroyed al Qaeda's ability to plan and execute terrorist attacks from Afghanistan. By October 2006, the United States and NATO had assumed responsibility for security across the whole of Afghanistan. In September 2008, President Bush deployed an extra 4,500 U.S. troops as part of what was described as a "quiet surge." In February 2009, the United States announced the deployment of 17,000 additional troops and NATO pledged to increase its military commitment to Afghanistan. In March 2009, President Obama decided to deploy an additional 4,000 personnel to train and advise the Afghan military and police, as well as support the development of Afghan government agencies. In December 2009, President Obama increased U.S. troop numbers by 30,000—bringing the total of U.S. troops to 100,000—and announced that the United States would begin withdrawing its forces by 2011. At the NATO Summit in Lisbon, Portugal, in November 2010, NATO agreed to hand control of security to Afghan forces by the end of 2014. In December of 2014, NATO formally ended its combat mission in Afghanistan and handed it over to Afghan forces. In January 2015, the NATO-led mission "Resolute Support" commenced, with the separate mission to train and advise and assist Afghan security forces. In October 2015, President Obama announced that 9,800 U.S. troops would remain in Afghanistan until the end of 2016, which differed from an earlier pledge to pull out all but about 1,000 U.S. troops from Afghanistan. In July 2016, at the NATO Warsaw Summit, in light of what he called "a precarious security situation," President Obama said that 8,400 U.S. troops would remain in Afghanistan. Also at the Summit, NATO agreed to maintain its troop levels and funding until 2020. Since the late 2001 invasion of Afghanistan, coalition troops have undertaken three basic missions, often simultaneously. The first mission, characterized as counterterrorism, primarily revolves around U.S. efforts to kill al Qaeda terrorists and destroy their networks. It is a mission that continues today. The second mission—conducted unilaterally or in conjunction with allied and Afghan forces—involved direct combat against Taliban insurgents attempting to reassert their control over Afghanistan. As previously noted, this mission ended for U.S. and NATO forces in December 2014. The third mission, which began early in the campaign and is the focus of the Resolute Support Mission (RSM) today, primarily involves working with allies to train and advise the Afghan military and police, as well as support the development of Afghan government agencies such as, for example, the Ministry of Defense. As part of RSM, U.S. advisors are not supposed to participate in direct combat unless it is in self-defense, but under certain circumstances, U.S. air support may be provided to Afghan security forces. Recent press articles suggest that the Administration is considering proposals to deploy additional ground forces to Afghanistan. These forces would likely be part of the Resolute Support Mission, the ongoing NATO mission to train and support Afghan security forces. In testimony before the Senate Armed Services Committee on February 9, 2017, General John Nicholson, Commander U.S. Forces–Afghanistan noted, based on a mission review, that he had adequate forces for the U.S. counterterrorism mission but there was "a shortfall of a few thousand troops" for RSM if what he described as a "stalemate" with the Taliban-led insurgency were to be broken. Recently, in April, about 300 U.S. Marines were deployed to Helmand Province to advise and assist Afghan forces in the region. The current Pentagon request reportedly under consideration, which requires presidential approval, is said to call for expanding the U.S. military role as part of a broader effort to compel the resurgent Taliban back to the negotiating table. As part of this expanding role, the Pentagon is reportedly considering deploying an additional 3,000 to 5,000 U.S. troops to Afghanistan, as well as asking for greater latitude in setting overall troop levels, determining how they might be used, at what level advisors might be assigned (battalion or company level), and providing military commanders greater authority for employing airstrikes. Since the post-9/11 invasion of Afghanistan, the United States and its allies have pursued a variety of different strategic objectives. Within the military campaign alone, those objectives are, at times, in tension with each other. The initial goals for Afghanistan included the elimination of al Qaeda, and in the process, overthrowing the Taliban and installing a new, legitimate government in Kabul. Over time, however, these goals gave way to the more ambitious project of assisting the Afghan government as it extended its reach across the country—an inherently political undertaking—utilizing both civilian and military means to do so. This has led to considerable debate in Washington and around the world about the overall objectives for U.S. and international engagement there. Successive U.S. administrations have sought to synchronize the counterterrorism and nation-building missions, arguing that their operations are mutually reinforcing. In practice, however, their respective operations sometimes undermine each other. As one scholar notes , "the United States might be able to maintain an open-ended military presence in Afghanistan or stabilize the country, but not both." A recent example of these campaign tensions is the use of a GBU 43/B Massive Ordnance Air Blast (MOAB) munition to strike a cave complex used by the Islamic State affiliate in Afghanistan known as Islamic State- Khorasan Province (ISIL-K or ISKP). General Nicholson maintains the MOAB was the "right weapon against the right target," and that it dealt a devastating blow to ISKP. Other observers, however, note while General Nicholson is probably right about the tactical efficacy of the weapon, it has created an opportunity for opposition forces to foment further dissatisfaction among Afghans toward both their legitimate government in Kabul, as well as a continued U.S. presence in the country. Former Afghan President Karzai, for example, described the attack as the use of a weapon of mass destruction by the United States on Afghan soil, and an "immense atrocity against the Afghan people." The use of the MOAB, in his judgment, should be a clear signal to the Afghan people that they should stop the United States. In addition to the issue of different campaign elements sometimes working at cross-purposes, some observers question the overall feasibility of achieving stability in Afghanistan. According to the Special Inspector General for Afghan Reconstruction, territory controlled by the Afghan government has receded by nearly 12% since November 2015, to approximately 60% of the country today. Complicating matters, U.S. commanders and other observers have noted other actors, such as Russia, might be supplying Taliban fighters, frustrating U.S. efforts on the ground. Accordingly, most scholars and practitioners note that the military elements of the campaign are necessary, but not sufficient, to deliver lasting stability in the region. In the first instance, building the conditions that might lead to a lasting peace settlement with the Taliban—the main opposing force to the Afghan government—is generally thought to require a broader strategy that addresses political, diplomatic, development, and governance building challenges. To date, the United States has yet to develop and implement a joint strategy with the Afghans for bringing the war to a successful conclusion. Second, as some note, the U.S. focus on countering terror threats such as those posed by Al Qaeda and the Islamic State rather than the Taliban has created a mismatch between Afghan and coalition objectives; the Afghan government itself is far more concerned with the Taliban. Finally, most scholars note the need to deal with Pakistan, which is generally believed to conduct activities that undermine U.S. and Afghan advances. In all of these respects, it is generally unclear how additional U.S. forces will help resolve these underlying campaign issues. Others take the view that despite these difficulties, allowing Afghanistan to once again descend into chaos would ultimately harm U.S. national security. Such a vacuum might enable terrorist groups—including, but not limited to al Qaeda and the Islamic State—to plan and launch attacks against the United States and its allies. An influx of additional forces might therefore be better able to monitor, if not manage, terrorist groups and other threats using Afghanistan and the region as a safe haven. In testimony, General Nicholson noted he had adequate forces for the U.S. counterterrorism mission but there was "a shortfall of a few thousand troops" for RSM. He suggested additional tr oops were needed to bolster the training and advising of Afghan units, increase advisory efforts across Afghan ministries, and provide more advisory capacity at brigade level. General Nicholson suggested the additional troops could also be provided by NATO partners (more below). DOD's reported current request supposedly will give military officials greater latitude in determining how U.S. troops may be employed, which suggests they could be used not only in ongoing counterterrorism operations but in a combat role as well. In order to gain a better understanding of how the Pentagon plans to use these additional troops, policymakers might benefit from a detailed breakdown of what types of troops are required and where and how they will be employed. Will these additional troops be used primarily in a training and advisory capacity, or can they also be involved in combat operations independent of or in support of Afghan security forces? Also, if additional U.S. forces are to take on an enhanced role, does this mean that the current RSM-dedicated U.S. troops in Afghanistan will also be permitted to operate in a manner that is outside their current training and advisory mandate? If missions for U.S. forces are enhanced or changed, will this require changes to existing Rules of Engagement (ROE) and, if so, will new ROEs conflict with those employed by non-U.S. NATO and coalition forces in Afghanistan? According to NATO, as of February 2017, there were 13,459 troops deployed from 39 nations to support RSM, including 6,941 U.S. troops. There are also an unspecified number of U.S. troops in Afghanistan dedicated to the U.S. counterterrorism mission, which could account for the 8,400 overall U.S. troop level cited in congressional testimony and in press reports. Reportedly, the United States has asked NATO partners and other nations for additional troops and any additional non-U.S. troops could help to meet General Nicholson's requirement for "a few thousand more troops" to assist in advisory and training activities. According to one report, NATO is currently considering the U.S request for additional troops but any NATO troops provided would not participate in direct combat missions. Depending on the possible contributions of troops from other nations, the United States could send anywhere from a few hundred to 5,000 troops to Afghanistan. Because troop-contributing nations in the past have placed "caveats" on where and how their troops may be employed, additional U.S. forces might be required to assume a greater burden and conduct missions that other countries are unable to because of caveats. If additional non-U.S. forces are made available, policymakers might decide to examine how they will be employed and if there are associated caveats as to their use and how these caveats might affect the employment of U.S. forces. While an additional commitment of U.S. troops could prove to be modest, ongoing operations in Iraq, Syria, Eastern Europe, and the unpredictable threat from North Korea could create a demand for additional U.S. forces that is not currently forecasted. Ultimately, any troops that are deployed to Afghanistan, as well as those training to replace them, will be taken out of the "pool" of forces available and ready to respond to other possible contingencies. The potential commitment of additional Army forces to Afghanistan also has implications for Army readiness. When units are sent on Train, Advise and Assist (TAA) missions, typically only officers and non-commissioned officers (NCOs) are required in great numbers, meaning these individuals are "stripped" from existing units. The remaining junior officers, NCOs, and enlisted soldiers in those units are unable to train fully because they lack senior leadership. To address this problem, the Army is planning to establish six Security Force Assistance Brigades (SFABs)—four in the Active Component and two in the Army National Guard—comprising approximately 500 officers and NCOs each, to be used for such missions instead of stripping Brigade Combat Teams of their leadership and degrading readiness. These SFABs will not be available initially; plans call for the first SFAB to be available for deployment by the end of 2018 and that all brigades be established by 2022. From a joint force perspective, policymakers might decide to examine how committing additional forces to Afghanistan—possibly raising the level to over 10,000 U.S. troops—affects the force pool and overall force readiness. The possible addition of 3,000 to 5,000 U.S. troops and the resulting nonavailability of those units designated to take their place carries with it an element of risk to U.S. national security that policymakers might consider. As noted above, the military campaign in Afghanistan has evolved over the past 16 years, as have U.S. strategic goals for the region. At present, it is difficult to discern an overall, coherent strategy for Afghanistan, although this may be resolved by the Trump Administration's review of U.S. activities in that region. Absent clear and coherent guidance, some observers question whether the key objective for the United States is primarily enabling a coalition withdrawal by building a capable and credible Afghan security force, or whether the United States is instead more concerned with maintaining a long-term counterterrorism presence in the country or avoiding major territorial gains by the Taliban. Still others wonder what an influx of several thousand additional forces might realistically do to "break the stalemate," and thereby force the Taliban to accept a political settlement. Skeptics note that the coalition was unable to achieve that objective earlier in the campaign when over 100,000 troops were in theater; however, it is not clear whether this was a result of strategy or execution issues, or both. Given the complexity of the campaign, along with the imprecise nature of U.S. goals for the region and absent a definitive statement from the Trump Administration regarding its priorities, it is currently difficult to evaluate the likely impact that additional forces may have. | The Trump Administration is reportedly considering proposals to deploy additional ground forces to Afghanistan and somewhat broaden their mission. These forces would likely be part of the Resolute Support Mission (RSM), the ongoing NATO mission to train and support Afghan security forces. In testimony before the Senate Armed Services Committee on February 9, 2017, General John Nicholson, Commander U.S. Forces–Afghanistan, noted based on a mission review that he had adequate forces for the U.S. counterterrorism mission but there was "a shortfall of a few thousand troops" for RSM if a "stalemate" with the Taliban-led insurgency is to be broken. Especially in light of recent Afghan National Defense and Security Force (ANDSF) shortcomings, notably the Taliban gains in Helmand Province and the April 21, 2017, attack on an Afghan Army installation near Mazar-i-Sharif, some observers maintain additional forces are necessary to shore up the ANDSF. There is no consensus as to the best way to determine the suitability, size, and mission profile of the ground elements of any military campaign. This short report is designed to assist Congress as it evaluates various proposals to introduce more ground forces for RSM. |
On March 27, 2014, the U.N. General Assembly approved a resolution by the vote of 100-11, with 58 abstentions, affirming Ukraine's territorial integrity and terming the March 16 referendum in Crimea illegitimate and not a basis for a change in the status of the region. Russia's U.N. ambassador Vitaly Churkin argued that Russia could not ignore the right of Crimeans to self-determination and that Crimea had been "re-unified" with Russia. Armenia and Belarus joined Russia in voting against the resolution, while Azerbaijan, Georgia, and Moldova voted for it. Among other Soviet successor states that attended the session, Kazakhstan and Uzbekistan abstained. China, Afghanistan, and Pakistan also abstained. Kyrgyzstan, Tajikistan, and Turkmenistan did not participate in the vote. The first U.S. visit by a Georgian prime minister who belongs to the Georgia Dream coalition, Irakli Garibashvili, took place on February 22-March 1, 2014. Meeting with President Obama and Vice President Biden on February 24, 2014, the President and Vice President urged Georgia to continue to advance the rule of law. They thanked Georgia for supporting the United States in international affairs, expressed appreciation for Georgia's contribution to NATO operations in Afghanistan, reaffirmed U.S. support for Georgia's territorial integrity, expressed "unwavering support" for Georgia's Euro-Atlantic aspirations, and discussed opportunities to increase trade and investment in Georgia. The U.S.-Georgia Strategic Partnership Commission and its working groups met on February 26 to discuss cooperation goals for 2014. Secretary Kerry, chairing the U.S. side, expressed appreciation to Prime Minister Garibashvili for Georgia's initialing of an Association Agreement with the European Union. The United States congratulated Georgia on a plan to enhance human rights, including those of minority populations. The two sides highlighted "solid achievements" in Georgia's defense reforms, including NATO interoperability and self-defense capabilities. The two sides discussed the potential of transforming the Northern Distribution Network for sending supplies into and out of Afghanistan into a post-2014 commercial trade network. The United States expressed support for Georgia's efforts to engage peacefully with the residents of the breakaway South Ossetia and Abkhazia. Both sides looked forward to the implementation of new projects funded by the U.S. Millennium Challenge Corporation. On economic issues, the United States praised Georgia's growing regional economic role, including its potential to become a regional trade and transportation hub. The two sides raised the hope of progress toward concluding a U.S.-Georgia free trade agreement. In remarks at a press conference, Secretary Kerry stated that "we stand by the Bucharest decision [by NATO] that Georgia will become a member of NATO. The United States will work to make sure that Georgia's progress is acknowledged by all members at this year's NATO Summit." Prime Minister Garibashvili stated that Georgia considers the United States as its "foremost partner.... We are united first and foremost by the shared values between the two nations. And I do believe that our existing and prospective avenues of partnership are destined to succeed." Armenia, Azerbaijan, and Georgia are located south of the Caucasus Mountains that form part of Russia's borders (see Figure 1 ). The South Caucasus states served historically as a north-south and east-west trade and transport "land bridge" linking Europe to the Middle East and Asia, over which the Russian Empire and others at various times endeavored to gain control. In ancient as well as more recent times, oil and natural gas resources in Azerbaijan attracted outside interest. The regional peoples can point to periods of past autonomy or self-government. After the Russian Empire collapsed in 1917, all three states declared independence, but by early 1921 all had been re-conquered by Russia's Red (Communist) Army. They regained independence when the Soviet Union collapsed at the end of 1991. By the end of 1991, the United States had recognized the independence of all the former Soviet republics. The United States pursued close ties with Armenia, because of its profession of democratic principles, and concerns by Armenian Americans and others over its fate. The United States pursued close ties with Georgia after Eduard Shevardnadze (formerly a pro-Western Soviet foreign minister) assumed power there in early 1992. Faced with calls in Congress and elsewhere for a U.S. aid policy for the Eurasian states, then-President George H. W. Bush sent the FREEDOM Support Act to Congress; it was signed with amendments into law in October 1992 ( P.L. 102-511 ). Appropriations under the authority of the FREEDOM Support Act are currently included in the State Department's Economic Support Funds (ESF), Global Health Programs (GHP), and International Narcotics Control and Law Enforcement (INCLE) accounts. U.S. policy toward the South Caucasus states has included promoting the resolution of conflicts between Armenia and Azerbaijan over Azerbaijan's breakaway Nagorno Karabakh (NK) region and between Georgia and its breakaway regions of Abkhazia and South Ossetia (resolving these latter conflicts became much more difficult following the August 2008 conflict; see " The August 2008 Russia-Georgia Conflict ," below). Since 1993, U.S. emissaries have been detailed to try to settle these conflicts. Congressional concerns about the NK conflict led to the inclusion of Section 907 in the FREEDOM Support Act, which prohibits U.S. government-to-government assistance to Azerbaijan, except for non-proliferation and disarmament activities, until the President determines that Azerbaijan has taken "demonstrable steps to cease all blockades and other offensive uses of force against Armenia and NK." Provisions in FY1996, FY1998, and FY1999 legislation eased the prohibition by providing for humanitarian, democratization, and business aid exemptions. In 2002, waiver authority was enacted (see below, " Regional Responses after the September 11 "). Some observers argue that developments in the South Caucasus are largely marginal to U.S. strategic interests. They urge great caution in adopting policies that will heavily involve the United States in a region beset by ethnic and civil conflicts, and some argue that, since the European Union has recognized the region as part of its "neighborhood," it rightfully should play a major role. Some observers argue that the U.S. interest in democratization and human rights should not be subordinated to interests in energy and anti-terrorism. Other observers believe that the United States should be more actively engaged in the region. They urge greater U.S. aid and conflict resolution efforts to contain warfare, crime, smuggling, and Islamic extremism and to bolster the independence of the states. Some argue that such enhanced U.S. relations also would serve to "contain" Russian and Iranian influence and that close U.S. ties with Azerbaijan could benefit U.S. relations with other Islamic countries. They also point to the prompt support offered to the United States by the regional states in the aftermath of the September 11, 2001, attacks by Al Qaeda on the United States. Some argue that energy resources in the Caspian region are a central U.S. strategic interest, because Azerbaijani and Central Asian oil and natural gas deliveries could somewhat lessen Western energy dependency on Russia and the Middle East (see below, " Economic Interests "). In his annual worldwide threat assessment, Director of National Intelligence James Clapper testified in late January 2014 that Georgia's new president and prime minister face challenges from a declining economy. Also, the prosecution of former government officials threatens to further polarize politics. While tensions with Russia have eased, reducing the threat of conflict, core disputes, including the status of Georgia's breakaway South Ossetia and Abkhazia, remain unlikely to be resolved. He assessed the chance of renewed Armenian-Azerbaijani conflict over the breakaway NK as low, but also viewed the prospects for a peace settlement as dim. Azerbaijan is continuing to build up its military forces to give it a decisive advantage, and Armenia has a strong interest in maintaining the status quo, since ethnic Armenians control NK and surrounding territories. He cautioned, however, that a miscalculation could occur (perhaps implying renewed conflict), given the close proximity of military forces and the frequency of ceasefire violations. The United States has endeavored to reassure Azerbaijan that it continues to be a "strategic partner" in counter-terrorism cooperation and energy security and has appeared to balance these U.S. interests against its concerns about democratization in Azerbaijan. According to some observers, relations between the United States and Azerbaijan had cooled after the Administration supported efforts in 2009-2010 by Armenia and Turkey to improve relations that Azerbaijan opposed (see below, " The Armenia-Turkey Protocols of 2009 ") and after President Aliyev was not invited to the U.S. Nuclear Security Summit in April 2010. Also, according to this view, Azerbaijan may have pursued closer working relations with Russia in the wake of the August 2008 Russia-Georgia conflict, which showed that Russia remained a major power in the region. While Azerbaijan may have followed such policies, it continued troop support for NATO operations in Afghanistan (see below, " Regional Support for Military Operations in Iraq and Afghanistan ") and played a significant role as part of the Northern Distribution Network for the transit of U.S. and NATO supplies to and from Afghanistan. Also, Azerbaijan continued to plan to step up gas supplies to Europe. To reassure Azerbaijan that the Administration viewed U.S.-Azerbaijan relations as strategically significant, then-Secretary of Defense Robert Gates visited Azerbaijan in June 2010 and then-Secretary of State Hillary Clinton visited in July 2010, and President Obama met with President Aliyev on the sidelines of the U.N. General Assembly in September 2010. In April 2012, the Obama Administration "re-launched" meetings of the U.S.-Azerbaijan Intergovernmental Commission on Economic Cooperation, which had last convened in 2008. During her June 6, 2012, visit to Azerbaijan, then-Secretary Clinton thanked Azerbaijan for its "essential" role in the transit of personnel and supplies to Afghanistan, and its "central role" in Europe's efforts to diversify sources of energy and transport routes. However, she also called for further democratization and for the release of individuals detained for expressing their views in print or on the streets. The Senate Foreign Relations Committee held a confirmation hearing for ambassador-designate to Azerbaijan Richard Morningstar on June 13, 2012. He testified that the "wide range of shared interests" between the United States and Azerbaijan "intersects with many of the United States' highest foreign policy priorities." He outlined "three core areas of importance to the relationship: security, energy, and democratic and economic reform," and stressed that "the Administration believes we must intensify our cooperation in these areas." He also warned that security and prosperity in the South Caucasus could only be assured by the peaceful settlement of the NK conflict, and he pledged to, if confirmed, support the efforts of the Minsk Group. He was confirmed by the Senate at the end of June 2012 and presented his credentials to President Aliyev in September 2012. Meeting with visiting Azerbaijani Foreign Minister Elmar Mammadyarov in June 2013, Secretary Kerry praised Azerbaijan as an "important partner" in Afghanistan, in facilitating shipments along the Northern Distribution Network, and in backing the Southern Corridor for gas transit to Europe. He and Foreign Minister Mammadyarov indicated that the two sides would discuss the NK conflict, and Secretary Kerry voiced the hope that movement toward a peace settlement could be revitalized. Secretary Kerry also urged Azerbaijan to continue democratization as one component of regional peace. Foreign Minister Mammadyarov also termed the U.S.-Azerbaijani relationship a "strategic partnership," and voiced the hope that although his country was "far from the United States" geographically, the two nations would continue to cooperate on these issues. There were some Azerbaijani media reports that U.S.-Azerbaijani relations were somewhat strained during the period before the Azerbaijani presidential election, allegedly linked to U.S. concerns voiced about campaign problems. After President Aliyev's inauguration on October 19, 2013, to a third presidential term, Ambassador Morningstar called for expanding and deepening U.S.-Azerbaijani cooperation on "many shared critical interests," including efforts to resolve the NK conflict and to bolster regional security, counter-terrorism, energy security, and economic diversification. He also stated that the United States would "continue to work with the government and civil society to promote democratic values and principles in Azerbaijan." In the wake of the September 11, 2001, terrorist attacks in New York and Washington, DC, the former Bush Administration obtained quick pledges from the three South Caucasian states to support Operation Enduring Freedom (OEF) in Afghanistan, including overflight rights and Azerbaijan's and Georgia's offers of airbase and other support. Congressional attitudes toward Azerbaijan and Section 907 shifted, resulting in presidential waiver authority being incorporated into Foreign Operations Appropriations for FY2002 ( H.R. 2506 ; P.L. 107-115 ). The President may use the waiver authority if he certifies that U.S. aid supports U.S. counter-terrorism efforts, supports the operational readiness of the Armed Forces, is important for Azerbaijan's border security, and will not harm NK peace talks or be used for offensive purposes against Armenia. The waiver may be renewed annually, and 60 days after the exercise of the waiver, the President must report to Congress on the nature of aid to be provided to Azerbaijan, the military balance between Armenia and Azerbaijan and the effects of U.S. aid on that balance, the status of Armenia-Azerbaijan peace talks, and the effects of U.S. aid on those talks. The waiver authority has been exercised annually. Azerbaijan and Georgia were among the countries that openly pledged to support the U.S.-led Operation Iraqi Freedom (OIF), with both offering the use of their airbases, and to assist the United States in rebuilding Iraq. Both countries agreed to participate, subject to U.S. financial support, in the multinational stabilization force for Iraq. In August 2003, both Azerbaijan and Georgia dispatched forces to Iraq. Azerbaijan's 150 troops pulled out in late 2008. Georgia augmented its troops over time until 2,000 were serving in 2007-2008, the third-largest number of troops in Iraq, after the United States and the United Kingdom. Virtually all of these troops were pulled out in August 2008 in connection with the Russia-Georgia conflict. Armenia began sending personnel to Iraq in January 2005. Armenia's 46 personnel were pulled out in late 2008. In Afghanistan: Azerbaijan deployed troops to serve with NATO's International Security Assistance Force (ISAF) in late 2002, and 94 were deployed as of mid-January 2014. Azerbaijan has pledged aid to help Afghanistan build up its security forces and to provide other support for Afghanistan after 2014. On November 16, 2009, Georgia sent 173 troops for training in Germany before their scheduled deployment at the end of March 2010 to support ISAF. These troops were boosted to 925 in mid-2010. On December 20, 2011, the Georgian legislature approved sending an added Georgian battalion of 749 troops to Afghanistan. The troops were deployed in October 2012, bringing the contingent to some 1,560 troops. The added deployment made Georgia the largest contributor to ISAF among non-NATO member countries (currently the country is by far the largest such contributor). The U.S. European Command's Georgia Deployment Program supports Georgian troop training and rotations. The Georgian government reportedly has indicated that it will maintain a substantial troop presence through the end of 2014. In January 2010, Armenia sent 40 troops for training in Germany before their deployment to Kunduz, Afghanistan, to serve with German forces. The number of troops was increased to 45 at the end of 2010. ISAF reported that the Armenian contingent numbered 121 in mid-January 2014. Azerbaijan and Kyrgyzstan reportedly are the main over-flight, refueling, and landing routes for U.S. and coalition troops bound for and leaving Afghanistan, and Azerbaijan and Georgia also have been part of a major South Caucasian land transport route for military fuel, food, and construction supplies. The Azerbaijan-Georgia route is one of three main routes to and from Afghanistan—the others transiting Russia and Central Asia—together termed the NDN, that have supplemented, and for several months in 2011-2012, supplanted, supply routes through Pakistan. Speaking in 2011, former Ambassador to Azerbaijan Matthew Bryza stated that "virtually every U.S. soldier deployed to Afghanistan has flown over Azerbaijan." The role of Azerbaijan as an air corridor has become more significant as troop transport functions are shifted from the Manas Transit Center in Kyrgyzstan—which is scheduled to close by July 2014—to Romania. Georgia also has served as a major transit route for cargoes that are loaded at the Black Sea port of Poti for transport to and from Afghanistan. Visiting the port in late July 2013, General William Fraser, Commander of U.S. Transportation Command, thanked Georgia for supporting the transit of cargoes to and from Afghanistan through the "key port." He indicated that the port would continue significant work during ISAF's drawdown, and reported that at one time, the port had been responsible for as much as 30% of cargoes being transported through the Northern Distribution Network. According to some reports, "retrograde" land shipments (from Afghanistan) through the NDN have greatly decreased in recent months, with most shipments exiting Afghanistan through Pakistan. U.S. military officials have stated that costs are much less for shipments through Pakistan, and observers also have pointed to problems with Uzbekistan as contributing to the slowdown in NDN traffic. Strong U.S. support for Georgia is reflected in the U.S.-Georgia Charter on Strategic Partnership, signed in January 2009, which states that "our two countries share a vital interest in a strong, independent, sovereign, unified, and democratic Georgia." The accord is similar to a U.S.-Ukraine Charter signed in December 2008 and a U.S.-Baltic Charter signed in 1998 with Estonia, Latvia, and Lithuania. In the security realm, "the United States and Georgia intend to expand the scope of their ongoing defense and security cooperation programs to defeat [threats to global peace and stability] and to promote peace and stability." Such cooperation will "increase Georgian capabilities and ... strengthen Georgia's candidacy for NATO membership." In the economic realm, the two countries "intend to pursue an Enhanced Bilateral Investment Treaty, to expand Georgian access to the General System of Preferences, and to explore the possibility of a Free-Trade Agreement." Energy security goals include "increasing Georgia's energy production, enhanc[ing] energy efficiency, and increas[ing] the physical security of energy transit through Georgia to European markets." In the realm of democratization, the two countries "pledge cooperation to bolster independent media, freedom of expression, and access to objective news and information," and to further strengthen the rule of law. The United States pledged to train judges, prosecutors, defense lawyers, and police officers. Then-Deputy Assistant Secretary of State Matthew Bryza stressed that the charter did not provide security guarantees to Georgia. According to some observers, the Charter aimed to reaffirm the United States' high strategic interest in Georgia's fate, to counter perceptions that the United States (and the West) had acquiesced to increased Russian dominance in the South Caucasus. Some in Georgia expressed concern that the "reset" in U.S.-Russian relations enunciated by the Obama Administration in 2009 could lead the United States to downgrade ties with Tbilisi, or even make concessions to Russia at Georgia's expense. At the U.S.-Russia summit in July 2009, however, President Obama stated that one area where the two presidents "agreed to disagree" was on Georgia, where he stressed that he had "reiterated my firm belief that Georgia's sovereignty and territorial integrity must be respected." Among recent high-level U.S.-Georgia bilateral visits, President Obama met with visiting then-President Saakashvili in January 2012. President Obama praised efforts in Georgia to increase the honesty of police, the rule of law, and free market reforms, and called for free elections in the future. He reiterated the call in the Charter for exploring a free trade agreement, and thanked Saakashvili for Georgia's troop contributions in Afghanistan. He mentioned in a press conference that the two presidents had discussed "strengthen[ing] our defense cooperation," and he voiced continuing support for Georgia's NATO aspirations. Russia's then-Prime Minister Putin and others in Russia denounced what they inferred was a change in U.S.-Georgia defense ties, although the Administration claimed that its defense cooperation policy toward Georgia had not changed (but see directly below, and below in " Security Assistance to Georgia since the August 2008 Conflict "). Secretary Kerry first met with Foreign Minister Maia Panjikidze on April 24, 2013, on the sidelines of a NATO foreign ministerial meeting in Brussels. The U.S. side issued few details. Then-President Saakashvili visited the United States in late April-early May 2013, and met with Vice President Biden, Secretary Kerry, and Senator John McCain, among others. Deputy Secretary of State William Burns visited Tbilisi on July 19, 2013, and reassured Pajikidze of U.S. support for Georgia's democratic development, its Euro-Atlantic aspirations, and its sovereignty and territorial integrity. In late August 2013, Defense Secretary Chuck Hagel and other U.S. officials met with visiting Georgian Defense Minister Irakli Alasania. Reportedly, Alasania discussed Georgia's defense needs, but little information was available about the U.S. response. Commenting on then-President Saakashvili's U.N. General Assembly speech in September 2013, U.S. Ambassador to Georgia Richard Norland underlined U.S. concerns about Russia's construction of barriers along Abkhazia's and South Ossetia's borders, and praised Saakashvili's admission that some human rights problems had occurred during his presidency. Norland also stressed that the United States would continue to support the enhancement of the rule of law in Georgia. Some observers have called for a reevaluation of some aspects of U.S. support for Georgia. They have raised concerns that although the 2012 legislative and 2013 presidential elections were progressive, the arrests of former government officials highlight problems of democratization. They have asserted that U.S. acceptance of Georgian troops for coalition operations in Afghanistan should not lead to U.S. defense commitments to Georgia, and a few have suggested that the United States should not unquestionably back Georgia's territorial integrity, but should rather encourage reconciliation and the consideration of options short of the near-term reintegration of the regions into Georgia. In contrast, other observers have argued that there were problems of democratization and respect for human rights during Saakashvili's rule as well as under the present government, and that the United States should step up political and economic assistance to Georgia. They also have called for a more robust U.S. and NATO effort to resupply Georgia with defensive weaponry so that it might deter or resist Russian aggression (see also below, " U.S. Security Assistance "). At the same time, most observers advise against extending diplomatic recognition to the breakaway regions without an international consensus. After Vladimir Putin was elected president in 2000, Russia appeared to place great strategic importance on increasing influence in the South Caucasus region. Several developments over the next few years, however, appeared to jeopardize Putin's influence efforts. These included the "rose revolution" in Georgia that appeared to usher in democratic reforms, NATO's increased ties with the regional states, the completion of the Baku-Tbilisi-Ceyhan oil pipeline and an associated gas pipeline, Russia's ongoing concerns about security in its North Caucasus area (including Chechnya), and Russia's agreement to close its remaining military bases in Georgia. These challenges to Russian influence, however, appeared to be reversed as a result of the August 2008 Russia-Georgia conflict. The Russian leadership has appeared to place its highest priority on exercising influence in the region in the military-strategic sphere and slightly less priority on influence in the economic sphere (particularly energy) and domestic political spheres. Russia has viewed Islamic fundamentalism as a growing threat to the region, but has cooperated with Iran on some issues to counter Turkish and U.S. influence. Russia has tried to stop ethnic "undesirables," drugs, weapons, and other contraband from entering its borders. It has quashed separatism in its North Caucasus areas while backing it in the South Caucasus. The South Caucasian states have responded in various ways to Russian influence. Armenia has close security and economic ties with Russia, given the unresolved NK conflict, concerns about Turkey, and trade blockages. Azerbaijan has been concerned about Russia's ties with Armenia and has eliminated Russia's military presence. At the same time, Azerbaijan has appeared to value having cooperative relations with Russia to increase its options and leverage in diplomacy and trade. From 2006 until recently, Georgia suffered from trade restrictions imposed by Russia and has had no formal diplomatic relations with Russia since the Russia-Georgia conflict. Russia's armed presence in the South Caucasus has been multifaceted, including thousands of military base personnel, border troops, and until 2008, "peacekeepers." The first step by Russia in maintaining a military presence in the region was the promulgation of the Commonwealth of Independent States (CIS) Collective Security Treaty (CST) in 1992, which pledged members to consult in the event of a threat to one or several members, and to provide mutual aid if attacked. A follow-on Collective Security Treaty Organization (CSTO) with a charter reiterating these pledges was established in 2002 (current members include Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan). Russia also secured permission for two military bases in Armenia and four in Georgia (on the latter bases, see below). The total number of Russian ground forces troops in Armenia has been estimated at about 3,300, and an additional number of Air Force personnel. In addition, Russia's Federal Security Service Border Guard Directorate is responsible for guarding Armenia's borders with Turkey and Iran (the directorate reports that the bulk of the guards under its direction are Armenian citizens). Various statements have appeared by CSTO and Armenian officials about whether or not the CSTO would defend NK and Armenia against an Azerbaijani military operation (see also below). During a visit by then-Russian President Dmitriy Medvedev to Armenia in August 2010, Armenia agreed to extend the basing agreement with Russia to the year 2044. In the basing accord, Russia also pledged that its forces would help safeguard Armenia's national security and that it would supply more modern weaponry for Armenia's armed forces. Although some officials in Armenia hailed the accord as providing greater assurance that Russia would intervene if Azerbaijan began operations against NK, Medvedev argued during a September 2010 visit to Azerbaijan that the accord was not aimed against Azerbaijan. Georgia's then-Foreign Minister Grigol Vashadze, however, criticized the accord as strengthening Russia's military influence in the region, as compromising Armenia's independence, and as raising tensions that are inimical to the settlement of the NK conflict. In December 2012, President Sargisyan stated that in case of war with Azerbaijan, Armenia was counting on the support of its allies in the CSTO, rhetorically asking "why else are we in the organization?" In January 2013, President Sargisyan stressed in a speech at the Defense Ministry that the strategic partnership between Armenia and Russia is "the nucleus of Armenian security," and that membership in the CSTO also is the "real guarantee of Armenia's security." One Russian newspaper reported in January 2013 that Russia recently had transformed its forces in Armenia to primarily professional contract troops, in anticipation of possible Azerbaijani military action against Armenia or Israeli action against Iran. The report quoted a Russian lieutenant general as stating that whether Russia will defend Armenia from an Azerbaijani action will be a "political decision," but that the forces should be ready. In October 2013, the commander of Russia's 102 nd military base in Armenia was quoted in a Russian Defense Ministry publication as suggesting that if Azerbaijan attacked NK, the Russian base might respond in line with Russia's obligations as part of the CSTO. Azerbaijan's Defense Minister protested to the Minsk Group, including to Russian co-chair Igor Popov, who reportedly stated that there was a "misunderstanding." Armenia's Defense Ministry reportedly asserted that the country's membership in the CSTO assisted in preventing a potential military strike by "a third country," but also stated that Armenian forces were sufficient to repulse it without Russian or CSTO intervention. Azerbaijani Defense Minister Zakir Hasanov reportedly raised the issue during a Moscow visit in November 2013 with Russian Defense Minister Sergey Shoygu, who termed the assertion "distorted." In early February 2014, Armenian Defense Minister Seyran Ohanian asserted that "should the need arise, the CSTO must come to Armenia's aid under the current charter. How it will happen in reality and what role the countries, especially in Central Asia, will play in this affair, time will tell." In addition to the Russian troops in the South Caucasus, about 88,000 Russian troops are stationed nearby in the North Caucasus, naval forces of Russia's Caspian Sea Flotilla are based in Astrakhan, and some naval forces of the Black Sea Fleet are docking at the port of Ochamchira in Abkhazia, Georgia. In 1993, Azerbaijan was the first Eurasian state to get Russian troops to withdraw, except at the Qabala (Gabala) radar site in northern Azerbaijan. Giving up on closing the site, in January 2002 Azerbaijan signed a 10-year lease agreement with Russia permitting up to 1,500 troops there. After months of reportedly contentious negotiations, during which Azerbaijan purportedly demanded a lease increase from the present $7 million per year to $300 million, Russia announced in early December 2012 that it would relinquish the radar site. In April 2013, President Aliyev claimed that the country had asked for a higher lease payment because of the scenic value of the land. He averred that Russia had been asked to pay market value for leasing the land, just as Russia charges world market value for weaponry it sells to Azerbaijan. He denied that the lease decision harmed Azerbaijani-Russian relations or that Azerbaijan had been influenced by the United States regarding the lease negotiations. President Putin visited Azerbaijan in mid-August 2013, leading a large delegation of ministers and other officials. Putin hailed Azerbaijan as "one of Russia's long-standing, traditional, and reliable partners," and as Russia's "strategic partner." Putin stressed the growth of trade relations between the two countries, the more than 500 Russian businesses operating in Azerbaijan, and the 1 million or more Azerbaijani labor migrants in Russia. Putin emphasized energy cooperation, and Russia's Rosneft state oil firm and Socar signed an accord on oil swaps, exploration, marketing, and other cooperation. Putin stated that the two sides had discussed security, border delineation, and environmental protection in the Caspian Sea, and the two leaders inspected ships from the Russian Caspian Sea Flotilla that were visiting Baku. President Aliyev stated that cooperation with Russia in the oil and gas sphere would increase and stressed that Azerbaijani-Russian military cooperation already was substantial and would continue. According to one report, military cooperation agreements were signed that called for arms transfers worth at least $4 billion, technical assistance to modernize Azerbaijani defense industries, and work to repair and upgrade Azerbaijani military hardware and weapons. Russia agreed to provide military education for at least 100 officers and Azerbaijan allegedly agreed to shift away from cooperation with the United States on Caspian maritime security and toward greater maritime cooperation with Russia. CSTO Secretary General Nikolay Bordyuzha had earlier stated—after media reports appeared in mid-2013 of Russian arms deliveries to Azerbaijan—that Russia considered the impact of such transfers on the military equilibrium in the South Caucasus, and that Russia was compensating the Armenian side for such transfers, including by maintaining a Russian military presence "which aims to ensure the safety of Armenia." Underlining such support, Russia and Armenia signed a new treaty on military and technological cooperation on June 25, 2013, during a visit by Russian Security Council Secretary Nikolai Patrushev. He also stressed that Russia had deployed "enough forces and means [in Armenia] to guarantee Armenia's security." After the September 11, 2001, terrorist attacks in the United States, Russia stepped up its claims that Georgia harbored Chechen terrorists (with links to Al Qaeda) who used Georgia as a staging ground for attacks into Chechnya. The United States expressed "unequivocal opposition" to military intervention by Russia inside Georgia. Georgia launched a policing effort in its northern Pankisi Gorge in late 2002—with U.S. assistance—that somewhat reduced tensions with Russia over this issue. In April 2006, Azerbaijan convicted 16 people on charges that they had received terrorist training from al Qaeda operatives in the Pankisi Gorge. Since 2009, Russia has renewed its allegations that the Gorge harbors terrorists. Georgia has rejected these allegations as false and raised concerns that they might serve as a pretext for new Russian violations of Georgia's territorial integrity. Some Russian and regional observers have speculated that in case of a possible U.S.-Israeli military action against Iran, Russia would take advantage of the operation to move militarily against the South Caucasus. Russia might quickly secure an air and land route through Georgia to its military facilities in Armenia, and occupy the rest of the region, ostensibly to safeguard southern Russia from Iranians fleeing into the South Caucasus or to protect against other claimed disorder, these observers warn. Russia's mediation of ceasefires between Georgia and its breakaway regions in the early 1990s resulted in agreement by the parties on the presence of Russian military "peacekeepers" in Abkhazia and South Ossetia. Russia's "peacekeeping" role at that time received at least tacit approval from world governments and international organizations, with the proviso that the U.N. and the Organization for Security and Cooperation in Europe (OSCE) also provide monitoring. For many years, Georgian authorities voiced dissatisfaction with the role of the "peacekeepers" in facilitating a peace settlement and called for them to either be replaced or supplemented by a wider international peacekeeping force (see " Civil and Ethnic Conflict in Georgia "). In the early 1990s, Georgia was pressured by Russia to agree to the long-term presence of four Russian military bases. By the late 1990s, however, many in Georgia were calling for the bases to close, and this received support from European countries during talks over amending the Conventional Armed Forces in Europe (CFE) Treaty. In 1999, Russia and Georgia agreed to provisions of the amended CFE Treaty calling for Russia to reduce weaponry at its four bases in Georgia, to soon close two of the bases, and to complete negotiations on the status of the other two bases. NATO signatories hesitated to ratify the amended Treaty until Russia satisfied these and other conditions. One base was soon closed and Russia claimed that it had closed another. In November 2007, the Russian Foreign Ministry proclaimed that it had closed the last base and that Russia had "fully" accomplished its obligations to Georgia on the withdrawal of military facilities. Not even one year had passed, however, before Russia announced—following the August 2008 Russia-Georgia conflict—that two army brigades would be deployed to new military bases in Abkhazia and South Ossetia. In addition to these army brigades, Russian border troops were deployed along regional borders with Georgia, along which revetments, trenches, fences and minefields have been built. A part of the Black Sea Fleet also was deployed to Ochamchira in Abkhazia. The British publication The Military Balance reports that as of early 2014 there were 7,000 Russian military troops in Abkhazia and South Ossetia. Russia plays a significant role in Armenia's economy, and less in Azerbaijan and Georgia. Russia is Armenia's major foreign investor, and is responsible for about one-quarter of Armenia's trade turnover. All three states rely somewhat on remittances provided by migrant workers in Russia. A Russian embargo on much trade with Georgia was in place from 2006 until some transactions were resumed in 2013. Russia has opposed the conclusion of free-trade and association agreements between the EU and Soviet successor states, including Armenia, instead pressuring the states to forge closer economic ties with Russia. While Georgia initialed an association and trade agreement with the EU at Vilnius in November 2013, Armenia appeared to accede to Russian influence in early September 2013 when it announced that it would prioritize joining the Russia-led Eurasian Customs Union, seemingly mooting its four years of talks with the EU on an association accord (see also below). President Sargisyan explained that Armenia previously had questioned the need to join the Customs Union because Armenia does not share borders with other members, but that the country had decided to join in order to prevent "serious problems in further deepening and expanding Armenia's economic [and] cultural ties with its strategic partner." He stressed that since Armenia was a security partner with Russia, it could not "isolate" itself from economic ties. Armenian Defense Minister Ohanyan reportedly similarly stated that Armenia decided to join the Customs Union because of the threatening security environment faced by Armenia. Russian subsidies for gas supplied to Armenia reportedly entered into the decision (see below). On September 18, 2013, U.S. Representative Eliot Engel wrote a letter to Secretary Kerry raising concerns that Russia was attempting to prevent Armenia and other Eurasian states from building ties with Europe. Commenting on the pressure that Russia allegedly had applied to persuade Ukraine not to initial an EU association agreement, Georgian Prime Minister Garibashvili stated in mid-January 2014 that Georgia was not as economically vulnerable to such pressure and would be able to conclude and sign such an accord (perhaps by August 2014, according to some reports). Russia has tried to play a dominant role in future oil and gas production and transportation in the Caspian Sea region. A major lever has been the prices it charges the South Caucasian countries for gas. In 2006, after Russia raised gas prices, Armenia agreed to relinquish various energy assets to Russian firms as partial payment for the price increase. Some critics alleged that Russia thereby gained virtual control over Armenia's energy supply. After Russia again hiked gas prices in 2007, Georgia negotiated an agreement to receive some Azerbaijani gas via the new South Caucasus Pipeline (SCP, see " Building the Baku-Tbilisi-Ceyhan and South Caucasus Pipelines ," below) and another small existing pipeline. Azerbaijan also announced it would no longer purchase Russian gas. Following the August 2008 Russia-Georgia conflict, Gazprom's arrangement with Georgia involving the transit of Russian gas to Armenia remained in place. Armenia pays a share of gas to Georgia as a transit fee. Georgia now receives more of its gas from Azerbaijan than from Russia. Russia greatly boosted the price of gas sold to Armenia in April 2013, as the latter considered signing a free-trade and association agreement with the EU. Russia offered a partial subsidy in late August, and an Armenian-Russian accord on energy security was signed during Sargisyan's September 2013 Moscow visit, where Sargisyan announced plans to join the Customs Union. Details on subsidies for Armenia were finalized during President Putin's December 2013 visit to Armenia. Russia agreed to reduce the price of gas—from $270 per 35.3 million cubic feet to about $189 per 35.3 million cubic feet—for up to 88.3 billion cubic feet of gas per year to be supplied to Armenia for five years. In return, Armenia agreed to transfer its remaining shares in the Armrosgazprom gas firm to Gazprom and to give Gazprom a sole concession in Armenia until 2043. The $155 million Gazprom paid for the shares was immediately returned to satisfy part of a $300 million gas debt. Critics charged that the gas price was still higher than that charged by Russia for supplies to other Customs Union members, and Iran protested that it had not been approached to sell more gas to Armenia. The United States has generally viewed Turkey as able to foster pro-Western policies and discourage Iranian interference in the South Caucasus states, even though Turkey favors Azerbaijan in the NK conflict. Critics of Turkey's larger role in the region caution that the United States and NATO might be drawn by their ties with Turkey into regional imbroglios. Turkey seeks good relations with Azerbaijan and Georgia and some contacts with Armenia, while trying to limit Russian and Iranian influence. Azerbaijan likewise long viewed Turkey as an ally against such influence, and as a balance to Armenia's ties with Russia (see below for recent developments). Georgia has an abiding interest in ties with the approximately 1 million Georgians residing in Turkey and the approximately 50,000 residing in Iran, and has signed friendship treaties with both states. Turkey is one of Georgia's primary trade partners. Existing and planned east-west oil and gas pipelines reflect cooperation between Azerbaijan, Georgia, and Turkey. Armenia is a member of the Black Sea Economic Cooperation Organization, along with Turkey, and the two states have established consular relations. Obstacles to better Armenian-Turkish relations have included Turkey's rejection that there was an Armenian genocide in 1915-1923 and its support for Azerbaijan in the NK conflict. In September 2008, Turkey's President Abdullah Gül visited Armenia, ostensibly to view a soccer game, and this thaw contributed to the two countries reaching agreement in April 2009 on a "road map" for normalizing ties, including the establishment of full diplomatic relations and the opening of borders. After further negotiations, Turkish Foreign Minister Ahmet Davutoglu and Armenian Foreign Minister Edvard Nalbandian signed two protocols "On Establishing Diplomatic Relations," and "On Development of Bilateral Relations" on October 10, 2009. President Obama reportedly actively supported the negotiators during a meeting in Istanbul in April 2009. The protocol on diplomatic relations called for the two sides to establish embassies in each other's capitals within two months after the mutual legislatures approved the protocols and after the exchange of the articles of ratification of the protocol. The protocol on foreign relations called for the two sides to "agree to open the common border within two months after the entry into force of this Protocol," that is, after ratification of the protocols by the legislatures of the two states, to "implement a dialogue on the historical dimension with the aim to restore mutual confidence between the two nations, including an impartial scientific examination of the historical records and archives to define existing problems and formulate recommendations," and to undertake other cooperative efforts. A ruling of the Armenian constitutional court on January 18, 2010, that the protocols could not affect Armenia's policy on genocide recognition was criticized by the Turkish government as not being in conformity with the text of the protocols. The Armenian government stated that the ruling did not affect the conditions of the protocols. Azerbaijan strongly criticized Turkey for moving toward normalizing relations with Armenia without formally linking such a move to a peace settlement of the NK conflict. This criticism quickly elicited pledges by Turkey's leaders that the Turkish legislature would not approve the protocols until there was progress in settling the NK conflict. On April 22, 2010, the ruling Armenian party coalition issued a statement that "considering the Turkish side's refusal to fulfill the requirement to ratify the accord without preconditions in a reasonable time, making the continuation of the ratification process in the national parliament pointless, we consider it necessary to suspend this process." Perhaps reflecting the repair of Azerbaijani-Turkish ties, in August 2010, Azerbaijan and Turkey signed a strategic partnership and mutual assistance agreement. The 10-year accord specifies that if one of the sides is attacked by a third country, the sides will provide reciprocal aid. Other provisions call for the sides to cooperate to eliminate threats to national security; to ban the operation of groups threatening the independence, sovereignty, and territorial integrity of the other side; to prevent their territories from being used for acts of aggression against the other side; and to cooperate in defense industry production, holding joint military exercises, and training army specialists. Iran's goals in the South Caucasus include discouraging Western powers such as Turkey and the United States from gaining influence (Iran's goal of containing Russia conflicts with its cooperation with Russia on these interests), ending regional instability that might threaten its own territorial integrity, and building economic links. Armenia and Georgia have through the ages upheld their Christian heritage within the wider Islamic region (although many Georgian Ajarians are Sunni Muslims). Azerbaijanis are mainly a Turkic people and practice Shiite Islam, as do the bulk of Iranians, but many Azeris reject the strict Shiism of Iran and its cleric-led politics. A major share of the world's ethnic Azerbaijanis reside in Iran ( The World Factbook estimates about 12 million, although other estimates are far higher), as well as about 200,000 Armenians. Ethnic consciousness among some "Southern Azerbaijanis" in Iran has grown. Azerbaijani elites fear Iranian-supported Islamic extremism and object to Iranian support to Armenia. Baku banned the pro-Iranian Islamic Party of Azerbaijan (IPA) in 1995. To block the West and Azerbaijan from developing Caspian Sea energy, Iran long has insisted on either common control by the littoral states or the division of the seabed into five equal sectors. There is some trade between the two countries, reportedly about $1 billion in turnover in 2013. In recent months, Iran has boosted its diplomacy in the region, perhaps to counter growing international concern about its nuclear program and to counter U.S. influence. Iran has proposed to build a railroad link to Armenia and another to Azerbaijan. The latter railroad will permit not only greater trade with Azerbaijan but also with Russia. Iran sells some gas to Armenia, and Azerbaijan sells some gas to Iran. Iran's efforts to improve relations with Azerbaijan have appeared to be complicated, however, by its reported suppression of rising dissent among "Southern Azerbaijanis" as well as alleged support for Islamic extremism in Azerbaijan. U.S. policy aims to contain Iran's threats to U.S. interests in the region. Azerbaijan's relations with Iran were roiled in February 2012 when Iran accused Azerbaijan of harboring Israeli intelligence agents who had crossed the Azerbaijani-Iran border to carry out operations, allegedly including assassinations of Iranian nuclear scientists. That same month, Azerbaijan sentenced seven individuals it had arrested in 2008 that it claimed had been trained in Iran to carry out terrorism, including plans to bomb the Israeli embassy. In late February, Azerbaijan confirmed that it had reached a large arms deal with Israel, but stated that the weapons purchase was aimed not against Iran but to "liberate" occupied territories. In mid-March 2012, the Azerbaijan National Security Ministry announced that nearly two dozen terrorists trained in Iran had been arrested, who had been planning attacks on Israeli and U.S. embassies and other Western interests, and at the end of the month, the ministry reported that two other Iranian spy networks had been uncovered in 2011. Also in late March 2012, Iran increased its accusations that Azerbaijan was providing Israel with military access to launch attacks on Iran after such allegations appeared in Western media. In early April, Iran arrested some individuals it claimed were Israeli agents being directed from an unnamed nearby country, presumably Azerbaijan. On April 12, Azerbaijani media reported that the government had arrested several Iranians and Azerbaijanis involved in weapons and drug smuggling from Iran. In early September 2012, Iran released two Azerbaijani poets it had convicted in August on spy charges, and Azerbaijan paroled an Iranian reporter convicted on drug charges, just before a visit by the Iranian vice president to Azerbaijan. In October 2012, President Ahmadinezhad met with President Aliyev on the sidelines of the Economic Cooperation Organization summit in Baku, and both leaders reportedly expressed satisfaction with the development of political, economic, and cultural cooperation between their two countries, and called for further expanding economic ties. Azerbaijani officials reportedly have pledged to Iran that Azerbaijan will not be used as a launching pad for third-party aggression against Tehran, but also have vowed to support international sanctions against Iran. In early August 2013, Azerbaijani Speaker Oqtay Asadov attended the swearing-in ceremony for newly elected Iranian President Hasan Ruhani. However, Iran denounced the sentencing by an Azerbaijani court in October 2013 of Iranian citizen Bahram Fayzi—arrested in March 2012—to 15 years in prison on charges of planning an attack on the Israeli embassy and other crimes. Iran denied court allegations that Fayzi was an agent of Iran's Army of the Guardians of the Islamic Revolution (Sepah). In late 2013, mutual border closures were a new source of contention. Among non-bordering states, the United States and European countries are the most influential in the South Caucasus in terms of aid, trade, exchanges, and other ties. U.S. and European goals in the region are broadly compatible, involving integrating it into the West and preventing an anti-Western orientation, opening it to trade and transport, obtaining energy resources, and helping it become peaceful, stable, and democratic. As part of its European Neighborhood Policy, the EU signed Action Plans with the three regional states in November 2006 that it hoped would foster both European and regional integration. Some observers have suggested that the EU assumed a more prominent role than the United States in the region after the August 2008 Russia-Georgia conflict. The EU took the international lead in mediating the conflict and in deploying observers after the ceasefire (see " The August 2008 Russia-Georgia Conflict ," below). The EU launched an Eastern Partnership program in 2009 to deepen ties with the South Caucasus states. Under the program, the EU plans "deep and comprehensive free trade agreements with those countries willing and able to enter into a deeper engagement, gradual integration in the EU economy, and ... easier travel to the EU through gradual visa liberalization." In July 2013, the EU announced the successful conclusion of talks with Armenia on a Deep and Comprehensive Free Trade Area, as part of the Association Agreement between the EU and the Republic of Armenia. The free trade agreement was expected to bring Armenia's laws and regulations into harmony with EU standards, greatly enhance Armenia's exports to the EU, and boost Western investment in Armenia. Instead, Armenia announced in September 2013 that it would join the Russia-led Customs Union. Georgia initialed its association and trade agreement at the EU Eastern Partnership summit in late November 2013. The South Caucasus region has developed some economic and political ties with other Black Sea and Caspian Sea littoral states, besides those discussed above. Azerbaijan shares with Central Asian states common linguistic and religious ties and concerns about some common neighbors (Iran and Russia). The South Caucasian and Central Asian states are concerned about ongoing terrorist threats and drug trafficking from Afghanistan. Central Asia's increasing ties with the South Caucasus make it more dependent on stability in the wider region. Ethnic conflicts have kept the South Caucasus states from fully partaking in peace, stability, and economic development since the Soviet collapse in 1991, some observers lament. The countries are faced with ongoing budgetary burdens of arms races and caring for refugees and displaced persons. Other costs of ethnic conflict include threats to bordering states of widening conflict and the limited ability of the region or outside states to fully exploit energy resources or trade and transportation networks. U.S. and international efforts to foster peace and the continued independence of the South Caucasus states face daunting challenges. The region has been the most unstable part of the former Soviet Union in terms of the numbers, intensity, and length of its ethnic and civil conflicts. The ruling nationalities in the three states are culturally rather insular and harbor various grievances against each other. This is particularly the case between Armenia and Azerbaijan, where discord led to the virtually complete displacement of ethnic Armenians from Azerbaijan and vice versa by the early 1990s, so that younger Armenians and Azerbaijanis now have no memories of a more diverse past. The main languages in the three states are dissimilar (also, those who generally consider themselves Georgians—Kartvelians, Mingrelians, and Svans—speak dissimilar languages). The borders of the countries do not coincide with eponymous ethnic populations. Separatist NK relies on economic support from Armenia, and Abkhazia and South Ossetia from Russia. South Caucasus states and breakaway regions have alleged the existence of various terrorist groups that pursue mixes of political, ethnic, and religious goals, with such allegations having increased greatly after September 11, 2001, and the intensification of international anti-terrorism efforts. Armenia and Azerbaijan accuse each other of sponsoring terrorism. Georgian militias reportedly were active in Georgia's efforts in 2004 to regain control over South Ossetia. In reaction, Russian defense and security officers allegedly assisted several hundred irregulars from Abkhazia, Transnistria, and Russia to enter the region. Such irregulars and Abkhazian and South Ossetian militias reportedly carried out widespread attacks against ethnic Georgians during and after the August 2008 Russia-Georgia conflict. South Caucasus governments sometimes have accused opposition political parties of terrorism and banned and jailed their followers. However, some of the so-called terrorist violence has been hard to attribute to specific groups or agents that aim to destabilize the governments. Other sources of violence, such as personal or clan grievances, economic-based crime, or mob actions, are also prominent. Islamic terrorism has been an intermittent problem in the region. Besides home-grown terrorism, foreign terrorist influences have included groups from Russia's North Caucasus area, state-sponsored actors from Iran, and al Qaeda and other groups based in Afghanistan and Pakistan. In Georgia, some Chechen terrorists with reported links to al Qaeda were seeking harborage in the northern Pankisi Gorge in the 1990s and early to mid-2000s, but the area was brought under control with some U.S. security assistance. The State Department's latest Country Reports on Terrorism reported that there were a few alleged terrorist incidents in Georgia in 2012, In Azerbaijan, the State Department's latest Country Reports on Terrorism reports that several terrorist groups had endeavored to move people, money, and material through the country during 2012, but that counterterrorism efforts had reduced the presence of terrorist facilitators and hampered their activities. The potential of rising sectarian conflict involving the majority Shiites and Sunni extremist groups based in northern Azerbaijan also is of concern. In Azerbaijan, the Jayshullah (Warriors of Islam) and Salafi Forest Brothers terrorist groups reportedly recently have indicated that they intend to launch new attacks against the government after several years of relative quiescence. Jayshullah has operated since the mid-1990s, supported by Iran. The group allegedly attacked the Baku office of the European Bank for Reconstruction and Development in late 1998, planned an attack the U.S. Embassy in 1999, and carried out other attacks that resulted in some deaths. The Forest Brothers is based in northern Azerbaijan and is connected to insurgents in Russia's Dagestan Republic and has alleged links to al Qaeda. The Forest Brothers allegedly attacked the Abu Bakr mosque in Baku in August 2008, resulting in three deaths. Counter-terrorism operations were conducted against alleged members of the Forest Brothers in Sumgait in 2012. On February 13, 2014, explosions occurred at four locations in Baku and other cities, leaving three civilians dead. Some observers have linked these blasts to Jayshullah or the Forest Brothers, although the government has stated that the explosions were accidental and not terrorist-related. According to Azerbaijani media reports, several hundred Sunnis and Shiites have traveled from the country to Syria to respectively support the rebels or the regime, and some observers raise concerns that they may return home and carry out terrorist acts. In 1988, the Nagorno Karabakh (NK) Autonomous Region of Azerbaijan petitioned to become part of Armenia, sparking armed conflict between ethnic Armenians and ethnic Azerbaijanis. In December 1991, an NK referendum (boycotted by local ethnic Azerbaijanis) approved NK's independence and a Supreme Soviet was elected, which in January 1992 futilely appealed for world recognition. A ceasefire agreement was signed in July 1994 by Armenia, Azerbaijan, and NK Armenians (and mediators Russia and Kyrgyzstan), and the sides pledged to work toward a peace settlement. The conflict over the status of NK has resulted in about 15,000 casualties and hundreds of thousands of refugees and displaced persons in Armenia and Azerbaijan. According to the OSCE, an average of about 30 troops and civilians have been killed each year along the 137-mile "line of contact" and along the Armenia-Azerbaijan border dividing the conflicting sides. The "Minsk Group" of concerned member-states of what is now termed the OSCE was established in 1992 to facilitate peace talks. The United States, France, and Russia co-chair the Minsk Group, and other participants include (besides Armenia and Azerbaijan) Belarus, Germany, Italy, Sweden, Finland, and Turkey. An OSCE high-level planning group composed of military officers also was set up to plan for multi-national peacekeeping after a peace agreement is signed. In 1995, the OSCE chairman-in-office appointed a personal representative to help facilitate a peace settlement, including by carrying out monitoring missions along the line of contact and the Armenia-Azerbaijan border. This personal representative is based in Tbilisi, Georgia, and has small staffs in Yerevan, Armenia; Baku, Azerbaijan; and NK. The U.N. High Commissioner for Refugees (UNHCR) has reported that at the beginning of 2014, there were still some 3,135 people considered refugees in Armenia. Armenia has granted citizenship and acted to permanently house most of the ethnic Armenians who fled Azerbaijan. UNHCR has reported that at the beginning of 2014, there were still some 600,336 people considered displaced persons in Azerbaijan. The non-governmental International Crisis Group estimates that about 13%-14% of Azerbaijan's territory, including most of NK, is controlled by NK Armenian forces ( The World Factbook estimates about 16%). The Minsk Group reportedly has presented four proposals as a framework for talks, but a peace settlement has proved elusive. Since 2005, officials in both countries have reported negotiations on a fourth "hybrid" peace plan calling for initial agreement on "basic principles." In November 2007, then-Under Secretary of State Nicholas Burns, Russian Foreign Minister Sergey Lavrov, and then-French Foreign Minister Bernard Kouchner presented the foreign ministers of Armenia and Azerbaijan with a draft text— Basic Principles for the Peaceful Settlement of the Nagorno-Karabakh Conflict —for transmission to their presidents. These officials urged the two sides to accept the Basic Principles (also termed the Madrid principles, after the location where the draft text was presented) that had resulted from three years of talks and to begin "a new phase of talks" on a comprehensive peace settlement. On November 2, 2008, then-Russian President Medvedev hosted talks in Moscow between Armenian President Serzh Sarkisyan and Azerbaijani President Ilham Aliyev on a settlement of the NK conflict. A joint declaration signed by Aliyev and Sarkisyan (also termed the Meindorf declaration after the castle where talks were held) upheld a continued mediating role for the Minsk Group, but the talks represented Russia's intention to play the major role in mediating the conflict, some observers argue. The joint declaration was the first document on the NK conflict signed by the leaders of Armenia and Azerbaijan since the ceasefire in 1994. As "updated" by the presidents of the co-chairing countries in July 2009 at L'Aquila, France, the Basic Principles call for the phased return of the territories surrounding NK to Azerbaijani control; an interim status for NK providing guarantees for security and self-governance; a corridor linking Armenia to NK; future determination of the final legal status of NK through a legally binding expression of will; the right of all internally displaced persons and refugees to return to their former places of residence; and international security guarantees that would include a peacekeeping operation. The co-chairs presented the "updated" Madrid principles to President Aliyev in Baku in December 2009 and to President Sarkisyan in Yerevan in January 2010. Then-President Medvedev hosted Aliyev and Sargisyan in Sochi, Russia, in late January 2010, and the two sides reportedly agreed on many parts of a preamble to an agreement. However, in July 2010, the Russian and French foreign ministers and the U.S. deputy secretary of state issued a statement decrying faltering progress in reaching a peace agreement. At the December 1-2, 2010, summit meeting of the OSCE, hopes that the attending presidents of Armenia and Azerbaijan would hold talks and make progress in resolving the NK conflict proved unfounded. Meeting in Sochi, Russia, on March 5, 2011, Presidents Medvedev, Sargisyan, and Aliyev issued a statement vowing "to tackle all disputable issues peacefully and to probe incidents along the ceasefire line." On March 17, 2011, a prisoner exchange occurred, as agreed to by Presidents Aliyev and Sargisyan at Sochi. Persistent sniper fire led the chairman-in-office of the OSCE to reiterate past calls by the OSCE and others for the removal of snipers from the line of contact. On March 17, 2011, Azerbaijani Defense Minister Safar Abiyev reportedly stated that the "worthlessness" of the Minsk Group talks had forced Azerbaijan to build up its military capabilities in order to "take serious and necessary measures to liberate" NK and surrounding areas. In late March 2011, the Minsk Group co-chairs released the executive summary of a report of their findings and recommendations following an October 2010 Field Assessment Mission to the occupied areas surrounding NK. The last such assessment had been carried out in 2005. The new report appeared to generally echo the findings of the 2005 report that most of the "towns and villages that existed before the conflict are abandoned and almost entirely in ruins," although some land was being farmed. They reported that there are an estimated 14,000 persons living in small settlements and in the towns of Lachin and Kelbajar, for the most part ethnic Armenians who were relocated from elsewhere in Azerbaijan. The "harsh" living conditions in the areas, the co-chairs emphasized, reinforced their view that "only a peaceful, negotiated settlement can bring the prospect of a better, more certain future to the people who used to live in the territories and those who live there now. " In May 2011, the presidents of the United States, France, and Russia issued a statement on the sidelines of a Group of Eight (group of industrialized nations) meeting in Deauville, France, that urged the Armenian and Azerbaijani presidents to finalize agreement on the Basic Principles at an upcoming late June 2011 meeting in Kazan, Russia. At this meeting, Presidents Sargisyan and Aliyev issued a joint statement that agreement had been reached on some issues and that further talks would be held. A couple of weeks later, then-President Medvedev, reportedly disappointed that there had been scant progress at the talks, sent letters to the two leaders requesting suggestions on how to move the talks forward. In October 2011, the Minsk Group co-chairs issued a statement after talks with Presidents Aliyev and Sargisyan that the two presidents had agreed in principle on some border incident investigation procedures that the presidents had called for developing at their meeting in Sochi in March 2011. A call for finalizing these procedures was issued at the OSCE Ministerial Council Meeting in Vilnius in early December 2011. Before a planned meeting of the Armenian and Azerbaijani presidents in Sochi, Russia, on January 23, 2012, President Aliyev stressed that "no one wants war, least of all Azerbaijan, which has made such great achievements. However, this does not mean that negotiations ... will be focused on the prevention of war." At the Sochi meeting, the two presidents issued a joint statement requesting Russia to act to facilitate humanitarian ties between the two countries and pledging to speed up efforts to agree to the basic principles, which raised expectations among some observers. The co-chairs of the OSCE Minsk Group also presented the Armenian and Azerbaijani presidents with a draft plan for setting up a group to investigate incidents along the line of contact, and the presidents called for further work on the plan. In late March 2012, Azerbaijani presidential administration official Ali Hasanov acknowledged that Baku regards the talks mediated by the president of Russia as the most significant means to settle the NK conflict, given Russia's close ties to Armenia. Hasanov claimed that Russia has overwhelming influence over Armenia, and appeared to argue that Azerbaijan's major goal is to persuade Russia to use its influence to settle the conflict. On June 19, 2012, the presidents of the United States, France, and Russia, meeting on the sidelines of the Group of Twenty (G-20; grouping of major developed and developing countries) summit in Mexico, issued a joint statement regretting that there had not been substantial progress since their last such appeal in mid-2011. Appearing to reflect the rejection of the creation of an incident investigation mechanism, Azerbaijani Foreign Minister Mammadyarov stated on July 9, 2012, that "the problem is not in mechanisms, it is in the presence of the Armenian troops in the occupied Azerbaijani lands. If troops are withdrawn, both the problems with the incidents and mechanisms will be solved. This is Azerbaijan's position and we will not change it." Tense relations between Armenia and Azerbaijan were heightened at the end of August 2012 when Hungary extradited Azerbaijani citizen Ramil Safarov—who was sentenced to life in prison for killing an Armenian officer during NATO training—and he was immediately pardoned and rewarded by Azerbaijani President Aliyev. Hungary protested that it had extradited the prisoner only after receiving assurances from Azerbaijan that he would serve out the balance of his sentence. Armenia broke off diplomatic relations with Hungary. The White House stated that it was communicating its "disappointment" to Azerbaijan and several Members of Congress were critical of the pardon. The OSCE Minsk Group met individually with the Armenian and Azerbaijani foreign ministers in Paris on September 2-3, 2012, and raised "deep concern" that the pardon had harmed peace efforts. Appearing to respond to the OSCE statement, President Aliyev argued in a speech on September 11, 2012, that the Minsk Group had been unsuccessful during its two-decade efforts in moving Armenia to settle the NK conflict, so that the solution might depend on Azerbaijan's use of military force. He asserted that since NK was "occupied" by Armenia, Azerbaijan's main focus was on "isolating Armenia from all international and regional [economic] projects" (see also below, " Economic Conditions, Blockades, and Stoppages "). At the OSCE Ministerial Council Meeting in Dublin on December 6, 2012, the three Minsk Group co-chairing countries issued a statement raising concerns about increased tensions between the two states in recent months, and called on the presidents to "prepare their populations for the day when they will live again as neighbors, not enemies." In a presidential campaign speech in January 2013, President Sargisyan reportedly advised against Armenian recognition of the independence of NK "at the moment," stating that such recognition would end the peace talks and "in that case, we must be ready for military actions." The co-chairs met with Azerbaijani Foreign Minister Mammadyarov in London on June 6 and Armenian Foreign Minister Nalbandyan in Paris on June 28, and the two foreign ministers held a joint meeting in Vienna with the co-chairs on July 12, in order to develop ideas for moving the peace process forward and to explore holding a possible meeting between the presidents of Armenia and Azerbaijan late in the year. On June 18, 2013, the presidents of the United States, France, and Russia, meeting on the sidelines of the Group of 8 summit in the United Kingdom, issued a joint statement pledging continued support for a settlement, but decried continued efforts by the conflict parties to "seek one-sided advantage." They urged that the sides consider the basic principles "as an integrated whole," rather than picking and choosing among the elements. On October 17, 2013, OSCE teams led by the Personal Representative of the OSCE Chairman-in-Office, Ambassador Andrzej Kasprzyk, experienced shooting as they took part in a monitoring exercise along the line of contact, and were forced to abandon the monitoring exercise. The co-chairs decried the "exceptional and regrettable incident" as undermining the 1994 ceasefire agreement. Presidents Aliyev and Sargisyan met in Vienna on November 19, 2013, their first meeting since early 2012, and both agreed to continue negotiations toward a peace settlement, although no details were provided. The co-chairs of the Minsk Group visited the region on December 15-19, 2013, and urged that the sides refrain from violence along the line of contact and maintain an atmosphere conducive to talks. In January-February 2014, tensions in Armenia-Azerbaijan relations appeared to increase, despite a putative pledge to refrain from military actions during the Olympic Games in Sochi, Russia. Azerbaijani media reported that there were over 1,500 ceasefire violations in the latter part of January, almost as many as in all of 2013. The Minsk Group co-chairs met with the Armenian and Azerbaijani foreign ministers on January 24, 2014, and expressed deep concern over escalating violence that they viewed as undermining negotiations and prospects for peace, and called for unconditional respect for the terms of the ceasefire agreement. Several of Georgia's ethnic minorities stepped up their dissidence, including separatism, in the late 1980s and early 1990s, resulting in the loss of central government control over the regions of South Ossetia and Abkhazia. Some observers argued that Russia's increasing controls over South Ossetia and Abkhazia over the years transformed the separatist conflicts into essentially Russia-Georgia disputes. Most residents of Abkhazia and South Ossetia had been granted Russian citizenship before the August 2008 Russia-Georgia conflict and most had appeared to want their regions to become independent or parts of Russia. U.S. diplomacy long appeared to urge Georgia to work within existing peace settlement frameworks for Abkhazia and South Ossetia—which allowed for Russian "peacekeeping"—while criticizing some Russian actions in the regions. This stance appeared to change during 2008, when the United States and other governments increasingly came to support Georgia's calls for the creation of alternative peace settlement mechanisms, particularly since talks under existing formats had broken down. In July 1992, Abkhazia's legislature declared the region's effective independence, prompting an attack by Georgian national guardsmen. In October 1992, the UNSC approved sending a U.N. Observer Mission in Georgia (UNOMIG), the first to a Eurasian state, to help the parties reach a settlement. Russian and North Caucasian "volunteers" (who reportedly made up the bulk of Abkhaz separatist forces) routed Georgian forces in 1993. Georgia and Abkhazia agreed in April-May 1994 on a framework for a political settlement and the return of refugees. Russian troops (acting as CIS "peacekeepers") were deployed in a zone between Abkhazia and the rest of Georgia. The conflict resulted in about 10,000 deaths and over 200,000 displaced persons, mostly ethnic Georgians. The U.S. deputy assistant secretary of State worked with the Special Representative of the U.N. Secretary General and other "Friends of the Secretary General" (France, Germany, Russia, the United Kingdom, and Ukraine) to facilitate a settlement. In July 2006, a warlord in the Kodori Gorge area of northern Abkhazia, where many ethnic Svans reside, foreswore his nominal allegiance to the Georgian government. The Georgian government quickly sent forces to the area and defeated the warlord's militia. Regular Georgia-Abkhazia peace talks were suspended in October 2006. Abkhazia called for Georgia to remove the government representatives and alleged military forces. The United States and others in the international community raised concerns when the Russian foreign and defense ministries announced on April 29, 2008, that the number of "peacekeepers" in Abkhazia would be boosted up to the maximum permitted under ceasefire accords. The ministries claimed that the increases were necessary to counter a buildup of Georgian "military forces" and police in the Kodori Gorge, which they alleged were preparing to attack the de facto Abkhaz government. It was also troubling that 400 Russian paratroopers were deployed to Abkhazia that Russian officials reportedly stated would be fully armed in order to repulse possible Georgian attacks on Abkhazia. In late May 2008, Russia announced that about 400 railway construction troops were being sent to Abkhazia for "humanitarian" work. These troops—whose role is to facilitate military positioning—reportedly left Abkhazia at the end of July 2008 after repairing tracks and bridges. According to former Deputy Assistant Secretary Bryza, the railway was used in August by Russia when its troops moved into Georgia. In 1989, the region lobbied for joining its territory with North Ossetia in Russia or for independence. Repressive efforts by former Georgian President Gamsakhurdia triggered conflict in 1990, reportedly contributing to an estimated 2,000-4,000 deaths and the displacement of tens of thousands of people. In June 1992, Russia brokered a cease-fire, and Russian, Georgian, and Ossetian "peacekeeping" units set up base camps in a security zone around Tskhinvali, South Ossetia. Reportedly, the units totaled around 1,100 troops, including about 530 Russians, a 300-member North Ossetian brigade (which actually was composed of South Ossetians and headed by a North Ossetian), and about 300 Georgians. OSCE monitors did most of the patrolling. In 2004, then-President Saakashvili increased pressure on South Ossetia by tightening border controls and by breaking up a large-scale smuggling operation in the region that allegedly involved Russian organized crime and corrupt Georgian officials. He also reportedly sent several hundred police, military, and intelligence personnel into the region. Georgia maintained that it was only bolstering its peacekeeping contingent up to the limit of 500 troops, as permitted by the cease-fire agreement. Georgian guerrilla forces also reportedly entered the region. Allegedly, Russian officials likewise assisted several hundred paramilitary elements from Abkhazia, Transnistria, and Russia to enter. Following inconclusive clashes, both sides by late 2004 ostensibly had pulled back most undeclared forces. In November 2006, a popular referendum was held in South Ossetia to reaffirm its "independence" from Georgia. After October 2007, no more peace talks were held. Simmering long-time tensions erupted on the evening of August 7, 2008, when South Ossetia accused Georgia of launching a "massive" artillery barrage against its capital, Tskhinvali, while Georgia reported intense bombing of some Georgian villages in the conflict zone by South Ossetian forces. Georgia claims that South Ossetian forces did not respond to a ceasefire appeal but intensified their shelling, "forcing" Georgia to send in troops that reportedly soon controlled Tskhinvali and other areas. On August 8, Russia launched large-scale air attacks across Georgia and dispatched seasoned troops to South Ossetia that engaged Georgian forces in Tskhinvali later in the day. Reportedly, Russian troops had retaken Tskhinvali, occupied the bulk of South Ossetia, reached its border with the rest of Georgia, and were shelling areas across the border by the morning of August 10. Russian warplanes bombed the outskirts of the capital, Tbilisi, as well as other sites. Russian ships landed troops in Georgia's breakaway Abkhazia region and took up positions off Georgia's Black Sea coast. On August 12, then-President Medvedev declared that "the aim of Russia's operation for coercing the Georgian side to peace had been achieved and it had been decided to conclude the operation.... The aggressor has been punished and suffered very heavy losses." Medvedev endorsed some elements of a European Union (EU) peace plan presented by visiting then-French President Nicolas Sarkozy. On August 15, the Georgian government accepted the French-brokered six-point cease-fire that left Russian forces in control of South Ossetia, Abkhazia, and "security zones" in undisputed Georgian territory. The six points included commitments not to use force, to halt hostilities, to provide full access for humanitarian aid, to withdraw Georgian forces to the places they were usually stationed prior to the conflict, to withdraw Russian forces to positions prior to the outbreak of hostilities (although they were permitted to implement security measures in the zone of the conflict until international monitors were in place), and to open international discussions on ensuring security and stability in Abkhazia and South Ossetia. Much of the international community condemned then-President Medvedev's August 26, 2008, decree officially recognizing the independence of South Ossetia and Abkhazia. Nicaragua, Venezuela, and a few small Pacific island nations are the only countries that have followed suit in extending diplomatic relations to Abkhazia and South Ossetia. On September 8, 2008, then-President Medvedev and visiting then-President Sarkozy signed a follow-on ceasefire accord that fleshed out the provisions of the six-point peace plan. Among its provisions, it stipulated that Russian forces would withdraw from areas adjacent to the borders of Abkhazia and South Ossetia by October 11; that Georgian forces would return to their barracks by October 1; that international observers already in place from the U.N. and OSCE would remain; and that the number of international observers would be increased by October 1, to include at least 200 observers from the EU, and perhaps more later. The EU called for Russia to permit these observers to patrol in Abkhazia and South Ossetia. Russia's position has been that these observers cannot patrol in the regions without the approval of the regions, and the regional leaders have refused to permit such patrols. Although Sarkozy strongly implied that the international conference would examine the legal status of Georgia's breakaway Abkhazia and South Ossetia, Medvedev asserted that the regions had been recognized as independent by Russia on August 26, 2008, and that disputing this recognition was a "fantasy." Many observers have argued that Russia aimed both to consolidate control over South Ossetia and Abkhazia and to depose then-President Saakashvili when it launched the August 2008 military incursion into Georgia. Russia hoped to achieve this latter goal either directly by occupying Georgia's capital of Tbilisi and killing or arresting Saakashvili, or indirectly by triggering his overthrow, according to these observers. They state that Saakashvili's survival as the popularly elected president was a major accomplishment of the diplomacy of the EU and the United States that ended Russia's offensive. By October 1, 2008, the EU Monitoring Mission (EUMM) had deployed over 200 monitors and Russia announced on October 9 that its troops had withdrawn from buffer zones. Georgia has maintained that Russian troops have not pulled out of Akhalgori, a district that Russia asserts is within South Ossetia's Soviet-era borders, and the Kodori Gorge, and that no Russian military bases are permitted in the regions. In December 2008, Russia objected to continuing a mandate for about 200 OSCE observers in Georgia—including some observers authorized before the August 2008 conflict and some who were added after the August 2008 conflict—and they pulled out on June 30, 2009. Similarly, in June 2009 Russia vetoed a UNSC resolution that extended the UNOMIG mandate, and they pulled out of Abkhazia. The UMM is now the sole international group of monitors. It reported in February 2014 that there were 279 staffers, of which around 200 were monitors, and that the monitors were based in three field offices near the contested borders. According to U.S. officials, the EUMM has been effective at debunking several allegations made by Russia and the separatist regions that ceasefire violations have been committed by Georgia. They contrast Georgia's cooperation with the EUMM to the refusal of Russia, Abkhazia, and South Ossetia to permit patrols in the regions. In late April 2012, Abkhazia declared that the head of the EUMM was persona non grata , including because he advocated for the EUMM to patrol inside the breakaway regions. Abkhazia has refused to reconvene meetings of the incident prevention group (see below) since then, because the EUMM head normally would attend. The meetings have not resumed even though the EUMM head was rotated in September 2013. An international conference to discuss security, repatriation, and status issues related to the conflict held its inaugural session in Geneva on October 15, 2008. Facilitators at the talks include the U.N., the EU, and the United States. Russia, South Ossetia, and Abkhazia reject any challenges at the conference to the claimed independence of the breakaway regions. Russia has insisted at these meetings and elsewhere that the international community impose an arms embargo on Georgia. Russia also has insisted at these meetings that Georgia sign non-use-of-force agreements with the breakaway regions. In March 2010, Russia stated that, as a preliminary to the signing of such agreements, Georgia, South Ossetia, and Abkhazia could provide written pledges of the non-use of force to the United Nations (see below). Among significant Geneva conference meetings: In February 2009, the sides agreed to set up an "incident prevention and response mechanism" along the South Ossetian border with the rest of Georgia in order to defuse tensions before they escalate. On April 23, the first meeting of the Georgia-South Ossetia Incident Prevention and Response Mechanism was convened in the Georgian town of Ergneti, with the participation of the Georgian and South Ossetian sides, as well as representatives of the Russian Ministry of Defense, the OSCE, and the EU. At the July 2009 Geneva conference meeting, the sides discussed setting up an incident prevention group to resolve issues such as cross-border travel between Abkhazia and the rest of Georgia. A meeting in Gali, Abkhazia, to establish the group was held on July 14, 2009. At the October 14, 2010, meeting, Russia announced that it was pulling its troops out of the town of Perevi, Georgia, near the border with South Ossetia. The troops pulled out on October 18, 2010. Russia declared that this pullout marked its complete fulfillment of the ceasefire accords. At the June 7, 2011, meeting, Georgia raised concerns about alleged Russian terrorist attacks and plans (see below) and stated that it might reconsider participation in the Geneva conference if the terrorism persisted. At the December 14, 2011, meeting, the moderators, the United States, and Georgia argued that if binding nonuse-of-force agreements are signed, they logically should include provisions for international monitors to patrol in the breakaway regions, a stance rejected by Russia, South Ossetia, and Abkhazia. Georgia and South Ossetia agreed to exchange over two dozen detainees who allegedly had illegally crossed disputed borders. The prisoner exchange—under the aegis of the incident prevention mechanism—took place at the end of December 2011. At the June 7-8, 2012, meeting, the Russian side criticized then-Secretary Clinton's announcement during her just-concluded visit to Georgia that U.S. embassies and consulates would recognize the validity of status-neutral travel documents issued by Georgia to residents of Abkhazia and South Ossetia who wished to travel or study in the United States. The new Ivanishvili government hoped for progress at the December 11-12, 2012, Geneva meeting, but voiced disappointment after the meeting and criticized Russia for failing to consider its proposals. At the March 26-27, 2013, meeting, Russia's Deputy Foreign Minister, Grigoriy Karasin, accused Georgia of hindering the talks and claimed that the only point of the talks was to convince Georgia to sign a non-use of force agreement with the breakaway regions. At the same time, Russia continued to refuse to pledge not to use force against Georgia (see below). The June 25-26, 2013, meeting was roiled by increasing efforts by Russia's border guards to erect fences and other obstacles between what Russia claimed was the border of South Ossetia with the rest of Georgia (see also below). Georgia termed the obstacles a violation of the ceasefire accords and also rejected attempts by Russia and the breakaway regions to change the format of the talks. The latest inconclusive round of talks took place in December 2013, and the next round is scheduled for March 25-26, 2014. In late 2010, then-President Saakashvili gave speeches at sessions of the European Parliament and the OSCE in Astana, Kazakhstan, pledging the non-use of force except in cases of self-defense. South Ossetia and Abkhazia followed suit with oral statements, but Russia refused to issue such a pledge on the grounds that it was not a party to the conflict. In March 2013, the Georgian legislature approved a resolution on foreign policy that reaffirmed the non-use of force pledge. The International Crisis Group (ICG), a non-governmental organization, estimated in June 2010 that there may be fewer than 30,000 people residing in South Ossetia, and that the population continues to decline (a 1989 census, taken before the beginning of conflict, reported a regional population of 98,500). The ICG suggests that the region is increasingly less able to govern or sustain itself economically, and so must rely on Russian aid and thousands of Russian construction and government workers, troops, and border guards that are deployed there. In March 2011, then-Assistant Secretary of State Philip Gordon reiterated the U.S. position that Georgia's territory is "occupied" by Russian troops. He explained that We believe that Russia used disproportionate force and remains present in what we consider to be sovereign Georgia. So it's not meant to be a particular provocation, it's just a description of what we think the situation is and we've very active in the Geneva talks and bilaterally with Russia to try to bring about an end to what we consider to be a military occupation. On June 2 and June 6, 2011, Georgia announced that it had apprehended Russian terrorist infiltrators who were planning attacks in Georgia, including against the NATO Liaison Office in Tbilisi. Georgia alleged that Russian security agencies were behind the planned attacks. Russia termed these allegations "artificially fabricated arrays of data." In late July 2011, the Washington Times alleged that the U.S. intelligence community had backed up a Georgian claim that Russian intelligence operatives had orchestrated a bombing in September 2010 near the U.S. Embassy in Tbilisi. In May 2012, the Georgian government apprehended a resident of Abkhazia who it claimed had been directed by Russian intelligence to plant a bomb at government offices in Zugdidi, a town in western Georgia. In February 2013, Russia's border guards launched new efforts to erect fences and other obstacles between what Russia claimed was the border of South Ossetia with the rest of Georgia. In late May 2013, Prime Minister Ivanishvili decried the border construction actions as "most unexpected," and "incomprehensible," particularly in the light of efforts by his administration to improve ties with Russia. The United States and NATO have criticized the ongoing construction of the fences and other obstacles. On January 21, 2014, Georgian Foreign Minister Panjikidze appeared to state that Georgia would not re-establish diplomatic relations with Russia as long as the latter refused to recognize Georgia's territorial integrity, including Tbilis's sovereignty over breakaway Abkhazia and South Ossetia. On September 30, 2009, a special EU fact-finding mission led by Swiss diplomat Heidi Tagliavini released a report on the origins and outcome of the August 2008 Russia-Georgia conflict. On the one hand, the mission concluded that "open hostilities began with a large-scale Georgian military operation against the town of Tskhinvali [in South Ossetia] and the surrounding areas, launched on the night of 7 to 8 August 2008. Operations started with a massive Georgian artillery attack." The mission also argued that the artillery attack was not justifiable under international law. However, it also argued that the artillery attack "was only the culminating point of a long period of increasing tensions, provocations and incidents" by the parties to the conflict. On the other hand, the mission suggested that "much of the Russian military action went far beyond the reasonable limits of defense," and that such "action outside South Ossetia was essentially conducted in violation of international law." In Abkhazia, actions by Russian-supported militias in the upper Kodori Valley "constituted an illegal use of force ... not justified under international law." The mission likewise asserted that actions by South Ossetian militias "against ethnic Georgians inside and outside South Ossetia, must be considered as having violated International humanitarian law and in many cases also human rights law." Commenting on the release of the report, a U.S. State Department spokesman stated that "we recognize that all sides made mistakes and miscalculations.... But our focus is on the future." The economies of all three South Caucasus states greatly declined in the early 1990s, affected by the dislocations caused by the breakup of the Soviet Union, conflicts, trade disruptions, and the lingering effects of the 1988 earthquake in Armenia. Gross domestic product (GDP) began to rebound in the states in the mid-1990s. Investment in oil and gas resources has fueled economic growth in Azerbaijan at the expense of other sectors of the economy, although there are efforts to strengthen non-oil sectors. Problems of poverty and regional conflict have contributed to high emigration from all three states, and remittances from these émigrés have provided major support for the remaining populations. The global economic downturn that began in 2008 hampered Armenia's economic growth and added to Georgia's economic stresses in the wake of the August 2008 conflict. Azerbaijan's energy revenues, although reduced, helped it weather the downturn with continued GDP growth. The influx of international assistance to Georgia ameliorated to some degree the impact of the conflict and the world economic crisis. In 2009, Russia provided a $500 million loan to Armenia to assist it in economic stabilization and recovery (in October 2013, Armenia repaid the loan, which was poised to increase its servicing fees, with the proceeds of a Eurobond). Perhaps surmounting the downturn, all the regional economies reported GDP growth in 2011 and thereafter. Major economic accomplishments in recent years have included the reduction of a high rate of poverty in Azerbaijan and the World Bank's assessment that Georgia had continued to make progress among 189 countries in making business regulatory reforms and ranked 8 th worldwide in 2013 in the overall ease of doing business. Transport and communications obstructions and stoppages have severely affected economic development in the South Caucasus and stymied the region's emergence as an East-West and North-South corridor. Since 1989, Azerbaijan has obstructed railways and pipelines traversing its territory to Armenia. According to the U.S. Embassy in Baku, Azerbaijan's Nakhichevan exclave "is blockaded by neighboring Armenia." From 2006 until 2013, Russia restricted agricultural trade and land, air, and sea links with Georgia. Russia hinders Azerbaijan's use of the Volga-Don Canal to reach world shipping channels. Russia has at times cut off gas supplies to Georgia. During the August 2008 Russia-Georgia conflict, Russia's effective blockade of Georgia's Black Sea ports disrupted trade shipments to and from Armenia. In the wake of the conflict, gas transit from Russia to South Ossetia via other Georgian territory was disrupted, with each side blaming the other, until service was restored in late January 2009. In late August 2009, Russia completed construction of a 110-mile gas pipeline from North Ossetia to South Ossetia to avoid transiting Georgia. Trans-border road traffic between Georgia and the regions of South Ossetia and Abkhazia is severely restricted. Armenia has hoped for the reopening of a section of railway transiting Georgia to Abkhazia and Russia, but while Georgian Prime Minister Ivanishvili in late 2012 called for reopening the railway, Abkhazia rejected the offer unless it was accompanied by Georgia's recognition of its independence. Azerbaijani officials and others condemned the proposal, since the railway would benefit Armenia, and stated that Baku might respond by restricting economic projects in Georgia. In June 2013, Rovnag Abdullayev, the CEO of Azerbaijan's State Oil Company of the Azerbaijani Republic (Socar), stated that his company "humanely" was prepared to supply gas to Armenia through a disused pipeline if the latter country requested assistance, since Russia was charging more for gas than Azerbaijan was charging Georgia. The proposal was dismissed by Armenia, particularly since the Azerbaijani presidential administration reportedly added conditions to the offer. Turkey closed its land borders with Armenia in 1993. These obstructions have had a negative impact on the Armenian economy, since it is heavily dependent on energy and raw materials imports. Turkey's closure of land borders in effect barred direct U.S. shipments of aid through its territory to Armenia. Foreign Operations Appropriations for FY1996 ( P.L. 104-107 ) and Omnibus Consolidated Appropriations for FY1997 ( P.L. 104-208 ) have mandated U.S. aid cutoffs (with a presidential waiver) to any country which restricts the transport or delivery of U.S. humanitarian aid to a third country. These provisions were designed to convince Turkey to allow the transit of U.S. aid to Armenia. (See also above, " The Roles of Turkey, Iran, and Others .") Azerbaijani Civil Aviation official Arif Mammadov reportedly warned in late March 2011 that Azerbaijan could shoot down airplanes that have not received Azerbaijani permission to land at an airport being constructed in Stepanakert (Xankandi), the capital of NK. Then-U.S. Ambassador Bryza reportedly condemned the idea of attacking civilian aircraft and the Azerbaijani Foreign Ministry pledged that the country would not attack civilian aircraft. As the airport neared completion, an Azerbaijani air force official in January 2013 reportedly reiterated that "unpermitted flights ... will be prevented." Reportedly, new Azerbaijani government regulations call for forcing an intruding airplane to land, and if it does not comply and there is no information on civilian passengers, for shooting it down. In October 2013, an NK official discussed plans to build a road from Armenia into northern NK, since Azerbaijan was blocking the operation of the airport. The airport had not opened as of February 2014. In early November 2013, Azerbaijan and Iran closed some border crossings in response to a shooting incident. Although Iran later that month reopened these border crossings, it restricted heavy truck cargoes from Azerbaijan, claiming that bridge repairs were needed. Nakhichevan is dependent of trucks entering Iran to carry goods to the exclave. Trucks with heavy cargoes have been forced to downsize their loads or transit Georgia and Turkey to enter Nakhichevan. According to the NGO Freedom House, in 2013 Armenia and Georgia ranked as "partly free," while Azerbaijan ranked as "not free," in terms of political rights and civil liberties. The NGO also classified Georgia as the region's only "electoral democracy." Armenia and Azerbaijan were assessed as having very restricted political rights, where elections were marred by serious irregularities. Armenia's government was assessed as better in respecting civil liberties than was Azerbaijan's, where the media increasingly were restricted. Azerbaijan's government also was deemed to increasingly have violated property rights in 2013. Georgia was assessed as improving in political rights and civil liberties in 2011-2013, due in part to increasing media diversity and the holding of "free and fair" legislative and presidential elections, although there were concerns over selective prosecutions against former Saakashvili government officials. Among the disputed territories, South Ossetia was judged to be "not free," while Abkhazia and Nagorno Karabakh (NK) were judged to be "partly free." In a report on Internet rights, Freedom House ranked Armenia and Georgia as "free" in terms of Internet availability, access to content, and user rights, while Azerbaijan was ranked "partly free." According to the State Department's latest human rights report, released on February 27, 2014: In Armenia, the most significant human rights problems in 2013 were corruption and lack of transparency in government, limitations on the right of citizens to change their government, and the limited independence of the judiciary. Allegations of persistent corruption undermined the rule of law. Courts remained subject to pressure from the executive branch, which resulted in some politically motivated prosecutions and sentencing. Other abuses included use of alleged torture and beatings by police to obtain confessions and during arrest and interrogation. Authorities continued to arrest and detain criminal suspects without reasonable suspicion. Some members of the security forces continued to commit human rights abuses with impunity. Authorities did not adequately enforce laws against government intrusion on the right to privacy and unlawful searches. Media coverage lacked diversity of political opinion. Religious restrictions affected some minority religious groups. Human trafficking was a problem, but authorities made efforts to combat it. In Azerbaijan, the most significant human rights problems during 2013 included increased restrictions on freedoms of expression, assembly, and association, including intimidation, arrest, and use of force against journalists and human rights and democracy activists. Amendments adopted during the year further restricted NGO financing. The State Department raised concerns about increased reports of arbitrary arrest and detention, politically motivated imprisonment, executive influence over the judiciary, and lengthy pretrial detentions for those perceived as a threat by government officials. Authorities failed to provide due legal process with regard to property rights. Following the October 2013 presidential election, authorities launched a criminal investigation against two election-monitoring NGOs and arrested the head of one of the NGOs. Other human rights problems reported in 2013 included continued arbitrary invasions of privacy, restrictions on the religious freedom of some unregistered groups, constraints on political participation, continued official impediments to the registration of human rights NGOs, and trafficking in persons. In Georgia, the most important human rights problems reported during the year included the dismissal of government employees from local government institutions allegedly for their association with the former ruling party (the United National Movement or UNM), increased societal violence against members of the lesbian, gay, bisexual, and transgender community and the government's failure to hold perpetrators responsible, and local government interference with the rights of religious minorities. Other problems reported during 2013 included police abuse of detainees and allegations of politically motivated harassment. Following the October 2012 legislative election, UNM members reported arbitrary harassment, job loss, and arrests due to their political affiliation or activities. External and internal influence on the judiciary remained a problem, although there were some positive steps. Although the media environment improved, there were reports of government pressure on the media, especially Georgia's Public Broadcaster. Trafficking in persons remained a problem. The government took steps to promote accountability. As of December 2013, the government had charged 50 former senior Saakashvili administration officials with crimes including obstruction of justice, misappropriation of government funds and money laundering, blackmail, privacy intrusion, and abuse of power. In anticipation of legislative elections scheduled to be held on May 6, 2012, and presidential elections scheduled for early 2013, a new electoral code was approved in June 2011 that included several reform suggestions by the Council of Europe's advisory Venice Commission and the OSCE's Office of Democratic Institutions and Human Rights (ODIHR). Reforms included steps to form a more non-partisan electoral administration and the specification of conditions under which election results might be invalidated. However, the Venice Commission and ODIHR called for added reforms, including easing restrictions on becoming a candidate for election, ensuring the separation of state and party structures, improving the transparency of vote counting, and improving complaint and appeal procedures. Also in anticipation of the May 2012 legislative election, the opposition Heritage Party and the Armenian Revolutionary Federation (ARF) deputies in the legislature introduced a bill in January 2012 calling for the elimination of single member district voting and the transition to a proportional (party list) system to elect all deputies. Several opposition parties and blocs not represented in the legislature indicated support for the bill. Backers of the bill argued that voting in single member districts was controlled by local officials who carried out the wishes of the Sargisyan government, while voting via national party lists might increase the chances that more opposition deputies could be elected. At the end of February 2012, the bill was rejected by the majority deputies belonging to the ruling coalition (Republican Party of Armenia, Prosperous Armenia, and Law-Governed Country), although a few Prosperous Armenia deputies reportedly supported the bill. Eight parties and the Armenian National Congress (an opposition party bloc) were approved to run on party lists for 90 seats in the May 6, 2012, legislative election. In addition, 155 candidates were registered to run for 41 seats in single-mandate constituencies. Of these candidates, 66 were self-nominated. Official campaigning began on April 8. Nearly 63% of 2.5 million registered voters turned out. Six of the eight parties won legislative seats in the party list portion of the election. The Republican Party won 40 seats, the Prosperous Armenia Party won 28 seats, the Armenian National Congress bloc won 7 seats, the Heritage Party won 5 seats, the Armenian Revolutionary Federation won 5 seats, and the Orinets Yerkir Party won 5 seats. In the majoritarian races, the Republican Party won about three-quarters of the seats, giving it a bare majority of seats in the legislature. A majority of incumbent deputies were returned to the legislature. According to the final report issued by the OSCE monitoring mission, the election was competitive, vibrant, and largely peaceful, but was marred by an unequal playing field and by deficiencies in the complaint and appeals process. Media coverage appeared free and fair, as were candidate registration processes. Participants raised concerns about the accuracy of voter lists. Violations of electoral codes were sometimes committed by local authorities, including school teachers, who participated in campaign activities, and by party-linked organizations, which provided gifts to voters. Election monitors observed the presence of unauthorized persons or group voting in 12% of nearly 1,000 polling stations visited. Vote counting was assessed negatively in almost one-fifth of polling stations, including the participation of unauthorized persons in counting. Vote tabulation was assessed negatively in most higher-level electoral commissions visited. U.S. Ambassador to Armenia John Heffern reportedly assessed the election as a major step forward in democratization in Armenia, pointing to "a lot of progress in several key areas," including access to media and orderly and transparent voting (including the presence of cameras in polling places). At the same time, he stated that the OSCE monitors had reported that there were some problems, so that "there is still some work to do for the elections next time." On May 30, 2012, the Republican Party and the Orinats Yerker (Rule of Law) Party (headed by National Security Council Secretary Artur Bagdasaryan) formed a coalition. A former coalition member, the Prosperous Armenia Party, declined to join the new coalition. At the opening session of the new legislature on May 31, Hovik Abrahamyan was elected Speaker (he had stepped down as speaker in late 2011 to head up the election campaign of the Republican Party). On June 2, 2012, President Sargisyan re-appointed Tigran Sargisyan as prime minister. On January 14, 2013, Armenia's Central Electoral Commission registered eight candidates for the February 18, 2013, presidential election. Some observers questioned why major political parties and politicians failed to field candidates or run, including former President Robert Kocharyan, Prosperous Armenia Party head Gagik Tsarukyan, and Armenian National Congress (ANC) head Levon Ter-Petrosyan (the Freedom Party, a member of the ANC bloc, fielded candidate Hrant Baghratyan, but he was not endorsed by the ANC). Ter-Petrosyan claimed that he was too old (68) to rule effectively and that fraudulent election practices of the past remained in place. Some observers alleged that the Prosperous Armenia Party had been persuaded to not field a candidate. Campaigning began in a dramatic fashion on January 21, 2013, when candidate Andreas Ghukasyan, a radio commentator, began a hunger strike to protest the "fake election." The next day, contender Arman Melikyan, a former official in the breakaway Nagorno Karabakh, also questioned the fairness of the election and stated that he was suspending his campaigning. Likewise, contender Aram Arutyunyan, head of the National Accord Party, stated that he planned to withdraw a few days before the election (he pulled out on February 8). On January 31, 2013, presidential candidate Paruyr Hayrikyan, head of the National Self-Determination Union Party, was shot and injured, but did not withdraw from the contest. The OSCE long-term observers characterized campaigning as low-key, with Sargisyan stressing the need for continued stability and stressing his credentials as a military leader in NK and former defense minister. On February 25, 2013, the CEC reported its final tally and declared that Sargisyan had won the election with 58.64% of 1.5 million votes cast, followed by Hovannisyan with 36.74%. Immediately after the election, Hovannisyan claimed that he had in fact won, but virtually all election complaints made by his party were rejected by the CEC. His Heritage Party held a series of protests throughout Armenia to call for new elections. As a footnote to the election campaign, the National Security Service formally indicted one of the presidential candidates, poet Vardan Sedrakiyan, on March 6 on charges of having ordered the attack on fellow candidate Hayrikyan. According to the final assessment of the OSCE observers, the election "was generally well-administered and was characterized by a respect for fundamental freedoms." However, the observers also argued that there was "lack of impartiality of the public administration, misuse of administrative resources, and cases of pressure on voters.... [Election day] was marked by undue interference in the process, mainly by proxies representing the incumbent, and some serious violations were observed." The observers assessed the voting process negatively in 5% of 853 polling stations, including because of overcrowding and interference in the vote. Vote counting and tabulation were assessed negatively in less than 10% of 106 polling stations and of 41 territorial election commissions observed. The OSCE observers later raised concerns about the high correlation between turnout at polling stations and the vote for Sargisyan, the treatment and dismissal of complaints, and restrictive media coverage of electoral problems. After the election, government-owned or influenced television stations presented the OSCE's preliminary assessment of the election mainly in a positive light, omitting critical elements, raising "questions over the genuineness of their efforts to provide an objective and independent portrayal of the election." In his April 9, 2013, inaugural address, President Sargisyan pledged to continue to strengthen democracy and enhance the rule of law, and to address the problems of emigration, poverty, and unemployment. Hovannisyan held an "alternative inauguration" protest that later resulted in some detentions by police. Sargisyan's cabinet resigned that same day as mandated by the constitution. He has re-appointed his former prime minister and defense and foreign ministers. A law went into effect in January 2014 that mandates automatic transfers of 6%-10% of salaries of those born after 1973 to a state pension fund. The controversial law was suspended by the Constitutional Court, upon an appeal by the four opposition parties in the legislature, but the government has called for continued implementation. The "I Am Against" civic movement and others have launched protest actions throughout Armenia against the pension law. Some protestors have called for President Sargisyan to resign. Although the Sargisyan government hailed the January 2014 agreement with Russia on reducing gas prices, gas prices for consumers were high during a harsh winter, reportedly contributing to some hardship and discontent. An amendment to the freedom of assembly law was passed in November 2012 greatly boosting the fines for taking part in unauthorized demonstrations, with those deemed to have organized such demonstrations facing fines of up to $38,000. Critics charged that the increased fines were intended to discourage the holding of rallies in the run-up to the presidential election in October 2013. Some observers raised concerns about increasing efforts in 2013 by the government to detain and arrest protesters and otherwise to constrain civil society. On January 12, 2013, after a soldier had reportedly died following brutal hazing, several dozen people staged an unauthorized protest in Baku, including many relatives of soldiers who had similarly died. Police arrested over two dozen of the demonstrators and the courts levied heavy fines of up to nearly $800 against them. A fund on the Internet quickly gathered over $13,000 to pay the fines. Several activists of youth groups were detained ahead of a planned March 10, 2013, protest against non-combat deaths in Azerbaijan, or were arrested later, on charges of weapons possession and incitement to violence to overthrow the government. The protest was forcibly dispersed by police. Azerbaijani media alleged that the U.S. National Democratic Institute (NDI) was fostering Internet-spread subversion against the Azerbaijani government. Both the suppression of the protest and the allegations against NDI raised objections from the U.S. Embassy. In March 2013, Azerbaijan requested that the OSCE downgrade its office in Baku, to end its ability to launch independent events and to monitor and submit reports on democratization and adherence to human rights. Azerbaijan's presidential administration argued that the office's attention to civil and human rights in Azerbaijan was unnecessary given the country's current stage of development, where there are "a sufficient number of NGOs, political institutions, and public organizations." In early April 2013, the Prosecutor General's Office raided and closed the Free Thought University, run by an unregistered youth civic movement. U.S. Ambassador Morningstar raised concerns about the closure of the school, as did Deputy Assistant Secretary of State Thomas Melia during an April 2013 visit. Azerbaijan's presidential administration has stated that the university might be permitted to reopen if it is found that it has adhered to all legal requirements. Ten candidates were registered for the October 9, 2013, Azerbaijani presidential election, including incumbent President Aliyev, who ran for his third term in office. The main opposition candidate was Jamil Hasanli, an historian and former legislator, who was nominated by the National Council of Democratic Forces, a coalition that includes the Musavat and Popular Front parties. These parties had boycotted the previous 2008 presidential election on the grounds that it would not be free and fair, but decided to ally to contest the 2013 election. Other opposition candidates included legislator Iqbal Agazada, head of the Hope Party (who also ran in 2008), legislator Ilyas Ismayilov, head of the Justice Party, and Sardar Calaloglu, head of the Democratic Party. The Central Electoral Commission reported that 71.6% of 5.2 million voters turned out and that President Aliyev received 84.54% of the vote, followed by 5.53% for Hasanli and 2.4% for Agazada. According to the final report of the OSCE, the election was well organized, several candidates took part, and turnout was high, but the electoral process was undermined by limitations on the freedoms of expression, assembly, and association that provided advantages to the campaign of the sitting president. Campaigning was marred by allegations of candidate and voter intimidation, insufficient access by most candidates to the media, and harassment of journalists. The government limited the number of venues where candidates could meet with voters and places where campaign posters could be displayed. OSCE observers witnessed some efforts to coerce individuals to attend presidential campaign rallies and to disrupt National Council rallies, and the prosecutor announced that he was investigating National Council member activities. Hasanli was warned that he had insulted the dignity of the president, a criminal offense. Editorial statements by media and public affairs discussion of the campaign were constrained by law. Given the restrictions on campaigning, substantive debate of platforms did not take place. Aliyev's campaign emphasized the achievements of his presidency, while the campaigns of other candidates to some extent addressed socioeconomic issues and corruption, and opposition candidates called for upholding political rights and abolishing presidential domination of the political system. Voting day also witnessed serious shortcomings, including instances of multiple voting and ballot box-stuffing. The ballot-counting process was judged to be problematic in an "unprecedented" majority of polling places, and included involvement of unauthorized individuals in vote-counting and the reassigning of votes from one candidate to another. After the election, the government harassed and detained some opposition party members and election monitors. The State Department issued a statement regretting that despite urging by the United States, the presidential election "fell short of international standards." The State Department concurred with OSCE and other monitors that there were serious vote-counting problems and a repressive campaign environment. At the same time, the State Department praised the registration of some opposition candidates, the authorization of some opposition campaign rallies, and the decision to invite the OSCE to monitor the election. Presidential administration head Ramiz Mehtiyev criticized the OSCE and State Department assessments as flawed and rejected accusations that there was substantive falsification of the results. He also alleged that the United States had tried to interfere in the electoral process. At the end of October 2013, the prosecutor general launched an investigation into the finances of the Center for Election Monitoring and Democracy Training, a prominent Azerbaijani NGO that had criticized the presidential election process. Also in October 2013, a court case and government action resulted in the suspension of publication of the opposition Azadliq newspaper. In late 2013, media reported several arrests, trials, and convictions of opposition political activists, unfavored religious figures, and others on charges that included drug trafficking, hooliganism, and plotting disorder, among other charges. In February 2014, the High Representative of the European Union for Foreign Affairs and Security Policy, Catherine Ashton, and the European Commissioner for Enlargement and Neighbourhood Policy, Stefan Fule, issued a statement critical of just-enacted amendments to Azerbaijan's law on NGOs. They warned that changes restricting the registration of foreign-headquartered NGOs and their activities threatened to further limit human rights and democracy advocacy by civil society groups in Azerbaijan. Over 100 NGOs signed a letter to PACE calling for the organization to request that Azerbaijan respect human rights and repeal the 2014 changes to the NGO law as well as other restrictions enacted in 2012-2013. The Azerbaijani Foreign Ministry rejected the criticism, stating that the changes had been enacted after discussion with NGOs. An election for the 150-member Parliament of Georgia was held on October 1, 2012. Georgia's Central Electoral Commission registered 16 parties and blocs and several thousand candidates to run in mixed party list and single-member constituency races. A party coalition—Georgia Dream (GD)—set up by billionaire Bidzina Ivanishvili posed the main opposition to then-President Saakashvili's United National Movement (UNM), which at that time held the majority of legislative seats. A video tape of abuse in a prison released by GD late in the campaign seemed to be a factor in the loss of voter support for the UNM and in the electoral victory of GD, which won 85 (57%) of the 150 legislative seats. According to observers from the Organization for Security and Cooperation in Europe (OSCE), the election freely reflected the will of the people, although a few procedural and other problems were reported. The White House described the election as "another milestone" in Georgia's development as a democracy, and called for Ivanishvili and Saakashvili to work together to ensure the country's continued peaceful transition of power. Several Members of Congress observed the election, and several Members of the Senate issued a post-election statement commending then-President Saakashvili for his efforts to transform Georgia into a prosperous democracy, while cautioning that the future of U.S.-Georgia relations depended on the country's continued commitment to democratization. On October 25, 2012, the new legislature convened and the parties making up the majority GD coalition approved Ivanishvili as prime minister, along with his proposed cabinet ministers. Relations between the parties making up the GD coalition and the UNM in the legislature and between the GD-led cabinet and the president were contentious in the run-up to the October 2013 presidential election. Saakashvili was term-limited and hence ineligible to run. Under constitutional provisions already in place, the legislature was slated to gain greater powers vis-à-vis the presidency. Beginning in early November 2012, the Ivanishvili government arrested officials who had served in the previous Saakashvili government or who were active in the UNM, most prominently former defense and interior minister Bacho Akhalaia and chief of the armed forces Georgy Kalandadze, who were charged with allegedly beating six servicemen in 2011 and other crimes. In two trials, Akhalaia was acquitted, and outgoing President Saakashvili pardoned him after a conviction in a third trial. He remains in custody, however, awaiting a fourth trial. Kalandadze was acquitted in August 2013. Among other prosecutions, in May 2013, former Prime Minister Vano Merabishvili was detained on corruption charges, and in October 2013, French authorities acting on an Interpol warrant detained former Defense Minister Davit Kezerashvili on charges in Georgia of bribery and money laundering (in February 2014, he was released from French custody pending a court decision on extradition). In December 2013, a Tbisili court suspended UNM member Gigi Ugulava as mayor of Tbilisi, after he was charged with misspending funds. In January 2013, the Georgian legislature overrode a presidential veto of a law on amnesty for "political prisoners," and nearly 200 alleged victims subsequently were released from prison, including 13 individuals sentenced as Russian espionage agents. In addition, courts have exonerated other prominent individuals sentenced by the former Saakashvili government. Elected local councils and executive leaderships, formerly dominated by members of the UNM, faced increasingly strident GD supporters, and many or most members and leaders resigned, switched parties, or declared that they were independent of party affiliation. Some observers decried this situation, terming it an effort by GD to take over local politics rather than cooperate with the UNM. A presidential election was held on October 27, 2013. Prime Minister Ivanishvili stated that he planned to step down as premier soon after the election. Twenty-three candidates were registered to run. The GD candidate was Giorgi Margvelashvili, the former Minister of Education, and the UNM candidate was legislator Davit Bakradze, the former legislative speaker and foreign minister. Other prominent candidates included Nino Burjanadze, the head of the pro-Russian Democratic Movement-United Georgia Party and the former legislative speaker; Giorgi Targamadze, head of the pro-Western and socially conservative Christian Democratic Movement; and Shalva Natelashvili, head of the populist Labor Party. Georgia's Central Electoral Commission (CEC) reported that 46.6% of about 3.54 million registered voters turned out on election day, and that Margvelashvili received enough votes (over 50%) to avoid a legally mandated second round of voting for the top two candidates. Margvelashvili won handily, receiving over 62% of the vote, with Bakradze coming in second with about 22% of the vote. Some observers suggested that the relatively low turnout, compared to past elections, could be attributable to the lesser constitutional powers to be wielded by the new president, public sentiment against fundamental political change, and the lack of charismatic UNM and GD candidates. A final report by observers from the OSCE, the Parliamentary Assembly of the Council of Europe (PACE), the European Parliament (EP), and the NATO Parliamentary Assembly judged that the election was efficiently administered, with voting, counting, and tabulation viewed generally positively. The rights of expression, movement, and assembly were respected by the government and participants during the campaign, so that voters were able to express their choice freely on election day. The monitors reported a few "isolated" instances of harassment of party activists by rival supporters and other violence during the campaign period. They evaluated voting and vote counting and tabulation as free and fair in the overwhelming majority of polling stations and district electoral commissions observed. On November 2, 2013, Ivanishvili proposed that Interior Minister Irakli Garibashvili be confirmed by the legislature as the new prime minister. He was confirmed by the legislature on November 20, 2013, and the previous cabinet members were reappointed (with a new Interior Minister). Ivanishvili retired from public office. Garibashvili told the legislators that Georgia's post-Soviet era had ended, and that the country now was constructing a European-style democracy. He stressed that his government would give priority to the country's integration with the EU and NATO, while seeking better ties with Russia. A few days later, Garibashvili also was named as the new head of GD. It has appeared that while the constitution mandates the sharing of some powers and reserves other powers to the president, the ambiguities of the new constitutional system have permitted the prime minister to assert more and more primacy in policymaking. Raising concerns among some observers about the presumption of innocence, on January 16, 2014, Prime Minister Garibashvili reportedly asserted that detained former Prime Minister Vano Merabashvili "used budget funds to finance his party [and] will be sitting in jail for a long time." However, following further allegations that Merabishvili may have ordered killings or used excessive force against demonstrators, President Giorgi Margvelashvili stated on January 30, 2014, that "we live in the state which is based on rule of law, where presumption of innocence of every person is protected and only prosecutor's office and the judiciary have to consider this issue, not politicians." On February 17, 2014, Merabishvili was found guilty of theft of private property and using public funds to support the UNM in the 2012 legislative election, and was sentenced to five years in prison. He reportedly remains under investigation on these further allegations. In late January 2014, Ivanishvili announced the creation of a new NGO, "Citizen," which he stated would work to strengthen citizen input into governance. The United States is the largest bilateral aid donor by far to Armenia and Georgia; see Table 2 , Table 3 , and Table 4 ). U.S. assistance to the region since FY1992 has amounted to about one-fifth of all aid to Eurasia and has included FREEDOM Support Act (FSA)-authorized programs, food aid (U.S. Department of Agriculture), Peace Corps, and security assistance. Armenia and Georgia have regularly ranked among the top world states in terms of per capita U.S. aid, indicating the high level of concern within the Administration and Congress. In Foreign Operations Appropriations for FY1998 ( P.L. 105-118 ), Congress created a new South Caucasian funding category to emphasize regional peace and development, and since then upheld this funding category in yearly appropriations. The Administration indicated in its FY2012 budget request that the reduced amount for that year for Europe and Eurasia (including the South Caucasian countries) reflected progress made by many countries in the region and other more pressing global priorities. FY2013 estimated spending further declined. The Administration's estimated spending for FY2014 further declined from the previous year, a trend that seemingly follows with the budget request for FY2015. The Administration planned to target FY2014 aid: to Georgia to support its Euro-Atlantic orientation and to encourage further democratization; to Armenia to support civil society, local governance, and the business environment and global competiveness; and to Azerbaijan to support civil society, political parties, independent media, open markets, informed citizen participation, energy security and integration with European energy markets, and government accountability. The Administration also planned to continue assistance for participation by the regional states in NATO activities and deployments (see Table 2 ). Congress also has directed that humanitarian aid be provided to displaced persons and needy civilians in NK out of concern that otherwise the region might not get aid. Such budgeted aid has amounted to about $41 million from FY1998 through FY2012. See Table 5 . In the Omnibus Appropriations Act for FY2009 ( P.L. 111-8 ) and the Consolidated Appropriations Act for FY2010 ( P.L. 111-117 ) up to $8 million was made available for NK. Actual aid to NK has been about $2 million per year since FY2002. Aid has been provided to NGOs to rehabilitate homes, renovate health clinics and train personnel, repair water systems, provide micro-loans for agriculture, and clear landmines. In FY2012, aid to NK was provided for demining ($1 million to the HALO Trust NGO) and for rehabilitating the water system in Stepanakert/Khankendi ($1 million to the CESCO NGO) (both of these are multi-year projects). Besides bilateral aid, the United States contributes to multilateral organizations such as the International Monetary Fund and the World Bank that aid the South Caucasus region. In January 2004, Congress authorized a major new global assistance program, the Millennium Challenge Account (Section D of P.L. 108-199 ). The focus of the new Millennium Challenge Corporation (MCC) was poverty reduction in countries deemed highly receptive to such aid based on selection criteria: their levels of economic freedom, their investments in social programs, and their democratization progress. MCC deemed that Georgia was eligible for assistance, even though it did not meet criteria on anti-corruption efforts, and in September 2005 signed a five-year, $295.3 million agreement (termed a "compact") with the country. Projects included improving a road from Javakheti to Samtskhe; repairing a gas pipeline; creating a small business investment fund; setting up agricultural grants; and improving municipal and rural water supply, sanitation, irrigation, roads, and solid waste treatment. In the wake of the August 2008 Russia-Georgia conflict, the MCC announced plans for an extra $100 million for road-building, water and sanitation facilities, and a natural gas storage facility. The MCC reported in April 2011 that it had completed its compact with Georgia. In January 2011, MCC announced that Georgia was eligible for a second compact. Georgia suggested efforts to bolster education, and MCC notified Congress in 2012 that it planned to provide some preliminary funding to assist Georgia in working out details of such a program. On July 26, 2013, the MCC and Georgia signed a five-year, $140 million agreement (compact) to improve the quality of secondary education, including through teacher training and school rehabilitation, and to improve higher education science, technology, engineering, and math degree programs. In December 2005, the MCC approved plans to sign a five-year, $235.65 million compact with Armenia—to bolster rural agriculture through road-building and irrigation and marketing projects—but raised concerns about the November 2005 constitutional referendum. Following assurances by then-Foreign Minister Oskanyan that Armenia would address democratization shortfalls, the MCC and Armenia signed the compact, and it went into force in September 2006. After the political turmoil in Armenia in March 2008, the MCC indicated that as an expression of its "serious concern," it would halt contracting for road-building. In December 2008, the MCC Board reiterated its concerns about democratization progress in Armenia and decided to retain the suspension of some road work, while moving ahead on other projects. In June 2009, the MCC Board announced that it was cancelling $67.1 million in funding for the road building project because of Armenia's halting democratization, although other projects would continue (later this canceled amount was said to be about $59 million). Some of the road-building projects canceled by MCC subsequently were funded by the World Bank. The MCC reported in October 2011 that it had completed its compact with Armenia by disbursing $177 million. Beneficiaries reportedly included about 428,000 rural residents in hundreds of communities across Armenia. Since then, the MCC has not selected Armenia as eligible for a new compact. MCC scorecards issued each year have highlighted concerns about fiscal policy, government expenditures for health and education, political rights, and freedom of information. Most recently, an MCC scorecard for FY2014 reiterated these concerns. One country, Lesotho, was selected for FY2014 as eligible for a compact. It was considered to have much higher scores on political rights and freedom of information than Armenia. The United States has provided some security assistance to the region, and bolstered such aid after September 11, 2001. Admiral James Stavridis, Commander of the U.S. European Command (EUCOM) testified in March 2013 that instability and fragility in the Caucasus will continue. That instability is highlighted by Russia's continued non-compliance with the August 2008 cease-fire agreement with Georgia ... . The South Caucasus remains a concern in the absence of an agreed political resolution to the NK conflict between Armenia and Azerbaijan and continued violent incidents on the Line of Contact separating the opposing forces. EUCOM continues vigorous engagement across the Caucasus, given the region's strategic importance as a global energy corridor, key node on the NDN, source of national contributions to ISAF, potential for narcotics and illicit weapons trafficking, interest area for both Russia and Iran, and location of frozen conflicts that have potential to flash into wider and more destabilizing wars.... Security cooperation program priorities in the South Caucasus are focused on developing and sustaining relationships that: ensure U.S. access and freedom of action (focused in the near term on NDN areas); counter regional and transnational threats, especially violent extremist organizations, counter-WMD proliferation, and illicit trafficking; solidify defense institutional reforms; and sustain partner capacity to enhance regional security ... EUCOM initiatives in the region have included the Georgia Deployment Program and the Caspian Regional Maritime Security Cooperation program. The Georgia Deployment Program-ISAF, a multi-year program that began in late 2009, is supported by Marine Forces Europe to train and deploy Georgian forces alongside U.S. Marine Forces to Afghanistan. The program encompasses rotations of Georgian battalions with a Marine Corps Marine Expeditionary Brigade to southern Afghanistan. General Bantz John Craddock, former EUCOM Commander, testified in 2008 that the Caspian Regional Maritime Security Cooperation program aimed to "coordinate and complement U.S. government security cooperation activities in Azerbaijan and Kazakhstan. U.S. Naval Forces Europe continues to promote Maritime Safety and Security and Maritime Domain Awareness in the Caspian Sea through routine engagement with Azerbaijan. These efforts aim to bolster Azerbaijan's capabilities to 'observe, evaluate, and respond' to events in their maritime domain." (This program appeared to combine elements of the former Caspian Guard and Hydrocarbons programs.) Admiral Stavridis did not discuss this program in testimony in 2013, but did mention U.S. Naval Forces Europe's cooperation with Azerbaijan and with U.S. Central Command on activities involving Kazakhstan and Turkmenistan. For FY2014, the Administration requested FMF assistance for Azerbaijan to bolster their naval capabilities or otherwise enhance Caspian Sea maritime security. Of the cumulative assistance from all agencies and programs provided to the South Caucasian states from FY1992 through FY2010, the State Department reports that $223 million was provided to Armenia, $327 million to Azerbaijan, and $896 million to Georgia for "ensuring peace and security." This category includes law enforcement, border security, counter-narcotics, counter-terrorism, and conflict mitigation funds. Also included are International Military Education and Training (IMET), Foreign Military Financing (FMF), Section 1206 (to train and equip forces for counterterrorism and operations in Afghanistan) and other Defense Department, and agency and program funding (although some classified funding may not be reported). Until waived, Section 907 had prohibited much U.S. security aid to Azerbaijan, including Foreign Military Financing (FMF), and International Military Education & Training (IMET). Under U.S. policy, similar aid had not been provided to Azerbaijan's fellow combatant Armenia. From 1993 to 2002, both had been on the Munitions List of countries ineligible for U.S. arms transfers. Since the waiver provision to Section 907 was enacted, some Members have maintained that the Armenian-Azerbaijani military balance is preserved by providing equal amounts (parity) in IMET and FMF assistance to each country. Successive Administrations have not always agreed with this understanding of "parity," and occasionally have requested unequal amounts of such aid, but Congress usually has directed that equal amounts be provided. The account tables listing country-level assistance, released on March 21, 2014, as part of the State Department's Congressional Budget Justification: Department of State, Foreign Operations, and Related Programs, FY2015 , calls for $1.7 million in FMF and $600,000 in IMET for each country. The latest joint Defense and State Department report to Congress on foreign military training stated that 269 Armenian students completed training in FY2012 at a cost of $1.88 million. The largest share of the training was for 115 troops belonging to the Peace Keeping Brigade—some of whom were deployed as part of the Kosovo Force (KFOR)—and trained by USEUCOM at the Grafenwoehr Training Area in Germany. In the case of Azerbaijan, 415 students completed training in FY2012 at a cost of $1.92 million. The largest share of the training was funded by FMF and Foreign Military Sales (FMS) (258 students) and Section 1206 (61 students). The FMF and FMS training was not described in volume 1 of the report, but Section 1206 training mainly involved training by Navy seals on diving and mine response. In the wake of the August 2008 Russia-Georgia conflict that severely damaged Georgia's military capabilities, General Craddock visited Georgia on August 21 to survey the destruction of infrastructure and military assets in order to work out an assessment of Georgia's defense needs. In October 2008, the Defense Department also held yearly bilateral defense consultations with Georgia. Then-Assistant Secretary of Defense Vershbow testified that as a result of these assessments, "many previously unrecognized or neglected deficiencies in the various required capacities of the Georgian Armed Forces and Ministry of Defense [came to light]. In practically all areas, defense institutions, strategies, doctrine, and professional military education were found to be seriously lacking." In March 2009, General James Cartwright, then the Vice Chairman of the Joint Chiefs of Staff, visited Georgia to further assess its defense needs. He pledged training that would be "focused on the defense of Georgia, on its self and internal defense," and equipment transfers that would be based on "what equipment needs to be upgraded and then what new types of equipment that are necessary for their homeland defense." Then-Assistant Secretary Vershbow similarly testified in August 2009 that we are focusing on building defense institutions, assisting defense sector reform, and building the strategic and educational foundations that will facilitate necessary training, education, and rational force structure design and procurement. We are assisting Georgia to move along the path to having modern, western-oriented, NATO-interoperable armed forces capable of territorial defense and coalition contributions. He stressed, however, that "the United States has not 'rearmed' Georgia as some have claimed. There has been no lethal military assistance to Georgia since the August [2008] conflict. No part of the $1 billion U.S. assistance package went to the Ministry of Defense." Some in Congress and elsewhere criticized this dearth of lethal security assistance to bolster Georgia's territorial defense capabilities. On December 12, 2010, U.S. Senator John McCain called for the Obama Administration to resume some defensive arms transfers to Georgia, including early warning radars. During a hearing of the Senate Armed Services Committee on March 29, 2011, Senator McCain asked whether the United States was providing defensive weapons to Georgia, and EUCOM Commander Stavridis stated that "at this moment we are not providing them [with] what I would term high-end military defensive weapons." Senator McCain responded that "it is hard for me to understand, since the Russians still occupy territory that is clearly Georgian territory and continue to threaten Georgia, and yet we're not even giving them weapons with which to defend themselves. It is not comprehensible." After a meeting between U.S. Members of Congress and Georgian legislators on the sidelines of the annual meeting of the NATO Parliamentary Assembly in Bucharest, Romania, in mid-October 2011, the U.S. delegation head, Representative Mike Turner, released a statement stating that "all NATO states should look to arms sales with Georgia that can add to the collective defense…. A stronger Georgia is clearly in the interest of all NATO members." A report issued in October 2011 by a team led by Senators Jeanne Shaheen and Lindsey Graham urged that U.S. policy be changed to "normalize ... defense relations with Georgia, including allowing sales of defensive military equipment [which] will encourage other allies to follow suit, enabling Georgia to resume purchasing armaments from Central European allies." On December 31, 2011, President Obama signed into law the National Defense Authorization Act (NDAA) for FY2012 ( P.L. 112-81 ). Section 1242 called for the Defense Secretary to submit a plan to Congress for the normalization of U.S. defense cooperation with Georgia, including the sale of defensive weapons. In a signing statement, the President stated that if the provisions of the section conflict with his constitutional authority to conduct foreign relations (presumably, in this case, including his "reset" policy with Russia), they would be considered non-binding. The report required by the NDAA for FY2012 was transmitted to Congress on April 30, 2012. The report stated that results of bilateral security collaboration since the 2008 conflict included the revision of Georgia's national security strategy and defense plan, institutionalizing Afghan training and deployment methods, implementing a military personnel management system, and reorganizing the armed forces. The latter included the creation of a National Defense Academy to train officers who can operate with U.S. and NATO forces and who share Western values. The report stressed that there were two pillars of U.S.-Georgia defense cooperation: U.S. support for modernizing Georgia's armed forces; and U.S. support for Georgia's contributions to ISAF. For the first pillar, there were 63 cooperative training, education, and operational contacts in FY2011, and 23 in FY2012 through April 2012 (see also below). According to the report, all of Georgia's 19 requests since May 2010 for foreign military sales equipment and services resulted in transfers or were in the process of being fulfilled. Six of these requests were to support ISAF deployments, but the rest were to support defense modernization, mostly involving training. Only two transfers seemed to involve military equipment for defense capabilities, in order to enhance communications (the report did not list the sale of carbines, mentioned by other sources). The report stated that Presidents Obama and Saakashvili had agreed in January 2012 on enhanced defense cooperation in the areas of air and coastal surveillance and defense training, train-the-trainer instruction for non-commissioned officers, brigade command and staff training, combat engineer training, and utility helicopter training. The report stated that discussions were underway for Georgia to purchase air and coastal surveillance radar and acoustic systems and small arms ammunition. The report announced that the "enhanced defense cooperation" program would begin in FY2013 (see below). During her June 5-6, 2012, visit to Georgia, former Secretary Clinton hailed this planned enhanced defense cooperation. While there, she also highlighted other security cooperation. She helped formally commission a patrol boat that had been modernized with funds from the Export Control and Related Border Security (EXBS) Account of the State Department. She stated that since the 2008 conflict, the United States had supplied $10 million to rebuild Georgia's Coast Guard, including three patrol boats, construction of a ship repair facility, installation of new communications and observation equipment, and a maritime information center. She also hailed other EXBS assistance to Georgia in recent years. In his March 2013 testimony to Congress, EUCOM Commander Stavridis stated that EUCOM had expanded the Georgia Deployment Program to train and deploy two battalions every six months to ISAF's Regional Command Southwest, had supported Armenian-Georgian training on cross-border Humanitarian Assistance and Disaster Response, had led an assessment of junior officer and non-commissioned officer professional development programs as well as combat engineer training and education, and had coordinated brigade command and staff development. He stated that Georgian troops had taken advantage of training at U.S. Army Europe's Joint Multinational Training Center for mission rehearsal exercises prior to ISAF deployment, and had participated in Agile Spirit, a training workup for troops in the Georgia Deployment Program. He also reported that U.S. Naval Forces Europe continued to lead Eurasia Partnership Capstone, which included training with Georgian naval forces, and provided training for non-commissioned officer development, maritime interdiction operations, visit/board/search/ seizure, search and rescue, maritime law enforcement, and environmental protection. U.S. Naval Forces Europe also co-hosted the annual Sea Breeze naval exercise in the Black Sea, which included participation by Georgian forces. Admiral Stavridis did not report on any weapons transfers to Georgia. In his April 11, 2013, nomination hearing to be EUCOM Commander, General Philip Breedlove stated that the United States "has a vigorous defense cooperation program with Georgia," involving hundreds of events annually, including cyber defense, border security, professional military education development, and counterinsurgency operations training. He stated that FMF funding is "robust," amounting to approximately $14 million (presumably referring to FY2012; see below). He reiterated the areas of engagement that President Obama had offered to then-President Saakashvili in January 2012, and stated that EUCOM "has already conducted or has planned initial engagements with Georgia in all these areas," including through the use of IMET funds. He repeated the language of the April 2012 NDAA Report (discussed above) that the Obama Administration would look favorably on the sale of air surveillance radars, coastal surveillance acoustic systems, and small arms ammunition to Georgia. The account tables listing country-level data, released on March 21, 2014, as part of the State Department's Congressional Budget Justification: Department of State, Foreign Operations, and Related Programs, FY2015 , stated that IMET amounted to $1.799 million in FY2013 and an estimated $1.8 million in FY2014. The Administration requested $1.8 million for FY2015. The account tables listed $13.672 million in spending for FMF for FY2013 and an estimated $12 million for FY2014. The Administration requested $10 million for FY2015. The latest joint Defense and State Department report to Congress on foreign military training stated that 294 Georgian students had completed courses in FY2012 at a cost of about $12 million. Courses involved training on national security strategy, language, combating terrorism, technical issues related to equipment purchases, interoperability, civilian control of the military, strategic intelligence, careers, and logistics. All three regional states joined NATO's Partnership for Peace (PFP) in 1994. The June 2004 NATO summit pledged enhanced attention to the South Caucasian and Central Asian PFP members. A Special Representative of the NATO Secretary General was appointed to encourage democratic civil-military relations, transparency in defense planning and budgeting, and enhanced force inter-operability with NATO. In 2004-2005, all three states agreed with NATO to participate in Individual Partnership Action Plans (IPAPs) for military and civil-military reforms. Troops from all three regional states have served as peacekeepers in the NATO Kosovo Force (KFOR). As of January 2014, 35 troops from Armenia continued to serve in KFOR. All three regional states have deployed troops to support the International Security Assistance Force (ISAF) in Afghanistan (see above, " Regional Support for Military Operations in Iraq and Afghanistan "). Armenia's Foreign Minister Edvard Nalbandyan reportedly indicated that President Sargisyan did not attend the NATO summit in Chicago in May 2012 because he knew that the summit would uphold Azerbaijan's territorial integrity, as was subsequently reflected in the summit declaration. Nalbandyan stated that the declaration not only harmed the negotiation process but also "jeopardize[d] the fragile peace in the region, especially given the unprecedented growth of Azerbaijan's military expenses and bellicose rhetoric." Although the United States urged that Georgia be considered for a Membership Action Plan (MAP; preparatory to membership), NATO's Riga Summit in November 2006 reaffirmed support for an "intensified dialogue" to assist Georgia in implementing reforms. A MAP for Georgia was a matter of contention at the April 2008 NATO Summit. Although Georgia was not offered a MAP, the Alliance pledged that Georgia would eventually become a member of NATO, and stated that the issue of a MAP for Georgia would be revisited later in the year. After the August 2008 Russia-Georgia conflict, several allies raised heightened concerns that Georgia was not ready to be granted a MAP because of the destruction of much of its military infrastructure by Russia, the uncertain status of the breakaway regions, and the uncertain quality of conflict decision-making by Georgia's political and military leadership. At a NATO foreign ministers' meeting in early December 2008, the allies agreed to step up work within the Georgia-NATO Council (established soon after the Russia-Georgia conflict) to facilitate Georgia's eventual NATO membership, and to prepare annual plans on Georgia's progress toward eventual membership. The first annual national plan was worked out during meetings of the Georgia-NATO Council and started to be implemented in May 2009. After meeting with then-President Saakashvili at the White House in late January 2012, President Obama stated that he had "assured [Saakashvili] that the United States will continue to support Georgia's aspirations to ultimately become a member of NATO." At his confirmation hearing in March 2012, Ambassador-designate to Georgia Richard Norland reported that the Administration planned at the upcoming May 2012 NATO summit in Chicago "to signal acknowledgement for Georgia's progress ... and to work with the allies to develop a consensus on the next steps forward." The Chicago Summit Declaration issued at the meeting grouped Georgia with the other three NATO aspirants, Macedonia, Montenegro, and Bosnia-Herzegovina, and announced that the Alliance ties with Georgia would be strengthened. The Declaration reaffirmed NATO support for Georgia's territorial integrity and called on Russia to make a pledge not to use force against Georgia and to rescind its recognition of the breakaway regions as independent. It also raised concerns about Russia's military buildup in the breakaway regions and called on Russia to permit international observers and humanitarian groups free access to the regions. In mid-November 2012, then-Prime Minister Ivanishvili met with Secretary General Anders Fogh Rasmussen at NATO headquarters in Brussels, and gave assurances that due process would be followed in the cases of former defense and interior minister Bacho Akhalaia, chief of the armed forces Georgy Kalandadze, and others arrested in Georgia, and invited NATO to set up a commission in Georgia to monitor the cases. At a meeting of the NATO-Georgia Commission in Brussels, held a week after Ivanishvili's NATO visit, Georgian Defense Minister Alasania stated that post-election Georgia was now more stable and a stronger and more predictable NATO partner, and that Georgia would uphold the rule of law. At a follow-on meeting of the NATO-Georgia Commission on December 5, 2012, during the NATO foreign ministerial meeting in Brussels, Secretary General Rasmussen reiterated that the Alliance would continue to monitor judicial developments in Georgia, and stressed that NATO looked forward to a "still stronger and closer relationship [with Georgia] in 2013 and beyond." At a meeting of the NATO-Georgia Commission on March 19, 2013, the Georgian side reported on its annual plan for 2013. NATO emissaries reportedly praised the annual plan and offered assistance for its fulfillment, and urged vying political interests in Georgia to work together to further the country's democratization. A North Atlantic Council delegation, led by NATO Secretary General Anders Fogh Ramussen, visited Tbilisi in late June 2013, and a meeting of the NATO-Georgia Commission also was held, attended by then-Prime Minister Ivanishvili. Rasmussen raised concerns about arrests of former Georgian officials and called for Georgia to further democratize and protect the rights of minority groups and other human rights as part of its movement toward NATO membership. Ivanishvili reiterated that Georgia was committed to joining NATO and would continue to support peacekeeping in Afghanistan. A reported major issue discussed by the NATO-Georgia Commission was the movement of border barriers by Russian border guards in South Ossetia. In October 2013, Rasmussen called for Russia to remove fences and other obstacles it was constructing in South Ossetia and to reverse the recognition of the independence of the breakaway regions. He also announced that Georgia would join NATO's Response Force (a maritime and special operations rapid-reaction force) in 2015. At a NATO-Georgia Commission meeting in Brussels in early December 2013, Secretary General Rasmussen stated that there was the promise of "new momentum" in military and democratic reforms in Georgia under the new government, but stated that work remained to be done before Georgia gains NATO membership. On January 13, 2014, Georgian legislative Speaker Davit Usupashvili asserted that if NATO does not offer Georgia a MAP at a planned summit in September 2014, anti-Western forces could be strengthened in the country and political stability might be undermined. On January 16, 2014, Georgian Prime Minister Irakli Garibashvili responded to this statement by stating that "if there is no MAP now, there will be later, it is not a principle [issue]. If the question is whether we want it or not, of course, we want it. But if there is no MAP, it will not create a threat and change our European integration." Observers have pointed out that polls indicate that popular support is high and may even have increased in favor of NATO membership. The U.S. Congress approved the NATO Freedom Consolidation Act of 2007, signed into law in April 2007 ( P.L. 110-17 ), to urge NATO to extend a MAP for Georgia and to designate Georgia as eligible to receive security assistance under the program established by the NATO Participation Act of 1994 ( P.L. 103-447 ). The statement released by the U.S. delegation to the NATO Parliamentary Assembly in October 2011 (mentioned above) called for NATO to extend a MAP for Georgia at the upcoming NATO Summit in Chicago in May 2012. In March 2012, then-Senator Richard Lugar introduced S. 2177 , The NATO Enhancement Act, in the 112 th Congress, which reaffirms an "open door" policy with respect to the accession of additional countries to NATO, including NATO aspirant Georgia (a similar bill, H.R. 4243 , was introduced in the House by Representative Michael Turner later in March 2012). The bills expressed the sense of Congress that the President should lead efforts at the Chicago NATO Summit to provide a clear roadmap for the granting of a MAP (or other equivalent plan) to Georgia and other aspirants. However, as mentioned above, Georgia was not offered a MAP at the Chicago NATO summit. On February 5, 2014, Representative Turner and over three dozen other Members of Congress wrote a letter to Secretary Kerry urging him to advocate granting a MAP to Georgia at the scheduled September 2014 NATO Summit. They argued that the prospect of NATO membership would strengthen democratic institutions and stability and security in the region, while the failure to reward progress could discourage aspirant countries from pursuing further democratic reforms and weaken their Euro-Atlantic orientation. Successive U.S. Administrations have maintained that U.S. support for privatization and the creation of free markets directly serve U.S. national interests by opening markets for U.S. goods and services and sources of energy and minerals. Bilateral trade agreements providing for normal trade relations for products have been signed and entered into force with all three states. Bilateral investment treaties providing national treatment guarantees also have entered into force. U.S. investment is highest in Azerbaijan's energy sector, but corruption in the three regional states and regional instability have appeared to discourage investors. With U.S. support, in June 2000 Georgia became the second Eurasian state (after Kyrgyzstan) to be admitted to the WTO. The application of Title IV of the Trade Act of 1974, including the Jackson-Vanik amendment, was terminated with respect to Georgia in December 2000, so its products receive permanent nondiscriminatory (normal trade relations or NTR) treatment. Armenia was admitted into WTO in December 2002. The application of Title IV was terminated with respect to Armenia in January 2005. Among other U.S. economic links with the region, a U.S.-Armenia Joint Economic Task Force has held annual meetings since 1992. At the 22 nd meeting in November 2013, visiting Armenian Minister of Finance Davit Sargsyan met with Deputy Assistant Secretary of State Eric Rubin. The two sides hailed a $180 million purchase by U.S. firm Contour Global of three hydro-electric power plants and its plans to invest $70 million in modernizing them, the largest U.S. private investment in Armenia and the first energy investment. The Overseas Private Investment Corporation (OPIC) offered partial financing. A U.S.-Azerbaijan Intergovernmental Commission on Economic Cooperation was founded in early 2007, and reportedly has held three meetings (no meeting has been reported since April 2012). An Economic, Energy, and Trade Working Group meets regularly as part of the U.S.-Georgia Strategic Partnership Commission. At a Working Group meeting in December 2013, the two sides reportedly discussed how a USTR-led High-Level Dialogue on Trade and Investment might make further progress toward a free trade agreement. The U.S. Energy Department reports estimates of 7 billion barrels of proven oil reserves, and 35 trillion cubic feet of proven natural gas reserves in Azerbaijan. In addition, gas was discovered in 2011 at the Umid and Apsheron offshore fields, estimated at 15 trillion cubic feet of proven reserves. Critics argue that oil and gas from Azerbaijan will amount to a tiny percent of world exports, but successive U.S. Administrations have argued that these exports could nonetheless boost energy security somewhat for European customers currently relying more on Russia. Azerbaijan is expecting that its gas exports will be greatly boosted when phase two production begins at its offshore Shah Deniz gas fields, scheduled for 2019. In testimony in June 2011, then-U.S. Special Envoy for Eurasian Energy Richard Morningstar stated that U.S. policy encourages the development of new Eurasian oil and gas resources to increase the diversity of world energy supplies. In the case of oil, increased supplies may directly benefit the United States, he stated. A second U.S. goal is to increase European energy security, so that some countries in Europe that largely rely on a single supplier (presumably Russia) may in the future have diverse suppliers. A third goal is assisting Caspian regional states to develop new routes to market, so that they can obtain more competitive prices and become more prosperous. In order to achieve these goals, the Administration supports the development of the Southern Corridor of Caspian (and perhaps Iraq) gas export routes transiting Turkey to Europe. Of the vying pipeline proposals, the Administration will support the project "that brings the most gas, soonest and most reliably, to those parts of Europe that need it most." At the same time, Morningstar rejected views that Russia and the United States are competing for influence over Caspian energy supplies, pointing out that the Administration has formed a Working Group on Energy under the U.S.-Russia Bilateral Presidential Commission. According to some observers, the construction of Southern Corridor pipelines will bolster the strategic importance to the West of stability and security in the Caspian region. U.S. officials have argued that Azerbaijani gas is critical to the development of the Southern Corridor. In March 2007, Azerbaijan and the United States signed a memorandum of understanding on energy cooperation that called for discussions on various proposed gas pipelines. In August 2007, the U.S. Trade Development Administration granted Azerbaijan $1.7 million to fund feasibility studies on building both oil and gas pipelines across the Caspian Sea to link Central Asia to Azerbaijani pipelines. During the Clinton Administration, the United States in 1995 encouraged the building of one small oil pipeline (with a capacity of about 155,000 barrels per day) from Azerbaijan to the Georgian Black Sea port of Supsa as part of a strategy of ensuring that Russia did not monopolize east-west export pipelines. As part of this strategy, the United States also stressed building the Baku-Tbilisi-Ceyhan (BTC) pipeline (with a capacity of about 1 million barrels per day) as part of a "Eurasian Transport Corridor." In November 1999, Azerbaijan, Georgia, Turkey, and Kazakhstan signed the "Istanbul Protocol" on construction of the 1,040-mile long BTC oil pipeline. In August 2002, the BTC Company (which includes U.S. firms Conoco-Phillips, Amerada Hess, and Chevron) was formed to construct, own, and operate the oil pipeline. The first tanker on-loaded Azeri oil at Ceyhan at the end of May 2006. Azerbaijan's state oil firm SOCAR reported in April 2012 that the BTC pipeline had transported 1.33 billion barrels of oil to the Ceyhan terminal since 2006. Some Azerbaijani oil reaches U.S. markets (see Table 1 ). A gas pipeline from Azerbaijan to Turkey (termed the South Caucasus Pipeline or SCP) was completed in March 2007. Exports to Georgia, Turkey, and Greece were 53 billion cubic feet of gas in 2007, the first year of operation, and most recently were reported to be 159 billion cubic feet in 2011. The ultimate capacity of the SCP is about 706 billion cubic feet per year, according to British Petroleum. The joint venture for the SCP includes Norway's Statoil (20.4%); British Petroleum (20.4%); Azerbaijan's Ministry of Industry and Energy (20%); and companies from Russia, Iran, France, and Turkey. Some in Armenia object to lack of access to the BTC and SCP pipelines. The August 2008 Russia-Georgia conflict did not result in physical harm to the BTC pipeline or the SCP. The BTC pipeline was closed due to other causes. The SCP and the small Baku-Supsa oil pipeline were closed temporarily as a safety precaution. Russian gas shipments via Georgia to Armenia decreased in volume for a few days at the height of the conflict. Rail shipments of oil by Azerbaijan to the Kulevi oil terminal (owned by Azerbaijan) on Georgia's Black Sea coast were disrupted temporarily. At the end of October 2008, the first oil from Kazakhstan started to be pumped through the BTC pipeline, but a transit price increase by Azerbaijan in 2011 led Kazakhstan to restrict its use of the BTC. Some Kazakh oil also is barged to Azerbaijan to be shipped by rail to Georgia's Black Sea port of Kulevi, owned by Socar (Kazakhstan's port at Batumi, Georgia, mostly ships dry goods). Kazakhstan and Azerbaijan continue talks on expanding the barging of oil to the BTC pipeline. By agreement, about 80,000 bpd are planned to be barged from Kazakhstan to the BTC pipeline or rail lines in 2014. Some Turkmen oil began to be transported through the BTC pipeline in June 2010. Some observers argue that the completion of the BTC and SCP boosted awareness in the European Union and the United States of the strategic importance of the South Caucasus. In mid-November 2007, Greek Prime Minister Kostas Karamanlis and Turkish Prime Minister Recep Tayyip Erdogan inaugurated a gas pipeline connecting the two countries. Since some Azerbaijani gas reaches Greece, the pipeline represents the first gas supplies from the Caspian region to the EU. It was proposed that a pipeline extension be completed to Italy—the Interconnector Turkey-Greece-Italy (ITGI) gas pipeline—that would permit Azerbaijan to supply gas to two and perhaps more EU members, providing a source of supply besides Russia. The Nabucco pipeline faced numerous delays, some of them attributable to Russia's counter-proposals to build pipelines that it asserted would reduce the efficacy of the Nabucco pipeline. In September 2010, the European Investment Bank, the European Bank for Reconstruction and Development, and the World Bank announced a commitment—pending environmental and social feasibility studies—to provide $5.2 billion to build the Nabucco pipeline. EU planning at that time called for construction of the 1.1 trillion cubic feet capacity Nabucco pipeline to begin in 2012. In 2011, new higher cost estimates for building the pipeline, and BP's call for building a "South East Europe Pipeline" (SEEP; see below), appeared to seriously threaten these plans. At a meeting in early May 2009 in Prague, the EU, Azerbaijan, Georgia, Turkey, and Egypt signed a declaration on a "Southern [energy] Corridor" to bolster east-west energy transport. The declaration called for cooperation among supplier, transit, and consumer countries in building the Nabucco gas pipeline, finishing the Italian section of the ITGI gas pipeline, and other projects. In 2009, Azerbaijan stepped up its efforts to diversify the routes and customers for its gas exports beyond the SCP and the proposed Nabucco pipeline. President Aliyev attributed some of this increased interest in added gas export routes—including to Russia and Iran—to the country's difficult negotiations with Turkey over gas transit fees and prices (excluding the agreed-upon arrangements for Nabucco). In October 2009, Azerbaijan's State Oil Company (SOCAR) and Russia's Gazprom gas firm signed agreements that SOCAR would supply 17.7 billion cubic feet of gas per year to Russia beginning in 2010. The gas would be transported by a 140-mile gas pipeline from Baku to Russia's Dagestan Republic that was used until 2007 to supply Azerbaijan with up to 283 billion cubic feet of gas per year. During a visit by then-President Medvedev to Azerbaijan in September 2010, the two countries agreed that Azerbaijan would provide up to 35.4 billion cubic feet of gas per year beginning in 2011 (this increase had been under consideration since the signing of the 2009 accord). President Aliyev stressed that this small supply agreement would not jeopardize plans to supply gas for Nabucco, since Azerbaijan possessed huge gas reserves. As another alternative to gas shipments through Turkey, a memorandum of understanding was signed by Azerbaijan, Romania, and Georgia in April 2010 to transport liquefied natural gas (LNG) from Azerbaijan to the EU through Georgia and Romania. This Azerbaijan-Georgia-Romania-Interconnection (AGRI) project envisions the construction of a gas pipeline from Azerbaijan to the Georgian port of Kalevi, where the gas would be liquefied, shipped across the Black Sea, and regasified at the Romanian port of Constanta. The output is expected to be 247 billion cubic feet per year, with 71 billion cubic feet of the gas used by Romania and the rest by other EU countries. The presidents of the three countries (and the prime minister of Hungary, which joined the project) met in Baku on September 15, 2010, to sign the Baku Declaration of political support for the project. Some of the tensions between Turkey and Azerbaijan involving energy issues appeared to ease in June 2010, during President Aliyev's visit to Turkey, when the two countries signed accords on the sale and transportation of Azerbaijani natural gas to Turkey and to other countries via Turkey. A memorandum of understanding permitting Azerbaijan to conclude direct sales with Greece, Bulgaria, and Syria involving gas transiting Turkey was signed. In January 2011, President Aliyev and the President of the European Commission, Jose Manuel Barroso, signed a joint declaration committing Azerbaijan to supplying substantial volumes of gas over the long term to the European Union. Nonetheless, some analysts raised concerns that there would not be enough Azerbaijani gas to fill the proposed ITGI and Nabucco pipelines (deliveries would be 406 billion cubic feet per year for ITGI and 158 billion-459 billion cubic feet per year for Nabucco) and to provide for the proposed AGRI project without a trans-Caspian gas pipeline or participation by Iran or Iraq. Others suggested that Azerbaijan would be able to supply at least most of the needed gas for both the ITGI and Nabucco pipelines and the AGRI project, including because of recent results from exploratory drilling off the Caspian seacoast. Meeting an October 1, 2011, deadline, the Shah Deniz Export Negotiating Team—led by the State Oil Company of Azerbaijan (SOCAR) and including BP, Statoil, and Total—received what were then claimed to be final proposals for pipelines to export gas from the second phase development of the Shah Deniz offshore oil and gas fields. Proposals were received from consortia backing the ITGI, Nabucco, and Trans-Adriatic Pipeline (TAP; from Turkey through Greece, Albania, and the Adriatic Sea to Italy) projects, as well as from BP, which reportedly proposed building an 808-mile "South East Europe Pipeline" (SEEP) from western Turkey through Bulgaria, Romania, and Hungary to Austria. On October 25, 2011, Azerbaijan and Turkey announced that they had signed accords on the final terms for the transit of Shah Deniz phase 2 gas through Turkey. The agreements—signed during President Aliyev's visit to Turkey—specified that 565-706 billion cubic feet of gas would transit Turkey, of which 212 billion cubic feet would be available for Turkey's domestic use. Another accord provided for the possible construction of a new Trans-Anatolian Pipeline (TANAP; from the Georgian-Turkish border to the Turkish-Bulgarian border), so that the gas from Shah Deniz Phase 2 would not have to go through the existing Turkish pipeline system. This pipeline was envisaged at that time to possibly link to BP's proposed SEEP, to TAP, or to a new version of the Nabucco pipeline termed "Nabucco West" (stretching from the Turkish border to Austria). In late December 2011, the Azerbaijani and Turkish governments signed a memorandum of understanding on setting up a consortium involving SOCAR, the Turkish state-owned TPAO energy firm, and TPAO's pipeline subsidiary, BOTAS, to construct TANAP. An inter-governmental agreement was signed by President Aliyev and Prime Minister Erdogan in June 2012. SOCAR is designated initially to hold an 80% share in the consortium, although other members are being invited to join the consortium and to hold 29% of the shares. The first stage, with a capacity of 565 bcf per year, is planned to be completed in 2018. In May 2012, the Nabucco consortium submitted new pipeline proposals to the Shah Deniz consortium, reportedly including the original route as well as the shorter Nabucco West route. The Shah Deniz Export Negotiating Team reportedly indicated in February 2012 that it preferred the TAP proposal over the ITGI pipeline proposal. In mid-2012, it rejected SEEP, leaving TAP and Nabucco West as the choices. In late March 2013, the Nabucco and TAP consortiums submitted refined proposals to the Shah Deniz Team, which has indicated that it will make a final decision about the pipeline in June 2013. In late 2012, Russia finalized arrangements with transit states for the construction of the South Stream gas pipeline, with a capacity of 2.2 bcf per year, under the Black Sea to European markets, and began construction of the onshore portion in Russia in December 2012. The undersea portion will extend nearly 600 miles. From Bulgaria, the pipeline is planned to transit Serbia, Hungary, and Slovenia to Austria. According to some analysts, the pipeline is not economically viable, but is being proposed by Russia to counter proposals to build the Nabucco West and TAP pipelines and perhaps a trans-Caspian pipeline, so that Russia may maintain a dominant gas presence in Europe. On June 28, 2013, the Shah Deniz consortium of energy firms in Azerbaijan formally announced that it had chosen the TAP to transport gas to Italy. The consortium stated that its decision was based on a number of criteria including commercial viability, funding availability, and public policy considerations. The lead member of the consortium, BP, reported that there was a "substantial" commercial difference between the two competing pipeline projects, particularly the difference between the cost of shipping the Azeri gas and gas prices in the respective markets. BP also stated that companies in five countries already had indicated interest in purchasing three times the gas planned initially to be delivered by TAP. Gas delivered by TAP is anticipated to be used by Albania, Greece, and Italy, and to be piped north from Italy to Central Europe and the Balkans. In addition, there are proposals for connections to TAP in Albania, in particular to the 321-mile Ionian Adriatic Pipeline (IAP), which could supply up to 180 billion cubic feet (bcf) of gas per year to Montenegro, Bosnia-Herzegovina, and Croatia (half the initial capacity of TAP). European Commission (EC) Energy Commissioner Günther Oettinger has stressed that the EC push to build interconnectors between European pipelines also will enable TAP-supplied gas to reach other states such as Bulgaria and Hungary that are vulnerable to Russian gas supply cut-offs. The decision on TAP was a prelude to a final investment decision made on December 17, 2013, on the phase II development of Azerbaijan's Shah Deniz gas field, anticipated to cost $28 billion. Given the expense of developing Shah Deniz phase II, the cost of transporting the gas and the final market price are critical to the economic viability of phase II development. Construction is planned to begin in 2015 for completion in 2019. For Europe : Some analysts argue that since TAP's initial capacity of approximately 350 bcf represents about 2% of the EU's current gas consumption, and TAP's later deliveries of 700 bcf would represent at the most only a percentage or two more, TAP will not appreciably reduce reliance on Russian gas. Nevertheless, observers have commended that TAP will assist Europe in diversifying its supply sources beyond reliance on Russia, will help Greece to strengthen its economy, and could encourage cooperation between historic rivals Greece and Turkey. And, TAP will result in added investment and will for the first time include Albania in European gas transit routes. In addition, Austria's OMV stated that in the face of the negative decision on Nabucco West, "OMV [will] seek to provide European gas to European consumers" and "to develop opportunities based on alternative gas sources," possibly referring to shale gas or Black Sea exploration. Similarly, while voicing disappointment about the loss of the Nabucco West pipeline, Romanian officials stated that the country instead would pursue a policy of developing indigenous sources of supply and would further develop the AGRI proposal. The EU also has stated that it will continue talks with Turkmenistan on a possible trans-Caspian gas pipeline that could increase gas transit through the Southern Corridor, thereby enhancing European energy security (see below). For the United S tates : The State Department welcomed the decision on TAP as furthering the U.S.-supported goal of a Southern Corridor bringing new sources of gas to Europe, thereby strengthening European and global energy security. For Azerbaijan : The TAP decision should provide a boost to the economy as European energy markets are considered by some observers to be more predictable and manageable than other possible export markets, such as Russia. These observers also claim that the completion of TAP will bolster Azerbaijan's Euro-Atlantic orientation. One pro-government Azerbaijani legislator asserted that Europe should stop "ignoring" the NK conflict, since a renewal of fighting could threaten Europe's energy security. In 1999, Turkmenistan signed an accord with two U.S. construction firms to conduct a feasibility study on building a trans-Caspian pipeline, but it failed to commit to the pipeline following objections from Iran and Russia. In September 2011, the Council of the European Union approved opening talks with Azerbaijan and Turkmenistan to facilitate an accord on building a trans-Caspian gas pipeline. Such a link would provide added gas to ensure adequate supplies for the proposed Nabucco and other pipelines. Hailing the decision, EU Energy Commissioner Günther Oettinger stated that "Europe is now speaking with one voice. The trans-Caspian pipeline is a major project in the Southern Corridor to bring new sources of gas to Europe. We have the intention of achieving this as soon as possible." The Russian Foreign Ministry denounced the plans for the talks, and claimed that the Caspian Sea littoral states had agreed in a declaration issued in October 2007 that decisions regarding the sea would be adopted by consensus among all the littoral states (Russia itself has violated this provision by agreeing with Kazakhstan and with Azerbaijan on oil and gas field development). It also claimed that the proposed pipeline was different from existing sub-sea pipelines in posing an environmental threat. In Baku in early April 2012, Lavrov stated that the EU should show "respect" to the Caspian littoral states, and that it was "unacceptable" for the EU to advocate for a trans-Caspian pipeline before the littoral states have concluded a convention on the legal status of the sea. In June 2012, a Turkmen survey ship was turned back by Azerbaijani naval forces from areas considered by Azerbaijan to be within its Caspian Sea holdings, raising tensions that appeared to jeopardize a trans-Caspian pipeline. However, in September 2012, President Aliyev appeared conciliatory toward Turkmenistan in stating that "if Turkmenistan considers this [trans-Caspian] project important for itself and views it as a path to the West, then Azerbaijan supports this idea." At a meeting of the Frankfurt Gas Forum in November 2012, European Energy Commissioner Guenther Oettinger pointed out that the EU had envisaged the Southern Corridor to carry 45-90 bcm per annum, and that the gas from Shah Deniz phase 2 would only provide a fraction of this gas. He stated that to meet the EU goal for the Southern Corridor, more gas would be needed, and stated that Turkmenistan is viewed by the EU as a possible source. The United States has supported building a trans-Caspian pipeline and stated that no other country should be able to veto a decision by Azerbaijan and Turkmenistan to build such a pipeline. Many observers suggest that the continuing Azerbaijan-Turkmenistan dispute over border delineation in the Caspian Sea and Turkmenistan's reluctance to sign production sharing agreements with Western energy firms remain factors hindering the building of such a pipeline. Because of trade obstructions imposed by Azerbaijan and Turkey, Armenia has endeavored to build oil and gas pipelines to Iran as a means to diversify its reliance on Russian supplies that transit Georgia. Azerbaijan sees itself as a regional competitor of Iran in energy development in the Caspian region. Increasing international sanctions on Iran have reduced Iran's regional energy role, while Azerbaijan increasingly has cooperated with Western energy firms to develop and ship oil and gas to international markets. Then-President Robert Kocharyan and Iranian President Mahmoud Ahmadinejad in March 2007 inaugurated an 88-mile gas pipeline from Tabriz in Iran to Kadjaran in Armenia. Work was completed on the second section of the pipeline, a 123-mile section from Kadjaran to Ararat, in December 2008. The Russian-controlled ArmRosGazprom joint venture built this second section and operates the pipeline (the firm was renamed Gazprom Armenia after Gazprom became the sole owner in early 2014). The gas is used to generate electricity that is exported to Iran. Since Gazprom now controls all gas distribution in Armenia, the future of Armenian-Iranian gas trade appears uncertain. A petroleum products pipeline from Tabriz, Iran, to Yerask, Armenia—to supplement imports of gasoline and other petroleum products from mainly Russian firms—has been under discussion but has faced delays that officials in both countries have blamed on the effects of international sanctions on Iran's economy. In early November 2012, Armenia and Iran began construction of the Meghri Hydroelectric Power Plant on the Arax River on the Armenian side of the border with Iran, expected to be completed in 2016. Iran was granted a 15-year cost recovery period for its financing of the construction through prospective electricity sales. A proposal to build a rail line between the two countries has been delayed, with officials in both countries blaming the international sanctions imposed on Iran. Azerbaijan began sending about 7 billion cubic feet of gas per year at the end of 2005 through a section of Soviet-era pipeline to the Iranian border at Astara, partly in exchange for Iranian gas shipments to Azerbaijan's Nakhichevan exclave. On November 11, 2009, Azerbaijan signed an accord with Iran to supply 17.7 billion cubic feet of gas annually through the pipeline. These gas supplies could increase in coming years. Iran's Naftiran Intertrade Company (NICO; a state-owned energy firm) has 10% of the shares in the consortium that developed the SCP. NICO also has a 10% share in the consortium developing the Shah Deniz gas fields. The Iran Threat Reduction and Syria Human Rights Act of 2012 ( P.L. 112-158 ; signed into law on August 10, 2012) has exempted the Shah Deniz gas field project from sanctions imposed on joint energy ventures with Iran. S.Res. 317 (Sessions) Expressing the sense of the Senate on the continuing relationship between the United States and Georgia. Introduced on December 11, 2013. Referred to the Committee on Foreign Relations. Declares U.S. support for Georgia's territorial integrity and concern over the occupation of Abkhazia and South Ossetia; encourages enhanced defense cooperation with Georgia; reaffirms support for Georgia's NATO membership aspirations; commends Georgia's ongoing support in Afghanistan; commends Georgia for holding a peaceful and democratic presidential election; and encourages Georgia to protect the rights of the political opposition and to refrain from politically motivated arrests. P.L. 113-76 H.R. 3547 (Lamar), Consolidated Appropriations Act, 2014. Introduced on November 20, 2013. Passed the House on December 2, 2013. Passed the Senate on December 12, 2013. House agreed to the Senate amendment on January 15, 2014. Senate concurred in the House amendment on January 16, 2014. Signed into law on January 17, 2014. Section 7071 states that funds appropriated to Armenia, Azerbaijan, and Georgia (and others designated by the European Union to be Eastern Partnership countries) shall be made available to advance the signing and implementation of Association Agreements, trade agreements, and visa liberalization agreements with the European Union (EU), and to reduce the vulnerability of the states to external pressure not to enter into such accords with the EU. Also calls for a report assessing whether Russia is erecting non-tariff barriers against imports of goods from Armenia, Azerbaijan, and Georgia (and other Eastern Partnership countries), and a description of actions by the U.S. government to ensure that the countries maintain full sovereignty in their foreign policy decision-making. Also calls for funds to be made available for democracy and rule of law programs in Armenia, Azerbaijan, and Georgia (and other Soviet successor states), and for a report to be submitted on a multi-year strategy for such programs. Also calls for a description of steps taken to assist in the restoration of the territorial integrity of Georgia. H.Res. 402 (Engel) Supporting the European Aspirations of the Peoples of the European Union's Eastern Partnership Countries. Introduced on November 12, 2013. Ordered to be reported by the Committee on Foreign Affairs, November 20, 2013. The bill supports the European aspirations of the peoples of the Eastern Partnership countries, calls on Russia to respect the rights of the states to sign Association Agreements with the European Union, applauds the significant progress of Ukraine, Moldova, and Georgia in adopting democratic norms, and urges the State Department to continue to support the rights of Ukraine, Moldova, and Georgia to enter into voluntary partnerships, to support reforms in Eastern Partnership countries which will enable them to meet the conditions for closer ties with the EU, and to support reforms making them more democratic, prosperous, and secure. H.Res. 284 (Turner) Expressing the sense of the House of Representatives with respect to promoting energy security of European allies through opening up the Southern Gas Corridor. H.Res. 284 was introduced on June 27, 2013, and was forwarded by the Subcommittee on Europe, Eurasia, and Emerging Threats to the Committee on Foreign Affairs (Amended) by Unanimous Consent on September 19, 2013. H.Res. 227 (Valadao) Calling on the President to work toward equitable, constructive, stable, and durable Armenian-Turkish relations based upon the Republic of Turkey's full acknowledgment of the facts and ongoing consequences of the Armenian Genocide, and a fair, just, and comprehensive international resolution of this crime against humanity. Introduced on May 20, 2013, and referred to the Committee on Foreign Affairs. Referred to the Subcommittee on Europe, Eurasia, and Emerging Threats on June 7, 2013. S. 1548 (Durbin) Haiti and Armenia Reforestation Act of 2013. Introduced on September 25, 2013, and referred to the Committee on Foreign Relations. To provide assistance to the Government of Haiti and the Government of Armenia to develop and implement, or improve, nationally appropriate policies and actions to reduce deforestation and forest degradation and improve forest management and natural regeneration. H.R. 1960 (McKeon) National Defense Authorization Act for Fiscal Year 2014. Introduced on May 14, 2013. Passed the House on June 14, 2013 ( H.Rept. 113-102 ). Placed on the Senate Legislative Calendar on June 14, 2013. Section 1244, a statement of Congress on defense cooperation with Georgia, raises concerns that problems of democratization in Georgia could harm bilateral political, economic, and security cooperation. | The United States recognized the independence of Armenia, Azerbaijan, and Georgia when the former Soviet Union broke up at the end of 1991. The United States has fostered these states' ties with the West in part to end their dependence on Russia for trade, security, and other relations. The United States has pursued close ties with Armenia to encourage its democratization and because of concerns by Armenian Americans and others over its fate. Close ties with Georgia have evolved from U.S. contacts with its pro-Western leadership. Successive Administrations have supported U.S. private investment in Azerbaijan's energy sector as a means of increasing the diversity of world energy suppliers. The United States has been active in diplomatic efforts to resolve regional conflicts in the region. As part of U.S. global counter-terrorism efforts, the U.S. military in 2002 began providing equipment and training for Georgia's military and security forces. Troops from all three regional states have participated in stabilization efforts in Afghanistan and Iraq. The regional states also have granted transit privileges for U.S. military personnel and equipment bound to and from Afghanistan. Beginning on August 7, 2008, Russia and Georgia warred over Georgia's breakaway regions of Abkhazia and South Ossetia. Russian troops quickly swept into Georgia, destroyed infrastructure, and tightened their de facto control over the breakaway regions before a ceasefire was concluded on August 15. The conflict has had long-term effects on security dynamics in the region and beyond. Russia recognized the independence of Abkhazia and South Ossetia, but the United States and nearly all other nations have refused to follow suit. Russia established military bases in Abkhazia and South Ossetia—in violation of the ceasefire accords—that buttress its long-time security presence in Armenia. Although there were some concerns that the South Caucasus had become less stable as a source and transit area for oil and gas, Kazakhstan and Turkmenistan are barging oil across the Caspian Sea for transit westward. Also, the United States and the European Union still support building more east-west pipelines through Turkey to bring Azerbaijani and perhaps other gas to European markets. Issues of concern in the 113th Congress regarding the South Caucasus may include Armenia's independence and economic development; Azerbaijan's energy development; and Georgia's recovery from Russia's August 2008 military incursion. At the same time, concerns have been raised about the status of human rights and democratization in the countries; the ongoing Armenia-Azerbaijan conflict over the breakaway Nagorno Karabakh region; and ongoing threats posed to Georgia and the international order by Russia's 2008 incursion and its diplomatic recognition of South Ossetia and Abkhazia. Congress has continued to oversee the region's role as part of the Northern Distribution Network for the transit of U.S. and NATO military supplies to and from Afghanistan. Georgia's aspirations for NATO membership have received ongoing congressional support. Many Members of Congress have evinced interest in recent political trends in Georgia following the peaceful transfer of party control in the October 2012 legislative election and in the wake of an October 2013 presidential election. Some Members of Congress and other policy makers believe that the United States should provide greater support for the region's increasing role as an east-west trade and security corridor linking the Black Sea and Caspian Sea regions, and for Armenia's inclusion in such links. They urge greater U.S. aid and conflict resolution efforts to contain warfare, crime, smuggling, and terrorism, and to bolster the independence of the states. Others urge caution in adopting policies that will increase U.S. involvement in a region beset by ethnic and civil conflicts. |
A bipartisan compromise bill to provide comprehensive immigration reform ( S. 1639 ) stalled in the Senate on June 28, 2007, when the key cloture vote failed. In terms of the H-1B provisions, S. 1639 would increase the annual cap on H-1B visas to 115,000 (and potentially up to 180,000). It also draws on the labor market protections proposed in S. 1035 , the H-1B and L-1 Visa Fraud and Abuse Prevention Act of 2007. Other H-1B bills include S. 1038 / H.R. 1930 , H.R. 1758 , S. 31 , S. 1397 , S. 1092 , S. 1351 , H.R. 2538 , and H.R. 3194 . The economic prosperity of the 1990s fueled a drive to increase the levels of employment-based immigration. The nation enjoyed its longest economic expansion, and the unemployment rate had remained low. Both the Congress and the Federal Reserve Board then expressed concern that a scarcity of labor could curtail the pace of economic growth. A primary legislative response was to increase the supply of foreign temporary professional workers through FY2003. Although Congress enacted legislation in 1998 to increase the number of visas for temporary foreign workers who have professional specialties, commonly known as H-1B visas, that annual ceiling of 115,000 visas was reached months before FY1999 and FY2000 ended. Many in the business community, notably in the information technology area, once more urged that the ceiling be raised. Congress, again striving to balance the needs of U.S. employers with employment opportunities for U.S. residents, enacted legislation to raise the annual ceiling to 195,000 for three years and to expand education and training programs ( P.L. 106-313 , S. 2045 ; and P.L. 106-311 , H.R. 5362 ). In the early 2000s, the economic downturn in the information technology sector appeared to have diminished demand for H-1B workers in that sector and raised new questions about the lay-offs of H-1Bs nonimmigrants. When the H-1B annual numerical limits reverted to 65,000, the 108 th Congress weighed whether to extend the increases as the admissions once again surpass the statutory limit. The FY2004 limit was reached in mid-February 2004, and the FY2005 limit was reached on October 1, 2004, the first day of the fiscal year. The inclusion of H-1B provisions in free trade agreements ( P.L. 108-77 and P.L. 108-78 ) as well as national security concerns sparked additional debate. Title IV of P.L. 108-447 , the Consolidated Appropriations Act for FY2005, exempts up to 20,000 aliens holding a master's or higher degree from the cap on H-1B visas. On August 12, 2005, USCIS announced that it has received enough H-1B petitions to meet the cap for FY2006. Concerns in the business community that a scarcity of qualified professional and technical workers may slow economic growth or encourage outsourcing of technical jobs has renewed effort to increase H-1B visas. In the 109 th Congress, Title IV of S. 2454 , which Senate Majority Leader Bill Frist introduced, Title V in S.Amdt. 3192 to S. 2454 (offered by Senate Judiciary Chairman Specter), and Title V in the Comprehensive Immigration Reform Act ( S. 2611 / S. 2612 ) would have exempted aliens who have earned an advanced degree in science, technology, engineering, or math from an accredited university in the United States from the numerical limits of H-1Bs. In addition, S. 2611 / S. 2612 would have raised the annual numerical limit on H-1B visas from 65,000 to 115,000 and would have established a formula on which to calculate future admissions. A nonimmigrant is an alien legally in the United States for a s pecific purpose and a temporary period of time . There are 70 nonimmigrant visa categories specified in the Immigration and Nationality Act (INA), and they are commonly referred to by the letter that denotes their section in the statute. The major nonimmigrant category for temporary workers is the H visa. The largest classification of H visas is the H-1B workers in specialty occupations. Any employer wishing to bring in an H-1B nonimmigrant must attest in a labor certification application (LCA) to the Department of Labor (DOL) that the employer will pay the nonimmigrant the greater of the actual wages paid other employees in the same job or the prevailing wages for that occupation; the employer will provide working conditions for the nonimmigrant that do not cause the working conditions of the other employees to be adversely affected; and, there is no strike or lockout. The employer also must post at the workplace the application to hire nonimmigrants. Firms categorized as H-1B dependent (generally if at least 15% of the workforce are H-1B workers) must also attest that they have attempted to recruit U.S. workers and that they have not laid off U.S. workers 90 days prior to or after hiring any H-1B nonimmigrants. DOL reviews the LCA for completeness and obvious inaccuracies. Only if a complaint subsequently is raised challenging the employer's application will DOL investigate. If DOL finds the employer failed to comply, the employer may be fined, may be denied the right to apply for additional H-1B workers, and may be subject to other penalties. The prospective H-1B nonimmigrants must demonstrate to the U.S. Citizenship and Immigration Services Bureau (USCIS) in the Department of Homeland Security that they have the requisite education and work experience for the posted positions. USCIS then approves the petition for the H-1B nonimmigrant (assuming other immigration requirements are satisfied) for periods up to three years; an alien can stay a maximum of six years on an H-1B visa. Those H-1B applicants who live abroad must then obtain a visa to enter the United States from the Bureau of Consular Affairs in the Department of State. The Department of Commerce screens H-1B visa applicants from countries of concern (e.g., China, India, Iran, North Korea, Pakistan, Sudan, and Syria) to identify those who may be working in controlled technologies, such as advanced computer, electronic, telecommunications or information security technologies that could be used to upgrade military capabilities. Those already in the United States legally, typically foreign students, do not need to obtain another visa and simply change their immigration status to H-1B with the USCIS. Many people confuse H-1B nonimmigrants with permanent immigration that is employment-based. If an employer wishes to hire an alien to work on a permanent basis in the United States, the alien may petition to immigrate to the United States through one of the employment-based categories. The employer "sponsors" the prospective immigrant, and if the petition is successful, the alien becomes a legal permanent resident. Many H-1B nonimmigrants may have education, skills, and experience that are similar to the requirements for three of the five preference categories for employment-based immigration: priority workers—that is, persons of extraordinary ability in the arts, sciences, education, business, or athletics; outstanding professors and researchers; and certain multinational executives and managers—(first preference); members of the professions holding advanced degrees or persons of exceptional ability (second preference); and skilled workers with at least two years training and professionals with baccalaureate degrees (third preference). Employment-based immigrants applying through the second and third preferences must have job offers for positions in which the employers have obtained labor certification. The labor certification is intended to demonstrate that the immigrant is not taking jobs away from qualified U.S. workers, and many consider the labor certification process far more arduous than the attestation process used for H-1B nonimmigrants. More specifically, the employer who seeks to hire a prospective immigrant worker petitions USCIS and DOL on behalf of the alien. The prospective immigrant must demonstrate that he or she meets the qualifications for the particular job as well as the preference category. If DOL determines that a labor shortage exists in the occupation for which the petition is filed, labor certification will be issued. If there is not a labor shortage in the given occupation, the employer must submit evidence of extensive recruitment efforts in order to obtain certification. There have been a series of media reports that firms are opting to bring in foreign professional workers on L-1 visas rather than the H-1B visa for professional specialty workers. Intracompany transferees who work for an international firm or corporation in executive and managerial positions or have specialized product knowledge are admitted on the L-1 visas. Their immediate family (spouse and minor children) are admitted on L-2 visas. The prospective L nonimmigrant must demonstrate that he or she meets the qualifications for the particular job as well as the visa category. The alien must have been employed by the firm for at least six months in the preceding three years in the capacity for which the transfer is sought. The INA does not require firms who wish to bring L intracompany transfers into the United States to meet any labor market tests in order to obtain a visa for the transferring employee. Preliminary data indicate that 266,000 H-1B petitions were approved in FY2005. The number of petitions approved for H-1B workers escalated in the late 1990s and peaked in FY2001 at 331,206 approvals ( Figure 1 ). Data from the DHS Office of Immigration Statistics (hereafter referred to as DHS Immigration Statistics) illustrate that the demand for H-1B visas continued to press against the statutory ceiling, even after Congress increased it to 115,000 for FY1999-FY2000 and to 195,000 for FY2001-FY2003. The number of H-1B petitions approved dropped to 197,537 in FY2002. Because of statutory changes made by P.L. 106-313 , which are discussed below, most H-1B petitions are now exempt from the ceiling, as Figure 1 illustrates. Only 79,100 H-1B approvals fell under the cap in FY2002. DHS Immigration Statistics reports that 103,584 petitions were approved for newly arriving H-1B workers in FY2002. There were also 93,953 petitions approved in FY2002 for H-1B workers who were continuing to be employed after their initial H-1B visa had expired. In FY2001, there were 163,200 approved petitions that counted under the cap. The former INS reported that 201,079 petitions for newly arriving H-1B workers were approved in FY2001. That year INS also reported that 130,127 H-1B workers already in the United States were approved for continuing employment, up from 120,853 continuing H-1B workers approved in FY2000. In FY2005, the 72,000 H-1Bs worked came in under the cap, which was higher than 65,000 because of roll-overs from FY2004. The INA sets a 65,000 numerical limit on H-1B visas that was reached for the first time prior to the end of FY1997, with visa numbers running out by September 1997. The 65,000 ceiling for FY1998 was reached in May of that year, and—despite the statutory increase—the 115,000 ceiling for FY1999 was reached in June 2002. About 5,000 cases approved in FY1997 after the ceiling was hit were rolled over into FY1998. More than 19,000 cases that were approved in FY1998 after the ceiling was hit were rolled over to FY1999. The former INS admitted in autumn 1999 that thousands of H-1B visas beyond the 115,000 ceiling were approved in FY1999, allegedly as a result of problems with the automated reporting system. Then INS hired KPMG Peat Marwick to audit and investigate how the problems occurred and how pervasive they may be. KPMG Peat Marwick determined that between 21,888 and 23,3385 H-1B visas (depicted in Figure 1 ) were issued over the ceiling in FY1999. Meanwhile, in mid-March 2000, INS announced the FY2000 ceiling of 115,000 would be reached by June. Ultimately, INS reported that 136,787 petitions for newly arriving H-1B workers were approved in FY2000. USCIS data indicate that 217,340 H-1B petitions were approved in FY2003, but that only about 78,000 were subject to the cap of 195,000. The FY2004 limit of 65,000 was reached in mid-February. On October 1, 2004—the first day of the fiscal year—USCIS announced that it had reached the cap, which that year was 58,200 because of visas set aside by the U.S.-Chile and U.S.-Singapore Free Trade Agreements (as discussed below). FY2006 data on H-1B admissions (capped and non-capped) are not available. USCIS determined that approximately 119,193 of the H-1B petitions received on April 2 and 3, 2007 (the first days it was accepting petitions) were subject to the FY2008 cap of 65,000. It conducted a computer-generated random selection of cap-subject petitions filed on April 2-3 to determine which cases would be accepted for processing. This virtually immediate reaching of the cap has become the pattern. On August 12, 2005, USCIS announced that it has received enough H-1B petitions to meet the cap for FY2006. On June 1, 2006, the U.S. Citizenship and Immigration Services announced that the FY2007 H-1B cap had been reached. USCIS also receives enough H-1B petitions that qualify for the exemption from the H-1B numerical limitations for foreign workers with a U.S.-earned master's or higher degree that the 20,000 cap is quickly met. USCIS determined that the "final receipt date" for the FY2006 cap-exempt H-1B petitions was January 17, 2006. On May 4, 2007, USCIS announced that it has received enough H-1B petitions requesting exemptions from the FY2008 H-1B cap for "foreign workers who have earned a master's degree or higher from a U.S. institution of higher education" to meet the congressionally mandated exemption limit of 20,000. USCIS has determined that the "final receipt date" for these exempt H-1B petitions was April 30, 2007. According to data from the DHS Immigration Statistics for FY2001, over half (55.3%) of H-1B new arrivals (i.e., those who came in under the numerical cap) were employed in computer-related fields; however, this percentage fell to 27.6% in FY2003. By FY2005, as Figure 2 illustrates, the trend reversed, and 45.3% of H-1B new arrivals were employed in computer-related fields. Educators follow with 11.2% of the newly approved H-1B petitions in FY2005. Architects, engineers and surveyors (11.1%), administrative specializations (9.5%), and those working in medicine and health (6.2%) and life sciences (3.3%) round out the occupations with notable numbers of H-1B new arrivals in FY2005. To obtain H-1B visas, nonimmigrants must demonstrate they have highly specialized knowledge in fields of human endeavor requiring the attainment of a bachelor's degree or its equivalent as a minimum. As Figure 3 depicts, the most common degree attained by most H-1B new arrivals is a bachelor's degree or its equivalent (42.5%). More than one-third (39.3%) have earned master's degrees. Another 17.1% have either professional degrees or doctorates. Of those with less than a bachelor's degree, many are presumed to be the "prominent" fashion models who also are admitted as H-1B nonimmigrants. India was the leading country of origin for newly arriving H-1B workers, comprising almost half (49.0%) of all of the new arrivals in FY2005. ( Figure 4 ). Data previously released by DHS Immigration Statistics further estimate that nearly three-fourths of all of the systems analysts and programmers are from India. In terms of overall H-1B new arrivals in FY2005, China followed with 9.16%, and Canada was third (3.6%). Other countries at or near 2%-4% were the United Kingdom, Philippines, Korea, and Japan. The median annual compensation of the newly arriving H-1B nonimmigrants dropped from $50,000 in FY2001 to $44,803 in FY2003, but climbed back to $50,000 in FY2005. Half of all H-1B workers who came in under the numerical cap in FY2003 had median annual compensations ranging from $35,000 to $60,000. By FY2005, the mid-range was from $41,000 to $60,000. Fashion models had the highest reported median compensation—$100,000 annually. Although few H-1B nonimmigrants were admitted in law and jurisprudence occupations, they had the second highest median compensation of $76,000. Newly arriving H-1B nonimmigrants in computer-related occupations had median annual salaries of $50,000 in FY2005, down from $55,000 in FY2001. The median compensation for those H-1B workers approved for continuing employment was much higher—$60,000 annually in FY2005. Likewise, the median compensation for those H-1B workers approved for continuing employment in computer-related occupations in FY2005—$68,000—was higher than their newly arriving counterparts, but remained under the median of $69,000 in FY2001. The H-1B visa often provides the link for the foreign student (F-1 visa) to become legal permanent residence (LPR). Many anecdotal accounts tell of foreign students who are hired by U.S. firms as they are completing their programs. The employers obtain H-1B visas for the recent graduates, and if the employees meet expectations, the employers may also petition for the nonimmigrants to become LPRs through one of the employment-based immigration categories. Some policy makers consider this a natural and positive chain of events, arguing that it would be foolish to educate these talented young people only to make them leave to work for foreign competitors. Others consider this "F-1 to H-1B to LPR" pathway an abuse of the temporary element of nonimmigrant status and a way to circumvent the laws and procedures that protect U.S. workers from being displaced by immigrants. Recent research by B. Lindsay Lowell of the Institute for the Study of International Migration estimates that approximately 7% of foreign students adjust to LPR status directly, and that additional 7% to 8% of students adjust to LPR status following a stint as an H nonimmigrant worker. In 2000, Lowell also conducted analysis of all H-1Bs who ultimately become LPRs and estimated that about half of them did so at that time. In 1995, CRS analysis of INS data on employment-based admissions found that 43% of those adjusting status were either H-1Bs or accompanying H-4 immediate family members of the temporary worker. Another 14.4% of the employment-based adjustments were foreign students and the accompanying immediate family of foreign students. That analysis also found that H worker adjustments to LPR status had increased from 7,244 in FY1988 to 24,223 in FY1994—an increase of more than 225% in six years—which was likely due in part to the change in the Immigration Act of 1990 to permit "dual intent" for H-1Bs. Although the USCIS asks what the last nonimmigrant status was of aliens who are adjusting to LPR status, there has been a data quality problem in recent years. According to the DHS Office of Immigration Statistics, the data collected on last nonimmigrant status are missing on more than 40% of the adjustment of status records. Nonetheless, Jeanne Batalova of the Migration Policy Institute recently published analysis of the limited data that are available. Batalova's analysis finds that the percentage of foreign students adjusting has remained rather flat, if not diminishing, but that the percentage of adjustments who are H nonimmigrant workers has grown, notably from FY1998 through FY2002, as Figure 5 illustrates. Proponents of expanding H-1B admissions argue that H-1B workers are essential if the United States is to remain globally competitive and that employers should be free to hire the best people for the jobs. They say that the education of students and retraining of the current workforce is a long-term approach, and they cannot wait to fill today's openings. Some point out that many mathematics, computer science, and engineering graduates of U.S. colleges and universities are foreign students and that we risk a "reverse brain drain" if that talent leaves the United States. Others assert that H-1B workers help create jobs, either by ultimately starting their own information technology firms or by providing a workforce sufficient for firms to remain in the United States. Proponents of the increase also cite media accounts of information technology workers from India who prefer to work for companies in India and warn that the work will move abroad if action to increase H-1B visas is not taken. Those opposing any further increases assert that there is no compelling evidence of a labor shortage in these professional areas that cannot be met by newly graduating students and by retraining the existing U.S. work force. They argue that the education of U.S. students and training of U.S. workers should be prioritized. Opponents also maintain that salaries and compensation would be rising if there is a labor shortage and if employers wanted to attract qualified U.S. workers. Critics draw on an investigation of LCA applications in 2005, which reported that many employers were paying H-1B visa holders below the median prevailing wage for the corresponding occupation and location. Some allege that employers prefer H-1B workers because they are less demanding in terms of wages and working conditions. Others express concern that an industry's dependence on temporary foreign workers may inadvertently lead the brightest U.S. students to seek positions in fields offering more stable and lucrative careers. Many opposed to an increase in H-1B visas cite the GAO reports that document abuses of H-1B visas and recommend additional controls to protect U.S. workers. Alternatively, some maintain that the H-1B ceiling is arbitrary and would not be necessary if more stringent protections for U.S. workers were enacted. They argue the question is not "how many" but "under what conditions." Some would strengthen the anti-fraud provisions and would broaden the recruitment requirements and layoff protections enacted in 1998 for "H-1B dependent" employers to all employers hiring H-1B workers. Others would reform the labor attestation and certification process and would make the labor market tests for nonimmigrant temporary workers comparable to those for immigrants applying for one of the permanent employment-based admissions categories to level the playing field. GAO has issued reports that recommended more controls to protect workers, to prevent abuses, and to streamline services in the issuing of H-1B visas. GAO concluded that the DOL has limited authority to question information on the labor attestation form and to initiate enforcement activities. GAO also concluded that the former INS's handling of H-1B petitions had potential for abuses. Some would expand the investigative and enforcement authority of DOL over H-1B employers and would increase the penalties for employers violating the H-1B provisions. Negotiators for the Uruguay Round Agreements of the General Agreement on Tariffs and Trade (GATT), completed in 1994 and known as the General Agreement on Trade in Services (GATS), included specific language on temporary professional workers. This language references §101(a)(15)(H(i)(b) of INA and commits the United States to admitting 65,000 H-1B visa holders each year under the definition of H-1B specified in GATS. Some have expressed concerned that trade agreements include language on temporary professional workers that bars the United States from future statutory changes to H-1B visas as well as other temporary business and worker nonimmigrant categories. Some assert that the Office of the U.S. Trade Representative (USTR) has overstepped its authority by negotiating immigration provisions in FTAs and are voicing opposition to trade agreements that would prevent Congress from subsequently revising immigration law on temporary professional nonimmigrants. Proponents of these trade agreements point out that they are merely reflecting current immigration law and policy. They argue that the movement of people is subsumed under the broader category of "provision of services" and thus an inherent part of any free trade agreement. Such agreements on the flow of business people and workers, they maintain, are essential to U.S. economic growth and business vitality. Some concerns have been raised about the need to monitor H-1Bs workers, particularly those whose employment gives them access to controlled technologies (i.e., those that could be used to upgrade military capabilities). GAO found that 15,000 foreign nationals from countries of concern (e.g., China, India, Iran, Iraq, North Korea, Pakistan, Sudan, and Syria) had changed their immigration status to an H-1B visa in 2001 to obtain jobs that could have involved controlled technologies without the Department of Commerce screening and called for a reexamination of policies that give foreign nationals access to such technology. Supporters of the current policy maintain that safeguards which are more than adequate are already in place and point out that all foreign nationals who seek to enter the United States are screened for potential national security risks by both the Department of State and the Department of Homeland Security. The legislation in the 110 th Congress that would revise the H-1B visas builds on over a decade of legislation action on this issue. For a review of past legislation proposals and laws enacted, see Appendix , "Brief Legislative History of H-1B Visa." S. 1348 , the Comprehensive Immigration Reform Act of 2007 (offered by Majority Leader Harry Reid as a placeholder for floor debate on comprehensive immigration reform), would raise the statutory limit on H-1B visas from 65,000 to 115,000 and would escalate this ceiling by 20% each year subsequent to a fiscal year when the numerical limits were reached. The bill also would exempt H-1Bs who had earned an advanced degree from an accredited university in the United States from the statutory numerical limits, and the exemption for up to 20,000 H-1B visas would change from aliens holding master's or higher degree from U.S. institutions to foreign institutions. A bipartisan compromise bill to provide comprehensive immigration reform ( S. 1639 ), which Senators Edward Kennedy and Arlen Specter offered, was on the Senate floor the week of June 25. S. 1639 includes a variety of revisions to the H-1B provisions in the INA. Among other things, it would raise the FY2008 cap to 115,000 and provide that in subsequent years DHS may issue additional H-1B visas up to a 180,000 cap. It also would require the submission of W-2 forms of the Internal Revenue Service as part of the H-1B renewal petition. S. 1639 stalled in the Senate on June 28, 2007, when the key cloture vote failed. The H-1B and L-1 Visa Fraud and Abuse Prevention Act of 2007 ( S. 1035 ) introduced by Senators Durbin and Grassley aims to enhance labor market protections pertaining to H-1B visas. Specifically, this bill would require that employers seeking to hire an H-1B visa holder pledge that they have made a good-faith effort to hire U.S. workers first and that the H-1B visa holder will not displace a U.S. worker. S. 1035 would prohibit employers from hiring H-1B employees who are then outsourced to other companies and would prohibit companies from hiring H-1B employees if they employ more than 50 people and more than 50% of their employees are H-1B visa holders. Moreover, S. 1035 would give DOL authority to review employers' H-1B applications for "clear indicators of fraud or misrepresentation of material fact" and would give DOL more authority to conduct employer investigations. S. 1639 draws on the labor market protections proposed in S. 1035 . Senator John Cornyn and Representative John Shaddeg have introduced companion bills— S. 1038 / H.R. 1930 , the Securing Knowledge, Innovation, and Leadership Act of 2007. This legislation would amend the INA to exempt from the annual H-1B visa cap an alien who has (1) earned a master's or higher degree from an accredited U.S. university; or (2) been awarded a medical specialty certification based on post-doctoral training and experience in the United States. The bills further would increase the annual H-1B cap, with an escalator clause that would provide a 20% increase for the following year if the previous year's ceiling is reached. Senator Susan Collins has introduced S. 31 , which would increase labor condition application penalties, provide H-1B alien with whistle-blower protections, and require USCIS to submit to Congress a fraud risk assessment of the H-1B visa program. Senator Chuck Hagel has introduced S. 1092 , the High-Tech Worker Relief Act of 2007, which would amend the INA to increase the number of annual H-1B for to 115,000 in FY2007 and 195,000 in FY2008. It also would eliminate the 20,000 annual cap on aliens with master's or higher degrees who can enter the United States without being subject to H-1B visa limits. Senator Judd Gregg has introduced S. 1351 , the H-1B Visa Program Modernization Act of 2007, which would increase H-1B visas to 150,00 in FY2008 with an escalator clause for subsequent years. It would strengthen labor market protections for U.S. workers competing with potential H-1B workers and would expand the investigative and enforcement authority of DOL. Senator Joseph Lieberman has introduced the Skilled Worker Immigration and Fairness Act ( S. 1397 ), which would exempt from the H-1B ceilings any alien who has earned a master's or higher degree in science, technology, engineering, or mathematics from an institution of higher education outside of the United States, or who has been awarded a medical specialty certification based on post-doctoral training and experience in the United States. The bill would raise the annual limits to 115,000 for FY2007 and rely on a market-based calculation or the greater of 115,000 for each subsequent fiscal year. The bill includes enforcement provisions that would address application fraud and misrepresentation, employer penalties, and DOL investigations. Representative David Wu has introduced H.R. 1758 , which would amend the INA to provide H-1B visas in each of FY2008 through FY2012 for 65,000 to persons who have a master's or Ph.D. degree and meet the requirements for such status. The employers of these additional H-1B workers would be required to make scholarship payments to institutions of higher education for undergraduate and postgraduate education. Representative Bill Pascrell has introduced the Defend the American Dream Act of 2005 ( H.R. 2538 ) , which would require employers of H-1B nonimmigrants to use one of three specified methods (whichever results in the highest wages) to determine wages for purposes of required wage attestations. It further would require employers who previously employed one or more H-1B nonimmigrants to submit with their labor condition application (LCA) a copy of the W-2 Wage and Tax Statement filed with respect to those nonimmigrants. Among other provisions, it would extend to 180 days the period during which certain H-1B employers must show nondisplacement of U.S. workers and require such employers to actively engage in recruitment efforts. It would prohibit employers from outsourcing or otherwise contracting for the placement of an H-1B nonimmigrant with another employer, regardless of whether the other employer is an H-1B dependent employer. In terms of the caps, it would eliminate the exemption from H-1B numerical admission limitations for certain aliens with a U.S. master's or higher degree. Representative Tom Feeney has introduced H.R. 3194 , which seeks to improve the H-1B nonimmigrant program by increasing the exchange of information between the Departments of Labor and Homeland Security. When Congress enacted the Immigration and Nationality Act of 1952, the H-1 nonimmigrants were described as aliens of "distinguished merit and ability" who were filling positions that were temporary. Nonimmigrants on H-1 visas had to maintain a foreign residence. Over the years, Congress made a series of revisions to the H-1 visa category and in 1989, split the H-1 visa into (a) and (b). The Immigration Act of 1990 ( P.L. 101-649 ) established the main features of H-1B visa as it is known today. Foremost, §205 of P.L. 101-649 replaced "distinguished merit and ability" with the "specialty occupation" definition. It added labor attestation requirements and the numerical limit of 65,000 on H-1B visas issued annually. It also dropped the foreign residence requirement and allowed for "dual intent" (i.e., an exception to the INA for H-1B aliens to obtain an H-1B visa simultaneous with seeking LPR status). American Competitiveness and Workforce Improvement Act Enacted as the 105 th Congress drew to a close, Title IV of the FY1999 Omnibus Consolidated and Emergency Supplemental Appropriations Act ( P.L. 105-277 ) raised the H-1B ceiling by 142,500 over three years and contained provisions aimed at correcting some of the perceived abuses. Most importantly, the 1998 law added new attestation requirements for recruitment and lay-off protections, but only requires them of firms that are "H-1B dependent" (generally at least 15% of the workforce are H-1Bs). All firms now have to offer H-1Bs benefits as well as wages comparable to their U.S. workers. Education and training for U.S. workers was to be funded by a $500 fee paid by the employer for each H-1B worker hired. The ceiling set by the new law was 115,000 in both FY1999 and FY2000, 107,500 in FY2001, and would revert back to 65,000 in FY2002. The House ( H.R. 3736 ) and the Senate ( S. 1723 ) had offered proposals to raise the H-1B ceiling for the next few years, though each bill approached the increase differently. Each bill would have added whistle blower protections for individuals who report violations of the H-1B program and would have increased the penalties for willful violations of the H-1B program. Many considered the provisions aimed at protecting U.S. workers as the most controversial in H.R. 3736 as it was reported by the House Judiciary Committee. While S. 1723 as passed by the Senate did add provisions penalizing firms that lay off U.S. workers and replace them with H-1B workers if the firms have violated other attestation requirements, amendments that would have required prospective H-1B employers to attest that they were not laying off U.S. workers and that they tried to recruit U.S. workers failed on the Senate floor. H.R. 3736 as reported included lay-off protection and recruiting requirement provisions similar to those that the Senate rejected. On the other hand, S. 1723 included language that would have expanded the education and training of U.S. students and workers in the math, science, engineering and information technology fields. Pre-conference discussions between Senate and House Republicans late in July 1998 yielded a compromise on key points of difference, but it did not address all the Clinton Administration's concerns regarding the education and training of U.S. workers and reform of the existing program. After a presidential veto threat of the Republican compromise, Republicans began working out a compromise with the White House, and this language passed as the substitute when H.R. 3736 came to the House floor on September 24, 1998. The House-passed language was then folded into P.L. 105-277 . American Competitiveness in the Twenty-First Century Act On October 3, 2000, both chambers of Congress passed the American Competitiveness in the Twenty-First Century Act of 2000 ( S. 2045 ) with bipartisan support, and President Clinton signed the new law ( P.L. 106-313 ) on October 17. The Senate had debated the legislation for several days, though much of the debate centered on procedural issues—specifically whether amendments that would legalize certain aliens (mostly Central Americans and Liberians) would be permitted. The House passed S. 2045 under a suspension of the rules shortly after the Senate passed it. The language that passed was a substitute version offered by Judiciary Committee Chairman Orrin Hatch with bipartisan support. It includes many of the same features as the version of the bill reported earlier by the Senate Judiciary Committee. It raises the number of H-1B visas by 297,500 over three years, FY2000-FY2002. Specifically, it adds 80,000 new H-1B visas for FY2000, 87,500 visas for FY2001, and 130,000 visas for FY2002. It also authorizes additional H-1B visas for FY1999 to compensate for the excess inadvertently approved that year. In addition, P.L. 106-313 excludes from the new ceiling all H-1B nonimmigrants who work for universities and nonprofit research facilities. A provision that would have exempted H-1B nonimmigrants with at least a master's degree from the numerical limits was dropped from the final bill. The new law also makes a major change in the law governing the permanent admission of immigrants by eliminating the per-country ceilings for employment-based immigrants. It also has provisions that facilitate the portability of H-1B status for those already here lawfully and requires a study of the "digital divide" on access to information technology. The new law makes changes in the use of the H-1B fees for education and training, notably earmarking a portion of DOL training funds for skills that are in information technology shortage areas and adding to the NSF portion a K-12 math, science and technology education grant program. Because S. 2045 originated in the Senate, it did not contain revenue provisions. Separate legislation to increase the H-1B fee from $500 to $1,000 ( P.L. 106-311 , H.R. 5362 ) passed the House on October 6, the Senate on October 10, and was signed by President Clinton on October 17. The conference agreement on the FY2001 Commerce, Justice, State appropriations bill ( H.R. 4942 , H.Rept. 106-1005 ) includes a provision that would authorize another H-1B fee that employers would pay for expedited servicing of the petitions. Prior to passage of S. 2045 , the House Judiciary Committee had been taking a somewhat different approach to the H-1B issue. After mark-up considerations for several days, the House Judiciary Committee had ordered Chairman Lamar Smith's bill, the Technology Worker Temporary Relief Act ( H.R. 4227 ), reported with amendments on May 17, 2000. H.R. 4227 would have eliminated the numerical limit on H-1B visas for FY2000 and would have allowed for temporary increases (i.e., enabling employers to hire H-1B workers outside of the numerical ceilings) in FY2001 and FY2002 if certain conditions were met. These conditions included demonstrating that there was a net increase from the previous year in the median wages (including cash bonuses and similar compensation) paid to the U.S. workers on the payroll. H.R. 4227 also would have revised the requirements employers of H-1B workers must meet, notably adding a $40,000 minimum salary and new reporting requirements. Like S. 2045 , universities, elementary and secondary schools, and nonprofit research facilities would have been exempt from most of these new requirements. H.R. 4227 would have required all H-1B employers to file W-2 forms and add anti-fraud provisions (including the requirement that the H-1B have full-time employment) funded by a $100 fee. An additional $200 processing fee would also have been collected and allocated to INS and DOL to expedite the processing of H-1B petitions and attestations. Like S. 2045 , H.R. 4227 included provisions that would facilitate the portability of H-1B status for those already here lawfully. The bill also would have instructed the U.S. Government Accountability Office (formerly General Accounting Office, GAO) to study the recruitment measures—particularly among under-represented groups—and training efforts undertaken by employers. The House Judiciary Committee issued the bill report ( H.Rept. 106-692 ) on June 23. The House Committee on Education and the Workforce considered the education and training provisions of the H-1B statute and marked up legislation introduced by its chairman William Goodling ( H.R. 4402 ) on May 10, 2000. As reported on May 25, 2000 ( H.Rept. 106-642 ), H.R. 4402 would have directed the Secretary of Labor to use 75% of the funding she receives from the H-1B education and training fee account to provide training in the skilled shortage occupations related to specialty occupations (as defined under INA's H-1B provisions). The bill would have transferred 25% of the funds from the fee account to the Department of Education to augment a student loan forgiveness program for teachers of mathematics, science, and reading. Representatives David Dreier and Zoe Lofgren introduced H.R. 3983 , which would have added an additional 362,500 over FY2001-FY2003. Specifically, it would have raised the ceiling by 200,000 for three years and would have set aside 60,000 visas annually through FY2003 for persons with master's degrees. It would have required employers to file W-2 forms with DOL for each H-1B worker employed. Like P.L. 106-313 , H.R. 3983 would have eliminated the per-country ceilings for permanent employment-based admissions. It would have enabled employers to use Internet recruiting to meet labor market recruitment requirements and would have established an Internet web-based tracking system for immigration-related petitions. Like P.L. 106-311 , this bill would have increased the $500 fee for education and training to $1,000, and it would have modified the scholarship and training program requirements, including the addition of student loan forgiveness in special cases. Representative Sheila Jackson-Lee, the ranking member of the House Judiciary Immigration and Claims Subcommittee, introduced H.R. 4200 , which would have set the ceiling at 225,000 annually for FY2001-FY2003, with the condition that it would have fallen back to 115,000 if the U.S. unemployment rate exceeds 5% and 65,000 if the unemployment rate exceeds 6%. H.R. 4200 would have allocated 40% of the H-1B visas in FY2000 to nonimmigrants who have at least attained master's degrees and would have increased that allocation to 50% in FY2001 and 60% in FY2002 (with 10,000 set aside each year for persons with Ph.D. degrees). The bill also provided additional visas retroactively for those inadvertently issued in excess of the FY1999 ceiling. It would have added a sliding fee scale based upon the size of the firm seeking H-1B workers and would have revised the uses of the fees collected for education and training programs, including programs for children. Among other provisions, it further would have modified the attestation requirements of employers seeking to hire H-1B workers. House Judiciary Immigration and Claims Subcommittee Chairman Lamar Smith had previously introduced H.R. 3814 , which would have added 45,000 H-1B visas for FY2000 if the employer met certain conditions. It would also have raised the fee to $1,000 for scholarships and training, with most of the revenue going to merit-based scholarships for students. H.R. 3814 also included provisions for expedited processing of H-1B petitions funded by a $250 fee and would have added anti-fraud provisions (including the requirement that the H-1B have full-time employment) funded by a $100 fee. It would have given the Secretary of State responsibility for maintaining records on H-1B nonimmigrants. Other bills pertaining to the H-1B issues were introduced. The New Workers for Economic Growth Act ( S. 1440 / H.R. 2698 ) introduced by Senator Phil Gramm and Representative Dave Dreier would have raised the ceiling of H-1B admissions to 200,000 annually FY2000-FY2002. Those H-1B nonimmigrants who have at least a master's degree and earn at least $60,000 would not have counted toward the ceiling. Those who have at least a bachelor's degree and are employed by an institution of higher education would have been exempted from the attestation requirements as well as the ceiling. Senator John McCain introduced S. 1804 , which, among other initiatives, would have eliminated the H-1B ceiling through FY2006. Representative David Wu introduced H.R. 3508 , which would have increased the ceiling by 65,000 annually through 2002 for those with master's or Ph.D. degrees, provided the employers establish scholarship funds. The Bringing Resources from Academia to the Industry of Our Nation Act ( H.R. 2687 ), introduced by Representative Zoe Lofgren, would have created a new nonimmigrant visa category, referred to as "T" visas, for foreign students who have graduated from U.S. institutions with bachelor's degrees in mathematics, science or engineering and who are obtaining jobs earning at least $60,000. The Helping Improve Technology Education and Competitiveness Act ( S. 1645 ), introduced by Senator Charles Robb, also would have created a "T" nonimmigrant visa category for foreign students who have graduated from U.S. institutions with bachelor's degrees in mathematics, science, or engineering and who are obtaining jobs paying at least $60,000. More stringent than H.R. 2687 , S. 1645 included provisions aimed at protecting U.S. workers that are comparable to the provisions governing the H-1B visa. Legislation in the 107 th Congress Several bills addressing the H-1B numerical limits were introduced in the 107 th Congress. H.R. 2984 would have amended the INA to require the Attorney General to ensure that only H-1B visa holders who actually commence employment are counted toward the ceiling. Representative Tom Tancredo offered H.R. 3222 , which would have set the upper limit of H-1B admissions at 65,000 and reduced it by 10,000 for each quarter percentage point by which the unemployment rate for the United States exceeded 6%. Emerging concerns of a shortage of nurses and other health care workers, however, prompted interest in the use of H-1Bs among health care professionals. The Senate Committee on the Judiciary Subcommittee on Immigration held hearings May 22, 2001, on "Immigration Policy: Rural and Urban Health Care Needs." Although the 107 th Congress did not alter H-1B admission levels, it did include provisions that allow H-1B visa holders to remain in that status beyond the statutory time limits of their temporary visas if their employers had filed applications for them to become legal permanent residents. Conferees on the Department of Justice Reauthorization Act ( H.R. 2215 , H.Rept. 107-685 ) included §11030A, which authorizes the Attorney General to extend the stay in one-year increments for H-1B nonimmigrants while their applications are pending. On October 3, 2002, Senator Orrin Hatch, ranking Republican on the Senate Committee on the Judiciary, introduced legislation ( S. 3051 ) with the expressed purpose of extending H-1B status for aliens with lengthy adjudications, using language comparable to §11030A. The conference report on H.R. 2215 passed the House September 26, 2002, and the Senate October 3, 2002. President Bush signed the Department of Justice Reauthorization Act on November 2, 2002 as P.L. 107-272 . Legislation in the 108 th Congress Free Trade Agreements The USTR's legislation implementing the Chile and Singapore FTAs was introduced July 15, 2003, as S. 1416 / H.R. 2738 and S. 1417 / H.R. 2739 , respectively. The House passed H.R. 2738 and H.R. 2739 on July 24, 2003, and the Senate passed them on July 31, 2003 ( P.L. 108-77 and P.L. 108-78 respectively). Title IV of each of these laws amends several sections of the Immigration and Nationality Act (INA, 8 U.S.C.). Foremost, the laws amend §101(a)(15)(H) of INA to carve out a portion of the H-1B visas—designated as the H-1B-1 visa—for professional workers entering through the FTAs. In many ways the FTA professional worker visa requirements parallel the H-1B visa requirements, notably having similar educational requirements. The H-1B visa, however, specifies that the occupation require highly specialized knowledge, while the FTA professional worker visa specifies that the occupation require only specialized knowledge. The laws also amend §212 of INA to add a labor attestation requirement for employers bringing in potential FTA professional worker nonimmigrants that is similar to the H-1B labor attestation statutory requirements. The additional attestation requirements for "H-1B dependent employers" currently specified in §212 are not included in the labor attestation requirements for employers of the FTA professional worker nonimmigrants. S. 1416 / H.R. 2738 contains numerical limits of 1,400 new entries under the FTA professional worker visa from Chile, and S. 1417 / H.R. 2739 contains a limit of 5,400 for Singapore. The bills do not limit the number of times that an alien may renew the FTA professional worker visa on an annual basis, unlike H-1B workers, who are limited to a total of six years. The bills count an FTA professional worker against the H-1B cap the first year he/she enters and again after the fifth year he/she seeks renewal. Although the foreign national holding the FTA professional worker visa would remain a temporary resident who would only be permitted to work for any employer who had met the labor attestation requirements, the foreign national with a FTA professional worker visa could legally remain in the United States indefinitely. H-1B Reform On July 24, 2003, Senator Christopher Dodd and Representative Nancy Johnson introduced the USA Jobs Protection Act of 2003 ( S. 1452 / H.R. 2849 ), which would have made several changes to current law on H-1B visas, as well as revised the L visa category. In § 4 of S. 1452 / H.R. 2849 , the lay-off protection provisions in current law pertaining to H-1B-dependent employers would have been broadened to cover all employers hiring H-1B workers. The lay-off protection period would have expanded from 90 days before and after hiring H-1B workers to 180 days. The bills also would have given DOL the authority to initiate investigations of H-1B employers if there is reasonable cause. On April 2, 2004, Representative Lamar Smith introduced H.R. 4166 , the American Workforce Improvement and Jobs Protection Act. It would have made permanent: the attestation requirement concerning nondisplacement of U.S. workers applicable to H-1B-dependent employers and willful violators; the filing fee applicable to H-1B petitioners; and the Secretary of Labor's authority to investigate an employer's alleged failure to meet specified labor attestation conditions. It also would have required the Secretary of Homeland Security to impose a fraud prevention and detection fee on H-1B or L (intracompany business personnel) petitioners for use in combating fraud and carrying out labor attestation enforcement activities. Exemptions from H-1B Cap H.R. 4166 would have amended the INA to exempt up to 20,000 aliens holding a master's or higher degree from the numerical limitation on H-1B nonimmigrants in any fiscal year. H-1B Elimination/Moratorium On June 25, 2003, Representative Sam Graves introduced H.R. 2235 , which would have suspended the issuances of certain nonimmigrant visas—including H-1B visas—until a set of conditions pertaining to the full implementation of specified immigration and homeland security laws was met. On July 9, 2003, Representative Tom Tancredo introduced H.R. 2688 , which would have repealed the statutory authority to admit H-1B workers. Provisions in Omnibus Appropriations Bill Title IV of P.L. 108-447 ( H.R. 4818 ), the Consolidated Appropriations Act for FY2005, exempts up to 20,000 aliens holding a master's or higher degree from the cap on H-1B visas. It reinstates: the attestation requirement concerning nondisplacement of U.S. workers applicable to H-1B-dependent employers and willful violators; the filing fee applicable to H-1B petitioners; and the Secretary of Labor's authority to investigate an employer's alleged failure to meet specified labor attestation conditions. It also requires the Secretary of Homeland Security to impose a fraud prevention and detection fee on H-1B or L (intracompany business personnel) petitioners for use in combating fraud and carrying out labor attestation enforcement activities. Legislation in the 109 th Congress Emergency Supplemental ( P.L. 109-13 ) The FY2005 supplemental appropriations for military operations in Iraq and Afghanistan, reconstruction in Afghanistan and other foreign aid includes a provision that touched on the nexus of H-1B visas and FTAs. Specifically, §501 of the legislation as enacted would add 10,500 visas for Australian nationals to perform services in specialty occupations under a new E-3 temporary visa. The Senate had adopted a provision during the floor debate on H.R. 1268 that would have created a new E-3 temporary visas that would have been capped at 5,000 per year. This language was included in REAL ID Act of 2005 ( P.L. 109-13 , Division B). Budget Reconciliation ( P.L. 109-171 ) On October 20, 2005, the Senate Committee on the Judiciary approved compromise language that would have recaptured up to 30,000 H-1B visas that had not been issued in prior years (see Figure 1 ). An additional fee of $500 would have been charged to obtain these recaptured visas. This language was forwarded to the Senate Budget Committee for inclusion in the budget reconciliation legislation. On November 18, 2005, the Senate passed S. 1932 , the Deficit Reduction Omnibus Reconciliation Act of 2005, with these provisions as Title VIII. These provisions were not included in the House-passed Deficit Reduction Act of 2005 ( H.R. 4241 ). The conference report ( H.Rept. 109-362 ) on S. 1932 , which was renamed the Deficit Reduction Act of 2005, was reported on December 19 (during the legislative day of December 18). It did not include the Senate provisions that would have recaptured H-1B visas unused in prior years. On December 19, the House agreed to the conference report by a vote of 212-206. On December 21, the Senate removed extraneous matter from the legislation pursuant to a point of order raised under the "Byrd rule," and then, by a vote of 51-50 (with Vice President Cheney breaking a tie vote), returned the amended measure to the House for further action. The measure was signed into law on February 8, 2006, as P.L. 109-171 . Securing America's Borders Act ( S. 2454 ) Title IV of S. 2454 , which Senate Majority Leader Bill Frist had introduced on March 16, 2006, as well as Title V in the draft of Senate Judiciary Chairman Specter's mark circulated March 6, 2006 (Chairman's mark) would have added a new exemption from the numerical limits for H-1Bs who earned an advanced degree in science, technology, engineering, or math from an accredited university in the United States. Title IV of S. 2454 and Title V of the Chairman's mark had foreign student provisions that, if enacted, would have provided employers an attractive alternative to the H-1B visas. The bills would have extended foreign students' practical training (and F-1 status) from 12 to 24 months. They also would have created a new "F-4" student visa for advanced degree candidates studying in the fields of math, engineering, technology or the physical sciences at the end of their course of study. The proposed visa would have allowed eligible students to either return to their country of origin or remain in the United States for up to one year and seek employment in their relevant field of study. The Senate debated immigration reform from late March through early April 2006, but efforts to invoke cloture failed. At that time the leading proposals included S. 2454 , the Securing America's Borders Act, which Senate Majority Leader Bill Frist introduced on March 16, 2006, and S.Amdt. 3192 to S. 2454 , the Comprehensive Immigration Reform Act, which Judiciary Chairman Arlen Specter offered on March 30, 2006. Title IV of S. 2454 and Title V of S.Amdt. 3192 , which were essentially equivalent, would have substantially increased legal permanent immigration and would have restructured the allocation of the family-sponsored and employment-based visas. Comprehensive Immigration Reform Act ( S. 2611 ) The Senate passed major immigration legislation ( S. 2611 ) on May 25, 2006, by a vote of 62-36. The Senate-passed bill was based on a compromise that Senators Chuck Hagel and Mel Martinez shaped and introduced on April 7, 2006, along with co-sponsors Sam Brownback, Lindsey Graham, Ted Kennedy, John McCain and Arlen Specter. The identical language was introduced by Senator Specter ( S. 2611 ) and Senator Hagel ( S. 2612 ). S. 2611 would have raised the statutory limit on H-1B visas from 65,000 to 115,000 and would have escalated this ceiling by 20% each year subsequent to a fiscal year when the numerical limits were reached. Provisions by Senator John Cornyn revising the H-1B visa were also added during the floor amendments. The major House-passed immigration bill ( H.R. 4437 ) did not revise the H-1B visa. Senate-passed S. 2611 , moreover, would have exempted H-1Bs who had earned an advanced degree from an accredited university in the United States from the statutory numerical limits. The exemption for up to 20,000 H-1B visas would have been changed from aliens holding master's or higher degree from U.S. institutions to foreign institutions. The exemption for H-1Bs employed by nonprofit research institutions would have been broadened to include all nonprofit institutions, and the exemption for H-1Bs employed by governmental organizations would have included "Federal, State, or local" governmental research organizations. S. 2611 was among those bills that would have eased opportunities for temporary workers to ultimately adjust to LPR status. More specifically, S. 2611 would have exempted aliens who had worked in the United States for three years and who had earned an advanced degree in science, technology, engineering, or math from the numerical limits on permanent admissions. S. 2611 also would have created visa categories (e.g., F-4) for advanced degree candidates studying in the fields of math, engineering, technology or the physical sciences at the end of their course of study. The proposed visa would have allowed eligible students to either return to their country of origin or remain in the United States for up to one year and seek employment in their relevant field of study. In S. 2611 , the proposed foreign students would then have been able to adjust to LPR status outside of the statutory numerical limits on employment-based LPRs. H-1B Reform On July 18, 2005, Representative Nancy Johnson introduced the USA Jobs Protection Act of 2005 ( H.R. 3322 ), which would have made several changes to current law on H-1B visas, as well as revised the L visa category. In H.R. 3322 , the lay-off protection provisions in current law pertaining to H-1B-dependent employers would have been broadened to cover all employers hiring H-1B workers. In addition, the lay-off protection period would have been expanded from 90 days before and after hiring H-1B workers to 180 days. The bill also would have given DOL the authority to initiate investigations of H-1B employers if there was reasonable cause. As introduced by Representative Bill Pascrell on November 17, 2005, the Defend the American Dream Act of 2005 ( H.R. 4378 ) would have made substantial changes to the H-1B visa. Among other reforms, it would have : required employers of H-1B nonimmigrants to use one of three specified methods (whichever results in the highest wages) to determine wages for purposes of required wage attestations; required employers to actively engage in recruitment efforts and, required employers who previously employed one or more H-1B nonimmigrants to submit with their labor condition application (LCA) a copy of the W-2 Wage and Tax Statement filed with respect to those nonimmigrants. It also would have extended to 180 days the period during which certain H-1B employers must show nondisplacement of U.S. workers. It further would have prohibited employers from outsourcing or otherwise contracting for the placement of an H-1B nonimmigrant with another employer, regardless of whether the other employer is H-1B dependent employer. It would have reduced the period of H-1B authorized admission from six to three years and would have eliminated the exemption from H-1B numerical admission limitations aliens with a U.S. master's or higher degree. It would have required the Secretary of Labor to be responsible for investigations of wage complaints and allegations of fraud in the filing of LCAs and would have created a private right of action for persons harmed by an employer's violation of labor condition requirements. H-1B Repeal On March 15, 2005, Representative Tom Tancredo introduced H.R. 1325 , which would have repealed the authority for H-1B nonimmigrants in the INA. | The economic prosperity of the 1990s fueled a drive to increase the levels of employment-based immigration. Both the Congress and the Federal Reserve Board then expressed concern that a scarcity of labor could curtail the pace of economic growth. A primary response was to increase the supply of foreign temporary professional workers through FY2003. When the H-1B annual numerical limits reverted to 65,000 in FY2005, that limit was reached on the first day. The FY2006 limit was reached before the fiscal year began. The U.S. Citizenship and Immigration Services announced that the FY2008 H-1B cap was reached within the first two days it accepted petitions—April 2-3, 2007. The 106th Congress temporarily raised the number of H-1B visas for three years. The 107th Congress enacted provisions that allow H-1B workers to remain if their employers petitioned for them to become legal permanent residents. A provision in P.L. 108-447 exempted up to 20,000 aliens holding a master's or higher degree from the cap on H-1B visas. It also established a fraud-prevention-and-detection fee on petitioners. Provisions on H-1B visas also were part of Chile and Singapore Free Trade Agreements (P.L. 108-77 and P.L. 108-78). The median annual compensation of the newly arriving H-1B nonimmigrants dropped from $50,000 in FY2001 to $44,803 in FY2003, but climbed back to $50,000 in FY2005. Most H-1B new arrivals had earned a bachelor's degree or its equivalent (42.5%). More than one-third (39.3%) had master's degrees, and 17.1% had either professional degrees or doctorates. In FY2005, 45.3% of H-1B new arrivals were employed in computer-related fields, followed by educators (11.2%), architects, engineers and surveyors (11.1%), and administrative specializations (9.5%). India was the leading country of origin, comprising 49.0% of all new arrivals in FY2005. China followed with 9.16%, and Canada was third (3.6%). Those opposing any further increases or easing of admissions requirements assert that there is no compelling evidence of a labor shortage in these professional areas that cannot be met by newly graduating students and retraining the existing U.S. work force. They argue further that the education of U.S. students and training of U.S. workers should be prioritized instead of fostering a reliance on foreign workers. Proponents of current H-1B levels assert that H-1B workers are essential if the United States is to remain globally competitive. Some proponents argue that employers should be free to hire the best people for the jobs, maintaining that market forces should regulate H-1B visas, not an arbitrary ceiling. In the 110th Congress, the comprehensive immigration reform legislation (S. 1639) stalled in the Senate on June 28, 2007. S. 1639 would increase the annual cap to 115,000 (and potentially to 180,000 in future years). S. 1639 also draws on the labor market protections proposed in S. 1035, the H-1B and L-1 Visa Fraud and Abuse Prevention Act of 2007. Other H-1B bills include S. 1038/H.R. 1930, H.R. 1758, S. 31, S. 1397, S. 1092, S. 1351, H.R. 2538, and H.R. 3194. This report tracks legislative activity and will be updated as needed. |
Congress's contempt power is the means by which Congress responds to certain acts that in its view obstruct the legislative process. Contempt may be used either to coerce compliance, to punish the contemnor, and/or to remove the obstruction. Although any action that directly obstructs the effort of Congress to exercise its constitutional powers may arguably constitute a contempt, in recent decades the contempt power has most often been employed in response to the refusal of a witness to comply with a congressional subpoena—whether in the form of a refusal to provide testimony, or a refusal to produce requested documents. Congress has three formal methods by which it can combat non-compliance with a duly issued subpoena. Each of these methods invokes the authority of a separate branch of government. First, the long dormant inherent contempt power permits Congress to rely on its own constitutional authority to detain and imprison a contemnor until the individual complies with congressional demands. Because the contemnor is generally released once the terms of the subpoena are met, inherent contempt serves the purposes of encouraging compliance with a congressional directive. Second, the criminal contempt statute permits Congress to certify a contempt citation to the executive branch for the criminal prosecution of the contemnor. Criminal contempt serves as punishment for non-compliance with a congressional subpoena, but does not necessarily encourage subsequent acquiescence. Once convicted, the contemnor is not excused from criminal liability if he later chooses to comply with the subpoena. Finally, Congress may rely on the judicial branch to enforce a congressional subpoena. Under this procedure, Congress may seek a civil judgment from a federal court declaring that the individual in question is legally obligated to comply with the congressional subpoena. If the court finds that the party is legally obligated to comply, continued non-compliance may result in the party being held in contempt of court. Where the target of the subpoena is an executive branch official, civil enforcement may be the only practical means by which Congress can effectively ensure compliance with its own subpoena. This report examines the source of the contempt power; reviews the historical development of the early case law; discusses noteworthy contempt proceedings; outlines the statutory, common law, and constitutional limitations on the contempt power; and analyzes the procedures associated with inherent contempt, criminal contempt, and the civil enforcement of congressional subpoenas. The power of Congress to punish for contempt is inextricably related to the power of Congress to investigate. Generally speaking, Congress's authority to investigate and obtain information, including but not limited to confidential information, is extremely broad. While there is no express provision of the Constitution or specific statute authorizing the conduct of congressional oversight or investigations, the Supreme Court has firmly established that such power is essential to the legislative function as to be implied from the general vesting of legislative powers in Congress. The broad legislative authority to seek and enforce informational demands was unequivocally established in two Supreme Court rulings arising out of the 1920's Teapot Dome scandal. In McGrain v. Daugherty , which arose out of the exercise of the Senate's inherent contempt power, the Supreme Court described the power of inquiry, with the accompanying process to enforce it, as "an essential and appropriate auxiliary to the legislative function." The Court explained: A legislative body cannot legislate wisely or effectively in the absence of information respecting the conditions which the legislation is intended to affect or change; and where the legislative body does not itself possess the requisite information—which not infrequently is true—recourse must be had to others who possess it. Experience has taught that mere requests for such information often are unavailing, and also that information which is volunteered is not always accurate or complete; so some means of compulsion are essential to obtain that which is needed. All this was true before and when the Constitution was framed and adopted. In that period the power of inquiry—with enforcing process—was regarded and employed as a necessary and appropriate attribute of the power to legislate—indeed, was treated as inhering in it. Thus there is ample warrant for thinking, as we do, that the constitutional provisions which commit the legislative function to the two houses are intended to include this attribute to the end that the function may be effectively exercised. In Sinclair v. United States, a different witness at the congressional hearings refused to provide answers, and was prosecuted for contempt of Congress. The witness had noted that a lawsuit had been commenced between the government and the Mammoth Oil Company, and declared, "I shall reserve any evidence I may be able to give for those courts ... and shall respectfully decline to answer any questions propounded by your committee." The Supreme Court upheld the witness's conviction for contempt of Congress. The Court considered and rejected in unequivocal terms the witness's contention that the pendency of lawsuits provided an excuse for withholding information. Neither the laws directing that such lawsuits be instituted, nor the lawsuits themselves, "operated to divest the Senate, or the committee, of power further to investigate the actual administration of the land laws." The Court further explained that "[i]t may be conceded that Congress is without authority to compel disclosure for the purpose of aiding the prosecution of pending suits; but the authority of that body, directly or through its committees to require pertinent disclosures in aid of its own constitutional power is not abridged because the information sought to be elicited may also be of use in such suits." Subsequent Supreme Court rulings have consistently reiterated and reinforced the breadth of Congress's investigative authority. For example, in Eastland v. United States Servicemen's Fund , the Court explained that "[t]he scope of [Congress's] power of inquiry ... is as penetrating and far-reaching as the potential power to enact and appropriate under the Constitution." In addition, the Court in Watkins v. United States described the breadth of the power of inquiry. According to the Court, Congress's power "to conduct investigations is inherent in the legislative process. That power is broad. It encompasses inquiries concerning the administration of existing laws as well as proposed or possibly needed statutes." The Court did not limit the power of congressional inquiry to cases of "wrongdoing." It emphasized, however, that Congress's investigative power is at its peak when the subject is alleged waste, fraud, abuse, or maladministration within a government department. The investigative power, the Court stated, "comprehends probes into departments of the Federal Government to expose corruption, inefficiency, or waste." "[T]he first Congresses" held "inquiries dealing with suspected corruption or mismanagement by government officials" and subsequently, in a series of decisions, "[t]he Court recognized the danger to effective and honest conduct of the Government if the legislative power to probe corruption in the Executive Branch were unduly hampered." Accordingly, the Court now clearly recognizes "the power of the Congress to inquire into and publicize corruption, maladministration, or inefficiencies in the agencies of Government." The inherent contempt power is not specified in a statute or constitutional provision, but has been deemed implicit in the Constitution's grant to Congress of all legislative powers. In an inherent contempt proceeding, the offender is tried at the bar of the House or Senate and can be held in custody until such time as the contemnor provides the testimony or documents sought, or until the end of the session. Inherent contempt was most often used as a means of coercion, not punishment. A statutory criminal contempt provision was first enacted by Congress in 1857, in part because of the inadequacies of proceedings under the inherent power. In cases of criminal contempt, the offender is cited by the subcommittee, the committee, and the full House or Senate, with subsequent indictment by a grand jury and prosecution by the U.S. Attorney. Criminal contempt, unlike inherent contempt, is intended as a means of punishing the contemnor for non-compliance rather than to obtain the information sought. A statutory civil enforcement procedure, applicable only to the Senate, was enacted in 1978. Under that procedure, a witness, who refuses to testify before a Senate committee or provide documents sought by the committee can, after being served with a court order, be held in contempt of court and incarcerated until he agrees to testify. Moreover, the House and Senate have authorized standing or special committees to seek civil enforcement of subpoenas. While the contempt power was exercised both by the English Parliament and by the American colonial assemblies, Congress's first assertion of its contempt authority occurred in 1795, shortly after the ratification of the Constitution. At the time, three Members of the House of Representatives reported that they had been offered what they interpreted to be a bribe by men named Robert Randall and Charles Whitney. The House of Representatives interpreted these allegations as sufficient evidence of an attempt to corrupt its proceedings and reported a resolution ordering their arrest and detention by the Sergeant-at-Arms, pending further action by the House. The matter was then referred to a special Committee on Privileges which reported out a resolution recommending that formal proceedings be instituted against Messrs. Randall and Whitney at the bar of the House. In addition, the resolution provided that the accused be questioned by written interrogatories submitted by the Speaker of the House with both the questions and the answers entered into the House minutes. The resolution also provided that individual Members could submit written questions to the accused. Upon adopting the resolution and after considerable debate, the House determined that the following procedures be adhered to: First, the complaining Members were to submit a written signed information to the accused and for publication in the House Journal. In addition, the accused were to be provided counsel, the right to call witnesses on their behalf, the right to cross-examination of the complaining Members through written questions submitted to the Speaker, and adequate time to prepare a defense. A proceeding was held at the bar of the House, and on January 4, 1796, the House, by a vote of 78-17, adopted a resolution finding Mr. Randall guilty of "a contempt to, and a breach of the privileges of, this House by attempting to corrupt the integrity of its Members in the manner laid to his charge." The House ordered Mr. Randall to be brought to the bar, reprimanded by the Speaker, and held in custody until further resolution of the House. Mr. Randall was detained until January 13, 1796, when he was discharged by House resolution. Mr. Whitney, on the other hand, was absolved of any wrongdoing as the House determined that his actions were against a "member-elect," and had taken place "away from the seat of government." Of additional significance is the fact that the records indicate that almost no question was raised with respect to the power of Congress to punish a non-Member for contempt. According to one commentator, who noted that many of the Members of the early Congress were also members of the Constitutional Convention and, thus, fully aware of the legislative practices of the time, it was "substantially agreed that the grant of the legislative power to Congress carried with it by implication the power to punish for contempt." Four years later, the Senate exercised its contempt power against William Duane, who, as editor of the Aurora newspaper, was charged with the publication of a libelous article concerning the Senate and one of its committees. Mr. Duane was ordered by Senate resolution to appear before the bar of the Senate and "make any proper defense for his conduct in publishing the aforesaid false, defamatory, scandalous, and malicious assertions and pretended information." At his initial appearance before the Senate, Mr. Duane requested, and was granted, the assistance of counsel and ordered to appear again two days later. Instead of appearing before the Senate as ordered, Mr. Duane submitted a letter indicating he did not believe he could receive a fair trial before the Senate. Mr. Duane was subsequently held in contempt of the Senate for his failure to appear, not for his alleged libelous and defamatory publications. As a result, he was held in the custody of the Senate for several weeks before the Senate, by resolution, instructed that he be released and tried by the courts. The Senate's contempt of Mr. Duane generated considerably more debate concerning Congress's contempt authority. A majority of Senators argued that the Senate's contempt power was an inherent right of legislative bodies, derived not specifically from the Constitution, but rather from "the principle of self-preservation, which results to every public body from necessity and from the nature of the case." Moreover, Senators supportive of this position argued that their reasoning was firmly supported by English and colonial practices, as well as the practice of the state legislatures. Finally, the majority asserted that if Congress did not possess a contempt power it would be vulnerable to the disruption of its proceedings by outside intruders. While the Senate's exercise of its contempt power was not without precedent, many Senators disputed these claims, arguing that all powers sought to be exercised by Congress must be specifically derived from the Constitution; that because the contempt power is not among the enumerated powers given to Congress, the power is reserved to the states and the people. In addition, the minority argued that Congress, unlike the English Parliament or state legislatures, was intentionally not granted the plenary powers of sovereignty by the Constitution and, thus, could not claim any inherent right to self-preservation. As an alternative, the minority proposed that Congress, which has the power to "make all laws which shall be necessary and proper for carrying into execution the foregoing powers" had sufficient authority to enact a statute that would protect the integrity of its proceedings. Moreover, the minority argued that disruptions of congressional proceedings would continue to be subject to the criminal laws. After Mr. Duane's contempt by the Senate, it appeared that the subject of the Congress's inherent contempt power was settled. The authority, however, was not used again for another 12 years. In 1812, the House issued a contempt resolution against Mr. Nathaniel Rounsavell, who had refused to answer a select committee's questions concerning which Representative had given him information regarding secret sessions. However, before Mr. Rounsavell was brought before the bar of the House a Member admitted his indiscretion and the matter was not pursued. Congress's inherent contempt power was not used again until 1818, where it eventually made its way to the Supreme Court for adjudication. In 1821, the Supreme Court was faced with interpreting the scope of Congress's contempt power. The case arose when Representative Louis Williams of North Carolina introduced a letter before the House from a John Anderson, which Representative Williams interpreted as an attempt to bribe him. Following its 1795 precedent, the House adopted a resolution ordering the Sergeant-at-Arms to arrest Mr. Anderson and bring him before the bar of the House. Upon Mr. Anderson's arrest, however, a debate erupted on the floor of the House as the motion for referral to the Committee on Privileges to adopt procedures was considered. Several Members objected to the House's assertion of an inherent contempt power. They argued, as the minority Senators had in Mr. Duane's contempt, that neither the Constitution nor the general laws afforded the Congress such an inherent power to punish for actions that occurred elsewhere. Relying on the 1795 precedent and examples from the British Parliament and state legislatures, the committee was formed and it adopted a resolution requiring Mr. Anderson to be brought before the bar of the House for questioning by the Speaker. At his appearance, Mr. Anderson, like Mr. Randall and Mr. Whitney before him, was afforded counsel and permitted to present the testimony of eleven witnesses. Ultimately, Mr. Anderson was found in contempt of Congress and was ordered to be reprimanded by the Speaker for the "outrage he committed" and discharged into the custody of the Sergeant-at-Arms. Mr. Anderson subsequently filed suit against Mr. Thomas Dunn, the Sergeant-at-Arms of the House, alleging assault, battery, and false imprisonment. Mr. Dunn responded by asserting that he was carrying out the lawful orders of the House of Representatives. The Supreme Court heard the case in February of 1821 and concluded that the Congress possessed the inherent authority to punish for contempt and dismissed the charges against Mr. Dunn. The Court noted that while the Constitution does not explicitly grant either House of Congress the authority to punish for contempt, except in situations involving its own Members, such a power is necessary for Congress to protect itself. The Court asserted that if the House of Representatives did not possess the power of contempt it would "be exposed to every indignity and interruption, that rudeness, caprice, or even conspiracy, may meditate against it." The Court's decision in Anderson does not define the specific actions that would constitute contempt; rather, it adopted a deferential posture, noting that "it is only necessary to observe that there is nothing on the facts of the record from which it can appear on what evidence the warrant was issued and we do not presume that the House of Representatives would have issued it without fully establishing the facts charged on the individual." The Anderson decision indicates that Congress's contempt power is centered on those actions committed in its presence that obstruct its deliberative proceedings. The Court noted that Congress could supplement this power to punish for contempt committed in its presence by enacting a statute, which would prohibit "all other insults which there is any necessity for providing." The Court in Anderson also endorsed the existing parliamentary practice that the contemnor could not be held beyond the end of the legislative session. According to the Court, "[s]ince the existence of the power that imprisons is indispensable to its continuance, and although the legislative power continues perpetual, the legislative body ceases to exist, on the moment of its adjournment or periodical dissolution. It follows, that imprisonment must terminate with that adjournment." Since Anderson was decided there has been an unresolved question as to whether this rule would apply with equal force to a contempt by the Senate, since it is considered a "continuing body." The Senate, it appears, has only addressed this issue once, in 1871, regarding the contempt of two recalcitrant witnesses, Z.L. White and H.J. Ramsdell. During these contempt proceedings, the Senate found itself near the end of a session and the question arose as to whether the Senate's acquiescence to the Anderson rule would provide adequate punishment. After vigorous debate, the Senate instructed the Sergeant-at-Arms to release the prisoners immediately upon the final adjournment of the Congress. The House, however, has imprisoned a contemnor for a period that extended beyond the adjournment of a Congress. Patrick Wood was sentenced by the House to a three-month term in jail for assaulting Representative Charles H. Porter. Although there is no doubt that Mr. Woods's period of incarceration extended beyond the date of adjournment, it was not challenged and, therefore, there is no judicial opinion addressing the issue. In 1876, the House established a select committee to investigate the collapse of Jay Cooke & Company, a real estate pool in which the United States had suffered losses as a creditor. The committee was, by resolution, given the power to subpoena both persons and records pursuant to its investigation. Acting under its authority, the committee issued a subpoena duces tecum to one Hallet Kilbourn, the manager of the real estate pool. When Mr. Kilbourn refused to produce certain papers or answer questions before the committee he was arrested and tried under the House's inherent contempt power. The House adjudged Mr. Kilbourn in contempt and ordered him detained by the Sergeant-at-Arms until he purged himself of contempt by releasing the requested documents and answering the committee's questions. Mr. Kilbourn filed a suit against the Speaker, the members of the committee, and the Sergeant-at-Arms for false arrest. The lower court held in favor of the defendant dismissing the suit. Mr. Kilbourn appealed, and the Supreme Court reversed, holding that Congress did not have a general power to punish for contempt. While the Court appeared to recognize that Congress possessed an inherent contempt power, it declined to follow Anderson v. Dunn's expansive view of Congress's authority. Moreover, the Court rejected any reliance on the English and colonial precedents establishing the source and extent of Congress's contempt power. The Court stated that [w]e are of opinion that the right of the House of Representatives to punish the citizen for a contempt of its authority or a breach of its privileges can derive no support from the precedents and practices of the two Houses of the English Parliament, nor from the adjudged cases in which the English courts have upheld these practices. Nor, taking what has fallen from the English judges, and especially the later cases on which we have just commented, is much aid given to the doctrine, that this power exists as one necessary to enable either House of Congress to exercise successfully their function of legislation. The Court held that the investigation into the real estate pool was not undertaken by the committee pursuant to one of Congress's constitutional responsibilities, but rather was an attempt to pry into the personal finances of private individuals, a subject that could not conceivably result in the enactment of valid legislation. According to the Court, because Congress was acting beyond its constitutional responsibilities, Mr. Kilbourn was not legally required to answer the questions asked of him. In short, the Court held that "no person can be punished for contumacy as a witness before either House, unless his testimony is required in a matter into which that House has jurisdiction to inquire, and we feel equally sure that neither of these bodies possesses the general power of making inquiry into the private affairs of the citizen." In addition, the Court indicated that the investigation violated the doctrine of separation of powers because judicial bankruptcy proceedings were pending relating to the collapse of the real estate pool and, therefore, it might be improper for Congress to conduct an investigation that could interfere with the judicial proceedings. The Court specifically challenged Congress's assertion that there were no other viable remedies available to the government to retrieve the lost funds. Thus, the Court concluded that the resolution of the House of Representatives authorizing the investigation was in excess of the power conferred on that body by the Constitution; that the committee, therefore, had no lawful authority to require Kilbourn to testify as a witness beyond what he voluntarily chose to tell; that the orders and resolutions of the House, and the warrant of the speaker, under which Kilbourn was imprisoned, are, in like manner, void for want of jurisdiction in that body, and that his imprisonment was without any lawful authority. Finally, in dicta , the Court indicated that the contempt power might be upheld where Congress was acting pursuant to certain specific constitutional prerogatives, such as disciplining its Members, judging their elections, or conducting impeachment proceedings. Although the precedential value of Kilbourn has been significantly limited by subsequent case law, the case continues to be cited for the proposition that the House has no power to probe into private affairs, such as the personal finances of an individual, on which legislation could not be enacted. The doubts raised by Kilbourn about the scope of Congress's contempt power have essentially been removed by later cases sanctioning the use of the power in investigations conducted pursuant to Congress's authority to discipline its Members, to judge the elections of its Members, and, most importantly, to probe the business and conduct of individuals to the extent that the matters are subject to congressional regulation. For example, in McGrain v. Daugherty , which involved a Senate investigation into the claimed failure of the Attorney General to prosecute certain antitrust violations, a subpoena was issued to the brother of the Attorney General, Mallie Daugherty, the president of an Ohio bank. When Daugherty refused to comply, the Senate exercised its inherent contempt power and ordered its Sergeant-at-Arms to take him into custody. The grant of a writ of habeas corpus was appealed to the Supreme Court. The Court's opinion in the case considered the investigatory and contempt powers of Congress to be implicit in the grant of legislative power. The Court distinguished Kilbourn , which was an investigation into purely personal affairs, from the instant case, which was a probe of the operation of the Department of Justice (DOJ). According to the Court, the subject was plainly "one on which legislation could be had and would be materially aided by information the investigation was calculated to elicit." The Court in McGrain was willing to presume that the investigation had been undertaken to assist the committee in its legislative efforts. Congress's inherent contempt power is not specifically granted by the Constitution, but is considered necessary to investigate and legislate effectively. The validity of the inherent contempt power was upheld in the early Supreme Court decision in Anderson v. Dunn and reiterated in McGrain v. Daugherty . Under the inherent contempt power the individual is brought before the House or Senate by the Sergeant-at-Arms, tried at the bar of the body, and can be imprisoned or detained in the Capitol or perhaps elsewhere. The purpose of the imprisonment or other sanction may be either punitive or coercive. Thus, the witness can be imprisoned for a specified period of time as punishment, or for an indefinite period (but not, at least by the House, beyond the end of a session of the Congress) until he agrees to comply. One commentator has concluded that the procedure followed by the House in the contempt citation that was at issue in Anderson v. Dunn is typical of that employed in the inherent contempt cases. These traditional methods may be explained by using as an illustration Anderson v. Dunn . ... In 1818, a Member of the House of Representatives accused Anderson, a non-Member, of trying to bribe him. ... The House adopted a resolution pursuant to which the Speaker ordered the Sergeant-at-Arms to arrest Anderson and bring him before the bar of the House (to answer the charge). When Anderson appeared, the Speaker informed him why he had been brought before the House and asked if he had any requests for assistance in answering the charge. Anderson stated his requests, and the House granted him counsel, compulsory process for defense witnesses, and a copy, of the accusatory letter. Anderson called his witnesses; the House heard and questioned them and him. It then passed a resolution finding him guilty of contempt and directing the Speaker to reprimand him and then to discharge him from custody. The pattern was thereby established of attachment by the Sergeant-at-Arms; appearance before the bar; provision for specification of charges, identification of the accuser, compulsory process, counsel, and a hearing; determination of guilt; imposition of penalty. When a witness is cited for contempt under the inherent contempt process, prompt judicial review appears to be available by means of a petition for a writ of habeas corpus. In such a habeas proceeding, the issues decided by the court might be limited to (a) whether the House or Senate acted in a manner within its jurisdiction, and (b) whether the contempt proceedings complied with minimum due process standards. While Congress would not have to afford a contemnor the whole panoply of procedural rights available to a defendant in criminal proceedings, notice and an opportunity to be heard would have to be granted. Also, some of the requirements imposed by the courts under the statutory criminal contempt procedure (e.g., pertinency of the question asked to the committee's investigation) might be mandated by the due process clause in the case of inherent contempt proceedings. Although many of the inherent contempt precedents have involved incarceration of the contemnor, there may be an argument for the imposition of monetary fines as an alternative. Such a fine would potentially have the advantage of avoiding a court proceeding on habeas corpus grounds, as the contemnor would never be jailed or detained. Drawing on the analogous authority that courts have to inherently impose fines for contemptuous behavior, it appears possible to argue that Congress, in its exercise of a similar inherent function could impose fines as opposed to incarceration. Additional support for this argument appears to be contained in dicta from the 1821 Supreme Court decision in Anderson v. Dunn . The Court questioned the "extent of the punishing power which the deliberative assemblies of the Union may assume and exercise on the principle of self preservation" and responded with the following: Analogy, and the nature of the case, furnish the answer—"the least possible power adequate to the end proposed;" which is the power of imprisonment. It may, at first view, and from the history of the practice of our legislative bodies, be thought to extend to other inflictions . But every other will be found to be mere commutation for confinement; since commitment alone is the alternative where the individual proves contumacious. Finally, in Kilbourn v. Thompson , the Court suggested that in certain cases where the Congress had authority to investigate, it may compel testimony in the same manner and by use of the same means as a court of justice in like cases. Specifically, the Court noted that "[w]hether the power of punishment in either House by fine or imprisonment goes beyond this or not, we are sure that no person can be punished for contumacy as a witness before either House, unless his testimony is required in a matter into which that House has jurisdiction to inquire.... " While the language of these cases and the analogous power possessed by courts seem to suggest the possibility of levying a fine as punishment for contempt of Congress, we are not aware of, and could not locate, any precedent for Congress imposing a fine in the contempt context. In comparison with the other types of contempt proceedings, inherent contempt has the distinction of not requiring the cooperation or assistance of either the executive or judicial branches. The House or Senate can, on its own, conduct summary proceedings and cite the offender for contempt. Furthermore, although the contemnor can seek judicial review by means of a petition for a writ of habeas corpus, the scope of such review may be relatively limited, compared to the plenary review accorded by the courts in cases of conviction under the criminal contempt statute. There are also certain limitations on the inherent contempt process. Although the contemnor can be incarcerated until he agrees to comply with the subpoena, imprisonment may not extend beyond the end of the current session of Congress. Moreover, inherent contempt has been described as "unseemly," cumbersome, time-consuming, and relatively ineffective, especially for a modern Congress with a heavy legislative workload that would be interrupted by a trial at the bar. Because of these drawbacks, the inherent contempt process has not been used by either body since 1935. Proceedings under the inherent contempt power might be facilitated, however, if the initial fact-finding and examination of witnesses were to be held before a special committee—which could be directed to submit findings and recommendations to the full body—with only the final decision as to guilt being made by the full House or Senate. Although generally the proceedings in inherent contempt cases appear to have been conducted at the bar of the House of Congress involved, in at least a few instances proceedings were conducted initially or primarily before a committee, but with the final decision as to whether to hold the person in contempt being made by the full body. As has been indicated, although the majority of the inherent contempt actions by both the House and the Senate were conducted via trial at the bar of the full body, there is historical evidence to support the notion that this is not the exclusive procedure by which such proceeding can occur. This history, when combined with a 1992 Supreme Court decision addressing the power of Congress to make its own rules for the conduct of impeachment trials, strongly suggests that the inherent contempt process can be supported and facilitated by the conduct of evidentiary proceedings and the development of recommendations at the committee level. Actually, the consideration of the use of committees to develop the more intricate details of an inquiry into charges of contempt of Congress date back to the very first inherent contempt proceedings of Messrs. Randall and Whitney in 1795. As discussed above, in these cases the House appointed a Committee on Privileges to report a mode of procedure. The committee reported the following resolution, which was adopted by the full House of Representatives: Resolved , That the said Robert Randall and Charles Whitney be brought to the bar of the House and interrogated by the Speaker touching the information given against them, on written interrogatories, which with the answers thereto shall be entered into the minutes of the House. And that every question proposed by a Member be reduced to writing and a motion made that the same be put by the Speaker. That, after such interrogatories are answered, if the House deem it necessary to make any further inquiry on the subject, the same be conducted by a committee to be appointed for that purpose . According to the Annals of Congress , the committee's language sparked a debate concerning the proper procedures to be used, including a discussion regarding whether the use of such a select committee was proper. At least one Representative "was convinced that the select committee was alone competent to taking and arranging the evidence for the decision of the House." While others noted that "the investigation of facts is constantly performed by select committees. ... [The committee's] report is not to be final, it is to be submitted to the House for final decision." It was recommended that, "the subject should be remanded to a committee, which would save a good deal of time." Other Members, however, objected to the use of a select committee to hear evidence of this magnitude on the grounds that it would be "highly improper for the witness to be sworn by a select committee, and that committee to send for the Members and have them sworn and examined in that private way. However troublesome and difficult, the House must meet all the questions and decide them on this floor." Ultimately, it appears that none of the proceedings in this case was conducted before a select committee. That said, Congress's interpretation of its own powers and prerogatives is significant. It is clear that during the very first exercise of Congress's power of inherent contempt, the House allowed for the possibility that at least some of the proceedings could occur before a committee, rather than at the bar of the House. This early precedent was finally invoked in 1836, when after the assault of reporter Robert Codd by reporter Henry Wheeler on the House floor, the House committed the examination of a contempt and breach of privilege to a select committee. The House adopted the following resolution empowering the committee to conduct a contempt investigation: Resolved , That a select committee be forthwith appointed, whose duty it shall be forthwith to inquiry into an assault committed within the Hall of the House of Representatives this morning, while this House was in session and for and on account of which two persons are now in custody of the Sergeant-at-Arms; and said committee are to make their report to this House; and that said committee be authorized to administer oaths and to cause the attendance of witnesses. The committee's report noted that Mr. Wheeler admitted his offense and included a recommendation that the punishment not be vindictive. The report also contained three resolutions that were considered by the full House. The first found Mr. Wheeler guilty of contempt and breach of the privileges of the House, and was adopted. The second, which was amended on the floor prior to adoption, excluded Mr. Wheeler from the floor of the House for the remainder of the session. Finally, the third resolution, which called for Mr. Wheeler to be taken into custody for the remainder of the session, was also amended on the floor prior to adoption to simply discharge Mr. Wheeler from custody. Another example of the use of select committee to hear a contempt trial occurred in 1865, when it was alleged that Mr. A.P. Field assaulted Representative William Kelley. Similar to the contempt proceedings of Mr. Wheeler, the House adopted the following resolution authorizing a select committee to conduct an examination of the charges: Be it Resolved , That a select committee of five members be appointed by the Speaker to inquire into the said alleged breach of privilege; that the said committee have power to send for persons and papers, and to examine witnesses; and that the committee report as soon as possible all the facts and circumstances of the affair, and what order, if any, it is proper for this House to take for the vindication of its privilege, and right, and duty of free legislation and judgment. During the debate on the resolution it was observed that proceeding in this manner would avoid a trial by the full House, which, in the words of one Member, "would consume a great amount of the public time which there is a pressing need to apply to the business of the Government, it is better that the course should be adopted which is contemplated by the resolution.... " The select committee, in its report to the full House, noted that it had heard the testimony of several witnesses concerning the incident, including the voluntary statement of Mr. Field. Also according to the committee, Mr. Field was present for each of the witnesses and, in fact, several of them were heard from at his request. Moreover, all of the witnesses were subject to examination or cross-examination by Mr. Field. At the committee's recommendation, a resolution directing the Speaker to issue a warrant for Mr. Field's arrest by the Sergeant-at-Arms for the purpose of bringing him before the Speaker for a reprimand was adopted. It does not appear that Mr. Field or his counsel was permitted to be present during the House's consideration of the committee's report, nor does it appear that he was afforded an opportunity to address the House prior to his formal reprimand. In fact, during the course of the reprimand, the Speaker expressly referred to Mr. Field having " been tried before a committee of their members , and ordered to be reprimanded at the bar of the House by their Presiding Officer," which may be interpreted as indicating that the committee's proceedings were deemed to be sufficient in the eyes of the House. Although there is ample historical evidence of the presumed propriety of contempt proceedings before committees of Congress, there has been no judicial ruling directly confirming the Congress's interpretation of its own contempt powers. In 1993, however, the Supreme Court decided Nixon v. United States , which, while not a contempt case, involved an analogous delegation of authority by the Senate to a select committee for the purposes of hearing evidence regarding the impeachment of two federal judges. Specifically, the impeached judges challenged the Senate's procedure under Rule XI of the "Rules of Procedure and Practice in the Senate when Sitting on Impeachment Trials," which provides: That in the trial of any impeachment the Presiding Officer of the Senate, if the Senate so orders, shall appoint a committee of Senators to receive evidence and take testimony at such times and places as the committee may determine , and for such purpose the committee so appointed and the chairman thereof, to be elected by the committee, shall (unless otherwise ordered by the Senate) exercise all the powers and functions conferred upon the Senate and the Presiding Officer of the Senate, respectively, under the rules of procedure and practice in the Senate when sitting on impeachment trials. Unless otherwise ordered by the Senate, the rules of procedure and practice in the Senate when sitting on impeachment trials shall govern the procedure and practice of the committee so appointed. The committee so appointed shall report to the Senate in writing a certified copy of the transcript of the proceedings and testimony had and given before the committee, and such report shall be received by the Senate and the evidence so received and the testimony so taken shall be considered to all intents and purposes, subject to the right of the Senate to determine competency, relevancy, and materiality, as having received and taken before the Senate, but nothing herein shall prevent the Senate from sending for any witness and hearing his testimony in open Senate, or by order of the Senate having the entire trial in open Senate. Judge Nixon argued that the use of a select committee to hear the evidence and witness testimony of his impeachment violated the Senate's constitutional duty to "try" all impeachments. According to Judge Nixon, anything short of a trial before the full Senate was unconstitutional and, therefore, required reversal and a reinstatement of his judicial salary. The Court held the issue to be a non-justiciable political question. Chief Justice Rehnquist, writing for the Court, based this conclusion upon the fact that the impeachment proceedings were textually committed in the Constitution to the legislative branch. In addition, the Court found the "lack of finality and the difficulty in fashioning relief counsel[led] against justiciability." According to the majority, to open "the door of judicial review to the procedures used by the Senate in trying impeachments would 'expose the political life of the country to months, or perhaps years, of chaos.'" The Court found that the word "try" in the Impeachment Clause did not "provide an identifiable textual limit on the authority which is committed to the Senate." Justice Souter's concurring opinion noted that "[i]t seems fair to conclude that the [Impeachment] Clause contemplates that the Senate may determine, within broad boundaries, such subsidiary issues as the procedures for receipt and consideration of evidence necessary to satisfy its duty to 'try' impeachments." The Court's affirmation of the Senate's procedures with respect to the appointment of select committees for impeachment trials, clearly indicates that the use of committees for contempt proceedings—whether they be standing legislative committees, or select committees created by resolution for a specific purpose—is a permissible exercise of each House's Article I, Section 5 rulemaking power. As such, it would appear that one of the suggested reasons for the apparent abandonment of the use of Congress's inherent contempt power, namely, that it became too cumbersome and time consuming to try contemptuous behavior on the floor of the body, is no longer compelling. The ability to utilize the committee structure for trials, evidentiary hearings, and other procedural determinations appears to be supported not only by the historical records of previous contempt proceedings, but also by the Court's decision in Nixon . While the Court in Nixon addressed the permissibility of using select committees in impeachment trials, it says nothing about the rights or privileges that would be required to be afforded to the accused. Similarly, in any contempt proceedings before a congressional committee, the question of rights and privileges remains one that has not yet been directly addressed by the courts. According to the Supreme Court in Groppi v. Leslie , [t]he past decisions of this Court strongly indicate that the panoply of procedural rights that are accorded a defendant in a criminal trial has never been thought necessary in legislative contempt proceedings. The customary practice in Congress has been to provide the contemnor with an opportunity to appear before the bar of the House, or before a committee, and give answer to the misconduct charged against him. The Court also suggested that "the length and nature of the [right to be heard] would traditionally be left largely to the legislative body.... " This deference to Congress in establishing its own rules and procedures is consistent with the more recent decision in Nixon . Thus, it would appear that while there is no definitive answer to the question of what rights the committee hearing a contempt proceeding would be required to afford, so long as the minimum protections of notice and opportunity to be heard are provided, the courts, it seems, will not interfere with Congress's decisions regarding proper procedure. Congressional precedent would also appear to be a useful guide to the question of what process is due. A review of early exercises of inherent contempt, discussed above, indicates that the following procedures have been established: attachment by the Sergeant-at-Arms; appearance before the bar; provision for specification of charges; identification of the accuser; compulsory process; provision of counsel; a hearing; determination of guilt; and imposition of a penalty. According to one commentator, "[t]his traditional procedure was followed by both houses of Congress until they abandoned it for a more convenient statutory device." Since these procedures appear to be in excess of what the Court instructed was required in Groppi , it would seem reasonable to conclude that any inherent contempt proceeding that conforms with these traditions would likely satisfy judicial review. Between 1795 and 1857, 14 inherent contempt actions were initiated by the House and Senate, eight of which can be considered successful in that the contemnor was meted out punishment, agreed to testify, or produced documents. Such inherent contempt proceedings, however, involved a trial at the bar of the chamber concerned and, therefore, were seen by some as time-consuming, cumbersome, and in some instances ineffective—because punishment could not be extended beyond a House's adjournment date. In 1857, a statutory criminal contempt procedure was enacted, largely as a result of a particular proceeding brought in the House of Representatives that year. The statute provides for judicial trial of the contemnor by a United States Attorney rather than a trial at the bar of the House or Senate. It is clear from the floor debates and the subsequent practice of both Houses that the legislation was intended as an alternative to the inherent contempt procedure, not as a substitute for it. A criminal contempt referral was made in the case of John W. Wolcott in 1858, but in the ensuing two decades after its enactment most contempt proceedings continued to be handled at the bar of the House, rather than by the criminal contempt method, apparently because Members felt that they would not be able to obtain the desired information from the witness after the criminal proceedings had been instituted. With only minor amendments, those statutory provisions are codified today as 2 U.S.C. §§192 and 194, which state the following: Every person who having been summoned as a witness by the authority of either House of Congress to give testimony or to produce papers upon any matter under inquiry before either House, or any joint committee established by a joint or concurrent resolution of the two Houses of Congress, or any committee of either House of Congress, willfully makes default, or who, having appeared, refuses to answer any question pertinent to the question under inquiry, shall be deemed guilty of a misdemeanor, punishable by a fine of not more than [$100,000] nor less than $100 and imprisonment in a common jail for not less than one month nor more than twelve months. Whenever a witness summoned as mentioned in Section 192 of this title fails to appear to testify or fails to produce any books, papers, records, or documents, as required, or whenever any witness so summoned refuses to answer any question pertinent to the subject under inquiry before either House, or any joint committee established by a joint or concurrent resolution of the two Houses of Congress, or any committee or subcommittee of either House of Congress, and the fact of such failure or failures is reported to either House while Congress is in session or when Congress is not in session, a statement of fact constituting such failure is reported to and filed with the President of the Senate or the Speaker of the House, it shall be the duty of the said President of the Senate or Speaker of the House, as the case may be, to certify, and he shall so certify, the statement of facts aforesaid under the seal of the Senate or House, as the case may be, to the appropriate United States attorney, whose duty it shall be to bring the matter before the grand jury for its action. The legislative debate over the criminal contempt statute reveals that it was prompted by the obstruction of a House select committee's investigation into allegations of misconduct that had been made against several Members of the House of Representatives. According to reports, the investigation was hindered by the refusal of a newspaper reporter, James W. Simonton, to provide answers to certain questions posed by the committee. The select committee responded by reporting a resolution citing Mr. Simonton for contempt, as well as introducing a bill that was intended "to more effectually ... enforce the attendance of witnesses on the summons of either House of Congress, and to compel them to discover testimony." It appears that there were no printed House or Senate committee reports on the measure, though it was considered in the House by the select committee and in the Senate by the Judiciary Committee. According to the legislative debate records and commentators, there was opposition to the bill on several fronts. Some Members proposed an amendment expressly codifying Congress's contempt power for failure to comply with requests for documents or testimony, thereby resurrecting the view that Congress did not possess any inherent power to punish for contempt. Others argued that Congress's inherent contempt powers rendered the proposed bill unnecessary. Still other Members opposed the bill on the grounds that it violated the Fourth and Fifth Amendments of the Constitution, because it sanctioned unreasonable searches and seizures, compelled persons to incriminate themselves, and violated the prohibition on persons being punished twice for the same offense (double jeopardy). In response to arguments that such a statute was unnecessary given Congress's inherent authority to hold individuals in contempt, supporters made clear that the proposed bill was not intended in any way to diminish Congress's inherent contempt authority. Rather, supporters of the bill saw it as designed to give Congress "additional authority, and to impose additional penalties on a witness who fails to appear before an investigating committee of either House, or who, appearing, fails to answer any question." The main concern of proponents seems to have been Congress's ability to impose adequate punishments for contempts that occur near the end of a session, especially in the House, where the prevailing view was that the Court's opinion in Anderson v. Dunn prohibited terms of incarceration that extended beyond the adjournment of a session. With respect to the arguments surrounding the Fourth and Fifth Amendments, supporters asserted that the bill provided the protection of the judiciary, via a judicial trial, for the potential contumacious witnesses. Moreover, supporters argued that the bill removed such witnesses "from the passions and excitement of the Hall—where partisans may frequently, in political questions, carry into the measures of punishment their party hostilities." The bill was ultimately passed by both the House and the Senate. According to one commentator, the bill was adopted for three reasons: [F]irst, to increase the power of either House of Congress to punish for contempt in cases of contumacy of witnesses, ... second, to compel criminating testimony. A third reason, although undoubtedly a minor one, was that the effect of the enactment of this legislation would be to remove the trial of cases of contempt of either House of Congress from their respective bars to the courts, where passion and partisanship would not influence the decision against the prisoner and where he would have a trial by jury and all the other constitutional safeguards of court proceedings. Under 2 U.S.C. §192, a person who has been "summoned as a witness" by either House or a committee thereof to testify or to produce documents and who fails to do so, or who appears but refuses to respond to questions, is guilty of a misdemeanor, punishable by a fine of up to $100,000 and imprisonment for up to one year. 2 U.S.C. §194 establishes the procedure to be followed by the House or Senate if it chooses to refer a recalcitrant witness to the courts for criminal prosecution rather than try him at the bar of the House or Senate. Under the procedure outlined in Section 194, "the following steps precede judicial proceedings under [the statute]: (1) approval by committee; (2) calling up and reading the committee report on the floor; (3) either (if Congress is in session) House approval of a resolution authorizing the Speaker to certify the report to the U.S. Attorney for prosecution, or (if Congress is not in session) an independent determination by the Speaker to certify the report; [and] (4) certification by the Speaker to the appropriate U.S. Attorney for prosecution." The criminal contempt statute and corresponding procedure are punitive in nature. It is used when the House or Senate wants to punish a recalcitrant witness and, by doing so, to deter others from similar contumacious conduct. The criminal sanction is not coercive because the witness generally will not be able to purge himself by testifying or supplying subpoenaed documents after he has been voted in contempt by the committee and the House or Senate. Consequently, once a witness has been voted in contempt, he lacks an incentive for cooperating with the committee. However, although the courts have rejected arguments that defendants had purged themselves, in a few instances the House has certified to the U.S. Attorney that further proceedings concerning contempts were not necessary where compliance with subpoenas occurred after contempt citations had been voted but before referral of the cases to grand juries. Under the statute, after a contempt has been certified by the President of the Senate or the Speaker, it is the "duty" of the United States Attorney "to bring the matter before the grand jury for its action." It remains unclear whether the "duty" of the U.S. Attorney to present the contempt to the grand jury is mandatory or discretionary. The case law that is most relevant to the question provides conflicting guidance. In Ex parte Frankfeld , the District Court for the District of Columbia granted petitions for writs of habeas corpus sought by two witnesses before the House Committee on Un-American Activities. The witnesses were charged with violating 2 U.S.C. §192, and were being held on a warrant based on the affidavit of a committee staff member. The court ordered the witnesses released since the procedure, described as "mandatory" by the court, had not been followed. The court, in dicta , not central to the holding of the case, observed that Congress prescribed that when a committee such as this was confronted with an obdurate witness, a willful witness, perhaps, the committee would report the fact to the House, if it be a House committee, or to the Senate, if it be a Senate committee, and that the Speaker of the House or the President of the Senate should then certify the facts to the district attorney. It seems quite apparent that Congress intended to leave no measure of discretion to either the Speaker of the House or the President of the Senate, under such circumstances, but made the certification of facts to the district attorney a mandatory proceeding, and it left no discretion with the district attorney as to what he should do about it. He is required, under the language of the statute, to submit the facts to the grand jury. Similarly, in United States v. United States House of Representatives , a case that involved the applicability of the Section 192 contempt procedure to an executive branch official, the same district court observed, again in dicta , that after the contempt citation is delivered to the U.S. Attorney, he "is then required to bring the matter before the grand jury." Conversely, in Wilson v. United States , the United States Court of Appeals for the District of Columbia Circuit concluded, based in part on the legislative history of the contempt statute and congressional practice under the law, that the "duty" of the Speaker when certifying contempt citations to the United States Attorney during adjournments is a discretionary, not a mandatory, one. The court reasoned that despite its mandatory language, the statute had been implemented in a manner that made clear Congress's view that, when it is in session, a committee's contempt resolution can be referred to the U.S. Attorney only after approval by the parent body. When Congress is not in session, review of a committee's contempt citation is provided by the Speaker or President of the Senate, rather than by the full House or Senate. This review of a committee's contempt citation, according to the court, may be inherently discretionary in nature, whereas the prosecutor is simply carrying out Congress's directions in seeking a grand jury indictment. In Wilson , the defendants' convictions were reversed because the Speaker had certified the contempt citations without exercising his discretion. From this holding it may be possible to argue that because the statute uses similar language when discussing the Speaker's "duty" and the "duty" of the U.S. Attorney, that the U.S. Attorney's function is discretionary as well, and not mandatory as other courts have concluded. Alternatively, despite the similarity in the statutory language, there is an argument that the functions of the Speaker and the President of the Senate are so different in nature under the statutory scheme from those of the U.S. Attorney that to conclude that the function of the prosecutor was intended to be discretionary simply because that is the interpretation given to the function of the presiding officers is contrary to the understanding and intent of the 1857 Congress that drafted the language. Nevertheless, it should be noted that the courts have generally afforded U.S. Attorneys broad prosecutorial discretion, even where a statute uses mandatory language. Prosecutorial discretion was the principal basis of the U.S. Attorney's decision not to present the grand jury with the contempt citations of Environmental Protection Agency Administrator Anne Gorsuch Burford in 1982, former White House Counsel Harriet Miers and White House Chief of Staff Joshua Bolten in 2008, and Attorney General Eric Holder in 2012. Finally, while upholding the validity of 2 U.S.C. §§192 and 194, the courts have recognized that they are criminal provisions and have reversed convictions for contempt where limitations dictated by the language of the statute itself or the Constitution have been exceeded. Where the use of inherent or criminal contempt is unavailable or unwarranted, Congress may invoke the authority of the judicial branch in an effort to enforce a congressional subpoena. Civil enforcement entails a single house or committee of Congress filing suit in federal district court seeking a declaration that the individual in question is legally obligated to comply with the congressional subpoena. If the court finds that such an obligation exists and issues an order to that effect, continued non-compliance may result in contempt of court—as opposed to contempt of Congress. Although the Senate has existing statutory authority to pursue such an action, there is no corresponding provision applicable to the House. However, the House has previously pursued civil enforcement pursuant to an authorizing resolution. As an alternative to both the inherent contempt power of each House and the criminal contempt statutes, in 1978 Congress enacted a civil enforcement procedure, which is applicable only to the Senate. The statute gives the U.S. District Court for the District of Columbia jurisdiction over a civil action to enforce, secure a declaratory judgment concerning the validity of, or to prevent a threatened failure or refusal to comply with, any subpoena or order issued by the Senate or a committee or subcommittee. Generally such a suit will be brought by the Senate Legal Counsel, on behalf of the Senate or a Senate committee or subcommittee. Pursuant to the statute, the Senate may "ask a court to directly order compliance with [a] subpoena or order, or they may merely seek a declaration concerning the validity of [the] subpoena or order. By first seeking a declaration, [the Senate would give] the party an opportunity to comply before actually [being] ordered to do so by a court." It is solely within the discretion of the Senate whether or not to use such a two-step enforcement process. Regardless of whether the Senate seeks the enforcement of, or a declaratory judgment concerning, a subpoena, the court will first review the subpoena's validity. If the court finds that the subpoena "does not meet applicable legal standards for enforcement," it does not have jurisdiction to enjoin the congressional proceeding. Because of the limited scope of the jurisdictional statute and because of Speech or Debate Clause immunity for congressional investigations, "[w]hen the court is petitioned solely to enforce a congressional subpoena, the court's jurisdiction is limited to the matter Congress brings before it, that is whether or not to aid Congress in enforcing the subpoena or order." If the individual still refuses to comply, he may be tried by the court in summary proceedings for contempt of court, with sanctions being imposed to coerce their compliance. Without affecting the right of the Senate to institute criminal contempt proceedings or to try an individual for contempt at the bar of the Senate, this procedure gives the Senate the option of a civil action to enforce a subpoena. Civil enforcement might be employed when the Senate is more concerned with securing compliance with the subpoena or with clarifying legal issues than with punishing the contemnor. Unlike criminal contempt, in a civil enforcement, sanctions (imprisonment and/or a fine) can be imposed until the subpoenaed party agrees to comply thereby creating an incentive for compliance; namely, the termination of punishment. In addition, the civil enforcement process is arguably more expeditious than a criminal proceeding, where a court may more closely scrutinize congressional procedures and give greater weight to the defendant's constitutional rights. The civil enforcement procedure also provides an element of flexibility, allowing the subpoenaed party to raise possible constitutional and other defenses (e.g., the privilege against self-incrimination, lack of compliance with congressional procedures, or an inability to comply with the subpoena) without risking a criminal prosecution. Civil enforcement, however, has limitations. Most notable is that the statute granting jurisdiction to the courts to hear such cases is, by its terms, inapplicable in the case of a subpoena issued to an officer or employee of the federal government acting in their official capacity. Enacted as part of the Ethics in Government Act of 1978, early drafts of the civil enforcement statute did not include an exception for federal government officers and employees acting within the scope of their duties. It appears that the section was drafted primarily in response to the District Court's dismissal, for lack of jurisdiction, of an Ervin Committee's request for a declaratory judgment regarding the lawfulness of its subpoena of President Nixon's tape recordings. Thus, one of the purposes of the statute was to expressly confer jurisdiction upon courts to determine the validity of congressional requests for information. During the course of the debates regarding this legislation, the executive branch strongly opposed conferring jurisdiction upon the federal courts to decide such sensitive issues between Congress and the executive branch. Testifying before a subcommittee of the Senate Committee on Governmental Operations, then-Assistant Attorney General Antonin Scalia argued that weighing the legislature's need for information against the executive's need for confidentiality is "the very type of 'political question' from which ... the courts [should] abstain." In response, Congress amended the proposed legislation excluding from its scope federal officers and employees acting in their official capacity. However, as noted in a report from the House Judiciary Committee in 1988, the exclusion was to apply only in cases in which the President had directed the recipient of the subpoena not to comply with its terms. Since the civil enforcement statute's enactment in 1979, it appears that the Senate has authorized the Office of Senate Legal Counsel to seek civil enforcement of a subpoena for documents or testimony at least six times. Notably, it appears that none of these civil enforcement actions has been brought against executive branch officials. Nevertheless, the Senate has successfully enforced its subpoena authority with respect to non-governmental officials. Most recently, on March 17, 2016, the Senate passed a resolution authorizing civil enforcement of a subpoena against Carl Ferrer, the Chief Executive Officer of Backpage.com, a website for classified advertisements. The Senate, in conjunction with an investigation into sex trafficking on the Internet, had sought the production of documents concerning the company's advertisements for commercial sex services. On August 5, 2016, the U.S. District Court for the District of Columbia rejected Mr. Ferrer's arguments that the subpoena violated his First Amendment rights, and the court granted the Senate's application for enforcement of the subpoena. Thus, although used infrequently, the Senate's statutory authority to seek civil enforcement of a subpoena has remained a powerful tool of its investigatory functions. While the House of Representatives cannot pursue actions under the Senate's civil enforcement statute discussed above, past precedent and the decision of the U.S. District Court for the District of Columbia in Committee on the Judiciary v. Miers suggest that the House may authorize a committee to seek a civil enforcement action to force compliance with a subpoena. Prior to Miers —which represented the first congressional attempt to seek civil enforcement of a subpoena in federal court authorized solely by resolution of a single house—a number of threshold questions, including whether the federal courts would have jurisdiction over such a claim, remained unresolved. The jurisdiction of the federal district courts, where a civil action for enforcement of a congressional subpoena would be brought, is derived from both Article III of the Constitution and federal statute. Article III states, in relevant part, that "[t]he judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States.... " The Supreme Court has interpreted the language "arising under" broadly, essentially permitting federal jurisdiction to be found whenever federal law "is a potentially important ingredient of a case." Conversely, the federal question jurisdiction statute, first enacted in 1875, while containing almost identical language to Article III, has been interpreted by the Court to be much narrower in scope. As the Court explained in Verlinden B.V. v. Central Bank of Nigeria , Although the language of 1331 parallels that of the "Arising Under" Clause of Art. III, this Court never has held that statutory "arising under" jurisdiction is identical to Art. III "arising under" jurisdiction. Quite the contrary is true ... [T]he many limitations which have been placed on jurisdiction under 1331 are not limitations on the constitutional power of Congress to confer jurisdiction on the federal courts ... Art. III "arising under" jurisdiction is broader than federal-question jurisdiction under 1331.... " The fact that the statutory jurisdiction provided by Congress is narrower than the Constitution's grant of judicial power may give rise to an argument that the statutory grant of jurisdiction cannot be used by the House should it merely adopt a resolution authorizing a subpoena enforcement proceeding to be brought in court. Following this argument to its conclusion might suggest that both houses of Congress must pass a law, signed by the President, which authorizes a civil enforcement action to be brought in federal district court because a mere one-house resolution will not suffice to provide such jurisdiction. However, the limited precedent from the Supreme Court and other federal courts, especially the federal district court decision in Committee on the Judiciary v. Miers , may be read to suggest that the current statutory basis is sufficient to establish jurisdiction for a civil action of the type contemplated here if the representative of the congressional committee is specifically authorized by a house of Congress to act. In 1928, the Supreme Court decided Reed v. The County Commissioners of Delaware County, Pennsylvania, which involved a special committee of the United States Senate charged, by Senate resolution, with investigating the means used to influence the nomination of candidates for the Senate. The special committee was authorized to "require by subpoena or otherwise the attendance of witnesses, the production of books, papers, and documents, and to do such other acts as may be necessary in the matter of said investigation." During the course of its investigation into the disputed election of William B. Wilson of Pennsylvania to the Senate, the committee sought to obtain the "boxes, ballots, and other things used in connection with the election." The County Commissioners, who were the legal custodians of said materials, refused to provide them to the committee, thus necessitating the lawsuit. The Supreme Court, after affirming the powers of the Senate to "obtain evidence related to matter committed to it by the Constitution" and having "passed laws calculated to facilitate such investigations," nevertheless held that it was without jurisdiction to decide the case. The Senate had relied on the resolution's phrase "such other acts as may be necessary" to justify its authority to bring such a suit. According to the Court, however, that phrase "may not be taken to include everything that under any circumstances might be covered by its words." As a result, the Court held that "the Senate did not intend to authorize the committee, or anticipate that there might be need, to invoke the power of the Judicial Department. Petitioners are not 'authorized by law to sue.'" The Court in Reed made no mention of the jurisdictional statute that existed at the time. Rather, the Court appears to have relied on the fact that the Senate did not specifically authorize the committee to sue; therefore, absent particular language granting the power to sue in court, there can be no basis for judicial jurisdiction over such a suit. Read in this manner, Reed appears to suggest that had the Senate resolution specifically mentioned the power to sue, the Court may have accepted jurisdiction and decided the case on its merits. Such a reading of Reed is supported by a recent district court ruling involving the question of whether Congress authorized judicial enforcement of Member demands for information from executive branch agencies. In Waxman v. Thompson , a 2006 opinion of the District Court for the Central District of California, the plaintiffs, all minority members of the House Government Reform Committee, sought a court order pursuant to 5 U.S.C. §§2954 and 7211—often times referred to as the "rule of seven"—granting them access to Department of Health and Human Services records related to the anticipated costs of the Medicare Prescription Drug Implementation and Modernization Act of 2003. The court, in dismissing the case for lack of jurisdiction, addressed the argument made by the plaintiffs that 5 U.S.C. §2954, which requires that "[a]n Executive agency, on request of the Committee on Government Operations of the House of Representatives, or of any seven members thereof ... shall submit any information requested of it relating to any matter within the jurisdiction of the committee," implicitly delegated to Members the right to sue to enforce their informational demands. The court, in rejecting this argument, relied on the Supreme Court's holding in Reed v. County Commissioners . Specifically, the court noted that Reed 's holding "put Congress on notice that it was necessary to make authorization to sue to enforce investigatory demands explicit if it wished to ensure that such power existed." According to the court, like the Senate resolution at issue in Reed , because §2954 is silent with respect to civil enforcement it stands to reason that the Congress never intended to provide the Members with the power to seek civil judicial orders to enforce their document demands. According to the court in Waxman , the holdings of Reed , Senate Select Committee and United States v. AT&T —a case involving the intervention by a House committee chairman into a lawsuit by the DOJ, which was attempting to enjoin compliance with a committee subpoena by AT&T—suggest that "legislative branch suits to enforce requests for information from the executive branch are justiciable if authorized by one or both Houses of Congress ." The argument that a mere one-house resolution is not sufficient to provide jurisdiction chiefly derives its support from the ruling in Senate Select Committee on Presidential Campaign Activities v. Nixon , a 1973 decision by the U.S. District Court for the District of Columbia. In Senate Select Committee , the court held that there was no jurisdictional statute available that authorizes the court to hear and decide the merits of the committee's request for a declaratory judgment, mandatory injunction, and writ of mandamus arising from President Nixon's refusal to produce tape recordings and other documents sought by the committee pursuant to a subpoena duces tecum . In reaching its conclusion, the court addressed several potential bases for jurisdiction: 28 U.S.C. §1345, United States as a Plaintiff; 28 U.S.C. §1361, Action to Compel an Officer of the United States to Perform His Duty; 5 U.S.C. §§701-706, the Administrative Procedure Act; and, of particular relevance here, 28 U.S.C. §1331, the federal question jurisdiction statute. Focusing on 28 U.S.C. §1331, the court noted that the statute at the time contained a minimum "amount in controversy" requirement of "$10,000 exclusive of interest and costs." The court stated that "[t]he satisfaction of a minimum amount-in-controversy is not a technicality; it is a requirement imposed by Congress which the courts may not dispense with at their pleasure ." Because the select committee could not establish a theory under which the amount in controversy requirement was satisfied, the court dismissed the case for lack of subject matter jurisdiction. The 2008 district court opinion in Committee on the Judiciary v. Miers made clear that the lack of subject matter jurisdiction in Senate Select Committee was based solely on the jurisdictional amount in controversy—which has since been repealed —and not on any larger limit on the reach of federal question jurisdiction. In Miers , the House Judiciary Committee was authorized, by resolution, to pursue civil enforcement of subpoenas issued against former White House Counsel Harriet Miers and White House Chief of Staff Joshua Bolten. The Miers court, without significant discussion, succinctly stated that although the district court in Senate Select Committee had dismissed the claim for failure to satisfy the amount in controversy requirement, "that requirement no longer exists and there is no other impediment to invoking §1331 subject matter jurisdiction." The court expressly held that because the subpoena power at issue in the suit "derives implicitly from Article I of the Constitution, this case arises under the Constitution for purposes of §1331" and, therefore, qualifies for federal question jurisdiction. In the summer of 2012, the House again authorized a congressional committee to pursue a civil action in federal court to enforce a subpoena in connection with the approval of a contempt citation against an executive branch official. On June 28, 2012, in addition to holding Attorney General Eric Holder in contempt of Congress for his failure to comply fully with subpoenas issued pursuant to the House Oversight and Government Reform Committee investigation of Operation Fast and Furious, the House also approved a resolution authorizing Chairman Darrell Issa to initiate a civil lawsuit on behalf of the committee to enforce the outstanding subpoenas. The lawsuit, which seeks a declaratory judgment directing the Attorney General to comply with the committee subpoenas, was filed on August 13, 2012. On September 30, 2013, the court issued its opinion rejecting the DOJ's motion to dismiss based on jurisdictional and justiciability arguments. The court largely adopted the reasoning laid out in Miers , in a detailed discussion that addressed the doctrine of separation of powers, federal court jurisdiction, standing, and causes of action. It determined that the court had jurisdiction to hear the case under 28 U.S.C. §1331 and that the committee, having been authorized to represent the interests of the full House, had standing to sue. Following Miers and Holder , it appears that all that is legally required for House committees, the House general counsel, or a House-retained private counsel to seek civil enforcement of subpoenas or other orders is that authorization be granted by resolution of the full House. Absent such authorization, it appears that the courts will not entertain civil motions of any kind on behalf of Congress or its committees. While some may still argue that a measure passed by both houses and signed by the President conferring jurisdiction is required, it appears that—at least with respect to claims filed in the U.S District Court for the District of Columbia—if an authorizing resolution by the House can be obtained, there is a likelihood that the court will find no legal impediment to seeking civil enforcement of subpoenas or other committee orders. There have been numerous examples of the House, by resolution, affording special investigatory committees authority not ordinarily available to its standing committees. Such special panels have often been vested with staff deposition authority, and given the particular circumstances, special panels have also been vested with the authority to obtain tax information, as well as the authority to seek international assistance in information gathering efforts abroad. In addition, several special panels have been specifically granted the authority to seek judicial orders and participate in judicial proceedings. For example, in 1987, the House authorized the creation of a select committee to investigate the covert arms transactions with Iran (Iran-Contra). As part of this resolution, the House provided the following authorization: (3) The select committee is authorized ... to require by subpoena or otherwise the attendance and testimony of such witnesses ... as it deems necessary, including all intelligence materials however classified, White House materials, ... and to obtain evidence in other appropriate countries with the cooperation of their governments. ... (8) The select committee shall be authorized to respond to any judicial or other process, or to make any applications to court , upon consultation with the Speaker consistent with [House] rule L. The combination of broad subpoena authority that expressly encompassed the White House, and the ability to make "any applications to court," arguably suggests that the House contemplated the possibility that a civil suit seeking enforcement of a subpoena against a White House official was possible. By virtue of the resolution's language, it appears reasonable to conclude that the House decided to leave the decision in the hands of the select committee, consistent with House Rule L (now House Rule VIII governing subpoenas). It may be noted, then, that while the House select committee did not attempt to seek judicial enforcement of any of its subpoenas, the authorization resolution did not preclude the possibility. Among the more prominent attempts at utilizing the authority to make applications in court granted by a house of Congress to a select committee occurred during the investigation into the Iran-Contra affair. In 1987, the Senate Select Committee on Secret Military Assistance to Iran and the Nicaraguan Opposition issued an order requiring that former Major Richard V. Secord execute a consent directive authorizing the release of his offshore bank records and accounts to the committee. When Mr. Secord refused to sign the consent directive, the committee sought to obtain a court order directing him to comply. While the committee did not prevail in the Secord litigation, the matter was not disposed of on jurisdictional grounds. Specifically, the district court noted its jurisdiction pursuant to 28 U.S.C. §1364, as Mr. Secord was a private citizen. Moreover, there is no mention or indication of any challenge to the committee's ability to seek such an order. Rather, the case was decided on Fifth Amendment grounds, with the court holding that there was a testimonial aspect to requiring the signing of the consent directive. Thus, the court concluded that the committee's order was a violation of Mr. Secord's Fifth Amendment right against self-incrimination. Although, as indicated, prior to the Miers dispute there have been no previous attempts by a house of Congress to seek civil enforcement of subpoenas in federal court authorized solely by resolution of a single House, there have been situations that appear to be closely analogous. On several occasions the House of Representatives has authorized, via House resolution, the intervention by counsel representing a House committee into civil litigation involving congressional subpoenas. In June of 1976, subpoenas were issued to the American Telephone and Telegraph Company (AT&T) by the Subcommittee on Oversight and Investigations of the House Committee on Interstate and Foreign Commerce. The subcommittee was seeking copies of "all national security request letters sent to AT&T and its subsidiaries by the FBI as well as records of such taps prior to the time when the practice of sending such letters was initiated." Before AT&T could comply with the request, the DOJ and the subcommittee's chairman, Representative John Moss, entered into negotiations seeking to reach an alternate agreement which would prevent AT&T from having to turn over all its records. When these negotiations broke down, the DOJ sought an injunction in the District Court for the District of Columbia prohibiting AT&T from complying with the subcommittee's subpoenas. The House of Representatives responded to the litigation by authorizing Representative Moss to intervene in the suit on behalf of the Committee on Interstate and Foreign Commerce and the House of Representatives. Specifically, the authorization for intervention was accomplished by House Resolution, which provided that Chairman Moss was to represent the committee and the full House "to secure information relating to the privacy of telephone communications now in the possession of [AT&T] for the use of the Committee and the full House." In addition, the resolution authorized Chairman Moss to hire a special counsel, use not more than $50,000 from the contingent fund of the committee to cover expenses, and to report to the full House on matters related as soon as practicable. The resolution was adopted by the House by a vote of 180-108 on August 26, 1976. Chairman Moss's intervention into the proceedings was noted by the district court, and does not appear to have been contested by either AT&T or the DOJ. Chairman Moss remained an intervener pursuant to the House Resolution through the district court proceeding and two appeals to the Court of Appeals for the District of Columbia Circuit until an agreement was reached with respect to the disclosure of the documents sought. A second intervention authorization, involving litigation between Ashland Oil and the Federal Trade Commission (FTC), also occurred in 1976. This case arose when Ashland Oil sought to enjoin the FTC from transferring its information to the Subcommittee on Oversight and Investigations of the Committee on Interstate and Foreign Commerce at the request of subcommittee Chairman Moss. When Ashland Oil obtained a temporary restraining order, the subcommittee promptly authorized a subpoena for the documents and Chairman Moss filed a resolution for authorization from the House to allow him to intervene with special counsel in the suit that Ashland Oil had filed seeking to enjoin the FTC from transferring the documents to the subcommittee. The district court granted Chairman Moss's motion to intervene and ultimately refused to grant the injunction. The Court of Appeals affirmed on the grounds that "no substantial showing was made that the materials in the possession of the FTC will necessarily be 'made public' if turned over to Congress." While AT&T and Ashland Oil represent affirmative authorizations for intervention by a house of Congress, In Re Beef Industry Antitrust Litigation , provides an example of what may occur should a house of Congress not provide express authorization to be represented in court. In In Re Beef , the chairmen of two subcommittees of the House of Representatives sought to intervene in a pending antitrust dispute for the purpose of obtaining access to documents subpoenaed by subcommittees from a party to the litigation. The subpoenaed documents had been obtained through litigation discovery and were thus subject to a standing court protective order. The district court refused to modify its protective order allowing the party to comply with the subpoena. The subcommittee chairmen appealed to the United States Court of Appeals for the Fifth Circuit. On appeal, the Fifth Circuit entertained a motion to dismiss by one of the plaintiffs on the grounds that the chairmen had not obtained authorization from the full House of Representatives before filing their initial motion before the district court. The plaintiffs relied on what was then Rule XI, cl. 2(m)(2)(B) of the Rules of the House of Representatives, which provided that "[c]ompliance with any subpoena [sic] issued by a committee or subcommittee ... may be enforced only as authorized or directed by the House." The committee chairmen responded by arguing that the rule was not applicable as they were not seeking to enforce their subpoenas, but rather were seeking a modification of the district court's protective order. Therefore, according to the chairmen, they did not require authorization from the full House of Representatives to appear in court. The Fifth Circuit rejected the chairmen's arguments, noting specifically that the House Rules "require[] House authorization not only for direct enforcement of a subpoena but also in any instance when a House committee seeks to institute or to intervene in litigation and, of course, to appeal from a court decision, particularly when the purpose is, as here, to obtain the effectuation of a subpoena." The court also extensively relied on the Ashland Oil precedent noting that similar to this case, the chairman in Ashland Oil was not seeking to enforce a subpoena, rather merely attempting to prevent an injunction from being issued. The failure of the chairmen to obtain an authorization resolution from the full House in this case necessitated the dismissal of their appeal without any decision on the merits. Although the DOJ appears to have acknowledged that properly authorized procedures for seeking civil enforcement provide the preferred method of enforcing a subpoena directed against an executive branch official, the executive branch has consistently taken the position that Congress cannot, as a matter of statutory or constitutional law, invoke either its inherent contempt authority or the criminal contempt of Congress procedures against an executive branch official acting on instructions by the President to assert executive privilege in response to a congressional subpoena. Under such circumstances, the Attorney General has previously directed the U.S. Attorney to refrain from pursuing a criminal contempt prosecution under 2 U.S.C. §§192, 194. This view is most fully articulated in two opinions by the DOJ's Office of Legal Counsel (OLC) from the mid-1980s, and further evidenced by actions taken by the DOJ in the Burford, Miers, and Holder disputes, discussed below. As a result, when an executive branch official is invoking executive privilege at the behest of the President, the criminal contempt provision may prove ineffective, forcing Congress to rely on other avenues to enforce subpoenas, including civil enforcement through the federal courts. The DOJ's early legal analyses were prompted by the outcome of an investigation by two House committees into the Environmental Protection Agency's (EPA) implementation of provisions of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (Superfund). Subpoenas were issued by both committees seeking documents contained in the EPA's litigation files. At the direction of President Reagan, EPA Administrator Burford claimed executive privilege over the documents and refused to disclose them to the committees on the grounds that they were "enforcement sensitive." A subcommittee, and ultimately the full House Committee on Public Works and Transportation, approved a criminal contempt of Congress citation and forwarded it to the full House for its consideration. On December 16, 1982, the full House of Representatives voted, 259-105, to adopt the contempt citation. Before the Speaker of the House could transmit the citation to the United States Attorney for the District of Columbia for presentation to a grand jury, the DOJ filed a lawsuit seeking to enjoin the transmission of the citation and to have the House's action declared unconstitutional as an intrusion into the President's authority to withhold such information from the Congress. According to the DOJ, the House's action imposed an "unwarranted burden on executive privilege" and "interferes with the executive's ability to carry out the laws." The District Court for the District of Columbia dismissed the DOJ's suit on the grounds that judicial intervention in executive-legislative disputes "should be delayed until all possibilities for settlement have been exhausted." In addition, the court noted that ultimate judicial resolution of the validity of the President's claim of executive privilege could only occur during the course of the trial for contempt of Congress. The DOJ did not appeal the court's ruling, opting instead to resume negotiations, which resulted in full disclosure and release of the all the subpoenaed documents to the Congress. Throughout the litigation and subsequent negotiations, however, the U.S. Attorney refused to present the contempt citation to a grand jury for its consideration on the grounds that, notwithstanding the mandatory language of the criminal contempt statute, he had discretion with respect to whether to make the presentation. The issue was never resolved because the ultimate settlement agreement included a withdrawal of the House's contempt citation. In its initial 1984 opinion, OLC revisited the statutory, legal, and constitutional issues that were not judicially resolved by the Superfund dispute. The opinion concluded that, as a function of prosecutorial discretion, a U.S. Attorney is not required to refer a contempt citation to a grand jury or otherwise to prosecute an executive branch official who is carrying out the President's direction to assert executive privilege. Next, the OLC opinion determined that a review of the legislative history of the 1857 enactment of the criminal contempt statute and its subsequent implementation demonstrates that Congress did not intend the statute to apply to executive officials who carry out a presidential directive to assert executive privilege. Finally, as a matter of constitutional law, the opinion concludes that simply the threat of criminal contempt would unduly chill the President's ability to effectively protect presumptively privileged executive branch deliberations. According to the OLC opinion, The President's exercise of this privilege, particularly when based upon the written legal advice of the Attorney General, is presumptively valid. Because many of the documents over which the President may wish to assert a privilege are in the custody of a department head, a claim of privilege over those documents can be perfected only with the assistance of that official. If one House of Congress could make it a crime simply to assert the President's presumptively valid claim, even if a court subsequently were to agree that the privilege claim were valid, the exercise of the privilege would be so burdened as to be nullified. Because Congress has other methods available to test the validity of a privilege claim and to obtain the documents that it seeks, even the threat of a criminal prosecution for asserting the claim is an unreasonable, unwarranted, and therefore intolerable burden on the exercise by the President of his functions under the Constitution. The 1984 opinion focuses almost exclusively on the criminal contempt statute, as that was the authority invoked by Congress in the Superfund dispute. In a brief footnote, however, the opinion contains a discussion of Congress's inherent contempt power, summarily concluding that the same rationale that makes the criminal contempt statute inapplicable and unconstitutional as applied to executive branch officials apply to the inherent contempt authority: We believe that this same conclusion would apply to any attempt by Congress to utilize its inherent "civil" contempt powers to arrest, bring to trial, and punish an executive official who asserted a Presidential claim of executive privilege. The legislative history of the criminal contempt statute indicates that the reach of the statute was intended to be coextensive with Congress' inherent civil contempt powers (except with respect to the penalties imposed). Therefore, the same reasoning that suggests that the statute could not constitutionally be applied against a Presidential assertion of privilege applies to Congress' inherent contempt powers as well. The 1986 OLC opinion reiterates the 1984 reasoning adding the observation that the power had not been used since 1935 (at that time over 50 years), and that "it seems unlikely that Congress would dispatch the Sergeant-at-Arms to arrest and imprison an executive branch official who claimed executive privilege." The 1986 OLC opinion also suggests that then current Supreme Court opinions indicated that it was "more wary of Congress exercising judicial authority" and, therefore, might revisit the question of the continued constitutional validity of the inherent contempt power. Factual, legal, and constitutional aspects of these OLC opinions are open to question and potentially limitations. For example, with respect to the argument that a U.S. Attorney cannot be statutorily required to submit a contempt citation to a grand jury, despite the plain language of the law, such a statement appears to be analogous to a grant of so-called "pocket immunity" by the President to anyone who asserts executive privilege on his behalf. The courts have concluded that the government, or in this case the President, may informally grant immunity from prosecution, which is in the nature of a contract and, therefore, its effect is strongly influenced by contract law principles. Moreover, principles of due process require that the government adhere to the terms of any immunity agreement it makes. It appears that a President has implicitly immunized executive branch officials from violations of congressional enactments at least once—in 1996, during a dispute over the constitutionality of a statute that made it a requirement for all public printing to be done by the Government Printing Office. At the time, the DOJ, in an opinion from OLC, argued that the requirement was unconstitutional on its face, directed the executive branch departments not to comply with the statute as passed by Congress, and noted that executive branch officials who are involved in making decisions that violate the statute face little to no litigation risk, including, it appears, no risk of prosecution under the Anti-Deficiency Act, for which the DOJ is solely responsible. Such a claim of immunization in the contempt context, whether express or implicit, would raise significant constitutional questions. While it is true that the President can immunize persons from criminal prosecution, it does not appear that he has authority to immunize a witness from a congressional inherent contempt proceeding. Arguably, an inherent contempt proceeding takes place wholly outside the criminal code, is not subject to executive execution of the laws and prosecutorial discretion, and thus, appears completely beyond the reach of the executive branch. Furthermore, as previously indicated, inherent contempt, unlike criminal contempt, is not intended to punish, but rather to coerce compliance with a congressional directive. Thus, a finding of inherent contempt against an executive branch official does not appear to be subject to the President's Pardon power —as an inherent contempt arguably is not an "offense against the United States," but rather is an offense against a house of Congress. Likewise, it appears that the same arguments would be applicable to a potential civil enforcement by Congress. The assertion that the legislative history of the 1857 statute establishing the criminal contempt process demonstrates that it was not intended to be used against executive branch official is not supported by the historical record. The floor debates leading to the enactment of the statute make it clear that the legislation was intended as an alternative to, not a substitute for, the inherent contempt authority. This understanding has been reflected in numerous Supreme Court opinions upholding the use of the criminal contempt statute. A close review of the floor debate indicates that Representative H. Marshall expressly pointed out that the broad language of the bill "proposes to punish equally the Cabinet officer and the culprit who may have insulted the dignity of this House by an attempt to corrupt a Representative of the people." Moreover, language from the floor debate indicates that Congress was aware of the effect that this language would have on the ability of persons to claim privileges before Congress. Specifically, the sponsor of the bill, Representative Orr, was asked about the potential instances in which the proposed legislation might interfere with recognized common law and other governmental privileges, such as the attorney-client privilege, to support an investigation such as one that probed "the propriety of a secret service fund to be used upon the discretion of the executive department," or to support inquiries about "diplomatic matters." Representative Orr responded that the House has and would continue to follow the practice of the British Parliament, which "does not exempt a witness from testifying upon any such ground. He is not excused from testifying there. That is the common law of Parliament." Later in the same debate, a proposed amendment to expressly recognize the attorney-client privilege in the statute was overwhelmingly defeated. With respect to the secret service fund, Representative Orr explained: this House has already exercised the power and authority of forcing a disclosure as to what disposition had been made for the secret-service fund. And it is right and proper that is should be so. Under our Government—under our system of laws—under our Constitution—I should protest against the use of any money by an executive authority, where the House had not the right to know how every dollar had been expended, and for what purpose. Representative Orr's reference was to a contentious investigation in 1846, regarding charges that Daniel Webster, while Secretary of State, had improperly disbursed monies from a secret contingency fund used by the President for clandestine foreign operations. The charges led the committee to issue subpoenas to former Presidents John Quincy Adams and John Tyler. President Polk sent the House a list of the amounts in the contingent fund for the relevant period, which was prior to his term, but refused to furnish documentation of the uses that had been made of the expenditures on the grounds that a sitting President should not publically reveal the confidences of his predecessors. President Polk's refusal to provide the information was mooted by the actions of the two investigatory committees established by the House. Former President Tyler testified and former President Adams filed a deposition detailing the uses of the fund during their Administrations. In addition, President Polk's Secretary of State, James Buchanan, was subpoenaed and testified. Ultimately, Mr. Webster was found innocent of any wrongdoing. From these references, it appears that the House was, in 1857, sensitive to and cognizant of its oversight and investigative prerogatives vis-à-vis the executive branch. It therefore appears arguable that in the context of the debate, the contempt statute was not intended to preclude the House's ability to engage in oversight of the executive branch. Finally, it should be noted that past practice suggests that Congress clearly claims the authority to utilize the criminal contempt statute to cite executive branch officials for contempt. Since 1980, Congress has cited a number of executive branch officials or former executive branch officials for contempt of Congress. The House of Representatives has approved contempt citations for two former officials (former EPA Assistant Administrator Rita M. Lavelle and former White House Counsel Harriet Miers), and three sitting officials (EPA Administrator Anne Gorsuch Burford, White House Chief of Staff Joshua Bolten, and Attorney General Eric Holder). Additionally, committees and subcommittees of the House of Representatives have also voted contempt citations against Secretary of Energy Charles Duncan (1980); Secretary of Energy James B. Edwards (1981); Secretary of the Interior James Watt (1982); Attorney General William French Smith (1983); White House Counsel John M. Quinn (1996); Attorney General Janet Reno (1998); and former White House Advisor Karl Rove (2008). Senate committees and subcommittees have voted contempt citations against William French Smith (1984); Joshua Bolten (2007); and White House Advisor Karl Rove (2007). (For a summary of House and Senate action on contempt resolutions see Appendix .) The DOJ's position on the use of criminal contempt against an executive branch official invoking executive privilege was put into practical effect during a dispute over an investigation into the resignations of nine United States Attorneys by the House Judiciary Committee and its Subcommittee on Commercial and Administrative Law ("the committee"). This investigation resulted in the first legal confrontation over Congress's contempt authority since the early 1980s and the first civil lawsuit filed by a house of Congress in an attempt to affirm its information gathering prerogatives. The actions and approach taken by both branches throughout the dispute, the Attorney General's unwillingness to prosecute a former presidential advisor for contempt of Congress, and the resulting district court decision remain uniquely informative in delineating the ability of Congress to issue and effectively enforce its own subpoenas against executive branch officials. After an extensive investigation into whether political motives and White House involvement had prompted the requested resignations of the U.S. Attorneys—including numerous informal communications and requests for information, witness interviews, and several congressional hearings—the committee ultimately sought information relating to the resignations directly from a number of President Bush's closest White House legal advisors. Following several months of unfruitful negotiations and a number of attempts to obtain the information sought voluntarily, on March 21, 2007, the committee authorized subpoenas for Ms. Harriet Miers, the former White House Counsel and Mr. Joshua Bolten, the White House Chief of Staff and custodian of White House records. The Miers subpoena was for both documents and testimony relating to her role, if any, in the resignations, while the Bolten subpoena was only for White House records and documents related to the resignations. In an effort to obtain a negotiated solution, Chairman Conyers did not issue the authorized subpoenas until June 13, 2007. In response to the committee's action, the White House, via its Counsel Fred F. Fielding, notified the committee that it did not intend to comply with the Bolten subpoena on the grounds of executive privilege. With respect to the subpoena directed to Ms. Miers, who had been living in Texas since her resignation as White House Counsel in January 2007, Mr. Fielding first sent a letter to Miers's private attorney containing notice of the President's assertion of executive privilege over information related to the investigation, and suggested that Ms. Miers refrain from producing any documents pursuant to her subpoena. Several days later, Mr. Fielding sent a second letter to Miers's attorney indicating that she was "not to provide ... testimony" pursuant to the subpoena on the grounds that any such testimony would also be covered by the President's assertion of executive privilege. Subsequently, Miers's attorney notified the committee that, as a result of the President's claim of executive privilege, Ms. Miers would not appear at the scheduled hearing. Although negotiations between the committee and the White House continued in an attempt to reach a compromise over the disclosure of documents and the requested testimony, by July 25, 2007, the sides had apparently reached an impasse, and the committee voted to recommend that Ms. Miers and Mr. Bolten be cited for contempt of Congress for failure to comply with the duly issued subpoenas. The resolutions were forwarded to the House of Representatives, which voted to cite Ms. Miers and Mr. Bolten for contempt of Congress on February 14, 2008. The House approved Resolution 979, which directed the Speaker to forward the contempt citation to the U.S. Attorney for the District of Columbia for action against Ms. Miers and Mr. Bolten; and Resolution 980, which expressly authorized Chairman Conyers to initiate a civil lawsuit in federal court to enforce the subpoenas in the event that the Department of Justice did not pursue the criminal contempt actions. On February 28, 2008, pursuant to 2 U.S.C. §194, the Speaker of the House certified the report to the U.S. Attorney for the District of Columbia for presentation to the grand jury. The next day, however, the Attorney General sent a letter to the Speaker, stating that the Department of Justice would "not bring the congressional contempt citations before a grand jury or take any other action to prosecute Mr. Bolten or Ms. Miers." Consistent with the positions asserted in the previously discussed OLC opinions, it appeared that the DOJ would not proceed with the prosecution of a White House official for criminal contempt of Congress where that official had invoked executive privilege at the behest of the President. With any criminal contempt prosecution under 2 U.S.C. §§192 and 194 unavailable, on March 10, 2008, pursuant to the resolution adopted by the House of Representatives, the committee filed a civil suit in the U.S. District Court for the District of Columbia "seek[ing] [a] declaratory judgment[]" and other "appropriate relief, including injunctive relief" to enforce the committee's subpoenas. It is important to note that the case filed by the committee was limited only to whether Miers and Bolten could be forced to comply with the issued subpoenas, not whether the House had the authority to hold either of the officials in contempt of Congress. In Committee on the Judiciary v. Miers , the Bush Administration adopted the position that senior presidential advisors, like Ms. Miers, were absolutely immune from compelled testimony before Congress when asserting executive privilege at the direction of the President. As such, Ms. Miers could not be required to present herself before the committee. The Administration's absolute immunity argument rested primarily on the assertion that a senior presidential advisor, as the President's "alter ego," should be accorded the same constitutional immunities enjoyed by the President, just as congressional aides were accorded the same protections as Members of Congress under the Speech or Debate Clause. Therefore, if the President were absolutely immune from compelled testimony before Congress, which the Administration argued he surely was, so too should that immunity extend to his closest presidential advisors, including his White House Counsel. The opinion issued by the U.S. District Court for the District of Columbia on July 31, 2008, rejected the Administration's position, noting that "the asserted absolute immunity claim here is entirely unsupported by existing case law." In addition, the court reaffirmed Congress's "essential," constitutionally based power to issue and enforce subpoenas. Although upholding Congress's "right" to information, and acknowledging that that right "derived from its Article I legislative function, " the district court made no explicit comment about Congress's authority to punish executive branch officials through contempt. Nor did the court reach the question of whether the U.S. Attorney could decline to refer a duly certified criminal contempt citation to a grand jury under 2 U.S.C. §194. In dismissing the Administration's absolute immunity argument, the district court held that past precedent suggested that presidential advisors could not be regarded as the "alter ego" of the President for immunity purposes. The Supreme Court had previously rejected the alter ego analogy in the case of Harlow v. Fitzgerald . There, the Court held that executive officers were not entitled to the same absolute immunity in a civil suit arising from official conduct as enjoyed by legislators, judges, prosecutors, and the President. As opposed to the relationship between congressional aides and Members of Congress, the President and his advisors were considered "analytically distinct." These advisors were, therefore, only entitled to qualified immunity in the performance of their official duties. In light of the Supreme Court's reasoning in Harlow that presidential advisors were not entitled to alter ego status for immunity purposes, the Miers court concluded that there was "nothing left to the Executive's primary argument …" The district court continued, however, and noted that even if presidential advisors were entitled to the same immunity as the President, it was not clear that the President himself would enjoy absolute immunity from compelled congressional testimony. Although reaching no decision on whether Congress could subpoena a sitting President for testimony, the court noted that the Supreme Court's opinions in U.S. v. Nixon and Clinton v. Jones could be interpreted as recognizing that the President was not absolutely immune from compulsory process generally. In the Nixon case, President Nixon was only entitled to a presumptive privilege over the White House tapes in question—a privilege that could be overcome by a sufficient showing of need by the grand jury. Additionally, in the Clinton case, the Supreme Court held that President Clinton was not immune from a civil suit arising from unofficial conduct not occurring during his Presidency, and, therefore, could be required to comply with compulsory process in the suit. Like the judiciary's essential need for access to information in Nixon and Clinton , the district court reasoned that a congressional subpoena likewise involved "core functions of a co-equal branch of the federal government." Although the district court opinion in Miers may be characterized as a vindication of congressional oversight prerogatives, or at least a limitation on the scope of executive privilege in the face of a congressional investigation, the opinion also made clear that Congress's authority to compel testimony from executive branch officials was not unlimited. Indeed, the court noted two important restrictions. First, the court specifically held that, although not enjoying absolute immunity from congressionally compelled testimony, Ms. Miers was still free to assert executive privilege "in response to any specific questions posed by the Committee." Thus, Ms. Miers could still assert the protections of executive privilege during her testimony depending on the substance of any individual question posed by a member of the committee. Second, the court suggested that Congress may lack authority to compel testimony where such testimony related to national security, foreign affairs, or another "particularly sensitive function" of the executive branch. Without further explanation, the district court repeatedly noted that absolute immunity may inhere to presidential advisors where "national security or foreign affairs form the basis for the Executive's assertion of privilege." The Administration appealed the district court decision and asked the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) to stay the district court order pending an expedited final decision by that court. On September 16, 2008, the D.C. Circuit granted the stay, but denied the Administration's request for an expedited schedule. The appeals court had concluded that "even if expedited, this controversy will not be fully and finally resolved by the Judicial Branch … before the 110 th Congress ends on January 3, 2009. At that time, the 110 th House of Representatives will cease to exist as a legal entity, and the subpoenas it has issued will expire." As noted previously, the authority underlying a House subpoena or contempt citation has traditionally been considered to expire at the termination of the Congress in which it was authorized. Accordingly, because the committee's subpoenas were likely to expire before the dispute could be resolved, the court saw no reason to expedite the case. On January 13, 2009—with the Miers case still on appeal before the D.C. Circuit, the 110 th Congress having reached its conclusion, and all presidential records set to transfer into the custody of the Archivist of the United States at the end of President Bush's second term on January 20 th —the district court issued a second order to preserve the availability of documents covered by the committee subpoenas. The order required the Administration to make copies of all materials responsive to the subpoenas for storage at the White House until the conclusion of the litigation. In March of 2009, after the arrival of a newly elected Congress and presidential administration, the parties reached a settlement in which some, but not all, of the requested documents would be provided to the committee. In addition, Ms. Miers would be permitted to testify, under oath, in a closed, but transcribed hearing. Accordingly, the D.C. Circuit dismissed Miers on October 14, 2009, pursuant to a motion for voluntary dismissal. Thus the Miers litigation ended, more than a year and a half after the committee first filed its suit to enforce the subpoenas. Ultimately, however, the committee was able to gain access to much of the information it had been seeking. In the summer of 2012, the DOJ again refused to pursue a contempt prosecution against an executive branch official when the President had invoked executive privilege as the basis for non-compliance with a congressional subpoena. The dispute arose out of a subpoena issued by the House Oversight and Government Reform Committee seeking disclosure of internal DOJ documents detailing the department's response to the committee's investigation into Operation Fast and Furious. In early 2011, the Committee on Oversight and Government Reform began investigating the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF), a DOJ sub-agency, regarding Operation Fast and Furious—an ATF operation based in the Phoenix, Arizona field office. The investigations were principally triggered by ATF whistleblowers who had alleged that suspected straw purchasers were allowed to amass large quantities of firearms as part of long-term gun trafficking investigations. As a consequence, some of these firearms were allegedly "walked," or trafficked to gunrunners and other criminals in Mexico. In December 2010, two of these firearms were reportedly found at the scene of a shootout near the U.S.-Mexico border where U.S. Border Patrol Agent Brian Terry had been killed. Following public reports of the operation and Agent Terry's death, Attorney General Eric Holder instructed the DOJ Office of the Inspector General to review ATF's gun trafficking investigations. On February 4, 2011, Assistant Attorney General for Legislative Affairs Ronald Weich sent a letter to Congress denying that ATF had either sanctioned or knew of the sale of weapons to straw purchasers who then transported the guns into Mexico. In March 2011, Representative Darrell Issa, chairman of the Oversight and Government Reform Committee, requested additional documents and information about the operation from then-Acting ATF Director Kenneth E. Melson. DOJ acknowledged the request but, according to the committee, "did not provide any documents or information to the Committee by the March 30, 2011 deadline." The following day, the committee subpoenaed the documents from both DOJ and ATF. Over the next year, the committee held several hearings regarding Operation Fast and Furious and also heard direct testimony from Attorney General Holder. On October 12, 2011, after DOJ informed the committee that it had produced all the documents it was willing to provide, the committee issued a second subpoena to the Attorney General requesting all departmental communications and documents "referring or related to Operation Fast and Furious." Notably, at a November 8, 2011, Senate Judiciary Committee hearing, Attorney General Holder conceded that the February 4, 2011, letter—disclaiming ATF knowledge of "gun walking"—contained "inaccurate" information about the depth of knowledge DOJ officials had regarding ATF's "gun walking" methods. The next month, DOJ formally withdrew the February 4 letter and acknowledged that Operation Fast and Furious was "fundamentally flawed." The letter was accompanied by nearly 1,400 pages of pre-February 4 documents and communications that addressed how inaccurate information had been included in the February 4 letter. This disclosure deviated from DOJ's general position that congressional requests "seeking information about the Executive Branch's deliberations ... implicate significant confidentiality interests grounded in the separation of powers under the U.S. Constitution." As such, DOJ maintained that it made "extraordinary accommodations" in responding to requests about the drafting of the February 4 letter. Furthermore, it stated: The Department has substantially complied with the outstanding subpoenas. The documents responsive to the remaining subpoena items pertain to sensitive law enforcement activities, including ongoing criminal investigations and prosecutions, or were generated by Department officials in the course of responding to congressional investigations or media inquiries about this matter that are generally not appropriate for disclosure. However, the committee maintained that despite its flexibility and being "unfailingly patient," the DOJ had "refused to produce certain documents" and had "fought this committee's investigation every step of the way." During a committee hearing, Chairman Issa remarked that the Attorney General had specifically "refused to cooperate, offering to provide subpoenaed documents only if the committee agrees in advance to close the investigation. No investigator would ever agree to that." As a result, Chairman Issa publicly threatened a contempt vote if the Attorney General's refusal to comply with the subpoena continued. As negotiations between the Attorney General and Chairman Issa continued, the chairman reportedly narrowed the scope of the documents that would need to be produced in order to avoid a contempt vote to only those documents created after February 4, 2011—the date in which DOJ provided Congress with admittedly inaccurate information about Operation Fast and Furious—and which related to the Department's response to various congressional inquiries. The Attorney General maintained that he could not provide the committee with the requested documents. In light of the committee's continued dissatisfaction with DOJ's refusal to comply fully with the subpoenas, Chairman Issa scheduled a vote to hold Attorney General Holder in contempt of Congress. Although the Attorney General and Chairman Issa met the night before the scheduled vote, they were unable to reach an acceptable accommodation with regard to document disclosure. On the morning of the vote, President Obama formally invoked executive privilege "over the relevant post-February 4, 2011, documents." In defending this assertion, DOJ noted that: the compelled production to Congress of these internal Executive Branch documents generated in the course of the deliberative process concerning the Department's response to congressional oversight and related media inquiries would have significant, damaging consequences ... it would inhibit the candor of such Executive Branch deliberations in the future and significantly impair the Executive Branch's ability to respond independently and effectively to congressional oversight. Such compelled disclosure would be inconsistent with the separation of powers established in the Constitution and would potentially create an imbalance in the relationship between these co-equal branches of the Government. In its contempt citation, the Oversight and Government Reform Committee rejected the President's assertion of executive privilege, calling it "transparently invalid" due to the timing and blanket application of the privilege to all withheld documents. The committee voted 23 to 17 to hold Attorney General Holder in contempt of Congress. The contempt citation was reported to the full House, and on June 28, 2012, two important resolutions were passed. The first, H.Res. 711 , constituted the formal criminal contempt citation and was approved by a vote of 255-67. The resolution found the Attorney General in contempt of Congress for his failure to comply with a congressional subpoena and directed the Speaker, pursuant to 2 U.S.C. §194, to certify the contempt citation to the U.S. Attorney for the District of Columbia for prosecution. The second resolution, H.Res. 706 , authorized Chairman Issa to initiate a judicial proceeding on behalf of the committee "to seek declaratory judgments affirming the duty of Eric H. Holder Jr….to comply with any subpoena…issued to him by the Committee as part of its investigation into [Operation Fast and Furious]." H.Res. 706 was approved by a vote of 258-95. As in the Miers and Bolten contempt proceedings, the House voted to hold an executive branch official in criminal contempt of Congress, while preserving the option to seek enforcement of the committee subpoenas through a civil action in federal court. Consistent with DOJ's legal position and the precedent set in the Burford, Miers, and Bolten contempt actions, Deputy Attorney General James Cole informed Speaker Boehner on the same day that the contempt was approved that "the [DOJ] has determined that the Attorney General's response to the subpoena issued by the Committee on Oversight and Government Reform does not constitute a crime, and therefore the Department will not bring the congressional contempt citation before a grand jury or take any other action to prosecute the Attorney General." Although the criminal prosecution of the Attorney General for contempt of Congress appears to be foreclosed for passage of time, H.Res. 706 permitted the committee to ask a federal district court to compel the Attorney General to comply with the committee subpoena. The committee filed this civil enforcement action in the U.S. District Court for the District of Columbia on August 13, 2012. On September 30, 2013, the district court issued its first opinion in the case, rejecting the DOJ's motion to dismiss the civil enforcement suit on jurisdictional and justiciability grounds. The court's opinion echoed that of the District Court for the D.C. Circuit in Miers , and addressed arguments for dismissal based on separation-of-powers concerns, the court's jurisdiction to hear the case, and the plaintiff's standing to bring suit. The DOJ did not argue that the facts in this case were distinguishable from those in Miers ; it "simply urges the Court to come to a different conclusion." First, the court considered the DOJ's argument that the "separation of powers enshrined in the Constitution [would be violated] if this Court were to undertake to resolve a dispute between the other two branches" and that resolution of such conflicts should be left to the political branches themselves. The court disagreed, strongly rejecting any notion that the judiciary did not have the authority to resolve the dispute or that by injecting itself into an interbranch conflict the court would in some way threaten the separation of powers. It noted that subpoenas are routinely enforced by the courts; federal courts have long-standing involvement in evaluating executive privilege claims; and the question presented was not a "political question" simply because the parties are the political branches of government. Indeed, the court found just the opposite, holding that to not hear the claim would "do more damage to the balance envisioned by the Framers than a judicial ruling on the narrow privilege question posed by the complaint." Next, the court considered the DOJ's argument that the court lacked subject matter jurisdiction under 28 U.S.C. §1365. Section 1365 gives the U.S. District Court for the District of Columbia jurisdiction to enforce subpoenas issued by the Senate but is silent as to subpoenas issued by the House. The court rejected the DOJ's argument that the statute's silence on House subpoenas eliminated the court's jurisdiction, finding it improper to "draw inferences from the absence of a precisely drawn, detailed statute." The court agreed with the Miers opinion and held that subject matter jurisdiction is rooted in the federal question jurisdiction statute. Because the House's subpoena power derives from its Article I legislative powers, the case satisfies that statute's requirements as a "civil action[] arising under the Constitution." Therefore, the court had jurisdiction to hear the case despite the lack of an applicable, specific jurisdictional statute. The court also rejected the DOJ's argument that the committee did not have standing to bring the suit to enforce their subpoena. The court ruled that the committee had standing, in part, because it has suffered a concrete and particular injury to its ability to gather information pursuant to its constitutional duties. The court pointed to applicable D.C. Circuit precedent stating that "[i]t is clear that the House as a whole has standing to assert its investigatory power ..." Furthermore, the court noted that "this case presents the sort of question[s]," including the applicability of privileges and subpoena enforcement, "that the courts are traditionally called upon to resolve." Finally, the court briefly considered the DOJ's contention that the committee could not rely solely upon the Declaratory Judgment Act to provide a cause of action. The court concluded that since "the Constitution is the source of the right allegedly violated," the committee did not need to identify another source in order to seek declaratory relief—establishing "an actual, ripe controversy" that satisfies subject matter jurisdiction is sufficient. Finally, the court declined to dismiss the case on prudential grounds, communicating its skepticism that dismissing the case would facilitate a resolution and noting that continued court involvement did not prevent the parties from reaching an acceptable compromise on their own. Following the court's decision, the committee filed a motion for summary judgment on the grounds that the DOJ could not invoke executive privilege in response to a congressional subpoena because the records requested did not involve actual communications with the President. Simultaneously, the DOJ moved for summary judgment on the basis that all the records requested were protected by the deliberative process element of executive privilege. On August 20, 2014, following a hearing, the district court denied both motions. The court ruled that the DOJ, as an executive branch agency, could invoke the deliberative process privilege in response to a congressional subpoena. The court, however, rejected the DOJ's "blanket assertion of the privilege over all records generated after a particular date," without any showing that each of those records was subject to the privilege. The court thus directed the DOJ to provide a list of all the records that were being withheld on deliberative process privilege grounds. The DOJ subsequently produced a list of materials being withheld, which consisted of internal DOJ communications about how to respond to media and congressional inquiries about Operation Fast and Furious. The DOJ's list also included other documents that it sought to withhold on separate grounds, such as law enforcement material, privacy information, and other sensitive material. The DOJ additionally listed several other documents for which it provided no reason for withholding from Congress. On January 16, 2015, after the DOJ had produced its list, the committee moved to compel the production of each record that was withheld. On January 19, 2016, in a published decision, the district court granted, in part, and denied, in part, the committee's motion to compel the production of documents. The court rejected the committee's argument that the deliberative process privilege only covered documents that contained deliberations concerning the formulation of policy. Citing to prior precedent that applied the deliberative process privilege to discussions regarding operational matters and public relations efforts, the court determined that the privilege equally extended to internal deliberations about how to respond to press and congressional inquiries into Operation Fast and Furious. The court observed, however, that the deliberative process privilege was a qualified privilege subject to being weighed against the public interest that would be served by the disclosure of the protected documents. The court determined that, because the substance of the DOJ's internal deliberations had already been publicly disclosed pursuant to an Inspector General investigation, any "incremental harm" that would be caused by providing these documents was outweighed by Congress's "unchallenged need for the material." The court thus held that the DOJ had to produce the documents otherwise subject to the deliberative process privilege. Further, the court ruled that the agency was required to provide documents for which it had offered no justification for invoking a privilege. The court, however, declined to order the production of documents that were withheld for reasons other than deliberative process privilege, such as attorney work product, personal privacy information, and law enforcement sensitive material, because the legitimacy of those privileges was not an issue before the court, and the parties were better suited to resolve those questions through negotiations instead. Therefore, the court only ordered the DOJ to produce the "segregable portions" of these records. On April 18, 2016, the committee appealed the district court's decision to the D.C. Circuit. On January 19, 2017, the appeals court granted the parties' request to hold the case in abeyance pending a potential settlement with the Trump Administration. Ultimately, should the court reach the merits of the case, its decision may further clarify the scope of Congress's subpoena power and the degree to which executive privilege may be invoked to shield a document from disclosure. The most recent case where Congress attempted to enforce a subpoena against an executive branch official occurred in 2014. Previously, in 2012, the House Committee on Oversight and Government Reform (committee) had received reports that the Internal Revenue Service (IRS) improperly targeted conservative political groups applying for tax-exempt status by scrutinizing their applications for additional information, such as the identity of applicant donors, and delaying their applications. In 2013, Lois G. Lerner, who was serving as the IRS's Director of Exempt Organizations at the time, publicly acknowledged that the agency had inappropriately targeted conservative groups. In response, the committee commenced an investigation of the IRS's targeting program, which included conducting interviews with IRS officials and obtaining testimony and documents related to the program. The committee, in particular, considered Ms. Lerner's testimony critical because, as the Director of the Exempt Organizations division, "[s]he was at the epicenter of the targeting program." The committee hoped that Ms. Lerner would answer "important outstanding questions" about why the IRS targeted conservative organizations. On May 14, 2013, the committee sent a letter to Ms. Lerner asking her to testify at a May 22, 2013, hearing about the IRS's handling of applications for tax-exempt status. Ms. Lerner, through counsel, confirmed her attendance at the hearing, but indicated that she would invoke her Fifth Amendment privilege against self-incrimination instead of answering questions. Subsequently, on May 20, 2013, the committee issued a subpoena to compel Ms. Lerner's testimony. Ms. Lerner, through counsel, again invoked her Fifth Amendment right not to answer any questions. In response, committee Chairman Darrell Issa advised Ms. Lerner that the subpoena remained in effect, and that her attendance at the hearing was expected because she was "uniquely qualified" to testify about the IRS's actions. On May 22, 2013, Ms. Lerner appeared before the committee. In an opening statement, she denied any wrongdoing or unlawful activity as the Director of Exempt Organizations at IRS, but maintained that she would assert her Fifth Amendment privilege not to testify or answer any questions relating to the committee's investigation. Following the hearing, on June 28, 2013, the committee, by a 22-17 vote, approved a resolution finding that Ms. Lerner had waived her Fifth Amendment privilege by making a voluntary opening statement and denying her involvement in unlawful activity. Thus, on February 25, 2014, Chairman Issa advised Ms. Lerner's counsel by letter that she was expected to comply with the subpoena and present testimony before the committee at a reconvened hearing on March 5, 2014. Ms. Lerner appeared before the committee on March 5, 2014. At the beginning of the hearing, Chairman Issa advised Ms. Lerner that, because the committee had determined that she waived her Fifth Amendment privilege, it reserved the option of recommending a contempt resolution against her if she refused to answer any questions. Nevertheless, Ms. Lerner continued to invoke her Fifth Amendment privilege. Several weeks later, on April 10, 2014, the committee, by a 21-12 vote, approved a contempt resolution against Ms. Lerner for her refusal to comply with the subpoena. On May 7, 2014, the House voted 231-187 to adopt the committee's resolution, and directed the Speaker, pursuant to 2 U.S.C. §§ 192 and 194, to certify the contempt citation to the U.S. Attorney for the District of Columbia for prosecution. Notably, the House did not pursue the option to enforce the committee's subpoena through civil action in federal court, as it had done in the Miers, Bolten, and Holder contempt proceedings. Therefore, unlike those cases, there is no court decision in the Lerner contempt case. On March 31, 2015, the United States Attorney for the District of Columbia, Ronald C. Machen Jr., advised House Speaker John Boehner that he would not pursue criminal prosecution of Ms. Lerner based on the contempt resolution passed by the House. In his letter, Mr. Machen determined that, although Ms. Lerner had refused to answer questions from the committee despite being properly notified that her Fifth Amendment claim had been rejected, and being given a reasonable opportunity to respond to the committee's questions, her failure to provide testimony did not warrant a criminal contempt prosecution. Mr. Machen reasoned that Ms. Lerner did not waive her Fifth Amendment privilege by making an opening statement during the original May 22, 2013, hearing "because she made only general claims of innocence," and did not provide any substantive testimony. As a result, he concluded, "the Fifth Amendment to the Constitution would provide Ms. Lerner with an absolute defense should she be prosecuted under Section 192 for her refusal to testify." The Lerner case marked yet another occasion where the DOJ declined to pursue prosecution based on a criminal contempt resolution passed by Congress. Although, in the Burford, Miers, Bolten, and Holder cases, the DOJ cited to executive privilege as a reason for not pursuing criminal contempt charges, the Lerner case stands as an example of the DOJ citing to the Fifth Amendment privilege as grounds for its decision. However, regardless of the basis for the DOJ's decision not to prosecute, the outcome of these cases underscores the challenge Congress may potentially face in successfully enforcing a criminal contempt resolution. The lessons to be gleaned from information access disputes between congressional committees and the executive branch, including the interbranch quarrels over documents and testimony relating to Operation Fast and Furious, the U.S. Attorney resignations, and the Superfund litigation, appear to be twofold. First, Congress faces a number of obstacles in any attempt to enforce a subpoena issued against an executive branch official through the criminal contempt statute. Although the courts have reaffirmed Congress's constitutional authority to issue and enforce subpoenas, efforts to punish an executive branch official for non-compliance with a subpoena through criminal contempt will likely prove unavailing in many, if not most circumstances. Where the President directs or endorses the non-compliance of the official, such as where the official refuses to disclose information pursuant to the President's decision that such information is protected under executive privilege, past practice suggests that the DOJ will not pursue a prosecution for criminal contempt. The U.S. Attorney would likely rely on prosecutorial discretion as grounds for not forwarding the contempt citation to the grand jury pursuant to 2 U.S.C. §194. In other scenarios, however, where the conduct of the executive branch official giving rise to the contempt citation was not endorsed by the President, for example where an official disregards a congressional subpoena to protect personal rather than institutional interests, the criminal contempt provision may remain an effective avenue for punishing executive officials. Even in these situations, however, the executive branch may choose not to prosecute the official so as to avoid establishing a precedent for Congress's authority to use the criminal contempt statute to punish an executive branch officer. Second, although it appears that Congress may be able to enforce its own subpoenas through a declaratory civil action, relying on this mechanism to enforce a subpoena directed at an executive official may prove an inadequate means of protecting congressional prerogatives due to the time required to achieve a final, enforceable ruling in the case. This shortcoming was apparent in the Miers case, where the committee received a favorable decision from the district court, but was unable to enforce that decision prior to the expiration of the 110 th Congress and the conclusion of the Bush Administration. Given the precedential importance of any civil action to enforce a congressional subpoena, the resulting litigation would likely include a protracted appeals process. The Miers litigation, which never reached a decision on the merits by the D.C. Circuit, was dismissed at the request of the parties after approximately 19 months. Although the committee gained access to much of the information the Bush Administration had refused to disclose, the change in administrations and the passage of time could be said to have diminished the committee's ability to utilize the provided information to engage in effective oversight. Whereas it may be possible for a federal district court to reach a decision on the Holder subpoena prior to the expiration of the 112 th Congress, it is highly unlikely that the expected appeals process will be completed by that point. Thus, a new authorization will likely be required for the committee to continue the litigation into the 113 th Congress. In light of these practical realties, in many situations Congress likely will not be able to rely on the executive branch to effectively enforce subpoenas directed at executive branch officials, nor will reliance on the civil enforcement of subpoenas through the judicial branch always result in a prompt resolution of the dispute. Although subject to practical limitations, Congress retains the ability to exercise its own constitutionally based authority to enforce a subpoena through inherent contempt. Although the courts have upheld the authority of Congress to investigate and to cite a witness for contempt, they have also established limits, rooted both in the language of the criminal contempt statute and in the Constitution, on the investigatory and contempt powers. Recognizing that 2 U.S.C. §192 is a criminal statute, the courts have accorded defendants the same safeguards as defendants in other criminal proceedings. The criminal contempt statute is applicable to contempts committed by a person "summoned as a witness by the authority of either House of Congress ... ." The statute applies regardless of whether a subpoena has been issued by a committee or by the full House or Senate. Although the statute specifically makes the contempt sanction applicable to a witness who has been "summoned," the law applies whether the individual is subpoenaed or appears voluntarily and then refuses to testify. A contempt conviction will not be upheld if the committee's investigation has not been clearly authorized by the full House or Senate. The investigation, and the questions posed, must be within the scope of the committee's jurisdiction. A committee cannot issue a subpoena for a subject outside the scope of its jurisdiction. Authorization from the parent body may take the form of a statute, a resolution, or a standing rule of the House or Senate. In the case of a subcommittee investigation, the subject matter must fall within the scope of authority granted to the subcommittee by the full committee. Investigations may be conducted, and subpoenas issued, pursuant to a committee's legislative or oversight jurisdiction. In construing the scope of a committee's authorizing rule or resolution, the Supreme Court has adopted a mode of analysis not unlike that ordinarily followed in determining the meaning of a statute: it looks first to the words of the resolution itself, and then, if necessary, to the usual sources of legislative history, including floor statements, reports, and past committee practice. As explained by the Court in Barenblatt v. United States , "[j]ust as legislation is often given meaning by the gloss of legislative reports, administrative interpretation, and long usage, so the proper meaning of an authorization to a congressional committee is not to be derived alone from its abstract terms unrelated to the definite content furnished them by the course of congressional actions." It appears that the clear articulation of committee jurisdiction in both the House and Senate rules combined with the express authorization of special committees by resolution has effectively eliminated the use of jurisdiction as a defense to contempt proceedings. A committee's investigation must have a legislative purpose or be conducted pursuant to some other constitutional power of the Congress, such as the authority of each House to discipline its own Members, to judge the returns of their elections, and to conduct impeachment proceedings. Although the early case of Kilbourn v. Thompson held that the investigation in that case was an improper probe into the private affairs of individuals, the courts today generally will presume that there is a legislative purpose for an investigation, and the House or Senate rule or resolution authorizing the investigation does not have to specifically state the committee's legislative purpose. In In re Chapman , the Court upheld the validity of a resolution authorizing an inquiry into charges of corruption against certain Senators despite the fact that it was silent as to what might be done when the investigation was completed. The Court stated: The questions were undoubtedly pertinent to the subject matter of the inquiry. The resolutions directed the committee to inquire "whether any Senator has been, or is, speculating in what are known as sugar stocks during the consideration of the tariff bill now before the Senate." What the Senate might or might not do upon the facts when ascertained, we cannot say nor are we called upon to inquire whether such ventures might be defensible, as contended in argument, but it is plain that negative answers would have cleared that body of what the Senate regarded as offensive imputations, while affirmative answers might have led to further action on the part of the Senate within its constitutional powers. Nor will it do to hold that the Senate had no jurisdiction to pursue the particular inquiry because the preamble and resolutions did not specify that the proceedings were taken for the purpose of censure or expulsion, if certain facts were disclosed by the investigation. The matter was within the range of the constitutional powers of the Senate. The resolutions adequately indicated that the transactions referred to were deemed by the Senate reprehensible and deserving of condemnation and punishment. The right to expel extends to all cases where the offense is such as in the judgment of the Senate is inconsistent with the trust and duty of a member. We cannot assume on this record that the action of the Senate was without a legitimate object, and so encroach upon the province of that body. Indeed, we think it affirmatively appears that the Senate was acting within its right, and it was certainly not necessary that the resolutions should declare in advance what the Senate meditated doing when the investigation was concluded. In McGrain v. Daugherty , the original resolution that authorized the Senate investigation into the Teapot Dome Affair made no mention of a legislative purpose. A subsequent resolution for the attachment of a contumacious witness declared that his testimony was sought for the purpose of obtaining "information necessary as a basis for such legislative and other action as the Senate may deem necessary and proper." The Court found that the investigation was ordered for a legitimate object. It wrote: The only legitimate object the Senate could have in ordering the investigation was to aid it in legislating, and we think the subject matter was such that the presumption should be indulged that this was the real object. An express avowal of the object would have been better; but in view of the particular subject-matter was not indispensable. *** The second resolution—the one directing the witness be attached—declares that this testimony is sought with the purpose of obtaining "information necessary as a basis for such legislative and other action as the Senate may deem necessary and proper." This avowal of contemplated legislation is in accord with what we think is the right interpretation of the earlier resolution directing the investigation. The suggested possibility of "other action" if deemed "necessary or proper" is of course open to criticism in that there is no other action in the matter which would be within the power of the Senate. But we do not assent to the view that this indefinite and untenable suggestion invalidates the entire proceeding. The right view in our opinion is that it takes nothing from the lawful object avowed in the same resolution and is rightly inferable from the earlier one. It is not as if an inadmissible or unlawful object were affirmatively and definitely avowed. Moreover, when the purpose asserted is supported by reference to specific problems which in the past have been, or in the future may be, the subject of appropriate legislation, it has been held that a court cannot say that a committee of the Congress exceeds its power when it seeks information in such areas. In the past, the types of legislative activity which have justified the exercise of the power to investigate have included the primary functions of legislating and appropriating; the function of deciding whether or not legislation is appropriate; oversight of the administration of the laws by the executive branch; and the essential congressional function of informing itself in matters of national concern. In addition, Congress's power to investigate such diverse matters as foreign and domestic subversive activities, labor union corruption, and organizations that violate the civil rights of others have all been upheld by the Supreme Court. Despite the Court's broad interpretation of legislative purpose, Congress's authority is not unlimited. Courts have held that a committee lacks legislative purpose if it appears to be conducting a legislative trial rather than an investigation to assist in performing its legislative function. Furthermore, although "there is no congressional power to expose for the sake of exposure," "so long as Congress acts in pursuance of its constitutional power, the Judiciary lacks authority to intervene on the basis of the motives which spurred the exercise of that power." Two different issues of pertinency arise in regard to a contempt prosecution. First, a witness's refusal to answer questions or provide subpoenaed documents will be punished as a contempt only if the questions posed (or documents requested) by the committee are, in the language of the statute, "pertinent to the question under inquiry." In determining general questions of the pertinency of inquiries, the courts have required only that the specific inquiries be reasonably related to the subject matter under investigation. Given the breadth of congressional investigations, the courts have long recognized that pertinency in the legislative context is broader than in the judicial context, which relies primarily on the law of evidence's standard of relevance. For example, the D.C. Circuit has stated that A legislative inquiry may be as broad, as searching, and as exhaustive as is necessary to make effective the constitutional powers of Congress. ... A judicial inquiry relates to a case , and the evidence to be admissible must be measured by the narrow limits of the pleadings. A legislative inquiry anticipates all possible cases which may arise thereunder and the evidence admissible must be responsive to the scope of the inquiry which generally is very broad. The second pertinency issue concerns the Fifth Amendment's Due Process Clause. According to the Supreme Court in Deutch v. United States , the pertinency of a "committee's inquiry must be brought home to the witness at the time the questions are put to him." The Court in Watkins stated that [u]nless the subject matter has been made to appear with undisputable clarity, it is the duty of the investigative body, upon objection of the witness on grounds of pertinency, to state for the record the subject under inquiry at that time and the manner in which the propounded questions are pertinent thereto. To be meaningful, the explanation must describe what the topic under inquiry is and the connective reasoning whereby the precise questions asked relate to it. In addition, according to commentators, a witness is entitled "to understand the specific aspect of the committee's jurisdiction under its authorizing resolution [or House or Senate rule] to which the question relates." Finally, it appears that the committee must specifically rule on a pertinency objection and, if the objection is overruled, inform the witness of that fact before again directing him to answer the question. The Court has also observed that a witness might resort to several sources in determining the subject matter of an investigation. These include, but are likely not limited to, (a) the House or Senate resolution authorizing the committee inquiry; (b) the committee's resolution authorizing the subcommittee investigation; (c) the introductory statement of the chairman or other committee members; (d) the nature of the proceedings; and (e) the chairman's response to a witness's objections on the grounds of lack of pertinency. A conviction for statutory criminal contempt cannot be sustained unless the failure to appear before the committee, to produce documents, or to respond to questions is a willful, intentional act. However, an evil motive does not have to be established. Because of the willfulness requirement, and to satisfy constitutional due process standards, when a witness objects to a question or otherwise refuses to answer, the chairman or presiding member should rule on any objection and, if the objection is overruled, the witness should be clearly directed to answer. It has been observed that "there is no talismanic formula which [a] committee must use in directing [a] witness to answer," but he should be clearly informed "and not left to the risk of guessing upon pain of criminal penalties, whether the grounds for his objection to answering [are] accepted or rejected," and "if they are rejected, he should be given another chance to answer." The procedure to be followed in responding to a witness's objections to questions has been described as follows: If a witness refuses to answer a question, the committee must ascertain the grounds relied upon by the witness. It must clearly rule on the witness's objection, and if it overrules the witness's objection and requires the witness to answer, it must instruct the witness that his continued refusal to answer will make him liable to prosecution for contempt of Congress. By failing adequately to apprise the witness that an answer is required notwithstanding his objection the element of deliberateness necessary for conviction for contempt under 2 U.S.C. §192 is lacking, and such a conviction cannot stand. A contempt conviction can be reversed on other non-constitutional grounds. The cases make clear that committees must closely follow their own rules and the rules of their parent body in authorizing subpoenas and conducting investigations and hearings. It appears that a witness can be convicted of criminal contempt, but not of perjury, where a quorum of the committee was not present. In practice, the exercise of committee discretion whether to accept a claim of attorney-client privilege has turned on a "weighing [of] the legislative need for disclosure against any possible resulting injury." More particularly, the process of committee resolution of claims of attorney-client privilege has traditionally been informed by weighing considerations of legislative need, public policy, and the statutory duty of congressional committees to engage in continuous oversight of the application, administration, and execution of laws that fall within their jurisdiction, against any possible injury to the witness. In the particular circumstances of any situation, a committee may consider and evaluate the strength of a claimant's assertion in light of the pertinency of the documents or information sought to the subject of the investigation, the practical unavailability of the documents or information from any other source, the possible unavailability of the privilege to the claimant if it were to be raised in a judicial forum, and the committee's assessment of the cooperation of the witness in the matter, among other considerations. A valid claim of attorney-client privilege, free of any taint of waiver, exception, or other mitigating circumstance, would merit substantial weight. Any serious doubt, however, as to the validity of the asserted claim would diminish its compelling character. Moreover, the conclusion that recognition of non-constitutionally based privileges, such as attorney-client privilege, is a matter of congressional discretion is consistent with both traditional British parliamentary and the Congress's historical practice. Although there is limited case law with respect to attorney-client privilege claims before congressional committees, appellate court rulings on the privilege in cases involving other investigative contexts (e.g., grand jury) have raised questions as to whether executive branch officials may claim attorney-client, work product, or deliberative process privileges in the face of investigative demands. These rulings may lead to additional arguments in support of the long-standing congressional practice. The legal basis for Congress's practice in this area is based upon its inherent constitutional prerogative to investigate which has been long recognized by the Supreme Court as extremely broad and encompassing, and which is at its peak when the subject is fraud, abuse, or maladministration within a government department. The attorney-client privilege is, on the other hand, not a constitutionally based privilege, rather it is a judge-made exception to the normal principle of full disclosure in the adversary process which is to be narrowly construed and has been confined to the judicial forum. While no court has recognized the inapplicability of the attorney-client privilege in congressional proceedings in a decision directly addressing the issue, an opinion issued by the Legal Ethics Committee of the District of Columbia Bar in February 1999, clearly acknowledges the long-standing congressional practice. The occasion for the ruling arose as a result of an investigation of a Subcommittee of the House Commerce Committee into the circumstances surrounding the planned relocation of the Federal Communications Commission to the Portals office complex. During the course of the inquiry, the subcommittee sought certain documents from the Portals developer, Mr. Franklin L. Haney. Mr. Haney's refusal to comply resulted in subpoenas for those documents to him and the law firm representing him during the relocation efforts. Both Mr. Haney and the law firm asserted attorney-client privilege in their continued refusal to comply. In addition, the law firm sought an opinion from the D.C. Bar's Ethics Committee as to its obligations in the face of the subpoena and a possible contempt citation. The Bar Committee notified the firm that the question was novel and that no advice could be given until the matter was considered in a plenary session of the committee. The firm continued its refusal to comply until the subcommittee cited it for contempt, at which time the firm proposed to turn over the documents if the contempt citation was withdrawn. The subcommittee agreed to the proposal. Subsequently, on February 16, 1999, the D.C. Bar's Ethics Committee issued an opinion vindicating the action taken by the firm. The Ethics Committee, interpreting D.C. Bar Rule of Professional conduct 1.6(d)(2)(A), held that an attorney faced with a congressional subpoena that would reveal client confidences or secrets has a professional responsibility to seek to quash or limit the subpoena on all available, legitimate grounds to protect confidential documents and client secrets. If, thereafter, the Congressional subcommittee overrules these objections, orders production of the documents and threatens to hold the lawyer in contempt absent compliance with the subpoena, then, in the absence of a judicial order forbidding the production, the lawyer is permitted, but not required, by the D.C. Rules of Professional Conduct to produce the subpoenaed documents. A directive of a Congressional subcommittee accompanied by a threat of fines and imprisonment pursuant to federal criminal law satisfies the standard of "required by law" as that phrase is used in D.C. Rule of Professional conduct 1.6(d)(2)(A). The D.C. Bar opinion urges attorneys to press every appropriate objection to the subpoena until no further avenues of appeal are available, and even suggests that clients might be advised to retain other counsel to institute a third-party action to enjoin compliance, but allows the attorney to relent at the earliest point when he is put in legal jeopardy. The opinion represents the first, and thus far the only, bar in the nation to directly and definitively address the merits of the issue. In the end, of course, it is the congressional committee alone that determines whether to accept a claim of attorney-client privilege. Common law rules of evidence as well as statutory enactments recognize a testimonial privilege for witnesses in a judicial proceeding so that they need not reveal confidential communications between doctor and patient, husband and wife, or clergyman and parishioner. Although there is no court case directly on point, it appears that, like the privilege between attorney and client, congressional committees are not legally required to allow a witness to decline to testify on the basis of other similar testimonial privileges. It should be noted, however, that the courts have denied claims by the White House Counsel's office of attorney work product immunity in the face of grand jury subpoenas that have been grounded on the assertion that the materials sought were prepared in anticipation of possible congressional hearings. In addition, court decisions indicate that various rules of procedure generally applicable to judicial proceedings, such as the right to cross-examine and call other witnesses, need not be accorded to a witness in a congressional hearing. The basis for these determinations is rooted in Congress's Article I Section 5 rulemaking powers, under which each House is the exclusive determiner of the rules of its own proceedings. This rulemaking authority, as well as general separation-of-powers considerations, suggests that Congress and its committees are not obliged to abide by rules established by the courts to govern their own proceedings. Though congressional committees may not be legally obligated to recognize the privilege for confidential communications, they may do so at their discretion. Historical precedent suggests that committees often have recognized such privileges. The decision as to whether or not to allow such claims of privilege turns on a "weighing [of] the legislative need for disclosure against any possible resulting injury." The Supreme Court has observed that "Congress, in common with all branches of the Government, must exercise its powers subject to the limitations placed by the Constitution on governmental action, more particularly in the context of this case, the relevant limitations of the Bill of Rights." There are constitutional limits not only on Congress's legislative powers, but also on its investigative powers. Although the First Amendment, by its terms, is expressly applicable only to legislation that abridges freedom of speech, press, or assembly, the Court has held that the amendment also restricts Congress in conducting investigations. In the leading case involving the application of First Amendment rights in a congressional investigation, Barenblatt v. United States , the Court held that "where First Amendment rights are asserted to bar government interrogation resolution of the issue always involves a balancing by the courts of the competing private and public interests at stake in the particular circumstances shown." Thus, unlike the Fifth Amendment privilege against self-incrimination, the First Amendment does not give a witness an absolute right to refuse to respond to congressional demands for information. The Court has held that in balancing the personal interest in privacy against the congressional need for information, "the critical element is the existence of, and the weight to be ascribed to, the interest of the Congress in demanding disclosure from an unwilling witness." To protect the rights of witnesses, in cases involving the First Amendment, the courts have emphasized the requirements discussed above concerning authorization for the investigation, delegation of power to investigate to the committee involved, and the existence of a legislative purpose. While the Court has recognized the application of the First Amendment to congressional investigations, and although the amendment has frequently been asserted by witnesses as grounds for not complying with congressional demands for information, the Court has never relied on the First Amendment as grounds for reversing a criminal contempt of Congress conviction. However, the Court has narrowly construed the scope of a committee's authority so as to avoid reaching a First Amendment issue. In addition, the Court has ruled in favor of a witness who invoked his First Amendment rights in response to questioning by a state legislative committee. In a 1976 investigation of the unauthorized publication in the press of the report of the House Select Committee on Intelligence, the Committee on Standards of Official Conduct subpoenaed four news media representatives, including Daniel Schorr. The Standards of Official Conduct Committee concluded that Mr. Schorr had obtained a copy of the select committee's report and had made it available for publication. Although the ethics committee found that "Mr. Schorr's role in publishing the report was a defiant act in disregard of the expressed will of the House of Representatives to preclude publication of highly classified national security information," it declined to cite him for contempt for his refusal to disclose his source. The desire to avoid a clash over First Amendment rights apparently was a major factor in the committee's decision on the contempt matter. In another First Amendment dispute, the Special Subcommittee on Investigations of the House Committee on Interstate and Foreign Commerce, in the course of its probe of allegations that deceptive editing practices were employed in the production of the television news documentary program The Selling of the Pentagon , subpoenaed Frank Stanton, the president of CBS, directing him to deliver to the subcommittee the "outtakes" relating to the program. When, on First Amendment grounds, Stanton declined to provide the subpoenaed materials, the subcommittee unanimously voted a contempt citation, and the full committee by a vote of 25-13 recommended to the House that Stanton be held in contempt. After extensive debate, the House failed to adopt the committee report, voting instead to recommit the matter to the committee. During the debate, several Members expressed concern that approval of the contempt citation would have a "chilling effect" on the press and would unconstitutionally involve the government in the regulation of the press. In a more recent case, Carl Ferrer, the chief executive officer of Backpage.com, an online website for classified ads, refused on First Amendment grounds to comply with a subpoena issued by the Permanent Subcommittee on Investigations of the Senate Committee on Homeland Security and Governmental Affairs. The subcommittee had requested documents concerning Backpage.com's screening practices against Internet sex trafficking. Following Mr. Ferrer's refusal to provide the requested documents, the Senate sued to enforce the subpoena in the U.S. District Court for the District of Columbia. Before the court, Mr. Ferrer argued that the subpoena violated the First Amendment because it constituted an abuse of the investigative process; it was part of a "sustained, coordinated, and targeted campaign" to punish protected speech; and it was an "overly broad and unduly burdensome" measure that produced a chilling effect on speech. The district court rejected Mr. Ferrer's arguments. The court determined that Mr. Ferrer "[did] not possess an absolute right to be free from government investigation when there are valid justifications for the inquiry," and that he failed to show, beyond conclusory allegations, that the subpoena intruded into his First Amendment rights. In this respect, the court concluded that enforcement of the subpoena did not directly regulate the content of any protected speech because it only requested information on Backpage.com's efforts to screen out sex trafficking from commercial advertisements on its website. Under these circumstances, the court explained, merely searching for the requested documents had no "impermissible chilling effect" on protected speech. The court noted, moreover, that "[u]nderstanding the magnitude of Internet sex trafficking and how to stop it substantially outweigh[ed] Mr. Ferrer's undefined interests." The court thus determined that the subpoena served a valid legislative purpose that did not simply seek to punish Backpage.com. Finally, the court stated that, while producing documents in response to the subpoena entailed some burden, "[t]here is nothing unusual, unreasonable, or overly broad about requiring a party to search for all responsive documents on a specific subject or topic," particularly where the requested information is relevant to a stated legislative purpose. Accordingly, the court granted the subcommittee's application to enforce the subpoena duces tecum . Although the First Amendment may limit the manner in which Congress may exercise its investigatory authority, this limitation is not absolute. The courts will likely balance a person's right to protected speech against Congress's inherent constitutional authority to obtain information relevant to an investigation. And when Congress uses its investigatory function to advance a valid governmental interest, a person's private interests may be outweighed by the public interest in securing that information. Several opinions of the Supreme Court indicate that the Fourth Amendment's prohibition against unreasonable searches and seizures is applicable to congressional committees; however, there has not been an opinion directly addressing the issue. It appears that there must be a legitimate legislative or oversight-related basis for the issuance of a congressional subpoena. The Fourth Amendment protects a congressional witness against a subpoena which is unreasonably broad or burdensome. The Court has outlined the standard to be used in judging the reasonableness of a congressional subpoena: Petitioner contends that the subpoena was so broad as to constitute an unreasonable search and seizure in violation of the Fourth Amendment.... 'Adequacy or excess in the breath of the subpoena are matters variable in relation to the nature, purposes, and scope of the inquiry'.... The subcommittee' s inquiry here was a relative1y broad one ... and the permissible scope of materials that could reasonably be sought was necessarily equally broad. It was not reasonable to suppose that the subcommittee knew precisely what books and records were kept by the Civil Rights Congress, and therefore the subpoena could only ' specify ... with reasonable particularity, the subjects to which the documents ... relate.... 'The call of the subpoena for 'all records, correspondence and memoranda' of the Civil Rights Congress relating to the specified subject describes them 'with all of the particularity the nature of the inquiry and the [subcommittee's] situation would permit.... 'The description contained in the subpoena was sufficient to enable [petitioner] to know what particular documents were required and to select them adequately. If a witness has a legal objection to a subpoena duces tecum or is for some reason unable to comply with a demand for documents, he must give the grounds for his non-compliance upon the return of the subpoena. As the D.C. Circuit stated: If [the witness] felt he could refuse compliance because he considered the subpoena so broad as to constitute an unreasonable search and seizure within the prohibition of the fourth amendment, then to avoid contempt for complete noncompliance he was under [an] obligation to inform the subcommittee of his position. The subcommittee would then have had the choice of adhering to the subpoena as formulated or of meeting the objection in light of any pertinent representations made by [the witness]. Similarly, if a subpoenaed party is in doubt as to what records are required by a subpoena or believes that it calls for documents not related to the investigation, he must inform the committee. Where a witness is unable to produce documents he will not be held in contempt "unless he is responsible for their unavailability ... or is impeding justice by not explaining what happened to them." The application of the exclusionary rule to congressional committee investigation is in some doubt and appears to depend on the precise facts of the situation. It seems that documents which were unlawfully seized at the direction of a congressional investigating committee may not be admitted into evidence in a subsequent unrelated criminal prosecution because of the command of the exclusionary rule. In the absence of a Supreme Court ruling, it remains unclear whether the exclusionary rule bars the admission into evidence in a contempt prosecution of a congressional subpoena which was issued on the basis of documents obtained by the committee following their unlawful seizure by another investigating body (such as a state prosecutor). Despite the provision's express application to "criminal case[s]" the Supreme Court has indicated that the privilege against self-incrimination afforded by the Fifth Amendment to be available to a witness appearing before a congressional committee. The privilege is personal in nature, and may not be invoked on behalf of a corporation, small partnership, labor union, or other "artificial" organizations. The privilege protects a witness against being compelled to testify but generally not against a subpoena for existing documentary evidence. However, where compliance with a subpoena duces tecum would constitute implicit testimonial authentication of the documents produced, the privilege may apply. There is no required verbal formula for invoking the privilege; nor does there appear to be necessary a warning by the committee. A committee should recognize any reasonable indication, such as "the fifth amendment," that the witness is asserting his privilege. Where a committee is uncertain whether the witness is in fact invoking the privilege against self-incrimination or is claiming some other basis for declining to answer, the committee should direct the witness to specify his privilege or objection. The committee can review the assertion of the privilege by a witness to determine its validity, but the witness is not required to articulate the precise hazard that he fears. In regard to the assertion of the privilege in judicial proceedings, the Supreme Court has advised: To sustain the privilege, it need only be evident, from the implications of the question, in the setting in which it is asked, that a responsive answer to the question or an explanation of why it cannot be answered might be dangerous because injurious disclosure could result.... To reject a claim, it should be 'perfectly clear, from a careful consideration of all the circumstances of the case, that the witness is mistaken, and that the answers cannot possibly have a tendency' to incriminate. The basis for asserting the privilege was elaborated upon in a lower court decision: The privilege may only be asserted when there is reasonable apprehension on the part of the witness that his answer would furnish some evidence upon which he could be convicted of a criminal offense ... or which would reveal sources from which evidence could be obtained that would lead to such conviction or to prosecution therefore ... .Once it has become apparent that the answers to a question would expose a witness to the danger of conviction or prosecution, wider latitude is permitted the witness in refusing to answer other questions. The privilege against self-incrimination may be waived by declining to assert it, specifically disclaiming it, or testifying on the same matters as to which the privilege is later asserted. However, because of the importance of the privilege, a court will not construe an ambiguous statement of a witness before a committee as a waiver. Where a witness asserts the privilege, the full House or the committee conducting the investigation may seek a court order which (a) directs the witness to testify and (b) grants him immunity against the use of his testimony, or other evidence derived from his testimony, in a subsequent criminal prosecution. The immunity that is granted is "use" immunity, not "transactional" immunity. Neither the immunized testimony that the witness gives, nor evidence derived therefrom, may be used against him in a subsequent criminal prosecution, except one for perjury or contempt relating to his testimony. However, he may be convicted of the crime (the "transaction") on the basis of other evidence. The application for the judicial immunity order must be approved by a majority of the House or Senate or by a two-thirds vote of the full committee seeking the order. The Attorney General must be notified at least ten days prior to the request for the order, and he can request a delay of twenty days in issuing the order. Although the order to testify may be issued before the witness's appearance, it does not become legally effective until the witness has been asked the question, invoked his privilege, and been presented with the court order. The role of the court in issuing the order has been held to be ministerial and, thus, if the procedural requirements under the immunity statute have been met, the court may not refuse to issue the order or impose conditions on the grant of immunity. In practice, there have been two recent occasions that a person subject to a congressional subpoena invoked the Fifth Amendment privilege. As discussed in the preceding section regarding the enforcement of criminal contempt resolutions against executive branch officials, former IRS Director of Exempt Organizations Lois Lerner, in 2013, invoked her Fifth Amendment privilege in response to a subpoena requesting her testimony on the agency's policy of targeting conservative political groups. The House Committee on Oversight and Government Reform, which had issued the subpoena, determined that Ms. Lerner waived the privilege when she made an opening statement denying her involvement in any unlawful activity. Ultimately, after the House had voted to adopt the committee's contempt resolution, the DOJ declined to pursue a criminal contempt charge against Ms. Lerner because, in the agency's view, the Fifth Amendment would have foreclosed a successful prosecution against her. Not long after the Lerner case, in 2015, the House Committee on Oversight and Government Reform investigated former Secretary of State Hillary Clinton's use of a private email server to conduct government business during her tenure at the State Department. The committee requested the testimony of Bryan Pagliano, a former senior advisor in the Bureau of Information Resource Management at the State Department, who helped set up and maintain Secretary Clinton's private server. After Mr. Pagliano, through counsel, invoked his Fifth Amendment privilege, committee Chairman Jason Chaffetz issued a subpoena compelling him to appear before the committee on September 13, 2016. Citing his Fifth Amendment privilege, Mr. Pagliano refused to testify before the committee and did not appear at the hearing. Chairman Chaffetz subsequently issued another subpoena compelling Mr. Pagliano's appearance on September 22, 2016. Mr. Pagliano again refused to appear at the hearing. On September 27, 2016, after finding that Mr. Pagliano "willfully failed to comply with a duly issued subpoena," the committee voted 19-15 for a resolution recommending that the House find Mr. Pagliano in contempt of Congress. The members of the committee who opposed the resolution argued that "no legitimate legislative purpose" would be served by forcing Mr. Pagliano to appear before the committee and invoke his Fifth Amendment privilege, when he had previously asserted that right in separate investigations and there was no credible expectation that he would waive it before the committee or that the chairman would seek immunity for Mr. Pagliano. The House has not yet voted to adopt the resolution, but Chairman Chaffetz sent a letter to Attorney General Jeff Sessions on February 16, 2017, requesting the DOJ to "bring the matter before a grand jury for its action or file an information charging Pagliano with violating" the criminal contempt provision. Finally, another recent case demonstrates how Congress's immunity power could be used to eliminate a Fifth Amendment privilege to refuse to comply with a subpoena. Following the 2016 presidential election, Congress began to investigate allegations that Russia influenced the outcome of the election. On February 13, 2017, Michael Flynn, who was serving as President Trump's national security advisor, resigned after revelations that he had failed to inform the Vice President and other White House officials that he had particular discussions with the Russian ambassador to the United States shortly after the election. In March 2017, Mr. Flynn reportedly offered to provide testimony to House and Senate investigators in exchange for immunity from prosecution. For the time being, Congress has not entered into an immunity deal with Mr. Flynn. However, on May 10, 2017, the Senate Select Committee on Intelligence issued a subpoena requesting that Mr. Flynn provide documents related to the panel's inquiry into alleged Russian meddling in the election. If Congress decides to seek immunity, Mr. Flynn may be compelled to produce those documents and any requested testimony, and Mr. Flynn would not be able to invoke his Fifth Amendment privilege. The due process clause of the Fifth Amendment requires that "the pertinency of the interrogation to the topic under the ... committee's inquiry must be brought home to the witness at the time the questions are put to him." "Unless the subject matter has been made to appear with undisputable clarity, it is the duty of the investigative body, upon objection of the witness on grounds of pertinency, to state for the record the subject under inquiry at that time and the manner in which the propounded questions are pertinent thereto." Additionally, to satisfy both the requirement of due process as well as the statutory requirement that a refusal to answer be "willful," a witness should be informed of the committee's ruling on any objections he raises or privileges which he asserts. The tables below contain information on contempt resolutions in the House and Senate and civil enforcement resolutions in the Senate since 1980. The tables include contextual information such as the individuals or organizations charged, the recommending committee, resolution number, and roll call votes related to various actions. Summarized descriptions of the allegations and committee actions are derived from the identified House or Senate Report. CRS has attempted to make the table as comprehensive as possible; however, some relevant citations may not have been identified by CRS's searches. | Congress's contempt power is the means by which Congress responds to certain acts that in its view obstruct the legislative process. Contempt may be used either to coerce compliance, to punish the contemnor, and/or to remove the obstruction. Although arguably any action that directly obstructs the effort of Congress to exercise its constitutional powers may constitute a contempt, in recent times the contempt power has most often been employed in response to non-compliance with a duly issued congressional subpoena—whether in the form of a refusal to appear before a committee for purposes of providing testimony, or a refusal to produce requested documents. Congress has three formal methods by which it can combat non-compliance with a duly issued subpoena. Each of these methods invokes the authority of a separate branch of government. First, the long dormant inherent contempt power permits Congress to rely on its own constitutional authority to detain and imprison a contemnor until the individual complies with congressional demands. Second, the criminal contempt statute permits Congress to certify a contempt citation to the executive branch for the criminal prosecution of the contemnor. Finally, Congress may rely on the judicial branch to enforce a congressional subpoena. Under this procedure, Congress may seek a civil judgment from a federal court declaring that the individual in question is legally obligated to comply with the congressional subpoena. A number of obstacles face Congress in any attempt to enforce a subpoena issued against an executive branch official. Although the courts have reaffirmed Congress's constitutional authority to issue and enforce subpoenas, efforts to punish an executive branch official for non-compliance with a subpoena through criminal contempt will likely prove unavailing in many, if not most, circumstances. Where the official refuses to disclose information pursuant to the President's decision that such information is protected under executive privilege, past practice suggests that the Department of Justice (DOJ) will not pursue a prosecution for criminal contempt. In addition, although it appears that Congress may be able to enforce its own subpoenas through a declaratory civil action, relying on this mechanism to enforce a subpoena directed at an executive official may prove an inadequate means of protecting congressional prerogatives due to the time required to achieve a final, enforceable ruling in the case. Although subject to practical limitations, Congress retains the ability to exercise its own constitutionally based authorities to enforce a subpoena through inherent contempt. This report examines the source of the contempt power, reviews the historical development of the early case law, outlines the statutory and common law basis for Congress's contempt power, and analyzes the procedures associated with inherent contempt, criminal contempt, and the civil enforcement of subpoenas. The report also includes a detailed discussion of two recent information access disputes that led to the approval of contempt citations in the House against then-White House Chief of Staff Joshua Bolten and former White House Counsel Harriet Miers, as well as Attorney General Eric Holder. Finally, the report discusses both non-constitutional and constitutionally based limitations on the contempt power. |
The First Amendment provides that "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof." In some cases, the right to exercise one's religion conflicts with the government's need to enforce a uniform set of laws to ensure a civilized society. The constitutional standard by which laws that burden free exercise are measured has evolved over the last half-century through U.S. Supreme Court decisions. In Sherbert v. Verner and Wisconsin v. Yoder , the Court considered laws that placed a burden on individuals' free exercise rights under a standard that is often referred to as strict scrutiny. Under strict scrutiny, government actions that burden religious exercise must (1) serve a compelling public interest and (2) use the least restrictive means possible. In Sherbert , the Court held that a state could not deny unemployment compensation benefits to a person who was fired because she refused to work on her Sabbath. The Supreme Court held such a denial would violate the Free Exercise Clause, unless it served a compelling interest. Similarly, in Yoder , the Supreme Court held that compulsory school attendance for Amish students was a violation of their Free Exercise rights due to the Amish belief that attendance beyond the eighth grade would expose children to worldly influences dangerous to their salvation. The Supreme Court stated, "there are areas of conduct protected by the Free Exercise Clause of the First Amendment and thus beyond the power of the State to control, even under regulations of general applicability." In 1990, the Supreme Court significantly altered its interpretation of the Free Exercise clause. In Employment Division v. Smith , the Court abandoned the requirement that laws burdening religious exercise have a compelling governmental interest with respect to neutral statutes. In Smith , two employees claimed their Free Exercise rights were violated when they were fired and denied unemployment compensation after ingesting peyote (a hallucinogenic substance regulated by controlled substances laws) for religious purposes. However, the Supreme Court found the controlled substances law was a general criminal provision, neither aimed at inhibiting religious beliefs nor creating an exception for religious practice. The Court held that a compelling interest analysis was an inappropriate constitutional test for neutral laws of general applicability. Congress responded to the Smith decision by enacting the Religious Freedom Restoration Act (RFRA; P.L. 103-141 ) of 1993. RFRA statutorily reinstated the strict scrutiny standard in all circumstances where government actions burdened religious exercise. RFRA provided that the government could substantially burden a person's exercise of religion only if the burden (1) is in furtherance of a compelling governmental interest and (2) is the least restrictive means of furthering that interest. As originally enacted, RFRA applied the strict scrutiny standard for governmental action at the federal, state, and local levels. Congress justified applying strict scrutiny to the states as an exercise of power under section 5 of the Fourteenth Amendment, which grants "Congress the power to enforce, by appropriate legislation, the provisions of this article [guaranteeing individuals equal protection and due process of law]." In Ex Parte Virginia , the Supreme Court explained section 5 of the Fourteenth Amendment as follows: Whatever legislation is appropriate, that is, adapted to carry out the objects the amendments have in view, whatever tends to enforce submission to the prohibitions they contain, and to secure to all persons the enjoyment of perfect equality of civil rights and the equal protection of the laws against State denial or invasion, if not prohibited, is brought within the domain of congressional power. The Court has described Congress's power under section 5 as a "remedial" power because it extends only to "enforc[ing]" the provisions of the Fourteenth Amendment. In City of Boerne, Texas v. Flores , the Supreme Court held RFRA unconstitutional as it applied to states and localities because the statute exceeded Congress's remedial powers to enforce rights under the Fourteenth Amendment. In Boerne , the Court considered whether RFRA could exempt a church from local zoning requirements in a historic district. The Supreme Court held that "by enacting RFRA, Congress had exceeded [its remedial authority under section 5] by defining rights instead of simply enforcing them." The Court explained that Congress's powers under section 5 of the Fourteenth Amendment were limited to the extent that there must be a "congruence and proportionality" between the injury to be remedied and the law adopted to that end. In order to satisfy the Court's "congruence and proportionality" test, Congress must limit the scope of the remedial measure to only those instances where the record clearly demonstrates a pervasive pattern of violations of the Fourteenth Amendment. The Court was unable to find a pattern of the use of neutral laws of general applicability to disguise bigotry and animus against religion, and therefore struck down RFRA as an overbroad response to a relatively non-existent problem. In the wake of Boerne , Congress enacted the Religious Land Use and Institutionalized Persons Act of 2000 (RLUIPA; P.L. 106-274 ). Although similar to RFRA in its restoration of strict scrutiny analysis to free exercise cases, Congress significantly restricted RLUIPA's application in order to conform to the Court's ruling in Boerne . The protections of RLUIPA apply only where states or localities place a substantial burden on religious exercise as a result of a land use regulation, or on the religious exercise of institutionalized persons. The language of RLUIPA broadly defines "religious exercise" as "any exercise of religion, whether or not compelled by, or central to, a system of religious belief." RLUIPA's land use provisions (section 2) are triggered only where the substantial burden is imposed in a program that receives federal funding, affects interstate commerce, or occurs as the result of a land use decision involving an individualized assessment. The protections for institutionalized persons (section 3) are triggered only where the institution receives federal funding or the substantial burden affects interstate commerce. Thus, to avoid the broad exercise of power invalidated by Boerne , Congress specifically delineated the narrow application of the RLUIPA protections in order to ground the statute in Congress's powers under the Spending Clause, the Commerce Clause, and the Fourteenth Amendment. Although grounded under different constitutional authority than RFRA, RLUIPA provides the same two-part standard of protection. That is, government actions that impose a substantial burden on religious exercise must (1) serve a compelling government interest and (2) use the least restrictive means to achieve that interest. The party asserting the violation under RLUIPA must prove that the government has placed a substantial burden on religious exercise. The U.S. Supreme Court has interpreted a "substantial burden" as a burden that requires an individual to modify his behavior in violation of his religious beliefs in order to comply with legal requirements. Once a substantial burden is proven, the government must show that the imposition of the burden furthers a compelling governmental interest and is the least restrictive means of furthering that interest. RLUIPA specifically includes the "use, building, or conversion of real property for the purpose of religious exercise" in its definition of religious exercise. In part, Congress enacted RLUIPA to address challenges to zoning ordinances based on religious exercises. Congress recognized that places of assembly are needed to facilitate religious practice, and that zoning regulations may be used to prevent religious groups from using land for such purposes. RLUIPA's legislative history shows that Congress had amassed a record containing numerous instances of targeted discrimination against religious groups evidenced by denial of conditional building permits through discretionary individual assessments and land use regulations. Unlike the institutionalized persons portion of RLUIPA, which only applies when the institution receives federal funding or where the burden affects interstate commerce, the land use portion of RLUIPA also applies wherever the substantial burden is imposed as a result of a land use regulation involving individualized assessments. The repeated denial of a religious group's application for a conditional use permit may violate RLUIPA where the group agrees to, and cooperates with, the zoning boards proposed conditions. In Guru Nanank Sikh Society v. County of Sutter , a Sikh group challenged the Sutter County Planning Commission's decision to deny the group a conditional use permit to build a religious temple. Guru Nanak initially applied for a permit to build the temple on a parcel of land adjacent to a residential area. The county denied this permit citing traffic and noise concerns. Guru Nanak then applied for a permit to build its temple on a much larger, rural parcel of land, consistent with certain conditions laid out by the county. The county again denied the application citing a concern over "leapfrog" development. The U.S. Court of Appeals for the Ninth Circuit found that the county's inconsistent treatment of the group's application—first denying the group's application for its proximity to a residential neighborhood, then denying the group's second application for being too far from the city center—had significantly "lessened the prospect of Guru Nanak being able to construct a temple in the future," and therefore imposed a substantial burden on the group's religious exercise. The county presented no argument that it had a compelling interest in denying the building permit and imposing the substantial burden, nor that the restriction was narrowly tailored. RLUIPA also may be violated where the stated reasons for the denial of a religious group's conditional use construction permit are arbitrary and capricious. In Westchester Day School v. Village of Mamaroneck , the U.S. Court of Appeals for the Second Circuit ordered a town to grant a Jewish private school's application for a conditional use permit to expand its facilities. The court held that the zoning board's consideration of the school's application was characterized by a "blindness to the facts" and was arbitrary and capricious under New York law because the denial bore no relation to public health, safety, or welfare. The court also engaged in a detailed analysis of what constitutes a "substantial burden." The court applied three factors in considering whether a burden was "substantial": (1) whether the denial was arbitrary and unlawful; (2) whether "quick, reliable, and financially feasible alternatives" exist to meet the groups religious needs; and (3) whether the denial was conditional or absolute. Because the expansion was necessary to fulfill the educational and religious needs of the school and because the zoning board's decision was final, the court held that the denial of the school's conditional use permit constituted a substantial burden. The school having demonstrated the existence of a substantial burden on religious exercise, the court next turned to whether the village could show a compelling interest. The court rejected the village's argument that it had a compelling interest in enforcing zoning and traffic regulations, holding that the village "must show a compelling interest in imposing the burden on religious exercise in the particular case at hand, not a compelling interest in general." Government entities have repeatedly responded to suits brought pursuant to section 2 of RLUIPA by challenging the constitutionality of RLUIPA. Several appellate courts, however, have upheld the land use provisions of RLUIPA in the face of these challenges, holding that the statute is a legitimate use of power under the Commerce Clause or section 5 of the Fourteenth Amendment, and does not violate either the Establishment Clause or the Tenth Amendment. The Second Circuit has upheld the land use provisions of RLUIPA as a legitimate use of Congress's power under the Commerce Clause. Under RLUIPA, heightened scrutiny protections apply where the specific burden placed on religious exercise affects interstate commerce. This jurisdictional element "must be demonstrated in each case" in order to trigger heightened scrutiny. The Second Circuit noted that the Supreme Court has upheld the inclusion of this type of "jurisdictional element" as a valid use of the Commerce Clause, which only requires the effect on commerce to be minimal. Claims brought under the land use section of RLUIPA involving the denial of a proposed construction or expansion project will likely satisfy this "minimal effect" requirement as "commercial building construction is activity affecting interstate commerce." The Ninth and Eleventh Circuits have upheld the application of RLUIPA's land use provisions to individualized assessments of a proposed property use as a legitimate use of Congress's section 5 enforcement power under the Fourteenth Amendment. Congress was able to provide ample evidence to demonstrate a history and pattern of unconstitutional intrusion on religious exercise through the denial of conditional use permits sufficient to satisfy the "congruence and proportionality" test used by the Supreme Court in Boerne . Where Congress had failed to present a record of demonstrated abuses sufficient to justify the broadly applied RFRA, the narrowly tailored RLUIPA "targets only regulations that are susceptible, and have been shown, to violate individuals' religious exercise." Thus, the narrow prohibitions under the land use section of RLUIPA are a "congruent and proportional" remedy to the documented pattern of the purposeful exclusion of unwanted religious groups through the denial of conditional use permits. The Second and Eleventh Circuits have also held that the land use provisions of RLUIPA do not violate either the Establishment Clause or the Tenth Amendment. The court applied the Supreme Court's Establishment Clause test from Lemon v. Kurtzman in holding that the land use provisions of RLUIPA have a secular purpose with a principal effect that neither advances nor inhibits religion and do not foster an excessive entanglement between government and religion. According to the Second Circuit, RLUIPA does not advance religion simply by removing barriers to an individual's constitutionally protected right to freely exercise his religious beliefs. The court cited the Supreme Court's decision in Cutter v. Wilkinson in characterizing the desire to "lift government-created burdens on private religious exercise" as a secular purpose. The Second Circuit has also rejected the contention that RLUIPA violates the Tenth Amendment. The Court noted that nothing in RLUIPA compels the states to prohibit or require particular acts. The statute simply "leaves it to each state to enact and enforce land use regulations as it deems appropriate so long as the state does not substantially burden religious exercise in the absence of a compelling interest achieved by the least restrictive means." Though the proponents of RLUIPA recognized the possibility of frivolous lawsuits, they nevertheless believed it was necessary to give heightened protection to religious practice by institutionalized persons: Far more than any other Americans, persons residing in institutions are subject to the authority of one or more local officials. Institutional residents' right to practice their faith is at the mercy of those running the institution and their experience is very mixed. It is well known that prisoners often file frivolous claims; it is less well known that prison officials sometimes impose frivolous or arbitrary rules. Whether from indifference, ignorance, bigotry, or lack of resources, some institutions restrict religious liberty in egregious and unnecessary ways. The institutionalized persons provisions of RLUIPA apply to any facility that accepts federal funding. As of 2005, every state accepted federal funding for its prison system. Although most challenges under these provisions arise from incarcerated individuals, the statute also covers any federally funded pre-trial detention facility, juvenile detention center, long term care center, or institution for the mentally ill, disabled, retarded, chronically ill, or handicapped. U.S. appellate courts have followed a distinctly different interpretation of RLUIPA's compelling interest test where an inmate claims a prison has placed a substantial burden on his religious exercise. The legislative history behind the institutionalized persons segment of RLUIPA states that courts should consider the compelling interest test with "due deference to the experience and expertise of prison and jail administrators in establishing necessary regulations and procedures to maintain good order, security and discipline, consistent with consideration of costs and limited resources." This history interjects aspects of safety, security, discipline, and economic feasability into the consideration of the existence of a compelling interest. No such formula exists in RLUIPA's land use section. A prison's failure to provide an inmate with a kosher diet does not violate RLUIPA where the prison's budget is inadequate to provide alternative menus. In Baranowski v. Hart , the U.S. Court of Appeals for the Fifth Circuit held that although the lack of a kosher diet places a substantial burden on the religious exercise of a Jewish inmate, the prison policy was narrowly tailored to a compelling interest. In giving deference to the prison administrators, the court held that if the prison were made to undertake the expense of an alternative kosher menu, the prison's "ability to provide a nutritionally appropriate meal to other offenders would be jeopardized." Because the decision not to provide a kosher diet is related to the compelling interest of controlling costs, and because the "budgetary interests at stake cannot be achieved by any different or lesser means," the prison was not in violation of RLUIPA. The institutionalized persons provisions of RLUIPA are most often justified as a legitimate use of Congress's power under the Spending Clause. In Madison v. Virginia , the U.S. Court of Appeals for the Fourth Circuit specifically upheld RLUIPA as a valid use of Congress's power to set conditions on the receipt of federal funds. In reaching that decision, the court applied the Supreme Court's Spending Clause test set forth in South Dakota v. Dole . The Dole Court laid out five requirements for the valid use of conditional funding: (1) the condition itself must advance the general welfare; (2) Congress must clearly define the condition, allowing states to make an informed decision about whether to accept funding; (3) the condition must be related to the same federal interest advanced by the funding; (4) the conditioned funds may not be used to induce states to participate in an unconstitutional activity; and (5) the financial inducement offered by Congress cannot be so large as to be coercive. The Fourth Circuit had "no trouble concluding" that Congress's intent to protect the religious exercise of institutionalized persons was in furtherance of the general welfare and that the conditions for receipt of federal funding were clear and unambiguous. The court also found that the protection of prisoners' religious liberties was sufficiently related to the receipt of federal prison funding. The Fourth Circuit rejected Virginia's argument that Dole ' s "unconstitutional condition" requirement barred Congress from setting conditions on the states that it did not otherwise have the authority to impose. Instead, the court held that the Spending Clause grants Congress the power to achieve goals not otherwise enumerated within its Article I powers as long as Congress does not induce the states to "engage in activities that would themselves be unconstitutional." According to the court, RLUIPA had not induced the states to engage in any unconstitutional activities. Finally, the court determined that the conditional funding of RLUIPA did not constitute a coercive financial inducement. The record showed that the Virginia Department of Corrections received only 1.3% of its total prison funding from the federal government. Although Virginia argued that the condition was coercive because Congress was threatening to withdraw the entirety of the state's federal prison funding, the court was unpersuaded that Virginia's "capacity for free choice" could be overcome by such a limited financial loss. Although RLUIPA's constitutionality has been frequently litigated since its inception in 2000, the Supreme Court has granted certiorari only on the narrow issue of whether the institutionalized persons section of the statute violates the Establishment Clause. In Cutter v. Wilkinson , the Court held that section 3 of RLUIPA was a "permissible government accommodation of religious practices" that did not violate the Establishment Clause. The Court did not opine on the constitutionality of section 2's land use provisions, nor did it consider the validity of the institutionalized persons provisions under the Commerce Clause or Spending Clause. The Court held that section 3 of RLUIPA was compatible with the Establishment Clause because it alleviated "exceptional government-created burdens on private religious exercise." The Court explained that RLUIPA "confers no privileged status on any particular religious sect, and singles out no bona fide faith for disadvantageous treatment." The Court noted that RLUIPA did not "elevate accommodation of religious observances over an institution's need to maintain order and safety" and stated that RLUIPA could be "applied in an appropriately balanced way, with particular sensitivity to security concerns." The Court also rejected the lower court's determination that RLUIPA violated the Establishment Clause because it "'impermissibly advance[d] religion by giving greater protection to religious rights than to other constitutionally protected rights,'" citing precedent where the Court held that religious accommodations need not "'come packaged with benefits to secular entities.'" The Court, recognizing the "room for play in the joints" between providing for free exercise and establishing a religion, placed RLUIPA in the legitimately available "space for legislative action neither compelled by the Free Exercise Clause nor prohibited by the Establishment Clause." Courts generally have upheld RLUIPA as a valid use of Congress's power under the Commerce Clause, Spending Clause, or section 5 of the Fourteenth Amendment, and have rejected challenges to the law under the Tenth Amendment and the Establishment Clause. The Supreme Court has played a limited role in RLUIPA litigation—holding only that the institutionalized persons provisions of the statute do not violate the Establishment Clause. As of the date of this writing, no appellate court has struck down the provisions of RLUIPA on constitutional grounds, and with the absence of a circuit split on the topic at this time, it appears unlikely that the Supreme Court will consider RLUIPA in the near future. | The constitutional standard by which laws that burden an individual's First Amendment right to exercise his religion are measured has evolved over the last half-century through U.S. Supreme Court decisions and legislative action by Congress in response to those decisions. After decades of requiring that laws burdening the free exercise of religion be subject to heightened judicial review, the Court reinterpreted that constitutional standard in the 1990 case of Employment Division v. Smith, deciding that the First Amendment provided narrower protection than the Court had previously recognized. In Smith, the Court held that the strict scrutiny standard of review, which required a compelling governmental interest achieved by the least restrictive means, did not apply to neutral laws that applied to society generally. Under Smith, heightened review (sometimes referred to as strict scrutiny) applies only to cases that involve religious claims for exemption in programs that allow for individualized assessments, cases that involve deliberate governmental targeting of religion, or cases in which a Free Exercise claim is joined with another constitutional claim. A constitutional standard is a baseline of protection, but Congress may raise that standard to provide heightened protection by statute. After Smith narrowed the protections provided under the Constitution, Congress sought to reinstate the heightened standard of review statutorily. Congress enacted legislation that created a statutory standard of review that would apply, first through the Religious Freedom Restoration Act of 1993 (RFRA; P.L. 103-141), which applied heightened judicial review to all federal, state, and local government actions. In the 1997 case of City of Boerne v. Flores, the Court struck down as unconstitutional portions of RFRA that applied to state and local government actions. Congress responded later through the Religious Land Use and Institutionalized Persons Act of 2000 (RLUIPA; P.L. 106-274), which applies heightened review to state and local government actions in limited types of cases. The heightened standard of review provided by RLUIPA applies to state and local government actions that (1) restrict religious exercise through zoning laws, or (2) restrict the religious exercise of institutionalized persons. In order to avoid federal interference with state governments, which had proved fatal to portions of RFRA, Congress further limited the application of heightened review provided by RLUIPA to certain instances within these two categories of state and local action. The heightened standard of review under RLUIPA therefore applies only in (1) instances in which Congress exercises power under the Spending Clause, Commerce Clause, or section 5 of the Fourteenth Amendment, and (2) instances in land use cases in which decisions are made based on a case-by-case assessment of particular properties. Since its enactment in 2000, RLUIPA has been challenged several times in federal court. Most courts have upheld RLUIPA as constitutional under the Spending Clause, Commerce Clause, section 5 of the Fourteenth Amendment, and the Establishment Clause. This report provides background on RFRA and discusses the provisions of RLUIPA and its related case law. |
The U.S. Department of Veterans Affairs (VA) offers a broad range of benefits to veterans of the U.S. Armed Forces and to certain members of their families. Among these benefits are various types of financial assistance, including monthly cash payments to disabled veterans, health care, education, and housing. Certain criteria must be met to be eligible to receive any of the benefits administered by the VA. This report focuses on basic eligibility and entitlement requirements for former servicemembers for benefits administered by the VA. Certain VA benefits are available to current servicemembers, and the eligibility requirements for those benefits are not a component of this report. The VA uses a two-step process to evaluate claims for benefits. First, the claimant must demonstrate eligib i l ity for veterans' benefits in general. That is, the claimant must prove that he or she is a bona fide veteran and verify certain related matters. Second, the veteran must prove entitlement to the particular benefit being sought. To be eligible for most VA benefits, the claimant must be a veteran or, in some circumstances, the survivor or the dependent of a veteran. By statute, a veteran is defined as a "person who served in the active military, naval, or air service, and who was discharged or released therefrom under conditions other than dishonorable." In evaluating the evidence to determine whether the claimant is a veteran for the purposes of VA benefits, the VA relies upon military service records. The VA is bound by information that the service documents contain. Such records may include an original military service record; a copy issued by the military service with the certification that it is a true document; or a copy submitted by an accredited agent, attorney, or service representative with special training, who certifies that it is a copy of an original military service document or a copy of a copy of such a document. In addition, the document must contain data regarding the length, time, and character of the service, and the VA must believe that the document is genuine and accurate. If the claimant does not provide the requisite documentation or other evidence, or the submitted documentation does not meet the requirements, the VA must seek to verify the claimant's military service directly from the appropriate military service. A claimant must have "active military, naval, or air service" to be considered a veteran for most VA benefits. However, not all types of service are considered active military service for this purpose. In general, active service means full-time service, other than active duty for training, as a member of the Army, Navy, Air Force, Marine Corps, and Coast Guard; as a commissioned officer of the Public Health Service; or as a commissioned officer of the National Oceanic and Atmospheric Administration or its predecessors. Active service also includes a period of active duty for training during which the person was disabled or died from an injury or disease incurred or aggravated in the line of duty and any period of inactive duty for training during which the person was disabled or died from an injury incurred or aggravated in the line of duty or from certain health conditions incurred during the training. Additional circumstances of service, and whether they are deemed to be active military service, are set out in law. For example, if on authorized travel to and from the performance of active duty training or inactive duty for training, a person is disabled or dies, the duty will be considered to be active duty for training or inactive duty for training. The determination of whether a claimant has met the active service requirement may not be a simple process. The claimant and the VA may have to scrutinize the claimant's service records to determine whether the claimant's service fits into one of the many categories of active service, or whether an exception has been made for his or her service, so that it is considered to be active service for the purposes of veterans' benefits. In addition, a claimant may have more than one period of service, which may further complicate the determination. For people who enlisted prior to September 8, 1980, no minimum length of service is necessary to be considered a veteran for most VA benefits. However, certain minimum length of service requirements apply to people who enlisted on or after September 8, 1980. The general requirement is the "full period" for which the servicemember was called or ordered to active duty or, if less, 24 months of continuous active duty. Several exceptions exist to this rule. For example, service-connected disability compensation benefits are exempt from the length of service requirement. Thus, a veteran with a disease or injury incurred during active service generally may receive service-connected compensation for that disability. Other exceptions to the minimum service requirements include claims for VA life insurance benefits, hardship discharges, and persons retired or separated from service because of a service-related disability. If the former servicemember did not serve for the full period of active duty and served less than 24 months, and none of the statutory exceptions apply, then the veteran did not complete a minimum period of active duty and is "not eligible for any benefit under Title 38, United States Code or under any law administered by the Department of Veterans Affairs based on that period of active service." The statutory definition of veteran requires that the individual be discharged or released from military service "under conditions other than dishonorable." There are currently five types of discharges issued by the military services: 1. honorable discharge (HD), 2. discharge under honorable conditions (UHC) or general discharge (GD), 3. discharge under other than honorable conditions (UOTHC) or undesirable discharge (UD), 4. bad conduct discharge (BCD), and 5. dishonorable discharge (DD). The statutory definition of veteran does not precisely match those five categories of the discharges, and the VA often determines on a case-by-case basis whether the claimant's discharge qualifies as under conditions other than dishonorable. In most cases, the VA considers honorable discharges and discharges under honorable conditions (the first two of the five categories) to be conditions other than dishonorable and will usually qualify a claimant as a veteran under the first step of the eligibility test, which usually qualifies a veteran for most benefits. A bad conduct discharge from a special court-martial and other discharges made under other than honorable conditions do not always disqualify the claimant from being considered a veteran for purposes of benefits eligibility. In the case of such a discharge, the VA makes a special "character of service determination," based on the facts of the case. The VA reviews the entire period of the claimant's enlistment to assess the quality of the service and to determine whether it is sufficient to qualify the discharge as being under conditions other than dishonorable. If a claimant has served more than one period of enlistment, different discharge categories may be specified for each period. Dishonorable and bad conduct discharges issued by general courts-martial may bar VA benefits. Veterans in prison and parolees may be eligible for certain VA benefits and must contact the VA to determine eligibility. VA benefits are not provided to any veteran or dependent wanted for an outstanding felony warrant. Benefits are awarded in some cases even when the character of the discharge would ordinarily make the individual ineligible. For example, if the claimant is found to have been insane at the time of the offense leading to the discharge, VA benefits may be granted. There does not need to be a direct connection between the insanity and the misconduct. All military service is classified as either wartime or peacetime service. The type of service may affect eligibility for VA benefits. For example, only veterans with wartime service qualify for Improved Pension, which pays benefits to low-income veterans who are either elderly or non-service-connected disabled veterans. Periods considered "wartime" for the purposes of veterans' benefits are defined in law. Veterans who served during those periods are considered to have "served during wartime" by the VA, even if the service was not in a combat zone. Those time periods not designated by Congress as wartime are considered to be peacetime. If a veteran served partly during wartime and partly during peacetime, the veteran meets the wartime criteria if he or she served 90 consecutive days, at least one day of which occurred during a period designated as wartime. Congress has designated eight wartime periods: Indian Wars —January 1, 1817, through December 31, 1898; Spanish-American War —April 21, 1898, through July 4, 1902; Mexican Border Period —May 19, 1916, though April 5, 1917; World War I —in general, April 6, 1917, through November 11, 1918; extended to later dates under certain conditions; World War II —December 7, 1941, through December 31, 1946; extended through July 25, 1947, for veterans in service on December 31, 1946; Korean Conflict —June 27, 1950, through January 31, 1955; Vietnam Era —in general, August 5, 1964, through May 7, 1975, but the period begins on February 28, 1961, for veterans who served in the Republic of Vietnam during that period ; Persian Gulf War —August 2, 1990, through a date to be prescribed by presidential proclamation or law. To be eligible for VA benefits, members of the National Guard and the reserve components must meet the same standards as other claimants. In many cases, however, they do not meet the active duty standard or length of service standard and are therefore ineligible for VA benefits. Members of the National Guard and reserves who are never activated for federal active duty military service do not meet the active duty requirement. National Guard and reserve members who are called to active duty and serve the full period for which they are called meet both the active service and length of duty requirements. National Guard and reserve members also qualify as veterans for the purposes of VA benefits if they are disabled or die from a disease or injury incurred or aggravated in the line of duty. National Guard and reserve members may qualify as veterans for the purposes of VA benefits under other circumstances, which adds to the complexity of the eligibility determination. For example, under certain conditions Guard and reserve members may be eligible for education benefits (through the Reserve Educational Program or the Post-9/11 GI Bill) and home loans from the VA (with six years of service in the Selected Reserves or National Guard). Eligibility under these special cases is usually determined by the VA after reviewing the individual servicemember's military service records. Some groups of civilians who participated in World War I and World War II are also eligible for VA benefits. The GI Bill Improvement Act of 1977 ( P.L. 95-202 ) recognized the service of the Women's Air Forces Service Pilots, a civilian group, as active service for benefits administered by the VA. That law also provided that the Secretary of Defense could determine that service for the Armed Forces by a group of civilians or contractors be considered active service for benefits administered by the VA. Based on the provisions of P.L. 95-202 , the Secretary of Defense established that the Secretary of the Air Force would develop and maintain the process to determine if the wartime employment of certain groups of individuals is considered active duty military service for the purpose of receiving certain veterans' benefits. If these groups are considered to be active duty by the Secretary, they are eligible to receive certain benefits, including health care. Regulations implementing P.L. 95-202 specify which groups the Secretary has determined were employed in active duty service. The regulations also established the Department of Defense Civilian/Military Service Review Board and Advisory Panel to review each application for active duty status. Following its review, the board recommends to the Secretary whether the applicant group should be considered active duty for the purposes of the act; the Secretary makes the final decision. Changes and clarification to the regulations were implemented in 1989 in response to "a Federal Court determination [ Schumacher v. Aldridge ] that the Department of Defense had failed to clarify factors and criteria in their implementing directive concerning P.L. 95-202 ." To date, only certain groups who participated in World War I and World War II have been accorded active duty status under this procedure, including Women's Air Force Service Pilots (WASPs), Signal Corps Female Telephone Operators Unit (World War I), Engineer Field Clerks (World War I), Male Civilian Ferry Pilots (World War II), and other groups of employees with war-related occupations. Civilian groups granted veterans status pursuant to P.L. 95-202 are eligible for VA burial benefits including interment or inurnment in VA National Cemeteries. Pursuant to legislation enacted on May 20, 2016 ( P.L. 114-158 ), these veterans are eligible for inurnment in the Columbarium or Niche Wall at Arlington Cemetery but not ground burial. Merchant mariners are civilians who engage in certain maritime activities, such as the transportation of military equipment by sea, in support of the armed forces. In general, merchant mariners are not considered veterans for the purposes of any VA benefits. However, pursuant to regulations promulgated in accordance with P.L. 95-202 , the following groups of merchant mariners are considered veterans for purposes of eligibility for all programs administered by the VA: United States Merchant Seamen who served on blockships in support of Operation Mulberry in World War II; and American Merchant Marine personnel who served in oceangoing service during the period of armed conflict between December 7, 1941, and August 15, 1945. In addition, pursuant to Section 402 of the Veterans Programs Enhancement Act of 1998 ( P.L. 105-368 ), merchant mariners may qualify for interment or inurnment at a VA National Cemetery and VA burial benefits only if they were members of the United States Merchant Marine, Army Transport Service, or Naval Transport Service who served between August 16, 1945, and December 31, 1946. | The U.S. Department of Veterans Affairs (VA) offers a broad range of benefits to U.S. Armed Forces veterans and certain members of their families. Among these benefits are various types of financial assistance, including monthly cash payments to disabled veterans, health care, education, and housing. Basic criteria must be met to be eligible to receive any of the benefits administered by the VA. This report examines the basic eligibility criteria for VA administered veterans' benefits, including the issue of eligibility of members of the National Guard and reserve components. For a former servicemember to receive certain VA benefits, the person must have active U.S. military service for a minimum period of time, generally the lesser of the full period ordered to active duty or 24 months, and be discharged "under conditions other than dishonorable." Some members of the National Guard and reserve components have difficulty meeting the active duty and length of service requirements. However, a member of the National Guard or reserve components who is activated for federal military service and meets the length of service requirement is considered a veteran for purposes of VA benefits. The Secretary of Defense may determine that service for the Armed Forces by a group of civilians or contractors will be considered active service, allowing members of those groups to be considered veterans for purposes of VA benefits. Such determinations, authorized by the GI Bill Improvement Act of 1977 (P.L. 95-202), have been made only for groups involved in World War I and World War II. |
Policy makers are concerned about the wealth of U.S. families because of the relationship between wealth and economic well-being. Wealth is a store of future income that serves a critical economic security function. In times of economic hardship, such as unemployment, illness, or divorce, wealth is an additional source of income to help pay expenses and bills. For older individuals, wealth is an important source of retirement income. In addition, wealth is a significant factor influencing the strength of economy-wide consumer spending, which in turn sets the pace of economy-wide recovery and job creation. Moreover, deliberations by Congress on such issues as taxation, education, housing, and entitlements could have implications for the accumulation of wealth by families. To help inform these policy debates, this report analyzes data from 1989 to 2013 of the Survey of Consumer Finances (SCF) on the trend in the level and concentration of wealth across families. The report subsequently examines the roles of financial assets and home ownership in wealth accumulation. It concludes with a review of explanations for the accumulation and distribution of wealth across families. Data regarding family wealth are very limited. Some data are available from estate tax returns, but these reflect only the small proportion of the population that is subject to the tax. The U.S. Census Bureau periodically reports on net worth and asset ownership, but the data are drawn from the Survey of Income and Program Participation, which over samples lower-income families. As a result, the Census Bureau data on wealth underestimate average (mean) and total family wealth. The most comprehensive source of data on the wealth of U.S. families is the SCF. The Federal Reserve Board (Fed), in cooperation with the Treasury Department, sponsors the SCF. Since 1992, data for the SCF have been collected by NORC, a research organization at the University of Chicago. The survey is conducted every three years, collecting detailed statistics not only on the level, but also the composition of family assets, liabilities, and before-tax income. In the SCF, wealth is measured by net worth (i.e., total value of assets minus total value of liabilities). The SCF counts both financial and nonfinancial (real) assets. Financial assets include the value of checking and savings accounts; stocks, bonds, and mutual funds; annuities and life insurances; and tax-deferred retirement accounts (e.g., individual retirement accounts and 401(k) accounts). Real assets include the value of principal residences, corporate and non-corporate businesses, vehicles (e.g., cars, trucks, boats, and airplanes), and miscellaneous valuables (e.g., antiques, jewelry, and coins). Liabilities include home mortgages and consumer debt (e.g., credit card balances and auto and student loans). Because of the substantial uncertainty associated with estimating the current value of families' future income streams from Social Security, Medicare, and defined benefit private pensions, these assets are not included in the SCF calculation of family net worth. Some argued that these are assets families have no direct control over and, therefore, are inconsistent with a concept of wealth as a marketable store of value that could be a source of potential consumption. The SCF has been criticized for these exclusions. Others have argued that some items the SCF counts toward net worth (e.g., vehicles) should be excluded. At least one researcher has constructed estimates of net worth that include pension and Social Security benefits, but exclude vehicles. To improve the accuracy of its data, the SCF uses a sample design consisting of two parts: (1) a standard, geographically based random sample and (2) a supplemental oversample of relatively wealthy families drawn from a list of statistical records derived from Internal Revenue Service (IRS) data. The over sampling of these families provides a means of correcting for nonresponse, which is differentially higher among families with high net worth. Correcting for nonresponse bias in wealth estimates makes the SCF better able than other surveys to gather complete and detailed information on high-income and high-net worth families. Two summary measures commonly used to describe the level and concentration of wealth are median and mean net worth. If all wealth-owning families are ranked from poorest to richest, median net worth is that of the family in the middle of the distribution. Put another way, it is the value at which one-half of families in the distribution have less wealth and one-half have more wealth. In the case of wealth distribution, the median is a more reliable indicator of the wealth of the "typical" family than the mean because of the way in which a mean is calculated. To derive mean net worth, the value of all wealth owned by families is added up and then divided by the total number of families. If a minority of high-wealth families own more than one-half of all wealth, the mean will be greater than the median. The difference between the median and mean indicates the general shape of a distribution. According to SCF data shown in Table 1 , mean family net worth in each year was substantially greater than median net worth. The mean ranged from almost four to more than six times the median during the 1989-2013 period. As explained above, such a relationship indicates considerable concentration of wealth among families in the upper half of the wealth distribution. Mean family net worth typically increased to a greater extent than median family net worth from 1992 through 2007, which suggests that the wealth distribution became more concentrated at the upper end of the distribution over time. Since 2007, reflecting the negative impact of the deep 2007-2009 recession and the subsequent slow recovery on income and asset prices, both measures decreased (see Table 1 ). Between 2007 and 2013, median family net worth declined by 40.0% and mean net worth declined by 14.6%. The median declining less than the mean indicates net worth decreased more, on average, for those in the lower half of the wealth distribution. The decrease in median net worth to $81,200 in 2013 dropped median family wealth almost to its level 21 years earlier ($80,500 in 1992). Mean net worth of $534,600 in 2013 was essentially unchanged from its value in 2010, remaining near the level of net worth reached 12 years earlier ($521,900 in 2001). That median net worth declined and mean net worth was unchanged between 2010 and 2013 was the result of a continuing general decline in asset prices, notably housing prices. The median family's total asset holdings fell 11%, from $200,600 in 2010 to $177,900 in 2013. The mean total asset holdings fell a more modest 3%, from $656,200 in 2010 to $638,900 in 2013. Helping to offset falling asset prices' negative effect on net worth was a substantial decrease in families' debt holdings between 2010 and 2013. The median family's debt holdings fell 20%, from $75,800 in 2010 to $60,400 in 2013. The mean value of debt holdings decreased 13%, from $140,000 in 2010 to $122,300 in 2013. A more detailed picture of the distribution of family wealth emerges from examining the share of total net worth held by various percentiles of the wealth distribution. The top 3% of families accounted for 54.4% of total net worth in 2013. The next 7% of families held 20.9% of all wealth. Taken together then, the top 10% of wealth-owning families accounted for a 75.3% share of total net worth, and the share of wealth held by the bottom 90% was 24.7% in 2013. Family net worth appears to have become more concentrated in recent decades. According to SCF data, the wealth share of the top 3% increased from 44.8% in 1989 to 51.8% in 2013. The share of net worth of the next 7% was 20.9%, effectively unchanged since 1989. Therefore, taken together the share of wealth held by the top 10% of wealth owners grew from 67.2% in 1989 to 75.3% in 2013. A decline in the share of net worth occurred in the remaining 90% of families, falling from 33.2% in 1989 to 24.7% in 2013. In addition to accumulating wealth through saving of current income, those who own assets may see their wealth grow or shrink due to rising or falling asset prices. The distribution of such assets as stocks and homes has implications for who benefits from asset appreciation and who is harmed by asset depreciation. The appreciation of stock values during the 1990s and of home values into the first decade of the 21 st century appears to have substituted for saving from current income as a means of increasing family wealth. A number of studies estimated a close connection between the decline in the household saving rate during the 1990s and the rapid rise in equity prices. Empirical analyses similarly estimated that appreciation in housing prices through the mid-2000s drove up the value of residential assets, which substituted for saving out of current income as a way to accumulate wealth. The median value of stock owned by families tripled in real terms between 1989 and 2001. Once equity prices stopped steadily increasing after 2000, the rapid rise in housing prices through 2006 appears to have kept the saving rate low. Whereas the real median value of stock fell by 16% between 2001 and 2007, the median value of primary residences rose by 39% over the same period. Although the share of families owning their primary residences grew much less (5 percentage points to 69%) than the share of families directly owning stock (19 percentage points to 51%) between 1989 and 2007, residential assets are more widely distributed than stock. In 2007, the wealthiest 10% of families held 38.5% of the gross equity in principal residences compared with 90.4% of the value of stock. Families in the next 40% of the distribution (the 50 th to 90 th percentile) held 48.9% of the gross equity in principal residences compared with 9.0% of the value of stock. Thus, if appreciation in house prices substituted for saving out of current income, it did so for a much larger proportion of the population than did stock price appreciation. Specifically, families in the upper half of the wealth distribution stood to benefit more than others from rising house prices whereas the top 10% of wealth-owning families stood to benefit the most from rising stock prices. The 2007 SCF was completed as the economy entered a financial crisis. Because results from the 2010 SCF were not going to be available until 2012, respondents to the 2007 survey were reinterviewed shortly after the December 2007-June 2009 recession ended to assess its impact on the wealth of U.S. families. According to results (released in March 2011) from the reinterview of SCF families who had originally been interviewed in 2007, 63% of families (the majority) experienced a loss in net worth between 2007 and 2009. The median percentage decrease in net worth among these families was 45%. The broad-based downward shift of the wealth distribution between 2007 and 2009 was reflected in reductions in median and mean summary measures. The drop in median net worth (23%) was greater than the drop in mean net worth (19%), which suggests that the balance sheets of families in the lower half of the wealth distribution were proportionately more adversely affected by the 2007-2009 recession than those further up the distribution. Among financial assets, the median value of stocks fell most sharply (23%) during the recession. Nonfinancial assets experiencing declines in median value comparable to stocks included vehicles (26%), business equity (24%), and equity in nonresidential property (23%). Although the median value of primary residences fell by a smaller percentage (12%), primary residences' absolute value dropped by $18,700 (expressed in 2009 dollars), much more than that of any other financial or nonfinancial asset. Decreases in the value of home equity and stocks as well as business equity all contributed to the overall decline in net worth during the 2007-2009 recession. Further, there was a change in the composition of assets held by families. Primary residences as a proportion of total assets fell by 1.5 percentage points. Stocks' and business equity's share dropped by 4.7 percentage points. However, with homes being a much more widely held asset than stocks and business equity, housing price depreciation appears to have had the larger role in changes in family net worth during the recession, according to data from the 2009 reinterview of 2007 SCF families. Results from the 2010 SCF provide statistical evidence in support of the respective roles of house and stock price depreciation in reducing net worth since 2007. "Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth [between 2007 and 2010] appear to have been driven by a broad collapse in house prices." Results from the 2013 SCF indicate that the pattern of change in asset values since 2010 of a decreased median and unchanged mean (discussed above) is a major factor behind the behavior of total net worth in this most recent period. The value of the median family's total asset holdings fell another 11%, from $200,600 in 2011 to $177,900 in 2013. The mean value of asset holdings fell a more modest 3%. The larger drop in median than in mean asset holdings indicates that gains and losses in asset values were unevenly distributed across families. The median value of stocks, which are only held by about 14% of families, increased 26% from $21,400 in 2010 to $27,000 in 2013; and the mean value of stock holdings increased 31% from $224,800 in 2010 to $294,300 in 2013. In contrast, the median and mean value of families' primary residence, an asset held by 67.3% of families, both fell. The median value of primary residences decreased 7%, from $182,200 in 2010 to $170,000 in 2013; and the mean value decreased 6%, from $280,100 in 2010 to $262,600 in 2013. Researchers often use the distribution of income as a starting point for understanding the accumulation and distribution of wealth. Higher income families are generally better positioned to set more aside, and thus accumulate greater wealth, than those at the lower end of the income distribution. As shown in Table 2 , four of every five families in the top 10% of the income distribution saved in 2013 compared with one of every three families in the bottom 20% of the income distribution. Despite income and wealth generally increasing in tandem, wealth is more concentrated than income. The ratio of the mean to median is an indicator of the degree of concentration in a distribution because, as previously mentioned, the mean can be greatly affected by a few high-value observations. Evidence from the 2013 SCF indicates that families' mean income was 1.9 times more than median income whereas families' mean net worth was 6.6 times more than median net worth—almost 3.5 times the mean to median income ratio. The larger mean-to-median ratio reflects the survey result that wealth is more concentrated than income among families at the upper end of the respective distributions. Analysts have sought explanations for the greater concentration of wealth than income across families. A common explanation is that as individuals' incomes rise during their working lives they save (accumulate wealth) for their retirement years. Upon retirement, income falls and so does saving as retirees draw down wealth to maintain living standards. However, empirical studies have estimated that saving for retirement cannot completely explain people's saving behavior and the higher concentration of wealth than income. Researchers added to their statistical model of savings behavior a variable for unpredictable events (e.g., job loss and divorce) that, like retirement, could reduce an individual's standard of living. They estimated that saving for so-called precautionary reasons contributes to but does not fully explain a distribution of wealth that is more concentrated than the distribution of income. As a result, analysts have sought other explanatory variables. Entrepreneurship is one such factor. Although business owners (the self-employed or entrepreneurs) are a small proportion of the population, the group comprises a much larger share of the wealthiest families—more than one-half of the top 1% of the wealth distribution. Researchers estimated that entrepreneurs are more motivated than others to save because they encounter difficulty borrowing funds to start or expand firms. In other words, those who want to start their own businesses have learned they typically need to fund it from their own savings. Another contributory factor may be the desire of wealthier families to bequeath assets to their children. Analysts estimated that this desire prompts wealthy families to save at a high rate and helps to explain why families in the upper end of the wealth distribution even in old age do not consume all their assets. Researchers further suggest that bequests take the form not only of financial capital (i.e., assets), but also of human capital (i.e., years of education). Wealthy parents may be able to pass on greater earnings abilities to their children because wealthier families are less affected by educational borrowing constraints than families further down the wealth distribution. In other words, wealthy parents can more easily finance their children's post-secondary education compared with parents who have amassed less savings, increasing the probability that children of the wealthy will earn more, save more, and accumulate more wealth. | U.S. family wealth has been an underlying consideration in congressional deliberations on various issues, including education, taxation, social welfare, and recovery from the 2007-2009 recession. This report analyzes the change over time in the level and concentration of family wealth as measured by net worth (i.e., assets minus liabilities) to help inform those policy deliberations. According to the Federal Reserve's latest Survey of Consumer Finances (SCF), in 2013, mean family net worth was $534,600 and median family net worth was $81,200. The median is the value at which one-half of wealth-owners have lower values and one-half have higher values of wealth. The median is a more reliable indicator of the wealth of the "typical" family than is the mean, which, because of the way in which the mean is calculated, can be greatly affected by a relatively small number of families with high values of net worth. Mean family net worth is more than six times median family net worth, which suggests a concentration of wealth among families at the upper end of the wealth distribution. The change over time in the relationship between the mean and median indicates how the distribution of wealth across families has changed. Both mean and median net worth increased from 1989 to 2007, with the mean typically increasing to a greater extent than the median. This suggests that in recent decades wealth became more concentrated among families at the upper end of the distribution. Both measures fell between 2007 (the outset of the 2007-2009 recession) and 2010 (the first full year of recovery). The relatively greater decline in the median than in the mean between 2007 and 2010 suggests that the recession and slow recovery had a proportionately greater effect on families in the bottom half of the wealth distribution than those further up the distribution. According to a September 2014 article in the Federal Reserve Bulletin, which presents data from the 2013 SCF, "The improvements in economic activity along with changes in house and corporate equity prices combined to effectively stabilize average and median family net worth between 2010 and 2013 after both measures fell dramatically between 2007 and 2010." |
Congressional interest in the patent system has been demonstrated by the recent enactment of the Leahy-Smith America Invents Act (AIA), arguably the most significant amendments to the patent laws since 1952. Subsequent to the enactment of the AIA, Members of Congress have expressed criticism with respect to the grant of compulsory licenses on patented inventions by the trading partners of the United States. Compulsory patent licenses have in fact been a longstanding source of tension between the United States and other nations. However, U.S. law also provides for compulsory licensing of patented inventions under certain circumstances. The term "compulsory license" refers to the grant of permission for an enterprise seeking to use another's intellectual property to do so without the consent of its proprietor. The grant of a compulsory patent license typically requires the sanction of a governmental entity and provides for compensation to the patent owner. In the patent system, compulsory licenses most often relate to pharmaceuticals and other inventions pertaining to public health, but they potentially apply to information technologies, manufacturing methods, and any other sort of patented invention. For some observers, compulsory patent licenses present an unwise derogation from the exclusive rights awarded to patent owners. In their view, the routine grant of compulsory licenses will diminish incentives for innovation. On the other hand, other observers believe that compulsory licenses may serve important national interests such as public health and technology transfer. This report provides an overview of compulsory licenses on patented inventions. It begins with a brief introduction of the patent system and the concept of compulsory patent licenses, including limitations imposed upon World Trade Organization members by the Agreement on Trade-Related Aspects of Intellectual Property Rights (the "TRIPS" Agreement). The report next reviews the availability of compulsory licenses under U.S. law. The report next considers the practice of compulsory licensing on patented inventions abroad. The report closes with a discussion of the role of compulsory licenses in innovation policy and a review of possible congressional options. The patent system is grounded in Article I, Section 8, Clause 8 of the U.S. Constitution, which states that "The Congress Shall Have Power ... To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries...." U.S. patent rights do not arise automatically. Inventors must prepare and submit applications to the U.S. Patent and Trademark Office (USPTO) if they wish to obtain patent protection. USPTO officials known as examiners then assess whether the application merits the award of a patent. In deciding whether to approve a patent application, a USPTO examiner will consider whether the submitted application fully discloses and distinctly claims the invention. In addition, the application must disclose the "best mode," or preferred way, that the applicant knows to practice the invention. The examiner will also determine whether the invention itself fulfills certain substantive standards set by the patent statute. To be patentable, an invention must consist of a process, machine, manufacture, or composition of matter that is useful, novel, and nonobvious. The requirement of usefulness, or utility, is satisfied if the invention is operable and provides a tangible benefit. To be judged novel, the invention must not be fully anticipated by a prior patent, publication, or other state-of-the-art knowledge that is collectively termed the "prior art." A nonobvious invention must not have been readily within the ordinary skills of a competent artisan at the time the invention was made. If the USPTO allows the patent to issue, the patent proprietor obtains the right to exclude others from making, using, selling, offering to sell, or importing into the United States the patented invention. Those who engage in these acts without the permission of the patentee during the term of the patent can be held liable for infringement. Adjudicated infringers may be enjoined from further infringing acts. The patent statute also provides for the award of damages "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 maximum term of patent protection is ordinarily set at 20 years from the date the application is filed. At the end of that period, others may employ that invention without regard to the expired patent. Patent rights are not self-enforcing. Patentees who wish to compel others to observe their rights must commence enforcement proceedings, which most commonly consist of litigation in the federal courts. Although issued patents enjoy a presumption of validity, accused infringers may assert that a patent is invalid or unenforceable on a number of grounds. The U.S. Court of Appeals for the Federal Circuit (Federal Circuit) possesses national jurisdiction over most patent appeals from the district courts. The U.S. Supreme Court enjoys discretionary authority to review cases decided by the Federal Circuit. As noted, patents afford their owners the right to exclude others from practicing the patented invention. Patent owners may decline to enforce their exclusionary rights and allow another entity to use their proprietary technology, however. This permission is typically granted in exchange for the payment of a royalty or other consideration. This private contractual arrangement is termed a "license." In addition to a voluntary license, patents may be subject to a compulsory license. Although no universally accepted definition exists, the term "compulsory license" implies that anyone who meets certain statutory criteria may use the patented invention. The permission of the patent owner is not required. Depending upon particular national laws, the grounds for government award of a compulsory license may include: Circumstances of national emergency or extreme urgency. Where the invention serves vital public health needs. A strong societal interest has arisen in access to the patented invention. The patent owner has failed to practice the patented invention in the jurisdiction that granted the patent within a reasonable period of time. The patent owner has abused its economic power in such a manner as to violate the antitrust laws. In circumstances where multiple patents held by different owners cover a particular technology. For example, combination therapies—such as triple antiretroviral drugs—may be subject to more than one patent. In such cases, if one patent owner refuses to license, then the technology may not be marketed absent a compulsory licensing. These statutes typically require an interested party formally to request the compulsory license from a foreign government. Competent authorities then decide whether to grant the license as well as the terms of any granted license. While some accounts suggest that formal compulsory licenses are awarded infrequently, the mere existence of a compulsory licensing statute may do much to encourage bargaining between a patentee and an interested manufacturer, on terms favorable to the manufacturer. Two notable multilateral international agreements address compulsory patent licenses. The first, the Convention of Paris for the Protection of Industrial Property, has been joined by 175 countries including the United States. The Paris Convention states that its member states "have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work." Paris Convention member states have agreed that a compulsory license "may not be applied for on the ground of failure to work or insufficient working before the expiration of a period of four years from the date of filing of the patent application or three years from the date of the grant of the patent, whichever period expires last; it shall be refused if the patentee justifies his inaction by legitimate reasons." The other significant multilateral agreement that speaks to compulsory patent licensing, a component of the international agreements forming the World Trade Organization (WTO), is the Agreement on Trade-Related Aspects of Intellectual Property Rights. The so-called "TRIPS Agreement" places further limitations upon the ability of WTO member states to award compulsory licenses for the use of another's patented invention. Among the most detailed provisions of the TRIPS Agreement, Article 31 imposes in part the following restrictions upon the issuance of compulsory licenses: Each application for a compulsory license must be considered on its individual merits. The proposed user must have made efforts to obtain authorization from the patent owner on reasonable commercial terms and conditions and such efforts have not been successful within a reasonable period of time. However, this requirement may be waived in the case of national emergency or other circumstances of extreme urgency. The scope and duration of the compulsory license is limited to the purpose for which it was authorized. The compulsory license must be nonexclusive—that is to say, the patent owner and possibly other licensed parties may also practice the patented invention. Any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use. The compulsory license must be revocable if and when its motivating circumstances cease to exist and are unlikely to recur. The patent owner must be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization. The legal validity of any decision relating to the authorization of such use shall be subject to judicial or other independent review. Article 31(k) of the TRIPS Agreement waives some of these requirements when use of a patented invention "is permitted to remedy a practice determined after judicial or administrative practice to be anti-competitive." In addition, Article 31(l) allows for a compulsory license to issue to allow holders of improvement patents to make use of dominant patents that would otherwise bar the commercialization of an important technical advance. In November 2001, WTO signatories adopted the Doha Declaration on the TRIPS Agreement and Public Health. The Doha Declaration stated that the TRIPS Agreement "can and should be interpreted and implemented in a manner supportive of WTO Members' right to protect public health and, in particular, to promote access to medicines for all." The Doha Declaration granted broad discretion with regard to compulsory licensing, asserting that WTO signatories have "the right to grant compulsory licences [sic] and the freedom to determine the grounds upon which such licences [sic] can be granted." In addition, WTO signatories proposed an amendment to the TRIPS Agreement in the form of Article 31bis. That provision allows WTO member states with limited or no manufacturing capacity to declare a compulsory license to import generic drugs from other countries. The conditions for compulsory licensing within the TRIPS Agreement involve a number of ambiguities. Such terms as "national emergency" or "circumstance of extreme urgency" are not further defined. It is arguably not clear what exactly is meant by the requirement that a compulsory license be granted primarily for the supply of the domestic market. Nor is there any precise definition of what level of "adequate remuneration" to the patent holder suffices. The application of these limitations may not be further understood until a competent tribunal is called upon to interpret them, an event that has yet to occur. In addition to the TRIPS Agreement and Paris Convention, the United States has entered into a number of free trade agreements that also address compulsory patent licenses. These agreements require their signatories to grant compulsory patent licenses on more restrictive terms than permitted by the TRIPS Agreement or Paris Convention. For example, the Free Trade Agreement between the United States and Australia provides: A Party shall not permit the use of the subject matter of a patent without the authorisation of the right holder except in the following circumstances: (a) to remedy a practice determined after judicial or administrative process to be anticompetitive under the Party's laws relating to prevention of anti-competitive practices; or (b) in cases of public non-commercial use, or of national emergency, or other circumstances of extreme urgency, provided that: (i) the Party shall limit such use to use by the government or third persons authorised by the government; (ii) the Party shall ensure that the patent owner is provided with reasonable compensation for such use; and (iii) the Party may not require the patent owner to provide undisclosed information or technical know-how related to a patented invention that has been authorised for use in accordance with this paragraph. To the extent that compliance with treaties is desired, member states of the Paris Convention, TRIPS Agreement, and other pertinent international agreements may need to take these provisions into account when addressing compulsory licensing. In contrast to the patent statutes of many nations, the U.S. patent code does not include a general compulsory licensing provision. However, other domestic laws include provisions that allow for the compulsory licensing of patented inventions. In addition, circumstances that are arguably akin to a compulsory license may occur through antitrust enforcement, judicial determinations in patent infringement litigation, and activities of the federal government. A modest number of additional compulsory licenses exist with respect to U.S. patents, each pertaining to specialized subject matter. For example, the Atomic Energy Act allows for compulsory licenses "if the invention or discovery covered by the patent is of primary importance in the production or utilization of special nuclear material or atomic energy." The Clean Air Act contains a similar provision relating to devices for reducing air pollution. Finally, the Plant Variety Protection Act provides for the compulsory licensing of seed-bearing plants that are protected by plant variety certificates, a patent-like instrument granted by the Department of Agriculture. Research completed in connection with this report has failed to discover even a single instance where any of these compulsory licenses has actually been invoked. Plainly, none of these provisions have been frequently employed in the past. Some commentators speculate that the threat of a compulsory license usually induces the grant of contractual licenses on reasonable terms. As a result, there is no need for the government to invoke a compulsory license formally. Enforcement of the antitrust laws by government entities and private parties on occasion results in a patent owner either agreeing to license its patents to competitors or being compelled to do so. Stated broadly, if an enterprise has been found to have acted in an anticompetitive manner in connection with its patents, then government or private enforcement authorities may call for the enterprise to license those patents to interested parties. This step is arguably akin to the grant of a compulsory license. The Bayh-Dole Act and accompanying regulations allow government contractors to obtain patents on inventions they made using federal funding. However, the government retains a "march-in right" that allows the funding agency to grant additional licenses to other "reasonable applicants." March-in rights are available only where the contractor has not taken effective steps to achieve practical application of the invention; has not reasonably satisfied health and safety needs; has not met requirements for public use specified by federal regulation; or has granted an exclusive right to use the patented invention to another without obtaining the promise that the invention will be manufactured substantially in the United States. The march-in right, which is arguably identical or similar to a compulsory license, has yet to be exercised. An injunction consists of a court order preventing or commanding a particular action. Prior to 2006, courts would virtually always enjoin an adjudicated infringer from future practice of the patented invention. This rule changed following the issuance of the Supreme Court decision in eBay Inc. v. MercExchange, L.L.C . There the Court unanimously held that an injunction should not automatically issue based on a finding of patent infringement. Under the eBay ruling, courts must weigh equitable factors traditionally used to determine if an injunction should issue, including whether the patent proprietor suffered an irreparable injury; the award of damages would be inadequate to compensate for that injury; that considering the balance of hardships between the patent owner and infringer, an injunction is warranted; and that the public interest would not be disserved by a permanent injunction. Following the eBay decision, courts most often award an injunction to the prevailing patentee. They have also declined to do so, however, particularly where the patent owner does not commercialize the claimed invention, where the patented invention forms a small component of a larger product, and where the patent owner had liberally licensed its patented invention to others. In such cases the adjudicated infringer may continue to practice the patented invention but usually must pay a royalty to the patent proprietor until the term of the patent expires. Judicial unwillingness to enjoin an adjudicated infringer differs as a technical matter from the usual understanding of a compulsory license. Compulsory licenses are generally available to any entity that meets the statutory requirements, in contrast to the specific adjudicated infringer involved in a single litigation. As a result, some federal jurists prefer to use the term "ongoing royalty" to describe circumstances where courts have declined to award a permanent injunction but require the payment of royalties by the infringer during the term of the patent. However, for some, the distinction between a compulsory license and an "ongoing royalty" is one without a difference. The U.S. government possesses the power to take private property for public use. For example, the government may condemn a parcel of land in order to build a highway. This authority is ordinarily termed "eminent domain." This government right is not unlimited, however. In particular, in some circumstances the government must compensate the property owner for use of the property. These general principles are most frequently applied to real estate, but they potentially apply to intellectual property as well. As a result, the U.S. government effectively enjoys the ability to declare a compulsory license that allows it to use a patented invention without obtaining the permission of the patentee. In turn, the federal government has consented to suit by private patent owners in order to obtain compensation. Section 1498(a) of Title 28 of the U.S. Code provides in part: Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner's remedy shall be by action against the United States in the United States Claims Court for the recovery of his reasonable and entire compensation for such use and manufacture. Under Section 1498(a), all patent suits against the U.S. government are litigated in the U.S. Court of Federal Claims. That statute limits available remedies to "reasonable and entire compensation" to the patent owner. As a result, the government may not be enjoined from practicing a patented invention. The courts have also generally limited the damages that the government must pay to the patentee to the level of a "reasonable royalty." A "reasonable royalty" for purposes of patent infringement damages is "the amount that a person desiring to manufacture or use a patented article, as a business proposition, would be willing to pay as a royalty and yet be able to make or use the patented article, in the market at a reasonable profit." The patent statutes of many U.S. trading partners include general provisions that allow for the award of compulsory licenses under specified conditions. These circumstances include public health needs, inadequacy of supply of the patented invention, failure to practice the patented invention within the jurisdiction, and other public interest rationales. Reportedly, a number of jurisdictions have invoked these provisions since the advent of the TRIPS Agreement, including, among others, Cameroon, Ecuador, Egypt, Eritrea, Ghana, Italy, Kenya, Malaysia, Mozambique, Zambia, and Zimbabwe. This paper reviews a number of notable incidents with respect to compulsory licenses on patented inventions, focusing on Brazil, India, South Africa, and Thailand. In response to its accession to the WTO, Brazil enacted a new industrial property law that in part addressed compulsory patent licenses. The 1997 statute allowed the issuance of compulsory licenses for "non-exploitation of the object of the patent within the Brazilian territory for failure to manufacture or incomplete manufacture of the product...." The United States initiated proceedings before the WTO asserting that the Brazilian law violated the TRIPS Agreement. In particular, the United States alleged that the Brazilian statute violated a TRIPS Agreement requirement that patents must be "enjoyable without discrimination as to ... whether patents are imported or locally produced." Brazil and the United States ultimately agreed to a "mutually satisfactory situation" under which Brazil agreed to hold talks with the U.S. government prior to granting compulsory license on patents owned by U.S. companies. The WTO proceedings were then terminated. Under the 1997 statute, Brazil issued a compulsory license in 2007 for the AIDS drug efavirenz, which is sold by Merck & Co. under the trademark STOCRIN®. Reportedly Merck lowered the price under which it sold efavirnz to the satisfaction of the Brazilian authorities following the issuance of the compulsory license, thereby rendering this action moot. In addition, the Brazilian government has reportedly used the threat of issuing compulsory licensing to receive discounts on AIDS therapies. On March 9, 2012, the Controller of Patents issued what is reportedly India's first compulsory license. The compulsory license relates to the chemotherapy drug sorafenib, sold by Bayer & Co. under the trademark NEXAVAR®. According to the Controller, Bayer failed to provide sufficient NEXAVAR® to meet public demand, did not sell NEXAVAR® at a reasonably affordable price, and did not manufacture NEXAVAR® in India. As a result, the Controller awarded a license to Natco Pharma Ltd., an Indian generic firm, to manufacture a generic version of NEXAVAR®. Under the Controller's decision, Natco was required to pay a royalty at the rate of 6% of net sales of the drug to Bayer. The Intellectual Property Appellate Board of India upheld the Controller's decision on March 4, 2013, although it increased the royalty owed to Bayer from 6% to 7%. Following the grant of the NEXAVAR® compulsory license, Indian authorities are reportedly considering the grant of compulsory licenses for Genetech's breast cancer drug HERCPETIN®, BMS's breast cancer drug IXEMPRA®, and BMS's leukemia drug SPRYCEL®. In 1997, the South African legislature passed a law to allow, among other measures, the compulsory licensing of patented pharmaceuticals. The South African Pharmaceutical Manufacturers' Association and numerous pharmaceutical companies subsequently commenced litigation, asserting that the law violated both the TRIPS Agreement and South Africa's own patent statute. South Africa agreed to redraft in keeping with the TRIPS Agreement and to consult with the pharmaceutical industry on the proposed amendment, while the pharmaceutical industry agreed to withdraw the lawsuit. Domestically, the incident reportedly prompted the issuance of Executive Order 13,155 by President Clinton on May 10, 2000. That Order prohibits the United States "from taking action pursuant to section 301(b) of the Trade Act of 1974 with respect to any law or policy in beneficiary sub-Saharan African countries that promotes access to HIV/AIDS pharmaceuticals or medical technologies and that provides adequate and effective intellectual property protection consistent with the TRIPS Agreement." Although the South African government apparently did not invoke the contested provisions, it subsequently determined that providers of two patented HIV/AIDS medicines had committed antitrust violations. In particular, in 2003 the South African Competition Commission concluded that the providers had engaged in excessive pricing and denied competitors access to an essential facility. The Commission subsequently settled with the providers on terms that required these providers to license several competitors to sell the patented medications. Thailand issued seven compulsory patent licenses from 2006 through 2008. The compulsory licenses concerned patents claiming: the AIDS drug efavirenz (sold by Merck & Co. under the trademark STOCRIN®); the combination AIDS drug of lopinavir and ritonavir (sold by Abbott under the trademark KALETRA®); the antiplatelet drug clopidegrel (sold by Bristol Myers under the trademark PLAVIX®); the breast cancer medicine letrozole (sold by Novartis AG under the trademark FEMARA®); the breast and lung cancer drug docetaxel (sold by Sanofi-Aventis under the trademark TAXOTERE®); the lung, pancreatic, and ovarian cancer drug erlotinib (sold by Roche under the trademark Tarceva TARCEVA®); and the cancer drug Imitinab (sold by Novartis AG as GLEEVEC®). The Thai compulsory licenses attracted controversy due to their relatively large number, Thailand's status as a middle-income country, and concerns that the Thai government had not complied with the TRIPS Agreement. In addition, five of the compulsory licenses concerned drugs for treating cancer and heart diseases—chronic, noninfectious diseases that are common in developed countries. However, public health advocates applauded the Thai government's willingness to address the needs of its citizens. Observers who have supported the ability of patent-granting states to issue compulsory licenses have pointed out that the rules established under the TRIPS Agreement are quite liberal. Compulsory licenses are not limited to patents relating to contagious diseases; indeed, they are not limited to health emergencies at all. Under the TRIPS Agreement, any patent may potentially be subject to a compulsory license. They also assert that the United States allows compulsory licenses to issue with respect to patents through a number of mechanisms. Still others observe that many least-developed and developing nations suffer from severe public health problems. These jurisdictions also may have limited ability to pay for patented medications. Further, in the view of some commentators, because many of these nations offer small markets, their use of compulsory licenses is likely to have a negligible impact on innovation. On the other hand, some commentators believe that the grant of compulsory licenses diminishes incentives for enterprises to undertake research and development. In their view, the pharmaceutical industry is less likely to endeavor to develop new drugs if they can expect that their patents will be subject to compulsory licenses, thereby causing the industry to lose its expected earnings. To the extent that the U.S. firms are subject to these measures, the issuance of compulsory licenses may also negatively impact the U.S. economy. Commentators have also observed that although most compulsory licenses have been issued by developing and least-developed nations, these jurisdictions might have the most to lose by doing so. Pharmaceutical firms might devote fewer resources towards developing cures for diseases, such as malaria and tuberculosis, which primarily plague the developing world. Instead, a rational actor would allocate resources towards medicines that are likely to have a successful commercial market in developed countries. In addition, the issuance of compulsory licenses may discourage foreign direct investment in that jurisdiction. Should Congress consider current circumstances with respect to compulsory licenses to be appropriate, then no action need be taken. Alternatively, Congress may wish to review whether domestic legislation providing for compulsory patent licenses is appropriate. The most recent bill relating to compulsory licensing, the Public Health Emergency Medicines Act in the 109 th Congress, would have created an additional compulsory license in the patent law. This bill, H.R. 4131 , would have allowed the government to use the patented invention without the patent owner's permission if the Secretary of Health and Human Services determined that the invention is needed to address a public health emergency. Under the bill, the Secretary of Health and Human Services would have determined compensation for government use of the patented invention. In determining the reasonableness of remuneration for use of a patent, the Secretary of Health and Human Services may consider— (1) evidence of the risks and costs associated with the invention claimed in the patent and the commercial development of products that use the invention; (2) evidence of the efficacy and innovative nature and importance to the public health of the invention or products using that invention; (3) the degree to which the invention benefitted from publicly funded research; (4) the need for adequate incentives for the creation and commercialization of new inventions; (5) the interests of the public as patients and payers for health care services; (6) the public health benefits of expanded access to the invention; (7) the benefits of making the invention available to working families and retired persons; (8) the need to correct anti-competitive practices; and (9) other public interest considerations. This legislation was not enacted. Congress may also wish to continue to monitor the activity of U.S. trade partners with respect to compulsory patent licenses. For example, on June 18, 2013, 171 Members of Congress wrote to President Obama expressing concern over India's "intellectual property (IP) climate." The letter in part observed: [T]he Indian Government issued its first compulsory license (CL) on a stage three liver and kidney cancer drug. It has been reported that additional drugs may be subject to CLs imminently and that the decisions related to these CLs are being improperly driven by an interest in growing the pharmaceutical market in India. These actions by the Indian Government greatly concern us because innovation and the protection of intellectual property are significant driving engines of the U.S. economy. The letter urged the President "to make sure these issues are raised at the highest levels of the Indian government." Compulsory licenses for patented inventions highlight the tension between two competing aspirations of the patent system: Encouraging the labors that lead to innovation, on one hand, and placing the fruits of those labors before the public, on the other. As different patent-granting states possess distinct perceived interests and values with respect to innovation, proprietary rights, and public health and other social needs, conflicts among these jurisdictions have occurred in the post-WTO era. Assessing the role of compulsory licenses within the patent system of the United States and our trading partners remains a matter for congressional judgment. | The term "compulsory license" refers to the grant of permission for an enterprise seeking to use another's intellectual property without the consent of its proprietor. The grant of a compulsory patent license typically requires the sanction of a governmental entity and provides for compensation to the patent owner. Compulsory licenses in the patent system most often relate to pharmaceuticals and other inventions pertaining to public health, but they potentially apply to any patented invention. U.S. law allows for the issuance of compulsory licenses in a number of circumstances, and also allows for circumstances that are arguably akin to a compulsory license. The Atomic Energy Act, Clean Air Act, and Plant Variety Protection Act provide for compulsory licensing, although these provisions have been used infrequently at best. The Bayh-Dole Act offers the federal government "march-in rights," although these have not been invoked in the three decades since that legislation has been enacted. 28 U.S.C. Section 1498 provides the U.S. government with broad ability to use inventions patented by others. Compulsory licenses have also been awarded as a remedy for antitrust violations. Finally, a court may decline to award an injunction in favor of a prevailing patent owner during infringement litigation, an outcome that some observers believe is akin to the grant of a compulsory license. A number of international agreements to which the United States and its trading partners are signatories, including the Paris Convention for the Protection of Industrial Property, World Trade Organization agreements, and certain free trade agreements, address compulsory licensing. In contrast to the United States, the patent statutes of many other nations include general provisions that allow for the award of compulsory licenses under specified conditions. A number of U.S. trading partners, including Brazil, South Africa, and Thailand, have invoked these provisions. The March 9, 2012, decision of the Indian government to grant a compulsory license on the chemotherapy drug sorafenib has attracted controversy. Some commentators have expressed concern that compulsory licenses substantially diminish incentives for firms to conduct research and development. Others support the grant of such licenses under certain conditions, noting that many patent-granting states suffer from poverty, dire health needs, and a lack of access to patented technologies. Congress has previously monitored the issuance of compulsory patent licenses by U.S. trading partners and may wish to continue to do so. Legislation dating from the 109th Congress would have allowed the Secretary of Health and Human Services to declare a compulsory license on a patented invention that was needed to address a public health emergency. This legislation was not enacted and has not been reintroduced. |
This report briefly summarizes and discusses the economic impact of selected business-related tax provisions that had expired at the end of 2014 and were extended or made permanent by the Consolidated Appropriations Act of 2016 ( P.L. 114-113 ), signed into law on December 18, 2015. Provisions not made permanent would expire at the end of 2016 or the end of 2019. In the past, these provisions have been extended one, or in some cases two, years in each piece of legislation. In the 113 th Congress, these provisions were extended as part of the Tax Increase Prevention Act of 2014 ( P.L. 113-295 ), signed into law on December 19, 2014. This law made most tax provisions that had expired at the end of 2013 available to taxpayers for the 2014 tax year. The Senate Finance Committee had earlier reported legislation, the Tax Relief Extension Act of 2015 ( S. 1946 ), that would have retroactively extended expired tax provisions, for two years, through 2016. This report discusses provisions that include several employer-related benefits, international provisions that provide exceptions to the Subpart F rules, special cost recovery provisions, provisions related to regulated investment companies (RICs), and several other business-related provisions. A complete list of these provisions, along with a notation of their status as permanent, extended through 2019, or extended through 2016, can be found in Table 1 . Note that bonus depreciation, which allows a deduction of 50% of equipment investment, would be reduced to 40% in 2018 and 30% in 2019, before expiring. The Consolidated Appropriations Act's extenders provisions cost $628.8 billion over FY2016-2025. It includes as "extenders" provisions liberalizing the child credit, education credits, and the earned income tax credit that have not yet expired and had not been included in the previous version of the "extenders" bill ( S. 1946 ). If these provisions (accounting for $198.1 billion) plus a small provision temporarily suspending the medical device tax (also not in S. 1946 ) are excluded, the total remaining cost is $426.8 billion. Of that amount, $301.4 billion, or 71%, was due to business-related provisions discussed in this report that were made permanent; $36.1 billion (8.5%) was due to provisions extended through 2019, and $1.4 billion (0.3%) was due to provisions extended through 2016. Overall, of these standard extenders, 79% of the cost was associated with business-related tax provisions discussed in this report. Three provisions made permanent account for 63% of the $426.8 billion total extenders: (1) the research and experimentation credit, accounting for 27%; (2) the small business (Section 179) expensing provision, accounting for 18%; and (3) the deferral of tax on active financing income earned abroad, accounting for 18% of the total. Extending expired tax provisions through 2016, as proposed in S. 1946 , would have cost $96.9 billion over the 10-year budget window, excluding any macroeconomic effects. More than 60% of this cost ($59.5 billion) is from the extension of business-related provisions discussed in this report (see Table 1 ). With macroeconomic effects included, the cost of extending expired provisions, as proposed in S. 1946 , would have been $86.6 billion over the 10-year budget window. According to the Joint Committee on Taxation (JCT), extending expired provisions affecting businesses, particularly the provision allowing businesses to expense 50% of investments, was expected to increase economic growth in the near term. Thus, the cost estimate when macroeconomic effects are included was less than the cost estimate that does not incorporate macroeconomic effects. Since S. 1946 was projected to increase the federal debt, part of the gain in economic growth from extending expired business-related tax provisions is expected to be offset by higher interest rates, which tend to slow economic growth. Extending expiring provisions retroactively for one year, as was done in the Tax Increase Prevention Act of 2014, cost $41.6 billion over the 10-year budget window. More than half of this cost ($22.3 billion) is from the extension of business-related provisions discussed in this report. The tax extender provision with the largest cost was tax credit for research and experimentation expenditures. The one-year extension enacted late in the 113 th Congress cost $7.6 billion. Table 1 provides information on the revenue cost of the one-year extension enacted as the Tax Increase Prevention Act of 2014. In recent years, the House has considered legislation to make permanent certain business-related extender provisions. In the 114 th Congress, America's Small Business Tax Relief Act of 2015 ( H.R. 636 ), which passed the House on April 13, 2015, would have made Section 179 expensing and the treatment of built-in gains of Subchapter S corporations permanent. The American Research and Competitiveness Act of 2015 ( H.R. 880 ), which would have expanded and made permanent the R&E tax credit, was passed in the House on May 20, 2015. The House Committee on Ways and Means had also reported other legislation that would have made certain business-related extenders provisions permanent. Specifically, H.R. 961 would have permanently extended the Subpart F exemption for active financing income and H.R. 1430 would have made permanent the look-through treatment of payments between related controlled foreign corporations. The House Committee on Ways and Means had also approved, in the 114 th Congress, legislation that would have modified and made permanent bonus depreciation ( H.R. 2510 ) and provisions allowing for 15-year straight-line cost recovery for qualified leasehold, restaurant, and retail improvements ( H.R. 765 ). Legislation to make certain business-related extender provisions permanent was also considered in the 113 th Congress. On September 18, 2014, the House passed the Jobs for America Act ( H.R. 4 ), which would have made permanent five of the expired provisions discussed in this report (see Table 1 ). The cost of making permanent these five provisions is $499.3 billion over the 10-year budget window. The total cost estimate for H.R. 4 , which also includes a repeal of the medical device tax and the Save American Workers Act of 2014 ( H.R. 2575 ), was $572.2 billion over the 10-year budget window. During the 113 th Congress, the House Committee on Ways and Means also reported legislation that would have permanently extended two other expiring provisions. H.R. 4429 would have amended the Internal Revenue Code of 1986 to permanently extend the subpart F exemption for active financing income and H.R. 4464 would have made permanent the look-through treatment of payments between related controlled foreign corporations. These measures did not pass the House. The President's FY2016 budget identified several expiring provisions that should be permanently extended (and in some cases substantially modified). Specifically, the provisions addressed in the President's FY2016 budget include (1) the increased expensing for certain businesses under Section 179; (2) the 100% exclusion for qualified small business stock; (3) the research and experimentation (R&E) tax credit; and (4) certain employment-related credits (the Work Opportunity Tax Credit [WOTC] and the Indian employment credit). The President's budget also proposed permanently extending the exception under Subpart F for active financing income and the look-through treatment of payments between related controlled foreign corporations (CFCs) as part of a broader reform to the U.S. international tax system. For certain cost recovery provisions, the 10-year revenue cost of a permanent extension is substantially greater than the cost of temporarily extending the provision. For example, the revenue cost of temporarily extending bonus depreciation for one year, through 2014, was $1.2 billion. Making bonus depreciation permanent would cost $244.7 billion. This estimate is likely reduced, relative to a stand-alone provision, due to interaction effects with other provisions, most notably Section 179. For example, it was estimated that a permanent extension, as proposed in H.R. 4718 in the 113 th Congress, would have cost $263 billion over 10 years. With a temporary extension, tax liability is deferred, with much of the cost recovered in the later years in the budget window. Even when extended (and phased down) through 2019, as in the Consolidated Appropriations Act of 2015, the cost of $11.3 billion is less than 5% of the permanent 10-year cost. A similar pattern is observed for the proposed increase in the Section 179 expensing allowances, with a temporary one-year extension having cost an estimated $1.4 billion. A permanent extension, however, would cost $77.1 billion over the 10-year budget window. This report does not include provisions that in the past have been classified as charitable, community development, individual, or housing-related provisions. These provisions are included in the following CRS reports: CRS Report R43517, Recently Expired Charitable Tax Provisions ("Tax Extenders"): In Brief , by [author name scrubbed] and [author name scrubbed]; CRS Report R43541, Recently Expired Community Assistance-Related Tax Provisions ("Tax Extenders"): In Brief , by [author name scrubbed]; CRS Report R43688, Selected Recently Expired Individual Tax Provisions ("Tax Extenders"): In Brief , by [author name scrubbed]; and CRS Report R43449, Recently Expired Housing Related Tax Provisions ("Tax Extenders"): In Brief , by [author name scrubbed]. Tax incentives have been used at the federal level to encourage employers to hire employees from certain groups or to encourage employers to provide certain forms of compensation or benefits. The first two credits discussed below, the work opportunity tax credit (WOTC) and the Indian employment tax credit, encourage employers to hire selected types of employees. The third provision, the employer wage credit for employees on active military duty, encourages employers to provide "differential pay" to employees whose military pay is less than their civilian salary. The work opportunity tax credit (WOTC) is a non-refundable wage credit intended to increase job opportunities for certain categories of disadvantaged individuals. The WOTC reduces the cost of hiring specified groups of disadvantaged individuals. WOTC-eligible hires include members of families receiving Temporary Assistance to Needy Families (TANF) benefits, certain members of families receiving food stamp benefits, ex-felons, and certain veterans. For most eligible hires that remain on a firm's payroll at least 400 hours, an employer can claim an income tax credit equal to 40% of wages paid during the worker's first year of employment, up to a statutory maximum. For most WOTC-eligible hires, the wage maximum is $6,000, for a maximum credit of $2,400. For eligible veterans, the maximum eligible wage varies between $6,000 and $24,000, depending on the veteran's characteristics and work history. Eligible summer youth hires' maximum wage to which the credit can be applied is $3,000. A credit equal to 25% of a qualified worker's wages is available for eligible hires that remain employed for at least 120 hours, but fewer than 400 hours. The WOTC was created as part of the Small Business Job Protection Act of 1996 ( P.L. 104-188 ). The WOTC evolved from an earlier tax credit designed to increase employment among targeted groups, the Targeted Jobs Tax Credit (TJTC), which was available from 1978 through 1994. When first enacted, the WOTC was scheduled to expire on October 1, 1997. Since 1997, the WOTC has been expanded, modified, and regularly extended. In several instances, the WOTC was allowed to lapse before being retroactively reinstated. The WOTC is designed to encourage employers to hire more disadvantaged individuals by compensating for potential higher costs of training and possible lower productivity. Since the credit is focused on hiring from targeted groups, and not net job creation, the credit is not necessarily intended to create new jobs or promote recovery in labor markets. Studies evaluating the credit have looked at whether the credit increases job opportunities for targeted disadvantaged individuals, and whether the WOTC is a cost-effective policy measure for achieving this objective. Early evidence on the WOTC suggested that while the credit did offset part of the cost of recruiting, hiring, and training WOTC-eligible employees, it had a limited effect on companies' hiring decisions. More recent studies have found that the WOTC provided benefits to certain groups: increasing the wage income of disabled veterans and increasing employment among long-term welfare recipients, for example. Researchers have also explored whether the credit causes employers to "churn" their workforce in order to take advantage of the credit, replacing currently credit-ineligible workers with credit-certified workers. Evidence of this behavior has not been found. For more information on the WOTC, see CRS Report R43729, The Work Opportunity Tax Credit , by [author name scrubbed] and [author name scrubbed]. The Indian employment tax credit is an incremental credit claimed by employers for qualified wages and health insurance costs. Similar to the WOTC, the Indian employment credit is designed to encourage hiring of certain individuals—enrolled members of an Indian tribe and their spouses. There are also restrictions limiting the benefit to services performed within an Indian reservation for individuals living on or near the reservation. The Indian employment credit is 20% of the excess of qualified wages and health insurance costs over base year expenses, paid by an employer. The credit is allowed for the first $20,000 in qualified wages and health insurance costs. The base year is 1993, such that the incentive is incremental to 1993 wages and health insurance costs (the base year has not been changed since the credit was enacted). The credit is not available for wages paid to an employee whose total wages exceed $30,000, as adjusted for inflation ($45,000 in 2013). The employer must reduce their deduction for wages by the amount of the credit. The Indian employment credit was first enacted in 1993, as part of the Omnibus Reconciliation Act of 1993 ( P.L. 103-66 ). It was initially scheduled to expire at the end of 2003, but has been regularly extended, often retroactively. Past extensions of the Indian employment credit have extended the termination date without updating the base year. Some have proposed updating the base year, in an effort to (1) eliminate the need for taxpayers to maintain tax records dating back to 1993, and (2) restore the incremental design of the credit. Extending the Indian employment credit might encourage additional hiring of Indian tribe members and their spouses. Similar to the WOTC, while the Indian employment credit may not increase overall employment on or near Indian reservations, it might increase employment among tribe members. Members of the National Guard or Reserves who are called up to active duty receive military pay. Some National Guard or Reserves members may have civilian salaries higher than their military pay. Civilian employers might choose to compensate employees for the reduction in salary that results from being called up to active duty. This form of compensation is often called differential pay. Certain small businesses may qualify for a tax credit to offset some of the costs associated with providing these military pay differentials. Under this provision, eligible small businesses can claim a 20% tax credit for differential wage payments made to National Guard or Reserves members who are on active duty for more than 30 days. Eligible small businesses are those with fewer than 50 employees that provide differential wage payments to every qualified employee under a written plan. Eligible differential wage payments cannot exceed $20,000 per year, meaning the maximum value for the tax credit is $4,000 (20% of $20,000) per employee. The employer wage credit for employees on active military duty was added to the code as part of the Heroes Earnings Assistance and Relief Tax Act of 2008 ( P.L. 110-245 ). The provision, which was set to expire at the end of 2009, has been extended multiple times as part of past "tax extenders" legislation. Employers that offer differential pay do so voluntarily. Reasons employers may choose to offer differential pay include a show of patriotism or support for troops, or an effort to retain employees after their military duty ends. There is a perception that small businesses may be less able to offer differential pay than larger firms. This provision, by reducing the net cost of providing differential pay for small businesses, should increase the total amount of differential pay being provided by small businesses. If the goal of the provision is to provide income support to National Guard or Reserve members called up to active duty, one might question why the incentive is limited to employers with fewer than 50 employees. Not all employees called up to active duty will necessarily be eligible to receive differential pay. Since differential pay is the difference between an individual's civilian salary and military salary, many middle-income individuals will not receive differential pay, as their military salaries are at least equal to their civilian salary. Lower-income individuals usually receive a higher military than civilian salary. Thus, the tax benefit tends to favor employers of middle- to higher-wage earners employed by qualified small businesses. Businesses employing middle- to lower-income wage earners may not have the opportunity to provide differential pay (if their employee's military pay is equal to or greater than their civilian pay), but may face other burdens when employees are called up to active duty (e.g., workforce disruptions). In general, income earned abroad by foreign incorporated subsidiaries is not taxed until it is repatriated (paid to the U.S. parent as a dividend). Foreign subsidiaries are not allowed to circumvent this tax by making other payments to the parent such as loans. The tax due on repatriated income is offset by credits for foreign income taxes paid. For passive income (such as interest income) and certain types of payments which can be easily manipulated to reduce foreign taxes, tax rules require this income to be taxed currently (referred to as Subpart F income to indicate where in the code its tax treatment is specified). The two international provisions in the extenders package provide exceptions from the Subpart F rules. Unless an exception applies, Subpart F income includes dividends, interest, rent, and royalty payments between related firms. These items of income are subject to Subpart F because affiliated firms can use them to shift income and avoid tax. For example, without Subpart F a U.S. parent's subsidiary (1 st tier subsidiary) in a country without taxes (e.g., the Cayman Islands) could lend money to its own subsidiary (2 nd tier subsidiary) in a high tax country. The interest payments would be deductible in the high tax country, but no tax would be due in the no-tax country. Thus, an essentially paper transaction shifts income out of the high tax country. A similar effect might occur if an intangible asset is transferred to the no-tax subsidiary, and then licensed in exchange for a royalty payment by the high tax subsidiary. In some cases, a U.S.-based multinational firm might be able to avoid having the earnings of a foreign subsidiary classified as Subpart F income if the high tax (2 nd tier) subsidiary could be treated as an unincorporated entity for U.S. tax purposes. This is not feasible for some businesses that are required, by foreign law, to operate as what are for U.S. tax purposes per se corporations, or those that would face complex challenges and costs in changing their structure. Methods of avoiding Subpart F taxation were made easier in 1997, when U.S. entity classification rules (to be a corporate or non-corporate entity) were simplified by simply checking a box on a form. These "check-the-box" regulations provided a way to avoid treatment of payments as Subpart F income under certain circumstances by allowing firms to elect treatment as an unincorporated entity. They were originally intended to simplify classification issues for domestic firms and the IRS, but their usefulness in international tax planning quickly became evident. The Treasury issued regulations in 1998 to disallow their use to avoid Subpart F, but, after protests from firms and from Congress, withdrew them. In the example above, if the high-tax subsidiary is not a direct subsidiary of the U.S. parent but is a subsidiary of the Cayman Islands subsidiary (i.e., a 2 nd tier subsidiary), the Cayman Islands (1 st tier) subsidiary can elect to treat the high-tax subsidiary as if it were a pass through entity. This treatment would effectively combine the two subsidiaries into a single firm. This outcome can be achieved simply by checking a box, making the high tax subsidiary a disregarded entity under U.S. law. Because there are no separate firms, no income is recognized by the Cayman Islands firm although the high tax subsidiary (2 nd tier) is still a corporation from the point of view of the foreign jurisdiction in which it operates and can deduct interest in the high tax jurisdiction. The check-the-box rules did not work in every circumstance. For example, if the related firms did not have the same 1 st tier parent, check-the-box did not apply. In some cases, because of foreign countries' rules about corporate and non-corporate forms, the check-the-box regulations' classification of some entities as per se corporations made this planning unavailable. In addition, other undesirable tax consequences (from the firm's point of view) could occur as a side effect of check-the-box. The look-through rule effectively puts this check-the-box type of planning into the tax code, rather than as a regulation (which could be altered without legislation), but disconnects it from the regulations' creation of a disregarded entity. Related firms do not have to have the parent-child relationship; they can be otherwise related as long as they are under common control. The look-through rules were originally enacted in the Tax Increase Prevention and Reconciliation Act of 2005 ( P.L. 109-222 ), for 2006 through 2008, and subsequently extended. The main argument against the look-through rules (and check-the-box as well) is that it undermines the purpose of Subpart F, which is to prevent firms from using passive and easily shifted income to avoid tax. The rules also provide a way to shift and reinvest excess foreign earnings among distantly related operations, or to shift earnings to a tax haven, without first repatriating them to the U.S. parent. This is done by paying dividends directly to related foreign subsidiaries of their parent. Thus, it increases the disincentive to repatriate earnings. The main argument for the provision is to allow firms the flexibility to redeploy earnings from one location to another without having U.S. tax consequences (foreign tax rules are unchanged). Firms could, for example, accomplish much of the treatment of look-through rules (even in the absence of check-the-box), but that may involve complex planning and inconvenience. An argument can also be made that in some cases (for example, with the payment of interest), the profit shifting is not harming the U.S. Treasury, but rather reducing taxes collected by foreign governments. If profits are shifted to low-tax countries and then eventually repatriated, foreign tax credits will be smaller, and the U.S. tax collected higher (although deferred). At the same time, this planning achieves lower effective foreign taxes in countries with relatively high nominal tax rates and, as a result, encourages investment in those countries compared to the United States. The Taxpayer Relief Act of 1997 ( P.L. 105-34 ) contained a temporary exception from subpart F income tax rules for active financing income. Active financing income applies to some of the income earned by American corporations from the active conduct of a banking, financing, or insurance business abroad. This income—which includes dividends and capital gains—would otherwise be taxed under Subpart F as passive income. The tax expenditure is therefore the allowance of deferral for this income. Since being enacted in 1997, the temporary provision providing an exception under Subpart F for active financing income has regularly been extended. The original enactment of Subpart F in 1962 had an exception for banking and insurance. The rationale for this exception was that such income (e.g., interest and dividends) was not passive income in the hands of banking and insurance firms. The Tax Reform Act of 1986 ( P.L. 105-34 ) eliminated the exception, because firms could locate profits in tax havens that have little economic substance. President Clinton applied a line-item veto to this provision when enacted in 1997, but the line-item veto was subsequently found unconstitutional. Industry advocates argue that the purpose of the active financing exception may be to place U.S. financial services businesses on similar footing to their competitors from other countries. Conversely, passive income could be viewed as passive regardless of the underlying businesses. The provision does provide an incentive for U.S. financial service businesses to invest in low-tax countries (as high foreign taxes generally negate the tax benefit provided by deferral). Today, some U.S. corporations not traditionally thought of as providing financial services may, in fact, have significant financial service operations through their subsidiaries. The cost of assets that provide services over a period of time, such as machines or buildings, is deducted over a period of years as depreciation. The schedule of depreciation deductions depends on the life of the asset and the distribution of deductions over that life. Straight-line depreciation is used for structures, where equal amounts are deducted in each year. For equipment, deductions are accelerated with larger amounts deducted in earlier years. Equipment is most commonly depreciated over 5 or 7 years, but some short-lived assets are depreciated over 3 years and some longer-lived assets are depreciated over 10, 15, or 20 years. Non-residential structures are depreciated over 39 years. Aside from the desire for economic stimulus, traditional economic theories suggest that tax depreciation should match as closely as possible economic (physical) depreciation of assets. The depreciation provisions discussed below all allow earlier deductions for depreciation, which are valuable because of the time value of money. Expensing provisions allow a firm to deduct the cost of an asset the year it is placed in service. Bonus depreciation has allowed firms to deduct part of the cost of equipment (most recently, 50%) in the year it was placed into service, rather than recover the cost over a period of time. Bonus depreciation was intended for a specific, short-term purpose: to provide an economic stimulus during a recession. Most economic stimulus provisions enacted in response to the recent economic slowdown have been allowed to expire. Bonus depreciation was introduced on two occasions: in 2002 (The Job Creation and Worker Assistance Act of 2002, P.L. 107-147 ) and 2008 (the Economic Stimulus Act of 2008, P.L. 110-185 ). The 2002 stimulus was allowed to expire as planned. Thus, bonus depreciation, unlike most other expiring provisions, has not been continuously extended (and therefore might not be regarded as a traditional "extender"). Regardless, the bonus depreciation introduced in 2008 was in place for seven years (through 2014), although its size varied over that period. The analysis of bonus depreciation differs for a temporary stimulus provision, compared to a permanent provision that can affect the size and allocation of the capital stock. A temporary investment subsidy is expected to be more effective than a permanent one for the purpose of short-term stimulus, encouraging firms to invest while the benefit was in place. Its temporary nature is critical to its effectiveness. Yet, research suggests that bonus depreciation was not very effective, and probably less effective than the other tax cuts or spending increases that have now lapsed. As a permanent provision, bonus depreciation benefits equipment investments which already are favored over structures, contributing to lower effective tax rates and, in some cases, negative tax rates. Compared to a statutory corporate tax rate of 35%, bonus depreciation lowers the effective tax rate for equipment from an estimated 26% rate to a 15% rate. Buildings are taxed approximately at the statutory rate. Total effective tax rates for corporate assets would be slightly higher because of stockholder taxes. Because interest payments are deducted, effective tax rates with debt financing can be negative. For assets that would be taxed at the firm's effective rate of 35% if they were equity assets (such as buildings), the effective tax rate on debt financed investment is negative 5%. The rate on equipment without bonus depreciation is negative 19%, but with bonus depreciation it is negative 37%. If bonus depreciation were made permanent, U.S. effective tax rates on equipment would be significantly lower than the OECD average. The usual extenders cost a fraction of the cost of permanent provisions in a 10-year budget window, but bonus depreciation is a smaller fraction because it is a timing provision. For example, a two year extension costs $2.9 billion between 2014 and 2024, less than 1% of the cost of $296.4 billion for a permanent provision. The extension through 2019 in the Consolidated Appropriations Act (with a lower rate of 40% in 2018 and 30% in 2018) would cost $11.3 billion, less than 5% of the cost of a permanent expansion. For more information, see CRS Report R43432, Bonus Depreciation: Economic and Budgetary Issues , by [author name scrubbed] and CRS Report RL31852, The Section 179 and Bonus Depreciation Expensing Allowances: Current Law and Issues for the 114th Congress , by [author name scrubbed]. This provision allows firms to expense (deduct immediately), with dollar limits, the cost of investment in equipment. In 2014, this amount was $500,000. Once a firm's investment reached at least $2 million, the amount eligible is reduced one dollar for each dollar of investment in excess of $2 million. Thus once a firm's investment reached $2.5 million, no deduction is allowed. Without extension the exemption will revert to its permanent level of $25,000, with a phase-out beginning at $200,000. No deduction would be allowed when investment is $225,000. Off-the-shelf computer software will also no longer be eligible and a $250,000 expensing provision for leasehold property, which was eligible for expensing in 2014, will no longer be allowed. The first expensing provision was relatively small when adopted as a permanent provision in the Small Business Tax Revision Act of 1958 (P.L. 85-866). It allowed a deduction of 20% of the first $20,000 ($10,000 for a single return). The provision was first revised in the Economic Recovery Tax Act of 1981 ( P.L. 97-34 ) to allow a deduction for all costs with limits of $10,000. The limits were revised over time, but the limits were small and the changes were permanent. The temporary increases since 2002 occurred in two distinct parts. The first increase occurred when the Jobs and Growth Tax Relief Reconciliation Act of 2003 ( P.L. 108-27 ) increased the maximum allowance to $100,000, and the beginning of the phase-out to $400,000, effective from 2003-2005. This bill also added the off-the-shelf software to eligible property. The U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Appropriations Act of 2007 ( P.L. 110-28 ), increased the limit to $125,000, and the phase-out point to $500,000, through 2010. All of the so-called Bush tax cuts were due to expire at the end of 2010, but they were extended near the end of December that year. The second set of temporary increases was part of the stimulus bills to address the 2007-2009 recession. The Economic Stimulus Act of 2008 ( P.L. 110-185 ) increased the limit to $250,000 and the phase-out point to $800,000; this provision was extended by subsequent legislation through 2010. In the Small Business Jobs Act of 2010 ( P.L. 111-240 ) the limit was increased to $500,000 with a phase-out at $2 million, through 2011, and the leasehold property provision was added. These provisions were subsequently extended. Because one set of extensions might be considered part of the Bush-era tax cuts, which might be made permanent along with other provisions, while another part is associated with a temporary stimulus along with the option to extend all of the limits, one option might be to extend or make the Bush-era tax provisions permanent and allow the higher limits added in 2008 and 2010 to expire. The original expensing provision in 1958 was justified as a simplification of depreciation rules for small firms and a way to provide them an incentive to invest more. This argument is more difficult to make with the higher spending caps from recent years. Later expansions, as in the case of bonus depreciation, were justified to stimulate investment. Extending the temporary provisions of Section 179 is likely to be relatively ineffective as a stimulus. It has no incentive effect after the maximum cap is reached, and it increases the cost of capital in the phase-out range. As noted earlier, bonus depreciation, which had no limits or phase-outs, did not appear to be an effective stimulus. The Consolidated Appropriations Act indexes the $500,000 and $2 million amounts for inflation after 2015. The expensing and phase down for certain longer lived property is delayed for one year. For more information, see CRS Report RL31852, The Section 179 and Bonus Depreciation Expensing Allowances: Current Law and Issues for the 114th Congress , by [author name scrubbed]. Investments in film and television productions are generally recovered using the income forecast method. Under this method, depreciation deductions are based on the pattern of expected earnings. The American Jobs Creation Act of 2004 ( P.L. 108-357 ) included special rules to allow expensing for certain film and television production costs. The main purpose of the provision was to discourage "runaway" productions, or the production of films and television shows in other countries, where tax and other incentives are often offered. Initially, the provision was set to expire at the end of 2008. However, since 2008, the provision has regularly been extended as part of "tax extender" packages. Under the special expensing rules for film and television production, taxpayers may elect to deduct immediately up to $15 million of production costs ($20 million for productions produced in certain low-income and distressed communities) in the tax year incurred. Eligible productions are limited to those in which at least 75% of the compensation paid is for services performed in the United States. For productions that started before 2008, the expensing deduction is not allowed if the aggregate production cost exceeds $15 million ($20 million for productions in designated low-income and distressed communities). The ability to expense (deduct immediately) certain film and television production costs provides a benefit by allowing deductions to be taken earlier, thus deferring tax liability. The magnitude of the benefit depends on the average lag time from production to earning income. For many films, production costs would be deductible in the year the film is released. If the film is released one year after the production costs are incurred, which may be the case for independent and smaller productions, the provision accelerates cost recovery by one year. The benefit conferred by accelerating cost recovery deductions by one year is limited. Furthermore, taxpayers with limited or no tax liability may derive little or no benefit from the expensing allowance. The primary policy objective of providing special tax incentives for film and television producers is to deter productions from moving overseas, lured by lower production costs as well as tax and other subsidies offered by foreign governments. In evaluating this incentive, one consideration is the economic value of domestic film and television production relative to the cost of the targeted tax benefits. Three types of non-residential structure investments that would otherwise be depreciated over 39 years could be depreciated over 15 years under this provision. These categories include certain leasehold improvements (improvements that are made pursuant to leasing use to a tenant), restaurant property, and retail improvements. Qualified leasehold improvements are those done pursuant to a lease at least three years after a building is constructed. They cannot involve any enlargement of the building, elevator, escalator, structural components benefitting a common area, or the internal framework of the building. Restaurant property improvements can qualify for a new or existing building as long as more than 50% of the space is devoted to the preparation and serving of meals. Retail property improvements must be made at least three years after the building was constructed and apply to the sale of goods, not services. Leasehold improvements were also eligible for bonus depreciation and a Section 179 deduction up to $250,000 (see discussions above) in 2014. The leasehold improvement and restaurant provisions were originally enacted in the American Jobs Creation Act of 2004 ( P.L. 108-357 ). Under this act, investments made after October 22, 2004, through 2007 were eligible for the 15-year depreciation. At that time both leasehold and restaurant improvements had to have been undertaken at least three years after the building was constructed. The Tax Extenders and Alternative Minimum Tax Relief Act of 2008 ( P.L. 110-343 ) extended these provisions through 2009, eliminated the three-year rule for restaurant property, and added the retail provision. It excluded all but leasehold improvements from bonus depreciation. The main argument against these provisions is that buildings, since 1981, have been depreciated as a composite investment with the aim of averaging out the treatment of different components to reflect the overall value of depreciation. Prior to this change, taxpayers were engaging in component depreciation, separating out various short-lived components (such as a roof) for shorter lives. Under the current composite treatment, if a taxpayer puts a roof on a building that roof is depreciated on the standard useful life, because the overall life allows for the slower depreciation of some components and the quicker depreciation of others (such as the building shell). Component depreciation, where different parts of the building were depreciated separately, was eliminated in the Economic Recovery Tax Act of 1981. By allowing the separation of specific components for shorter lives without increasing them for longer-lived components, this provision undermines composite depreciation. The argument for faster depreciation for leasehold improvements is that these are made based on the preferences of the leaseholder and may become obsolete with another leaseholder. The argument for retail and restaurant property is that they actually depreciate faster than other buildings, although this is not the position taken by the Bureau of Economic Analysis in their estimates of economic depreciation. An exception from the 39-year depreciation life for nonresidential structures exists for the theme and amusement park industry. Assets in this industry are assigned a recovery period of seven years. Historically, motorsports racing facilities have been included in this industry and also allowed a seven-year recovery period. However, ambiguities in the law led to questions about whether motorsports racing facilities were correctly categorized. When the Treasury reconsidered the appropriateness of this classification in 2004, Congress made the seven-year treatment mandatory through 2007 with the American Jobs Creation Act of 2004 ( P.L. 108-357 ). Since 2004, the provision has been extended as part of "tax extenders" legislation. Without this provision, motorsports racing facilities would be depreciated over the standard 39-year life. The tax authorities presumably estimated motorsports racing facilities to have slower depreciation rates than the seven-year life that applies to amusement park facilities. If so, this provision constitutes a subsidy to the auto racing industry that does not appear to have an obvious justification. Supporters argued that the provision preserves historical treatment and provides a stimulus to business. They also argued that the benefit helps make them more competitive with sports facilities that are often subsidized by state and local governments. The cost recovery period for horses is seven years, although race horses that begin training after age two have a three-year recovery period. Under the temporary provision, this three-year recovery period is extended to all race horses. In particular, all race horses placed in service after December 31, 2008, and before January 1, 2015, have a three-year recovery period as a result of the Food, Conservation, and Energy Act of 2008 ( P.L. 110-246 ). The industry claims that reducing the recovery period to three years more closely aligns the recovery period with the racing life of a horse. The IRS cost recovery period suggests a longer view. Some race horses continue in productive activity after their racing career through breeding, as well as having a residual value for resale. A Treasury study estimated, taking those uses into account, an overall economic life of nine years. This provision does not affect breeders who race their own horses, since they deduct the cost of breeding and thus have no basis in the horses. The provision generally benefits investors who purchase horses. The Omnibus Budget Reconciliation Act of 1993 ( P.L. 103-66 ) contained a provision allowing businesses on Indian reservations to be eligible for accelerated depreciation (through a reduction in the applicable recovery periods), as part of an effort to increase investment in Indian Reservations. Since its initial temporary enactment, this provision has regularly been extended as part of "tax extenders" legislation. Extending the provision might encourage additional investment on Indian Reservations. However, if the main target of these provisions is an improvement in the economic status of individuals currently living on Indian Reservations, it is not clear to what extent this tax subsidy will succeed in that objective, as these subsidies are not given directly to workers but instead are received by businesses. Capital subsidies may not ultimately benefit workers. It is possible that capital equipment subsidies may encourage more capital intensive businesses and make workers relatively worse off. In addition, workers would not benefit from higher wages resulting from an employer subsidy if the wage is determined by regulation (the minimum wage) that is set higher than the prevailing market wage. A regulated investment company (RIC) is an entity that meets the following conditions: (1) its income is generally earned from passive investments; (2) it distributes at least 90% of its income; and (3) it elects to be taxed as an RIC. Mutual funds are examples of RICs. A key feature of the RIC tax regime is the ability to deduct income distributed to its shareholders as dividends—effectively passing the tax forward to its shareholders who generally treat this income as ordinary income. However, certain dividends are subject to a gross-basis tax and withholding, with an exception. The American Jobs Creation Act of 2004 ( P.L. 108-357 ) contained a provision that exempts interest-related and short-term capital gains dividends from the U.S. income tax (and withholding) if they are paid to a foreign person and the income would not have been subject to the tax if it had been earned directly by a foreign person. The provision has subsequently been extended and modified multiple times. The provision was enacted as part of a broader effort to reform and simplify the tax code for businesses. The provision mitigates a disparity between the tax treatment of direct and indirect investment of foreign persons. In general, a foreign person or corporation is not taxed on U.S. source capital gains income unless certain conditions are met. However, if the income is from selling U.S. real property, the distribution is taxed at the same rates as a U.S. person under the Foreign Investment in Real Property Tax Act (FIRPTA). The FIRPTA rules, adopted in 1980, considered investment in real property to be income effectively connected to business which is generally subject to U.S. taxes. There is an exception if (1) the investment is made through a qualified investment entity; (2) the U.S. real property is regularly traded on an established U.S. securities market; and (3) the recipient foreign person or corporation did not hold more than 5% of that class of stock or beneficial interest within the one-year period ending on the date of distribution. The temporary exception was enacted in the American Jobs Creation Act of 2004 ( P.L. 108-357 ) and has since been extended several times as part of various "tax extenders" legislation. Most passive income of foreigners is generally not taxed by the United States because of exceptions in law or tax treaties, just as most passive income earned by U.S. citizens abroad is not taxed by foreign governments. Thus, the provision mitigates a disparity between the tax treatment of direct and indirect investment of foreign persons. The provision encourages investment in real property in the United States through eligible entities. The Consolidated Appropriations Act increases the 5% limit to 10% for Real Estate Investment Trusts, at a cost of $2.3 billion over 10 years. The research and experimentation credit (or the research credit) is 20% of the amount by which qualified research expenses exceed a base amount, with a minimum of 50% of current research expenses. The base amount is a past fixed amount of spending that increases over time with the increase in gross receipts. There is also an alternative credit of 14% for research in excess of 50% of the average qualified research over the past three years. Because this alternative credit has a base that increases with research expenditures of the firm, an additional dollar of spending in year one increases the base for future spending, which reduces the incentive to an estimated 7.9%. The incentive in the regular credit is also reduced from 20% to 10% through this mechanism if the credit's base is limited by the 50% of total spending minimum. The credit also has a basis adjustment so that credit amounts cannot also be deducted. For a corporation expensing these costs and at the top tax rate, the credit is reduced by 35%, so the effective credit rate is 13% (6.5% if the 50% minimum rule applies, and 5.1% if the alternative credit is used). There are two additional credits: 20% (in excess of a base) for university basic research that is not directed at commercial objectives and 20% (without a base) for contract energy research. Qualified research expenditures must be experimental, for the purpose of discovering information that is technological in nature and used in the development of a new or improved product, process, computer software technique, formula or invention that is to be leased, licensed, or used by the firm. These expenses include wages and salaries of researchers, supplies, costs of using computers, and from 65% to 100% of contract research. Equipment and structures are not eligible. Research must be conducted in the United States. The original research credit was adopted in the Economic Recovery Act of 1981 ( P.L. 97-34 ), at a 25% rate and without a basis adjustment. It was in excess of a base equal to the average of the past three years of research spending. As in the case of the current alternative credit, an additional dollar increased the base in the future but had a more powerful effect, reducing the effective credit to about 3%. The credit has been extended numerous times, lapsed for one year, and has been extended retroactively. It was also revised in a variety of ways, some of which remain and some of which were overtaken by other changes. Among significant changes the Tax Reform Act of 1986 ( P.L. 99-514 ) reduced the rate to 25%. The Technical and Miscellaneous Revenue Act of 1988 ( P.L. 100-647 ) added a partial (half) basis adjustment. A major change was made in the Omnibus Budget Reconciliation Act of 1989 ( P.L. 101-239 ), which created a three-year fixed base for the credit that was then adjusted by the growth in gross receipts, significantly increasing the effective credit. That legislation also added the full basis adjustment. A different alternative credit was added in the Small Business Job Protection Act of 1996 ( P.L. 104-188 ), but the current form of the alternative credit was added in Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ), so that for a time there were two alternatives. The earlier alternative credit was repealed in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ). Many economists agree that there is an economic justification for subsidizing research and development (R&D) because private firms are not able to capture the full return from an innovation, so that the total amount they invest is likely to fall short of the level of investment warranted by the social returns. This outcome is called a market failure because value of the benefits is greater than the cost for the last dollars spent and additional spending could yield benefits above the additional costs. Despite patents and secrecy, an innovation may provide information to others that can be exploited. Evidence suggests that the social return (the return to other firms and customers as well as to the original firm) is higher than the private return. The research credit, however, arguably is a blunt instrument to address this market failure since it does not vary based on the size of the spillover effect. Targeted grants are an alternative method of subsidizing research. Others suggest that some types of research (such as creating computer games) should not be subsidized. Additionally, the uncertainty over whether the credit will be extended likely reduces its effectiveness. The Consolidated Appropriations Act allows small businesses with receipts of $50 million or less to take the credit against payroll taxes. For more information, see CRS Report RL31181, Research Tax Credit: Current Law and Policy Issues for the 114th Congress , by [author name scrubbed]. Qualified railroad track maintenance expenditures paid or incurred in a taxable year by eligible taxpayers qualify for a 50% business tax credit. The credit is limited to $3,500 times the number of miles of railroad track owned or leased by an eligible taxpayer. Qualified railroad track maintenance expenditures are amounts, which may be either repairs or capitalized costs, spent to maintain railroad track (including roadbed, bridges, and related track structures) owned or leased as of January 1, 2005, by a Class II or Class III (regional or local) railroad. Eligible taxpayers are smaller (Class II or Class III) railroads and any person who transports property using these rail facilities or furnishes property or services to such a person. The taxpayer's basis in railroad track is reduced by the amount of the credit allowed (so that any deduction of cost or depreciation is only on the cost net of the credit). The credit cannot be carried back to years before 2005. The credit is allowed against the alternative minimum tax. The amount eligible is the gross expenditures, not taking into account reductions such as discounts or loan forgiveness. The provision was enacted in the American Jobs Creation Act of 2004 ( P.L. 108-357 ). The provision relating to discounts was added by the Tax Relief and Health Care Act ( P.L. 109-432 ). The credit was allowed against the alternative minimum tax by the Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ). This provision substantially lowers the cost of track maintenance for the qualifying short line (regional and local) railroads, with tax credits covering half the costs for those firms and individuals with sufficient tax liability. Class II and III railroads account for 31% of the nation's rail miles. These regional railroads are particularly important in providing transportation of agricultural products. While no rationale was provided when the credit was introduced, sponsors of earlier free-standing legislation and industry advocates indicated that the purpose was to encourage the rehabilitation, rather than the abandonment, of short-line railroads. These railroads were spun off in the deregulation of railroads in the early 1980s. Advocates also indicated that this service is threatened by heavier 286,000-pound cars that must be used to connect with longer rail lines. They also suggested that preserving these local lines will reduce local truck traffic. There was also some indication that a tax credit was thought to be more likely to be achieved than grants. The arguments stated by industry advocates and sponsors of the legislation are also echoed in assessments by the Federal Railroad Administration (FRA), which indicated the need for rehabilitation and improvement, especially to deal with heavier cars. The FRA also suggested that these firms have limited access to bank loans. In general, special subsidies to industries and activities tend to lead to inefficient investment allocation, since in a competitive economy businesses should earn enough to maintain their capital. Nevertheless it may be judged or considered desirable to subsidize rail transportation to reduce the congestion and pollution of highway traffic. At the same time, a tax credit may be less suited to remedy the problem than a direct grant since firms without sufficient tax liability cannot use the credit. Closely held corporations (100 or fewer shareholders) can elect to be taxed as S corporations, where income flows through to the individual owners as is the case with a partnership. Firms that first operate as a corporation (a C corporation), and switch to an S corporation, are taxed separately at the top corporate rate of 35% on gain that is attributable to the years when the corporation was a C corporation. This treatment applies for the first 10 years the firm is an S corporation. An individual income tax also applies to the gain, net of the corporate level tax. The extender provision reduces that period to five years. If a C corporation converts to a partnership or other non-corporate entity, the conversion triggers both a corporate-level and an individual-level tax on gains. Without the built-in gains requirement, C corporations converting to S corporations (where a taxable event is not triggered) could sell assets after conversion with a single level of tax on gains at a relatively low rate. This provision requires gains recognized over a period of years that are gains from the C corporation period to be taxed at a higher rate. The 10-year period was reduced to seven years by the American Recovery and Reinvestment Tax Act of 2009 ( P.L. 111-5 ). It was further reduced to five years by The Small Business Jobs Act of 2010 ( P.L. 111-240 ). The reduction to five years allows more gains to avoid this tax. It also increases the incentive to convert to S corporation status rather than partnership form. S corporations are limited to 100 shareholders. Therefore, this benefit accrues to businesses that are likely to be closely held. No specific rationale has been given for including this provision in a stimulus bill (ARRA). Firms are potentially subject to an alternative minimum tax (AMT) applied to a broader base, but with a lower rate for large corporations and high income business owners. Since the higher AMT tax may arise from timing shifts (because of the longer depreciation period under the AMT base), a credit is allowed for the excess of the AMT over regular tax if the regular tax exceeds the AMT tax in future years, up to the amount of the excess regular tax. Under the provision, firms may elect to forgo bonus depreciation as well as regular accelerated depreciation for purposes of calculating both AMT and regular income tax liability. In turn, firms can increase the amount of AMT credits by 20% of bonus depreciation. These credits are refundable, but are limited to the lesser of $30 million, or 6% of credit forwards generated before January 1, 2006, whichever is smaller. This election can provide firms that would not use bonus depreciation because of lack of tax liability some tax reductions. This provision was first enacted for both research and experimentation credits and AMT credits in the Housing and Economic Recovery Act of 2008 ( P.L. 110-289 ), shortly after bonus depreciation was enacted in mid-2008. It was subsequently extended, but the extension in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ) limited the provision to the AMT credit. It continued to be extended through 2014. This provision was part of the stimulus proposals enacted to combat the 2007-2009 recession. The provision does not directly affect marginal investment, but it does affect cash flow. Most forecasters believe this type of cash flow benefit has to have a minimal effect on economic stimulus. For firms that are in distress, however, cash flow may be more likely to contribute to spending. Most federal excise taxes do not apply in the United States Virgin Islands (USVI) and Puerto Rico (PR) or the other possessions. An exception, however, is a special excise tax on items produced in PR or the USVI and shipped to the United States. The tax was first imposed to ensure that producers in the possessions would not have a tax advantage over producers in the United States that are subject to excise taxes. In the case of rum that is produced in either the USVI or PR and sold in the United States, most of the revenue from the so-called equalization tax is returned ("covered over") by the federal government to the treasuries of PR and the USVI. The cover-over provisions for rum extend as far back as 1917 for PR and 1954 for the USVI. The scope of the cover-over was expanded by the Caribbean Basin Economic Recovery Act of 1983 ( P.L. 98-67 ) which provides that all revenue from federal excise taxes on rum imported into the United States from any source—including any foreign country—is remitted to the treasuries of PR and the USVI by a formula that is roughly based upon the shares of rum produced by the two possessions. The Deficit Reduction Act of 1984 ( P.L. 98-369 ) placed a cap on the rebate of excise taxes on rum and other distilled spirits based upon a $10.50 rate even as the federal tax rate on spirits rose to $12.50 and later $13.50 per proof-gallon. Subsequently, temporary increases in this limit have routinely been enacted. The justification for the return of the revenues was to provide for the welfare of the territories and return revenue generated from their products, since the territories could not participate in federal provisions benefitting the states. Controversy about the provision arose from the use of funds in the USVI to subsidize rum producers, which then led to increased subsidies by PR, which had previously had a limit on the share of the cover-over that could subsidize the rum industry. From the federal government's perspective, state and local incentives for industrial development are a redistribution of tax dollars from state and local governments to manufacturing firms without a net gain in national GDP. From this perspective, the incentives shift economic activity from one location in the United States to another. The intended improvement of social welfare (i.e., helping economically disadvantaged areas) is usually the justification for such policies in light of what many economists identify as the "zero-sum" nature of the incentives. The recent recession and related budget situation have elevated the interest in the rum cover-over program. From the perspective of U.S. taxpayers, some may question the efficacy of the rum cover-over, regardless of the historical precedent. Further, proponents of restrictions on the use of covered-over revenue have alluded to the possibility that Congress may reconsider the cover-over principle generally, possibly ending the program, if the recipients use the revenue for "unreasonable" subsidies. For more information, see CRS Report R41028, The Rum Excise Tax Cover-Over: Legislative History and Current Issues , by [author name scrubbed]. Under current law, gains on the sale of capital assets held longer than one year generally are taxed at rates lower than the rates for ordinary income. Individual taxpayers in the 10% and 15% tax brackets pay no tax on long-term capital gains, whereas long-term gains reported by most taxpayers in higher brackets are taxed at a fixed rate of 15%. For taxpayers in the 39.6% tax bracket, capital gains are taxed at a fixed rate of 20%. The Omnibus Budget Reconciliation Act of 1993 ( P.L. 103-66 ) contained a provision that allowed an exclusion from gross income of 50% of any gain from the sale or exchange of qualified small business stock (QSBS) issued after August 10, 1993. This provision is permanent. In the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ), an exclusion of 75% was allowed. The Small Business Jobs Act of 2010 ( P.L. 111-240 ) increased the exclusion to 100%. Subsequent extensions and modifications of the provision allow for a full exclusion of any gain for stock acquired after September 27, 2010, and before January 1, 2015. To be eligible, the taxpayer must acquire the stock at its original issue and hold it for a minimum of five years. There is an annual limit on the exclusion for gains on the sale of QSBS issued by the same firm: the exclusion cannot exceed the greater of $10 million, less any cumulative gain excluded by the taxpayer in previous tax years, or 10 times a taxpayer's adjusted basis in the stock. The original provision was adopted when capital gains were taxed as ordinary income. Part of the reason for adopting the increased exclusion was that the benefit was lessened or disappeared with the lower tax rates on capital gains. The special benefit for this small business stock appears to have been intended to facilitate the formation and growth of small firms organized as C corporations involved in developing new manufacturing technologies. The provision provides investors an incentive to acquire a sizable equity stake in small firms. An exclusion of part (or all) of the gain from small business stock allows for investors in firms of different sizes to face different effective tax rates. Along with the effect on equity, the provision may also reduce economic efficiency through its distortionary effect on the allocation of capital. The provision could, however, increase economic efficiency if it were to correct for capital market imperfections and allow for optimal small business formation and growth. The Section 199 domestic production activities deduction reduces tax rates on certain types of economic activity, primarily domestic manufacturing activities. Qualified domestic manufacturing activities qualify for a deduction equal to 9% of the lesser of taxable income derived from qualified production activities or taxable income. The effect of the deduction is to reduce the effective tax rate on income from qualified activities by 3.15 percentage points, from 35% to 31.85%. The Section 199 domestic production activities deduction is a permanent part of the Internal Revenue Code (IRC). When the Section 199 deduction was enacted as part of the American Jobs Creation Act of 2004 (AJCA; P.L. 108-357 ), the term "United States," as used for the purposes of determining eligible domestic activities, included the 50 states and the District of Columbia, but not U.S. possessions or territories. In 2006, as part of the Tax Relief and Healthcare Act ( P.L. 109-432 ), special rules that allowed Puerto Rico to be considered a part of the United States for the purposes of the Section 199 domestic production activities deduction were temporarily enacted. This temporary provision has recently been extended as part of "tax extenders" legislation. The U.S. tax code generally treats U.S. possessions as foreign countries, and Puerto Rico maintains an independent tax system. There are, however, many special rules interconnecting the Puerto Rican and U.S. tax systems. Before 1996, domestic corporations with business operations in the U.S. possessions could generally eliminate their U.S. tax liability on foreign-source income from operations in the possessions using the possessions tax credit. From 1996 through 2005, the Puerto Rico economic activity credit was available for domestic corporations with activities in Puerto Rico. Following the expiration of the possessions tax credit and Puerto Rico economic activity credit, companies with operations in Puerto Rico may find it more advantageous to structure as a controlled foreign corporation (CFC), thus benefitting from the option to defer U.S. tax on active income from those operations. Allowing the Section 199 production activities deduction to be claimed on manufacturing activities in Puerto Rico can be viewed as an effort to provide similar tax treatment to income from manufacturing activities taking place in Puerto Rico and from the rest of the United States. Absent this provision, U.S.-based manufacturers with operations in Puerto Rico, operating in flow-through form (e.g., a branch or partnership), would face a higher effective tax rate on manufacturing activities in Puerto Rico than other domestic manufacturing activities. Allowing the Section 199 deduction for activities in Puerto Rico essentially extends a tax benefit designed for domestic corporations to a possession that is generally treated as a foreign country for tax purposes. This raises the question of why this tax benefit has been provided to Puerto Rico but no other U.S. possessions. Concerns have also been raised that extending Section 199 to Puerto Rico would create an incentive for U.S. companies operating in Puerto Rico to adopt a bifurcated structure, with certain activities being undertaken by a CFC with other activities, specifically those that qualify for Section 199, being undertaken in a flow-through structure. Since other domestic businesses do not have this organizational flexibility, this would provide greater potential benefits to manufacturers with operations in Puerto Rico. This could be the intent of the policy, if extending Section 199 to businesses in Puerto Rico is intended, in part, to encourage additional manufacturing activity in Puerto Rico. For general information on the Section 199 deduction, see CRS Report R41988, The Section 199 Production Activities Deduction: Background and Analysis , by [author name scrubbed]. Tax-exempt organizations are required to pay taxes on unrelated business taxable income (UBTI), which is defined as income resulting from business activities that are unrelated to their charitable or tax-exempt purpose. Rents, royalties, interest, and annuities (passive income) are generally not considered business taxable income, except when such payments are received from a "controlled entity." The Pension Protection Act of 2006 ( P.L. 109-280 ) included special rules temporarily providing that certain payments, including rents and royalties received by a tax-exempt entity from a controlled entity or subsidiary, are not considered unrelated business income. Payments that are in excess of an arms-length price cannot be excluded from UBTI. Since being enacted, these rules have regularly been extended as part of "tax extenders" legislation. The purpose of including payments received from controlled entities in business taxable income is to prevent tax-exempt organizations from using separate but controlled entities to avoid unrelated business income taxes. For example, one concern is that a 501(c)(3) charitable organization could set up a controlled subsidiary to engage in a profitable activity (e.g., selling merchandise). If the charity had sold the merchandise itself, the income would be subject to the unrelated business income tax. To avoid the tax, the charity could set up a controlled subsidiary to sell the merchandise, which would pay royalties to the charity (lease the charity's logo, for example). The controlled subsidiary would deduct the royalty payments as a cost of doing business, and the charity would receive royalty income, which would not be considered unrelated business income. In this scenario, the charity would avoid paying tax on business activities. Treating rent, royalty, interest, and annuity payments from controlled organizations as UBTI while similar types of payments from third parties are not taxed may raise questions related to fairness. Tax-exempt entities could claim that as long as tax-exempt parents' dealings with controlled subsidiaries are done at arm's length, the scope for abuse should be limited. It is this logic that led to the enactment of the provision modifying the tax treatment of certain payments to controlling exempt organizations. | The Consolidated Appropriations Act of 2016 (P.L. 114-113), signed into law on December 18, 2015, made permanent, extended through 2019, or extended through 2016 some tax provisions that had expired at the end of 2014. Previous legislation had extended these provisions for a year (or in some cases two years) at a time. Several bills had been considered in the 114th Congress to make some provisions permanent, including the R&E tax credit (H.R. 880), expensing of investments (H.R. 636, S. 1399), and treatment of built-in gains for Subchapter S corporations (H.R. 636). The Senate Finance Committee had earlier reported legislation, the Tax Relief Extension Act of 2015 (S. 1946), that would retroactively extend expired tax provisions, for two years, through 2016. This report briefly summarizes and discusses the economic impact of selected business-related tax provisions that expired at the end of 2014. The list below indicates whether a provision was made permanent or extended through either 2016 or 2019. This report discusses Provisions that include three employer-related benefits: Work Opportunity Tax Credit (2019) Indian Employment Tax Credit (2016) Employer Wage Credit for Activated Military Reservists (permanent) Two international provisions that provide exceptions from the Subpart F rules: Look-Through Treatment of Payments between Related Controlled Foreign Corporations under the Foreign Personal Holding Company Rules (2019) Exceptions under Subpart F for Active Financing Income (permanent) Seven special business cost recovery provisions: Bonus Depreciation (2019, phased down from the current 50% share through 2017 to 40% in 2018 and 30% in 2019) Increase in Expensing to $500,000/$2,000,000 and Expansion of Definition of Section 179 Property (permanent) Special Expensing Rules for Certain Film and Television Productions (2016) 15-Year Straight-Line Depreciation Provisions (permanent) 7-Year Recovery Period for Motorsports Entertainment Complexes (2016) 3-Year Depreciation for Race Horses Two Years Old or Younger (2016) Accelerated Depreciation for Business Property on an Indian Reservation (2016) Two provisions related to regulated investment companies (RICs): Treatment of Certain Dividends of RICs (permanent) RIC Qualified Investment Entity Treatment under the Foreign Investment in Real Property Act (FIRPTA) (permanent, a separate provision expands this exemption for Real Estate Investment Trusts) Eight other business-related provisions: Tax Credit for Research and Experimentation Expenses (permanent) Credit for Certain Expenditures for Maintaining Railroad Tracks (2016) Reduction in S-Corporation Recognition Period for Built-In Gains (permanent) Election to Accelerate AMT Credits in Lieu of Additional First-Year Depreciation (2019) Temporary Increase in Limit on Cover Over of Rum Excise Tax Revenues to Puerto Rico and the Virgin Islands (2016) 100% Exclusion for Qualified Small Business Stock (permanent) Deduction Allowable with Respect to Income Attributable to Domestic Production Activities in Puerto Rico (2016) Modification of Tax Treatment of Certain Payments to Controlling Exempt Organizations (permanent) This report does not include provisions that in the past have been classified as charitable, community development, individual, or housing-related provisions. These provisions are included in the following CRS reports: CRS Report R43517, Recently Expired Charitable Tax Provisions ("Tax Extenders"): In Brief, by [author name scrubbed] and [author name scrubbed] CRS Report R43541, Recently Expired Community Assistance-Related Tax Provisions ("Tax Extenders"): In Brief, by [author name scrubbed] CRS Report R43688, Selected Recently Expired Individual Tax Provisions ("Tax Extenders"): In Brief, by [author name scrubbed] CRS Report R43449, Recently Expired Housing Related Tax Provisions ("Tax Extenders"): In Brief, by [author name scrubbed] |
The electrical grid in the United States comprises all of the power plants generating electricity, together with the transmission and distribution lines and systems that bring power to end-use customers. The "grid" also connects the many publicly and privately owned electric utility and power companies in different states and regions of the United States. However, with changes in federal law, regulatory changes, and the aging of the electric power infrastructure as drivers, the grid is changing from a largely patchwork system built to serve the needs of individual electric utility companies to essentially a national interconnected system, accommodating massive transfers of electrical energy among regions of the United States. The modernization of the grid to accommodate today's power flows, serve reliability needs, and meet future projected uses is leading to the incorporation of electronic intelligence capabilities for power control purposes and operations monitoring. The "Smart Grid" is the name given to this evolving intelligent electric power network, with digital technologies increasingly replacing analog devices, thus enabling Smart Grid hardware and software functions. The U.S. Department of Energy (DOE) describes the Smart Grid as "an intelligent electricity grid—one that uses digital communications technology, information systems, and automation to detect and react to local changes in usage, improve system operating efficiency, and, in turn, reduce operating costs while maintaining high system reliability." The Smart Grid is viewed as a modernization of the nation's power grid by the Edison Electric Institute (EEI), the trade association of the U.S. investor-owned utilities, which serve approximately 68% of U.S. electricity customers. EEI states that "[t]he modern grid will utilize telecommunications and information technology infrastructure to enhance the reliability and efficiency of the electric delivery system. The smart grid will meet the growing electricity needs of our digital economy more effectively." Smart Grid technologies are seen as necessary to handle the more complex power flows on the modern grid. The grid was originally designed by electric utilities to serve customers within the same state, and as shown in Figure 1 , electricity flowed in one direction from power plants to customers. Over time, the grid expanded as utilities formed power pools to interconnect their transmission systems to share power generation resources. In the closing decades of the last century, with the advent of competition in the electricity industry and power marketing and the development of regional transmission organizations serving multi-state areas, large regional power flows began to dominate transmission systems. Now, with increasing two-directional power flows (as illustrated in Figure 2 ), the grid is being augmented with new technologies to manage an evolving system with many potential points for electricity generation, demand response, and energy storage. DOE summarizes Smart Grid technologies as being able to "monitor, protect, and automatically optimize the operation of its interconnected elements, including central and distributed generation; transmission and distribution systems; commercial and industrial users; buildings; energy storage; electric vehicles; and thermostats, appliances, and consumer devices." These technologies will include both new and redesigned technologies, such as phasor measurement units and advanced meters, which are expected to increase electric system reliability, flexibility, and grid resiliency. Within the delivery portion of the electric grid, smart grid technology is enabling sizable improvements in distribution and transmission automation. Emerging technologies on the distribution grid (whether digital communications, sensors, control systems, digital "smart" meters, distributed energy resources, greater customer engagement, etc.) present both technical and policy challenges and opportunities for the delivery of energy services. According to DOE, there are likely to be many other opportunities to infuse advanced technology into key operating elements of the grid, and some of these technologies are described in Table 1 . In 2014, DOE issued a report assessing the status of Smart Grid deployment, concluding that the adoption of Smart Grid technologies (i.e., digital sensing, communications, and control technologies) was accelerating but at varying rates "depending largely on decision-making at utility, state, and local levels." DOE noted that the nation's electricity system is in the midst of "potentially transformative change," with challenges for Smart Grid deployment remaining with respect to the incorporation of grid-connected renewable and distributed energy sources and adaptability to current and future consumer-oriented applications. A study by the RAND Corporation discussed hurdles to Smart Grid adoption, noting that cost was among the primary barriers: Our findings suggest that, although the benefits of the smart grid are likely positive on net when viewed from a societal standpoint, several barriers to adoption (i.e., costs) can reduce the size of the overall benefits and create both winners and losers across households and other consumers. Technical solutions at the transmission and distribution levels (such as the increased ability to monitor the system for problems and incorporate intermittent renewable energy sources) can provide some benefits to both utilities and customers (through passed through savings), and the efficiency benefits associated with real-time pricing and demand response enabled by smart-grid technologies can be significant. In 2007, Congress passed the Energy Independence and Security Act (EISA; P.L. 110-140 ). EISA directed the National Institute of Standards and Technology (NIST) to develop a set of standards to help ensure the compatibility of Smart Grid technologies. The Federal Energy Regulatory Commission (FERC) was authorized to adopt a set of interoperability standards that NIST would develop based on recommendations of the Smart Grid Federal Advisory Committee (SGAC). In 2010, NIST developed a set of recommended interoperability standards and presented these to FERC. FERC did not adopt the recommended standards largely due to cybersecurity and other concerns expressed by industry and state stakeholders. The SGAC continues to work on developing and recommending standards that might meet interoperability and cybersecurity goals. Estimating costs for Smart Grid systems can be difficult given that digital technologies are constantly evolving and must be designed or augmented for cybersecurity. That said, two recent estimates illustrate a range of costs for building the Smart Grid. In 2011, the Electric Power Research Institute (EPRI) estimated that $338 billion to $476 billion over a 20-year period would be required for a "fully functioning Smart Grid." The estimate includes preliminary amounts of $82 billion to $90 billion for transmission systems and substations, $232 billion to $339 billion for distribution systems, and $24 billion to $46 billion for consumer systems. Previously, the Brattle Group had estimated in 2008 that the electric utility industry "will need to make a total infrastructure investment of $1.5 trillion to $2.0 trillion by 2030" in its "realistically achievable potential" (RAP) efficiency base case scenario. As part of that investment, Brattle identified $880 billion in transmission and distribution system modernization to integrate renewable energy and continue the installation of the Smart Grid. EPRI estimated that investments between $338 billion and $476 billion could result in net benefits between $1,294 billion and $2,028 billion for a benefit-to-cost ratio between 2.8 and 6.0. EPRI's study described the potential benefits of the Smart Grid as follows: Allows Direct Participation by Consumers. The Smart Grid consumer is informed, modifying the way they use and purchase electricity. They have choices, incentives, and disincentives. Accommodates all Generation and Storage Options. The Smart Grid accommodates all generation and storage options. Enables New Products, Services, and Markets. The Smart Grid enables a market system that provides cost-benefit tradeoffs to consumers by creating opportunities to bid for competing services. Provides Power Quality for the Digital Economy. The Smart Grid provides reliable power that is relatively interruption-free. Optimizes Asset Utilization and Operational Efficiently. The Smart Grid optimizes assets and operates efficiently. Anticipates and Responds to System Disturbances (Self-heal). The Smart Grid independently identifies and reacts to system disturbances and performs mitigation efforts to correct them. Operates Resiliently against Attack and Natural Disaster. The Smart Grid resists attacks on both the physical infrastructure (substations, poles, transformers, etc.) and the cyber-structure (markets, systems, software, communications). DOE stated in its 2014 Smart Grid status report that "[t]echnology costs and benefits are still being determined and will continue to constrain decisions for deployment." Another study in 2009 by KEMA, Inc., stated its view of the potential benefits of the Smart Grid as follows: [The] Smart Grid is universally understood to be the key enabling technology for the nation's ambitions for renewable energy development, electric vehicle adoption, and energy efficiency improvements.... [The] Smart Grid is to the electric energy sector what the Internet was to the communications sector and should be viewed and supported on that basis. Title XIII of EISA describes characteristics of the Smart Grid to help support the modernization of the nation's electricity system. EISA Section 1306 directed DOE to establish a Smart Grid Investment Grant (SGIG) program to "provide reimbursement of one-fifth (20 percent) of qualifying Smart Grid investments." The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ) increased potential federal matching for grants to ''up to one-half (50 percent)." From 2010 to 2015, ARRA provided $3.4 billion to fund 99 projects under the SGIG program resulting in $8 billion in grid modernization. The high cost of the Smart Grid is considered a primary barrier to its adoption. Smart Grid technologies and capabilities continue to be developed. The eventual costs of a Smart Grid build-out may therefore be influenced by new technologies that have yet to be deployed or current technologies that may be modified. In its 2014 study, DOE estimated historical and forecast investment in the Smart Grid as approximately $32.5 billion between 2008 and 2017, averaging $3.61 billion annually in the period. If this level of investment continues, this would put spending well below estimates made by EPRI and Brattle to fully build the Smart Grid by approximately 2030. If Congress chooses to, it could provide funding to help bridge the funding gap to accelerate adoption of the Smart Grid. The original EPRI and Brattle estimates consider Smart Grid investments to 2030 (over approximately 20 years). Using 20 years as the time frame for both estimates results in a range for annual expenditures ranging from $23.8 billion (using the higher estimate of $476 billion from EPRI) to $44 billion annually (using the Brattle estimate of $880 billion) in nominal dollars. Using DOE's estimate as a basis, a reasonable assumption may be that Smart Grid spending by the electricity industry of approximately $3.5 billion annually could continue through 2030 as part of modernization efforts. Under this scenario, total U.S. Smart Grid spending by the electricity industry could reach $46 billion for the 2018-2030 period (in nominal dollars). Estimating a range of investment for 2018 to 2030 to fully implement the Smart Grid could be accomplished in a number of ways. For example, deducting the $32.5 billion in DOE's historical and forecast spending in the period from 2008 to 2017 from the original EPRI and Brattle estimates results in remaining investment needs of $444 billion (EPRI) to $847 billion (Brattle). These amounts could be further reduced by deducting the $46 billion in assumed industry spending from 2018 to 2030 resulting in a range roughly between $400 billion (EPRI) and $800 billion (Brattle) (in nominal dollars). Alternatively, if the original EPRI and Brattle estimates are annualized over 20 years, then the remaining period from 2018 to 2030 could result in investment amounts ranging from $309 billion (EPRI) to $572 billion (Brattle). Deducting the $46 billion in assumed industry spending from 2018 to 2030 to arrive at a range roughly between $ 260 billion (EPRI) and $ 526 billion (Brattle) (in nominal dollars). Additionally, other estimates of costs to modernize electricity infrastructure range from $350 billion to $500 billion. Electric utility infrastructure mostly consists of the power plants generating electricity and the transmission and distribution lines and other equipment delivering electricity to customers. Electricity infrastructure equipment generally has a long lifespan, and modernization is an ongoing process. As of 2014, there were more than 3,300 electricity providers—comprised of 2,012 p ublicly-owned utilities (POUs), 187 i nvestor-owned utilities (IOUs), 876 c o-operative electric utilities (co-ops), 218 power marketers , and nine federal power agencies (FPAs)—serving almost 148 million customers. IOUs had about 52% of electric industry electricity sales in 2014, followed by power marketers with 20%, POUs with 15%, co-ops with 11%, and FPAs with 1%. Most electricity infrastructure is financed by private sector investment and is built by IOUs, POUs, and co-ops. The cost of capital can vary according to several factors, including by type of electricity provider. Different electricity providers have different sources of financing to fund electric infrastructure development and are subject to different oversight and regulatory requirements. POUs are nonprofit government entities that are member-owned and include local or municipal utilities, public utility districts and public power districts, state authorities, irrigation districts, and joint municipal action agencies. They obtain their financing for infrastructure from the sale of tax-free general obligation bonds and from revenue bonds secured by proceeds from the sale of electricity. New bond issues for public power in 2016 were expected to be $7 billion and are estimated to have averaged between $10 billion and $13 billion over the last 10 years. This would include all public power infrastructure investments, not just Smart Grid modernization. Electric power IOUs are privately owned, for-profit entities that operate in almost all U.S. states. Many IOUs provide services for the generation, transmission, and distribution of electricity. Capital expenditures by IOUs were estimated at $120.8 billion in 2016. DOE reports that Smart Grid investments by IOUs in electric delivery systems averaged $8.5 billion annually for transmission system upgrades and $17 billion annually for distribution system upgrades from 2003 to 2012 (in 2012 dollars). IOUs raise funds from stock and corporate bond issues and bank loans. Some IOUs operate in states with competitive regional markets for power generation, administered by a Regional Transmission Organization, subject to oversight from FERC over wholesale rates. Interstate transmission projects generally require rates for cost recovery from customers to be approved by FERC. Other IOUs are regulated by state commissions and must gain approval for infrastructure projects, as cost recovery is from customers through utility rates. IOU credit ratings have "steadily declined" over the past 30 years, and the cost of capital for IOU infrastructure projects can be higher than for POUs. Co-ops generally operate in rural areas with relatively low numbers of customers per transmission mile. They are incorporated under state laws and are governed by the organization's board of directors elected by the members. Co-ops are owned by the consumers they serve, and as nonprofit entities, they are required to provide electric service to their members at cost. The Rural Utilities Service (RUS) of the U.S. Department of Agriculture and the National Rural Utilities Cooperative Finance Corporation are important sources of debt financing for co-op infrastructure projects. The RUS electric program has a $5.5 billion annual loan budget authority for financing all electric infrastructure in rural areas, which would likely include Smart Grid technologies. FPAs are part of several U.S. government agencies: the Army Corps of Engineers, the Bureau of Indian Affairs and the Bureau of Reclamation under the Department of the Interior, the Power Marketing Administrations under the DOE (Bonneville, Southeastern, Southwestern, and Western), and the Tennessee Valley Authority (TVA). TVA is a self-financing government corporation, funding operations through electricity sales and bond financing. In order to meet its future capacity needs, fulfill its environmental responsibilities, and modernize its aging generation system, TVA uses integrated resource plans to map out infrastructure needs and costs. TVA's financial statement lists $2.1 billion in construction expenses for FY2017, which likely includes Smart Grid innovations as part of TVA's Grid Modernization program. Most electric utilities appear to view Smart Grid systems positively, even with the added concerns for cybersecurity. Cost of operations could be reduced and system resiliency improved by further integration of automated switches and sensors, even considering the cost of a more cybersecure environment. But with the potentially high costs of a formal transition, some see Smart Grid deployment continuing much the same as it has, with a gradual modernization of the system as older components are replaced. The potential for the Smart Grid to enable change may be most visibly exemplified in the potential to further integrate variable renewable resources at a lower cost. A wider deployment of a "fully functional" Smart Grid could see the renewable generation in one state or region supporting energy needs in another state or region. It is likely that all of the drivers and technologies—from microgrids, energy efficiency, smart appliances, and zero-net energy homes to electric vehicles (EVs) and energy storage—could see more effective deployment at lower cost from an integrated Smart Grid approach. Modernization of the grid has been accomplished to various degrees as new digital systems replace old analog components. Attempts to introduce some components of the Smart Grid have been deemed successful (e.g., the deployment of synchrophasors providing real-time information on system power conditions and the replacement of old inverters on solar photovoltaic systems with smart inverters capable of disconnecting from the grid during times of power interruption). But introduction of other components have been problematic. Smart meters have run into cost and performance issues and resistance to the technology (generally from concerns of some customers over potential health impacts of radio wave emissions). A number of near-term trends—including technology, environmental concerns, and consumer interest regulation—are leading to more industry investments in the Smart Grid. One area with the potential for increased electricity consumption is transportation. A growing number of automobile manufacturers are introducing plug-in EVs. Some utilities are considering whether EVs will be a longer term means for addressing increasing electricity demand and provide opportunities for vehicle-to-grid energy storage and related services. However, obstacles exist to the wider adoption of EVs, such as high cost and the limited range for EV travel. Building out a national infrastructure for EV charging—whether built by electric utilities or some other entity—might address some of this concern. Regulatory issues have also been raised as regards the sale of electricity from private owners of EV charging stations (including the question of whether a sale of electricity from an EV charging station is a "sale for resale" and, as such, subject to laws governing electric utilities). Some state jurisdictions have moved to prevent classification of EV charging stations as electric utilities. A recent United Nations study predicted an almost complete transition of U.S. automobiles from internal combustion engines to EVs by 2050, should that be a policy goal for carbon dioxide reduction. Recent events add credence to that study as several nations have looked at greenhouse gas emissions reduction and climate change goals. In 2017, Swedish car maker Volvo announced plans to phase out cars solely powered by internal combustion engines beginning around 2019, after which all vehicles Volvo produces will be electric-gas hybrids or EVs. General Motors made a similar announcement in October 2017, revealing its plans for 20 all-electric vehicle models to be sold globally by 2023. These moves come as China, Britain, and France have indicated or announced plans to ban gasoline-fueled vehicles in the next 20 years. The readiness of the grid to accept EVs is another issue. Some state and utility jurisdictions may be better able to accommodate the needs, and potentially benefit from energy storage attributes of EVs, than others. Charging and discharging of EV batteries will primarily affect electricity distribution systems where EVs will be parked or garaged, and this is where major infrastructure modifications may be needed. If EV charging takes place mostly at night, then electric utilities may potentially benefit if demand for power is increased. The ability of customers to take advantage of real-time pricing programs to reduce consumer cost and energy demand depends on the deployment of smart technologies and program approval by regulatory jurisdictions. Such programs have been shown to result in significant customer savings and are dependent on Smart Grid sensors, controls, and metering technologies. Grid modernization programs are likely to extend beyond the grid's operational needs and better enable customers to manage their energy choices. Grid modernization investments in reliability and adaptability, and price responsive demand, are the building blocks to a grid that best serves the customer needs for power. Power system investments, especially in the delivery system, consider financial and physical factors to reflect planning and operating considerations. Selecting from among alternatives should be based on the expected net benefits to the customer, which includes, but is not restricted to, current supply costs. Customers responding to prices based on marginal supply costs provide signals to what aspects of grid modernization are most essential, and many elements of grid modernization are needed to achieve the desired level of price response. This section discusses some of the major concerns expressed about Smart Grid adoption. While other potential issues exist, most electric utilities appear to view the intelligence and communications capabilities of Smart Grid systems positively with regard to the potential benefits of Smart Grid adoption discussed earlier in this report. Smart Grid modernization ensues as upgrades to electric power infrastructure are added. Substations are being automated with superior switching capabilities to enhance current flows and control of the grid. Devices called "phasor measurement units" are also being added to substations to make time- and location-specific measurements of transmission line voltage, current, and frequency (i.e., synchrophasor measurements made on the order of 30 times per second instead of data measured once every two to four seconds by current industrial control systems), providing better tools to improve power system reliability. While these new components may add to the ability to control power flows and enhance the efficiency of grid operations, they also potentially increase the susceptibility of the grid to cyberattack. Other aspects of Smart Grid systems, such as wireless and two-way communications through internet-connected devices, can also increase cybersecurity vulnerabilities. The potential for a major disruption or widespread damage to the nation's power system from a large-scale cyberattack has increased focus on the cybersecurity of the Smart Grid. The speed inherent in the Smart Grid's enabling digital technologies may also increase the chances of a successful cyberattack, potentially exceeding the ability of the defensive system and defenders to respond. Such scenarios may become more common as machine-to-machine interfaces enabled by artificial intelligence (AI) are being integrated into cyber defenses. However, AI systems learn from experience and may be of limited use in cybersecurity defenses. Unfortunately, machine learning will never be a silver bullet for cybersecurity compared to image recognition or natural language processing, two areas where machine learning is thriving. There will always be a person who tries to find issues in our systems and bypass them. Therefore, if we detect 90% attacks today, new methods will be invented tomorrow. To make things worse, hackers could also use machine learning to carry out their nefarious endeavors. Thus, one could envision a scenario where AI may be susceptible to intrusion feints, which may cause systems to protect against false or disguised cyberattacks, potentially allowing an attack focused along another path to continue. DOE and the electric utility industry continue to work cooperatively to address these and other cybersecurity concerns. As the Sector-Specific Agency ... for electrical infrastructure, DOE ensures unity of effort and serves as the day-to-day federal interface for the prioritization and coordination of activities to strengthen the security and resilience of critical infrastructure in the electricity subsector. Our ongoing collaboration with vendors, utility owners, and operators of the electricity and oil and natural gas sectors strengthens the cybersecurity of critical energy infrastructure against current and future threats. The sharing of information in applications used by the Smart Grid has raised questions on the safety of that information. Security of customer information in wireless applications and how personal data characteristics (such as customer usage information) can be protected are issues often mentioned in discussions of the Smart Grid and cybersecurity. Proposed solutions include encryption of data (with limited decryption for data checking), aggregation of data at high levels to mask individual usership, limiting the amount of data to just information needed for billing purposes, and real-time monitoring of these networks. But even these methods might not be enough to guard against a sophisticated intruder. The development of Smart Grid standards governing the collection and use of customer data may be a possible next step. If customers participate in demand-side management programs, then customer usage data can provide a wealth of information for a variety of programs for interruptible loads or time-of-use rates. But customer-specific data stored in home area networks (HANs)—or customer-specific data communicated between the HAN and distribution utility (or load aggregator)—must be secure to protect the privacy of information. EVs may offer another potential payload of data on customer movement and habits if data collected or stored is not restricted to electricity consumption for billing purposes. In the 115 th Congress, the "Distributed Energy Demonstration Act of 2017" ( S. 1874 ), introduced in September 2017, would direct the Secretary of Energy to establish demonstration grant programs related to the Smart Grid and distributed energy resource technologies that are likely dependent on its deployment. These technologies include energy generation technologies, demand response and energy efficiency resources, EVs and associated supply equipment and systems, and aggregations and integrated control systems, including virtual power plants, microgrids, and networks of microgrid cells. Federal matching funds would be provided for qualifying Smart Grid investments. S. 1874 would support the continued deployment of Smart Grid technologies but modify certain conditions of SGIG grants to ensure various consumer benefits. In the 114 th Congress, the "North American Energy Security and Infrastructure Act of 2015" ( H.R. 8 ) was passed by the House in December 2015. The legislation included provisions to capitalize on the enabling nature of the Smart Grid for new energy efficient technologies. The bill would have required DOE to develop an energy security plan and to report on smart meter security concerns. Further, the bill would have directed the Federal Trade Commission to consider Energy Guide labels on new products to state that the product features Smart Grid capability. The use and value of that feature would depend upon the Smart Grid capability of the utility system in which the product is installed and the active utilization of that feature by the customer. Using the product's Smart Grid capability on such a system could reduce the product's annual operation costs. | The electrical grid in the United States comprises all of the power plants generating electricity, together with the transmission and distribution lines and systems that bring power to end-use customers. The "grid" also connects the many publicly and privately owned electric utility and power companies in different states and regions of the United States. However, with changes in federal law, regulatory changes, and the aging of the electric power infrastructure as drivers, the grid is changing from a largely patchwork system built to serve the needs of individual electric utility companies to essentially a national interconnected system, accommodating massive transfers of electrical energy among regions of the United States. The modernization of the grid to accommodate today's more complex power flows, serve reliability needs, and meet future projected uses is leading to the incorporation of electronic intelligence capabilities for power control purposes and operations monitoring. The "Smart Grid" is the name given to this evolving intelligent electric power network. The U.S. Department of Energy (DOE) describes the Smart Grid as "an intelligent electricity grid—one that uses digital communications technology, information systems, and automation to detect and react to local changes in usage, improve system operating efficiency, and, in turn, reduce operating costs while maintaining high system reliability." In 2007, Congress passed the Energy Independence and Security Act (P.L. 110-140). Title XIII of the act described characteristics of the Smart Grid and directed DOE to establish a Smart Grid Investment Matching Grant (SGIG) program to help support the modernization of the nation's electricity system. In 2014, DOE concluded that the adoption of Smart Grid technologies was accelerating but at varying rates "depending largely on decision-making at utility, state, and local levels." DOE noted that the nation's electricity system is in the midst of "potentially transformative change," with challenges for Smart Grid deployment remaining with respect to grid-connected renewable and distributed energy sources and adaptability to current and future consumer-oriented applications. Costs of deploying the Smart Grid remains an issue, and study estimates vary. While some DOE programs have supported grid modernization, Congress has not explicitly appropriated funding for deployment of the Smart Grid since the American Recovery and Reinvestment Act of 2009 (P.L. 111-5). In its 2014 study, DOE estimated historical and forecast investment in the Smart Grid as approximately $32.5 billion between 2008 and 2017, averaging $3.61 billion annually in the period. If this level of investment remains constant, it would put spending well below levels the Electric Power Research Institute (in 2011) and the Brattle Group (in 2008) estimated were needed to fully build the Smart Grid by approximately 2030. From 2010 to 2015, $3.4 billion in SGIG grants supported 99 projects resulting in $8 billion in grid modernization. Congress could provide funding to help bridge the funding gap if it chooses to accelerate adoption of the Smart Grid. A number of near-term trends—including electric vehicles, environmental concerns, and the ability of customers to take advantage of real-time pricing programs to reduce consumer cost and energy demand—would benefit from investments in Smart Grid enabled technologies. While concerns such as cybersecurity and privacy exist, most electric utilities appear to view Smart Grid systems positively. Costs could be reduced and system resiliency improved by further integration of automated switches and sensors, even considering the cost of a more cybersecure environment. But with the potentially high costs of a formal transition, some see the deployment of the Smart Grid continuing much the same as it has, with a gradual modernization of the system as older components are replaced. |
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